Chinese Mercantile Bank Profits Seen To Triple

Mercantile's profits are expected to more than triple in 1996, with bank president Huang Mingxiang forecasting after-tax profits to surge to $7.5 million in 1996 compared with $2.43 million in 1995 and $1.27 million in 1994.

"There is less government intervention," Huang said in an interview late on Thursday at the bank's headquarters on the 23rd floor of a skyscraper in the southern boomtown of Shenzhen.

Major state banks operate like women with bound feet -- the central bank imposes an annual credit quota and requires them to give lending priority to state firms, many in the red.

"The tighter the funds, the better it is for us," Huang said. "We have more customers to choose from...and can select the good ones." Limitations on lending by Mercantile are subject to availability of funds, or no more than 75 percent of deposits.

 

Mercantile plans to increase its capital to 1.0 billion yuan ($120 million) in 1997 from the present $34.49 million and to 10.0 billion yuan ($1.2 billion) by the end of 1998, Huang said.

Pending approval by its board and by Chinese securities authorities, the bank plans to list in Shenzhen and to issue negotiable instruments abroad each year, Huang said. Competition is tough in the banking world in the Special Economic Zone of Shenzhen, a showcase of what Beijing calls its economic miracle with Chinese characteristics. The four state giants -- the Bank of China, Industrial and Commercial Bank of China (ICBC), the Agricultural Bank and the Contruction Bank -- all have a presence in Shenzhen.

Nine regional Chinese banks, 13 Chinese commercial banks and 25 foreign financial institutions also have branches in town. As one of China's six Sino-foreign joint venture banks, Mercantile has carved out a niche for itself that is difficult for Chinese or foreign financial institutions to match. Mercantile can engage in renminbi business -- which wholly foreign-owned banks are barred from doing -- as an agent of ICBC, one of Mercantile's three shareholders, Huang said.

The Hong Kong Chinese Bank Ltd has a 40 percent stake in Mercantile, while ICBC and China Travel Service (Holdings) Hong Kong Ltd each hold 30 percent. Unlike China's regional banks, Mercantile is not restricted to operating only in cities where it has a branch, although it has applied to open a branch in Shanghai and another in southern Guangzhou.

Mercantile has some flexibility on the interest it charges borrowers and pays depositors, with a range of about 10 percent above or below levels set by the central bank, Huang said.