Scotiabank increases stake in Chinese Xian City Commercial Bank

The Bank of Nova Scotia (TSX:BNS) has increased its stake in a Chinese bank to 14.8 per cent, with plans to eventually hold one-fifth of the financial institution.
Scotiabank said Wednesday it will invest a total of $162 million to increase its ownership of Xi'an City Commercial Bank from its current stake of 1.4 per cent to a total of 20 per cent, the maximum stake foreign banks are allowed to hold under Chinese regulations.
"The China market has strong fundamentals with very good long-term growth prospects," said Rob Pitfield, group head of international banking at Scotiabank.
"Scotiabank's increased investment in Xi'an City Commercial Bank is a great opportunity for us to capitalize on the strength of the China market and on the strong relationship that we have already built with XACB."
The move by Scotiabank to become once of XACB's major shareholders could be part of a strategy by Canada's most international bank to increase its presence in China, said Colin Ciezynski, an analyst at CMC Markets Canada.
"That they're increasing their stake certainly suggests that they're happy with the investment, and they're in a major city, but they're not on the coast, they're in western China, which suggests that they're maybe getting their feet wet and learning about the country and how to do business there before they start moving into larger markets," Ciezynski said.
The analyst added that the move by Scotiabank is part of a "definite trend" among Canadian financial institutions to move into the growing Chinese market.
Manulife Financial (TSX:MFC), Canada's largest insurance company, announced earlier this month that its Manulife-Sinochem Life Insurance Co. joint venture received approval to operate in the city of Jinhua and was given licences for five satellite offices in three provinces. The company is now licensed in 39 Chinese cities.
And, in mid-November, Manulife announced it was growing its Chinese operations with a deal to buy Fortis Bank's 49 per cent interest in China-based ABN AMRO TEDA Fund Management Co. for US$156 million.
Other major Canadian banks, including CIBC (TSX:CM), Bank of Montreal (TSX:BMO) and Royal Bank (TSX:RY) have operations in China as well.
Scotiabank's Chinese operations include a representative office in Beijing with branches in Shanghai, Guangzhou and Chongqing, plus full service branches in Taipei and Hong Kong. The bank also offers precious metal loan and risk management services in China through Scotia Mocatta.
Scotiabank is also waiting for final regulatory approval to acquire a 33 per cent stake in a fund management company which it will jointly operate with the Bank of Beijing.
The bank said Wednesday it had already acquired an additional 13.2 per cent interest in XACB and is awaiting regulatory approval to increase its holding to 18.1 per cent.
It will then acquire additional shares from private sources to reach a total combined stake of approximately 20 per cent.
The acquisition makes Scotiabank one of XACB's major shareholders, with two representatives on the Chinese bank's board of directors and three representatives within the senior management team.
"Xi'an City Commercial Bank is a solid financial institution, with a strong presence as a leading bank in the city of Xi'an, a major city in western China with over eight million people," said Michele Kwok, Scotiabank's senior vice-president, Asia Pacific and Middle East.
"We are confident that this additional investment will enable Scotiabank to continue to add strategic value that will generate strong financial returns."
XACB is one of China's leading city commercial banks providing a full range of personal and commercial banking services in Shaanxi province. It currently serves 1.2 million customers with 2,200 staff across its 113 branches.
Scotiabank operates in 11 countries in the Asia-Pacific region. It has been in China since 1982. Scotiabank Group serves 14.6 million customers in some 50 countries worldwide.
Shares in Scotiabank gained 19 cents to $49.63 in afternoon trading on the Toronto Stock Exchange.