Bank of Communications (BoCom), the nation's fifth largest lender, will buy a 10 percent stake in a rural bank in the nation's east.

BoCom, partly owned by Europe's biggest lender HSBC, signed a strategic partnership agreement with Changshu Rural Commercial Bank yesterday, agreeing to invest 380 million yuan in cash into the smaller lender, headquartered in Jiangsu Province.

BoCom, which will be Changshu Rural's largest shareholder after the deal, is joining foreign banks like HSBC that are cashing in on the nation's 737 million rural dwellers.

Chinese President Hu Jintao has made boosting countryside incomes a priority, promoting loans to farmers and raising public works spending in rural areas.

"The stake purchase will not only bring capital to China's rural areas, but also products, technology and management," BoCom said in a statement yesterday.

Under the deal, the Shanghai-based bank will provide more diversified and tailor-made financial products to underdeveloped regions, while Changshu Rural will get access to BoCom's resources.

BoCom will help its partner improve its administrative structure, enhance risk management and standardize its business, the Shanghai-based lender said. It will also send personnel and help train Changshu Rural employees to improve service, market competitiveness and risk control.

Changshu Rural opened in November 2001. It had 28.86 billion yuan in total assets at the end of last year. It has a capital adequacy ratio of 14.16 percent and a non-performing loan rate of 1.24 percent.

BoCom, the smallest of the nation's five State-controlled banks, is expanding its business scope to fend off increasing competition from local and foreign rivals after the full opening of China's financial sector in late 2006.

"The latest move could be interpreted as the bank's attempt to strengthen its strategic position in the Yangtze River Delta and to prepare for more mergers and acquisitions," said Jin Lin, an analyst with Everbright Securities Co.

He said the purchase would give BoCom insight into the rural financial market and its opportunities.

BoCom teamed up with Shenzhen-based Jinrui Futures Co earlier this month to help investors tap gold futures, a bid to boost its fee-based income.

It also set up a 2-billion-yuan leasing firm in Shanghai last month to expand services under its financial holding company. Bank of Communications Financial Leasing Co will offer leasing services to industries including aviation, shipping, manufacturing and infrastructure.

(China Daily January 17, 2008)