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ON A day when trade unions are taking Standard Bank Group [JSE:SBK] to task for unfair labour practices following retrenchments, the group's Chinese shareholder Industrial & Commercial Bank of China (ICBC) has announced it will be raising $6.8bn in a rights offer to shore up its capital.
ICBC holds a 20% stake in South Africa's biggest banking group.
At a recent press conference, Standard Bank CEO Jacko Maree downplayed the involvement of ICBC in the cost-cutting exercise which is likely to affect about 1 500 permanent jobs in the bank.
Instead, these retrenchments were blamed on a bleak economic outlook and increased competition from local and international players.
Analysts have been critical of South African banks' growth prospects. Deutsche Bank recently noted that from an emerging market perspective, it preferred banks in Qatar, Russia and Poland.
One of the challenges Deutsche noted is that South Africa's major banking groups have failed to penetrate the low end of the market, particularly on the mortgage front.
The return on equity (ROE) at Standard Bank has been steadily slipping as competition hots up and the lending and regulatory environments become tougher. ROE at Standard Bank is now about 13.5%, while ICBC is delivering about 20%.
In a bank, ROE can be boosted either by writing more profitable business, or by cutting costs.
An issue which slipped under the radar was the appointment of a new ICBC man at Standard Bank just before the announcement of retrenchments.
Hongli Zhang replaced the 60-year-old Kaisheng Yang as deputy chairperson of Standard Bank.
Yang had been the original appointment when the Chinese group purchased its stake in 2007.
Zhang, deputy head of bank at ICBC, is clearly a fast climber and is tipped for bigger things. At 45, he is one of the younger members of the ICBC board and has the direct ear of the top brass.
While Maree and co may downplay the role ICBC is playing in the most recent cost-cutting exercise, it is clear that the Chinese now want to see their investment start to sweat its assets.
- Fin24
* The writer holds ordinary and preference shares in Standard Bank.
