Cooperation with chinese stakeholder seen as important to growing business

Ben Kruger, joint group chief executive of Standard Bank, is unperturbed about deepening the financial relationship with Chinese bank ICBC.

The largest of China's Big Four state-owned banks took a 20 percent stake in Africa's largest bank six years ago.

The $5.5 billion investment was not only the biggest in a South African bank but one of the largest in the country's corporate history.

"I don't think that matters (ICBC taking a bigger stake). Clearly, for the relationship we have, I don't think a larger stake would change things unless we became a subsidiary of theirs," he says.

However, some in the African financial community think the tie-up with ICBC has failed to live up to the bank's initial expectations.

According to the deal's critics, Standard Bank hoped to be major beneficiary of trade flows coming out of China, but they have not yet materialized.

Standard Bank initially even tried to estimate the value of the tie-up in its annual accounts.

In the first six months of 2011, this figure slumped to $38 million, down 19 percent from the same period the previous year. It no longer publishes the figure.

Kruger, 52, who was speaking in his expansive office in the bank's headquarters in Johannesburg, located on the site of a former gold mine, says initially putting a value on the relationship was about appeasing critics of the deal.

"At the time of doing the transaction, there were a lot of what I would call China skeptics and we agreed to show some profitability numbers out of the relationship," he says. "We did at the beginning but we don't do now. Quite frankly, it is an unusual thing to do. It is very difficult to define."

Kruger, who became joint chief executive earlier this month along with Sim Tshabalala after the retirement of previous CEO Jacko Maree, says whatever the numbers, it is an important strategic relationship for the bank.

"For us, we really see this as trying to build a very important business relationship with people who have a very deep insight into China," he says.

"For us Westerners, we could never dream to have that. We can also provide access into Africa for Chinese corporates and state-owned enterprises."

The relationship with the Chinese continues to deepen. In December last year, ICBC acquired for $600 million 80 percent of Standard Bank's Argentina operations. ICBC is currently finalizing another $600 million purchase, this time for 60 percent of Standard Bank's UK commodities and foreign exchange business.

Kruger says this is part of the bank making a strategic decision to focus now on its core Africa market, rather than being a more broader emerging markets bank. Standard Bank also recently sold Russian operations.

"We have decided we should focus on Africa rather than other emerging markets but with one exception. We want to maintain the link with China because we think that China is the future capital provider of the world as well as obviously the major economy."

He says selling the Argentine assets to ICBC fitted in with the Chinese bank wanting to build a stronger position in the Latin American market.

"With ICBC being a really strong retail bank, this will really be right up their street. They had a great interest in doing it and I should imagine they will be a 100 percent shareholder once they have finally settled," Kruger says.

Kruger, who is of German descent, was born in Heidelberg, a town in South Africa's Western Cape province.

He joined Standard Bank in 1985 after doing a commerce degree at Pretoria University.

The South African financier, who has an AMP (Advanced Management Program) degree from Harvard University, has held a number of senior positions at the bank and was deputy group chief executive before his recent appointment.

Kruger, softly spoken despite being an imposing figure, insists the bank has transformed over the past 30 years as the volume of business has grown.

"When I joined the bank the corporate investment bank had fewer than 200 people and made a profit of 3 million rand. In 2008 it made 8 billion rand. So when I think of that it has been a real rollercoaster," he says.

The bank boss says the deal with ICBC six years ago came at exactly the right time given the crisis that was to engulf the banking system worldwide.

"If you take a look back at what happened in 2008 with the financial crisis, the pure introduction of capital building up to the financial crisis was clearly a massive benefit," he says.

As a result of the deal, Standard Bank also has an office in Beijing on the opposite side of the road from its Chinese partner's headquarters. It employs 40 staff there.

"The main focus for us there is cross-border M&A (mergers and acquisitions) activity so when people in China make investments such as in mining in the Democratic Republic of Congo or anywhere in Africa, we have people who can jointly work with the companies in Beijing," he says.

Kruger says the China presence is about "leveraging" the relationship with ICBC and not about competing head on with Chinese banks, which he says are some of the most technologically advanced in the world.

"If you look at the efficiency of the Chinese banks, they are quite unique by world standards. If you tried to build infrastructure to compete with them deploying Western technology you would have no chance."

Standard Bank, which operates in 17 African countries, might be the largest African bank but it was ranked just the 112th in the world last year by The Banker magazine.

Kruger, however, says that because of the financial crisis the balance of power in banking is shifting.

"If you take Australia, for example, the market capitalization of their banks is now bigger than all the European banks put together. The market capitalization of all the South African banks is now bigger than those in Germany," he says.

Kruger says Standard Bank wants to work with both Chinese state-owned and private companies in developing their businesses across the African continent. "It is extremely important for us. We have Chinese-speaking people in all of our countries in Africa and that is not just one. The moment you introduce Chinese people, your franchise in any of these countries just changes dramatically."

He says it cannot be overestimated how many Chinese businesses are now entrenched in Africa.

"As an example, we built a new head office for our business in Lusaka and the three leading construction companies who worked on it were all Chinese and they have been in Lusaka for 14, 12 and 10 years," he says.

Kruger says he is confident about the long-term potential of Africa and is dismissive of critics who say the growth over the past five years is just a commodities-driven bubble fueled by the demand for resources from countries like China.

"Clearly resources is a major driver but Africa has a very large and young population and a relatively cheap workforce by world standards. The rate of urbanization is extraordinary. If Africa only gets it half right, it will make significant progress," he says.

He believes one of the biggest opportunities remains financial services, citing a recent McKinsey report which pointed out that 80 percent of Africans had no access to banking at all. "Financial services have largely been under-deployed in Africa. If you can get greater financial participation in Africa, the potential is enormous."

Contact the writers at andrewmoody@chinadaily.com.cn and

zhaoyanrong@chinadaily.com.cn

(China Daily 03/29/2013 page6)