Money

ABC banks on boom in rural economy

By Wang Bo (China Daily)
Updated: 2010-10-27 10:40

CHONGQING - The fortunes of Agricultural Bank of China (ABC) - the country's biggest rural lender - are becoming increasingly associated with the booming county-level economy of inland China.

That is because economic growth in rural areas is gaining momentum as accelerating urbanization sees villages expand to become towns, and towns become cities.

That phenomenon was part of the sales pitch the bank employed to attract investors to its record-breaking IPO in July. It also means the lender is better-positioned to achieve profit growth.

While other banks are flocking to cities to tap into the well-developed urban economies, ABC is testing a commercially viable model for its rural business that could shield the lender from fierce competition in the cities.

However, before the bank's dual listing in Shanghai and Hong Kong, skeptics believed that its focus on the poorer parts of China might result in lower profitability and a higher bad-loan ratio than its local peers.

"Judging from our experience, supporting rural development is feasible under business principles," said Feng Jianlong, head of ABC's Chongqing branch.

ABC is now the largest and most profitable bank in Chongqing - Southwest China's economic hub - and the primary test area for the country's urban and rural integration, thanks to its investment in local infrastructure and industrial upgrading.

"We believe today's farmers could turn into golden clients in the future," Feng said. "The rural economy in eastern China was backward 10 years ago, but that has changed fundamentally and the region has now become the focus of banking competition."

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"The county-level economy in inland China is likely to take off in the coming decade," he said.

ABC - the country's third largest lender by assets - now has one-third of its profit, 40 percent of its deposits and 29 percent of its loans coming from rural business, and expects the proportion will increase in the future.

The lender plans to extend more mortgage loans and funnel extra credit into the property sector in Chongqing.

Meanwhile, ABC will also benefit from the local government's large-scale affordable housing project to provide homes for rural residents who have moved to Chongqing for work.

ABC's business development in the area is an example of how banks can benefit from China's drive to urbanization, a major transition that might sustain the country's robust growth momentum during the next decade.

China is drafting a development plan for the next five years, in which pursuing more balanced growth between urban and rural areas - as well as between the east coast and the western region - will be a major focus.

ABC is not the only lender seeking to prosper from rural development. Rivals, including China Construction Bank and Bank of China, are planning to establish rural bank ventures with their foreign partners to tap the fast-growing market.