China Development Financial Holding Corp (CDF, 中華開發金控) yesterday said that it would continue to shift capital allocation toward the company’s commercial banking arm as part of its business transformation.
After completing the transformation of China Development Industrial Bank (CDIB, 開發工銀) into CDIB Capital Group (中華開發資本) last month, the company is focusing on KGI Bank (凱基銀行), its commercial banking unit and primary earnings driver.
However, the company said that it is facing the challenge of utilizing a considerable amount of idle capital and cash proceeds, as the newly formed CDIB Capital Group continues asset monetization efforts on legacy investment portfolios from the time it was an industrial bank.
Before the end of this month the parent company’s cash position should increase by about NT$20 billion (US$663.3 million), China Development Financial spokesman Eddy Chang (張立人) told an investors’ conference.
The company’s cash position stood at NT$27 billion at the end of last year, Chang said, adding that he expects NT$5 billion to NT$10 billion in followup monetization efforts that would result in more than NT$1 billion in annual cash influx in the next two to three years.
“We are flush with cash, and while the situation has led to much higher reserve and capital adequacy ratios compared with our peers, our return on equity performance is lower than the industry average and has a lot of room for improvement,” he said.
The company is looking for options to utilize the cash proceeds through acquisitions and by establishing new investment business platforms, he added, without providing further details.
He also declined to comment on the possibility of expanding into life insurance.
At present, China Development Financial allocates 50 percent of its capital to its commercial banking unit;, 28 percent to its brokerage arm, KGI Securities (凱基證券); and 22 percent to the newly formed CDIB Capital Group, company data showed.
Meanwhile, CDIB Capital Group will focus on the “China Plus” strategy, which taps into inbound and outbound investments to capitalize on rising middle-class consumption there, which are expected to drive up demand for retail and services, as well as value-added manufacturing.
In addition to helping Chinese companies expand into global markets, the strategy aims to assist foreign companies that are looking to gain a foothold in the country, China Development Financial said.
KGI Bank is also awaiting regulatory approval to acquire stakes in China’s Bank of Jiangsu (江蘇銀行) as part of preparations to establish a consumer financing joint venture.
As Chinese regulators crack down on the country’s chaotic peer-to-peer lending market, it is hoped that a consumer financing business backed by a bank would better meet elevated compliance requirements, Chang said.
China Development Financial reported that net income last quarter rose 64.55 percent annually to NT$1.85 billion.
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