ICBC Deal May Signal More Chinese Bank Expansion in U.S.

The Federal Reserve's recent approval of the acquisition of the U.S. subsidiary of Hong Kong-based Bank of East Asia by the Chinese state-controlled Industrial and Commercial Bank of China (ICBC) likely signals the start of a bigger push by Chinese banks into the U.S. market. Fitch Ratings sees the potential for additional acquisitions by Chinese banks to alter the competitive landscape for U.S.-based banks that primarily serve the Asian American community.

The Fed's approval of the Bank of East Asia acquisition, which was small relative to ICBC's total asset base, is significant in that it represents the first U.S. regulatory approval of an acquisition of a U.S.-based bank with an established branch network.

We currently rate Cathay General Bancorp (CATY) and East West Bancorp (EW), the two largest U.S.-based banks catering specifically to the Asian American community. Both banks have benefited recently from robust loan demand. The potential emergence of ICBC or another large Chinese-based bank could alter the competitive landscape for these two banks if the acquirer was to aggressively pursue market share in the U.S. through more lenient underwriting terms or more aggressive pricing.

We believe CATY and EW would be natural targets for large Chinese banks given their large presence in the Asian American communities where Chinese banks would benefit most from deposit and loan growth.

In the short term, competitive conditions in this segment of the U.S. banking industry are not expected to change materially given the small relative size of the deal. However, the Fed approval has removed a primary obstacle to M&A that may usher in more significant changes in the competitive profiles of Asian American-oriented banks.

ICBC's acquisition has no impact on the ratings of U.S.-based banks over the near term. Still, we will remain focused on the potential for increased acquisition activity by large Chinese banks to alter competitive dynamics in the niche Asian American banking segment.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.