As an old Chinese saying goes, if lovers' families are socially and economically well-matched, they have a better chance of enjoying a harmonious marriage.

But if they are ill-matched, can a marriage turn out to be happy?

The answer is "yes" for Nanchong City Commercial Bank (NCCB); and triply so with DEG, SIDT and SBFIC as its partners.

Don't be surprised at so many grooms at the wedding. NCCB, the charming bride, has won the favor of three German suitors as well as their generous dowry!

The "wedding" was on July 8, with Tang Shuangning, vice president of the China Banking Regulatory Committee, as the chief.

German Investment and Development Bank (DEG), a subsidiary of Germany's leading bank KFW, poured 30 million yuan (US$3.61 million) into NCCB for a 10-per-cent stake.

SIDT, a subsidiary of German Savings Bank, got 3.3 per cent by injecting 10 million yuan (US$1.23 million) while SBFIC promised to render regular and long-term technical assistance.

However,it wasn't love' at first sight.

"Where is Nanchong?" Michael Bornmann, a DEG board member, asked when he first heard the proposal from NCCB.

With a China map in hand, Bornmann finally located the small town in Southwest China's Sichuan Province.

But the geographic disadvantage and small size of the Chinese bank didn't turn DEG away. After several rounds of due diligence, DEG found that it was one of the smaller but best performing city commercial banks in China.

"NCCB has a clean balance sheet compared with many other city commercial banks and it is constantly increasing its profit margin and decreasing its non-performing loans (NPL)," says Bornmann in an exclusive interview with China Business Weekly.

Established in 2002, NCCB has a sound capital adequacy ratio and a low NPL rate. After the investment, its capital adequacy ratio will skyrocket from 8.04 to over 20, with the NPL rate at 3.5 per cent.

"Moreover, it has a rational share structure and quality assets," Bornmann adds. "And its open-minded and enterprising top management is most appealing to us."

State shares in the bank account for less than 25 per cent, and shares of a single investor are limited to 10 per cent. "Such a share structure will make it easier for the bank to introduce new shareholders," says Bornmann.

Besides, the bank supports nearly 4,000 small- and medium-sized companies in the Nanchong region by providing payment services, deposit products and loans, which allies with DEG's tenets.

"It is our aim to support the building of young, promising banking institutions and thereby render a contribution to the development of the financial sector, including regions outside the prosperous centres," explains Bornmann.

Huang Guangwei, chairman and chief executive officer of NCCB, also believes in the same philosophy boosting the private sector in developing areas and that brought them together.

For DEG, the stake in NCCB is just the beginning it is discussing similar participation with several city commercial banks.

"DEG is prepared to add more value in the emerging city commercial bank sector by bringing in our own know-how as well as well-known partners like our parent company KfW or German commercial banking expertise," says Bornmann. "We hope that we can create a network among our invested banks so that they can benefit from each other's strengths and experience."

DEG's focus in this project is on product design, marketing, organizational development and risk management.

"Through our active participation in board matters, the corporate governance of the bank will be further improved," says Bornmann. "And DEG will have an experienced executive with NCCB in the next three years."

And that is the very thing Huang Guangwei is looking for.

"We were in bad need of the top-notch management expertise, and with DEG, we can improve our corporate governance and risk management," says Huang.

In fact, the bank had a clear development strategy from the beginning.

"From the very day our bank was set up, we were well aware of the situation we faced: integration with international practices and the imminent restructuring of the bank," Huang says. "To gain the upper hand amid increasingly fierce competition, why not seek a foreign investor as early as possible?"

As Tang Shuangning points out, the significance of the agreement is that NCCB is a showcase for the other 112 city commercial banks in China.

If other banks also want to win the favour of foreign investors, they would do well to follow the suggestions from Bornmann and Huang Guangwei.

"First of all, the banks have to be open and willing to take in foreign investors," stresses Bornmann.

"And they should work on their transparency by inviting a renowned international auditing company to check their books and files just as NCCB did.

"Moreover, they should reduce affiliated transactions, give credit on a market-oriented basis and establish sound credit risk management," says Bornmann.

When foreign investors find that the bank's functioning is transparent, governed by international practices and audited by well-known firms, they will be more willing to invest, Bornmann adds.

As far as Huang Guangwei is concerned: there is no administrative interference from the local government.

"DEG's investment is purely on market terms," says Huang. "And we really appreciate the understanding from our open-minded local government."

(China Daily 07/25/2005 page4)