RBS poised to spend up to £2bn on Bank of China stake

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Royal Bank of Scotland is poised to acquire a strategic stake worth up to $4bn (£2.1bn) in Bank of China, fulfilling its long-held ambition to expand in the rapidly growing Asian markets.

Royal Bank of Scotland is poised to acquire a strategic stake worth up to $4bn (£2.1bn) in Bank of China, fulfilling its long-held ambition to expand in the rapidly growing Asian markets.

Britain's second-largest bank is vying with nine other Western lenders to take a stake in the Chinese company, the country's top foreign-exchange bank, ahead of its flotation.

RBS is thought to be eyeing a 15 to 20 per cent stake in Bank of China, which would cost it between $3bn and $4bn, the biggest overseas acquisition in a Chinese lender. Under Chinese law, foreign investors can own up to 25 per cent of a Chinese bank, with a single investor holding no more than 20 per cent.

Bank of China, the country's second-largest bank, confirmed it was in talks with RBS and other banks, but stressed that "nothing has been finalised".

A spokesman dismissed reports that RBS was close to an agreement and suggestions that its stake would be at the upper end. That could mean that RBS will have to settle for a smaller share of the company alongside other Western banks.

The spokesman said the bank was likely to end up with three or four strategic investors. A decision on selling the stakes is expected by June.

Other banks interested in taking a minority stake in the Chinese bank include Bank of America, Deutsche Bank, UBS and seven other foreign banks, Bank of China said last week. Talks with RBS and UBS, which is thought to want a 2 per cent stake worth $300m, are believed to be the most advanced.

This month, Kenneth Lewis, chief executive of Bank of America, was reported as saying that the bank would pay $1bn to $2bn for a stake in a Chinese bank as part of a strategic partnership.

Sir Fred Goodwin, the chief executive of RBS, is keen to expand in Asia, where the Edinburgh-based bank has only a small presence. He has ruled out large takeovers this year and said the bank favoured joint ventures for certain products in China. Last night, RBS declined to comment on the Bank of China deal.

Bank of China, which is hoping to get a stock market listing by next year, is trying to restructure its finances by bringing in foreign banks as partners to raise capital and to benefit from their expertise. It plans to raise between $3bn and $5bn in its initial public offering.

Ma Jun, a fund manager at E Fund Management in Guangzhou, said the Chinese commercial banks were very keen to get foreign lenders as strategic investors to learn from their management experience as they try to create "more innovative products and services". Foreign banks, in turn, are falling over themselves to get a slice of China's fast-growing market. HSBC owns stakes in three Chinese lenders, including a 20 per cent stake in Bank of Communications, while Standard Chartered acquired one-fifth of the newly formed Bohai Bank in November last year.

However, concerns over corruption and fraud at Chinese banks have highlighted the risks faced by foreign companies expanding in the country. Bank of China has been embroiled in two banking scandals this year. It lost $78m after being tricked by a property developer in Beijing, and reported missing funds in other parts of China amounting to several hundred million yuan. This year, China's four largest banks have lost more than $100m from fraud. But Bank of China has been cleaning up its books and has reorganised itself ahead of its planned flotation.

The moves form part of government plans to strengthen the financial industry before opening it up fully to foreign banks in 2007. Bank of China, along with HSBC, Deutsche Bank, Citibank and others, has been selected to become a market maker in expanded foreign currency trading, due to begin in May.

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