International Finance Corporation, the private lending arm of the World Bank, said it will shift its investment focus in China to insurers, securities firms and rural finance companies and stop buying stakes in commercial lenders.
"We're trying to replicate the experience we've had in banks in other segments of the financial sector," said Karin Finkelston, International Finance's associate director for East Asia and the Pacific. "We're not looking to invest in other banks."
IFC has spent about US$1.8 billion on 81 projects in China since 1985. It paid US$150 million to buy stakes in five domestic Chinese banks in the past four years - it has more interests in local lenders than any international investor - before agreeing to purchase 5 percent of Bank of Beijing Co, China's second-largest city commercial lender, in March.
The World Bank unit typically works with other investors - including ING Groep Holding NV, Hang Seng Bank Ltd and CUNA Mutual Group - and tries to improve corporate governance at the local business, train executives, introduce international audits, independent directors, social assessments and environmental standards, Finkelston said.
"When IFC invests in a Chinese bank, it certainly provides some comfort to other potential investors," said Arthur Lau, a financial institutions analyst at Barclays Capital in Singapore. "IFC doesn't just bring capital, it also brings expertise, technology, business models and risk management."
The shift in investment has already begun. International Finance last month said it plans to buy a 5 percent stake in Changjiang BNP Paribas Peregrine Securities Co, a Chinese investment bank one-third owned by BNP Paribas SA, France's second-biggest bank.
Rabobank Groep, the world's largest agricultural lender, signed an agreement with International Finance to provide Zhejiang Provincial Rural Credit Cooperative Union with technical assistance to reorganize the banking system in the eastern Zhejiang Province. Depending on the success of the technical assistance, International Finance and Rabobank will buy as much as 24.9 percent of Hangzhou Rural Credit Cooperative Union in the province's capital.
"Of course we're trying to make money and hope all our investments become viable," said Finkelston. "On the other hand, the underlying goal is to create the infrastructure to finance the private sector and to finance viable small businesses that grow into big businesses."