A stock you can bank on

Jocelyn Ford Jun 1, 2006

MARK AUSTIN THOMAS: Early this morning, shares of the Bank of China began trading on the Hong Kong Stock Exchange and quickly shot up 15 percent. This is the world’s biggest offering in six years. So far the bank has raised over $9.5 billion. From Beijing, Jocelyn Ford tells us why investors have been scrambling to own a piece of it.

JOCELYN FORD: A lot of Investors see buying shares in the Bank of China as a way to get a piece of China’s economic action. David Marshall is an analyst at Fitch Ratings:

DAVID MARSHALL: China’s strong growth prospects means that banks should be able to increase their lending and increase their profits which, clearly they should.

But he says only if they’re well-run and have good risk management. Only a decade ago the government told banks how much they could lend, and often to whom. Now banks have much more independence, but they’re still learning the ropes. Bank analyst Charlene Chau says foreign investors will help push the process:

ARLENE CHAU: The government has realized that unless you have shareholders that are calling management to task for what they are doing it’s really hard to enforce a new sort of banking mentality.

It’s important Chinese banks get up to speed quickly on things like evaluating creditworthiness of borrowers. That’s because China’s promised to open the door wider to foreign banks by the end of the year.

In Beijing, I’m Jocelyn Ford for Marketplace.

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