Spain's BBVA is set to invest a further €1.1bn ($1.6bn) to lift its strategic stake in China Citic Bank and cement its position as one of the leading European investors in mainland Chinese banking.
The fresh investment contrasts with the caution of many western banks, including UBS and Royal Bank of Scotland, that this year were forced to scale back their commitments to China as a result of the financial crisis.
It also highlights the relative strength of Spanish financial groups, which are pressing ahead with global expansion plans. Both BBVA and Santander, its larger domestic rival, have strong Latin American presences and have used their growing capital reserves to invest in the US.
In the first nine months of this year, BBVA generated 110 basis points of core capital, which helped lift its core capital as a share of risk-weighted assets - a key measure of financial strength - to 8 per cent.
People familiar with the matter expect BBVA to exercise an option, which expires next week, to lift its stake in China Citic from 10 to 15 per cent.
Single foreign groups can invest up to a maximum 20 per cent in a Chinese bank.
BBVA has the right to acquire the shares directly from Citic, at the bank's Hong Kong initial public offering price plus 10 per cent, or HK$6.45. The Chinese lender's shares closed down 4 per cent on Friday at HK$6.47.
BBVA said it had not made a final decision on whether to increase its stake in China's seventh-largest lender by assets.
"We remain committed to deepening our relationship with Citic and regard it as a vital strategic partnership which is delivering value to our shareholders," Manuel Galatas, BBVA managing director in Asia, told the Financial Times.
BBVA was the first Spanish bank to break into the Asian market with its initial Citic investment in 2006 and its total outlay to date of €2.1bn ranks among the largest of any European lenders in a Chinese bank.
Although lagging behind Santander in its global expansion, BBVA has stolen a march against its rival with its Asia strategy and has offices in nine regional cities.
BBVA hopes to finance the rapid rise in trade from China and Asia into Latin America, where it has a strong retail franchise and trade finance business.
BBVA's move comes as La Caixa, the Barcelona-based savings and loan institution, considers whether to raise its exposure to greater China.
Criteria CaixaCorp, its listed investment arm, owns 10 per cent of Hong Kong's Bank of East Asia, which has a strong retail branch presence in China.
Criteria holds an option to increase that stake to 12.5 per cent and is considering negotiating a further rise to 20 per cent.
