SHANGHAI—Spain's Banco Santander SA will take a 19.9% stake in a joint venture with China Construction Bank Corp. to provide banking services outside of China's major cities, an area of increasing interest to foreign financial institutions looking to make a mark in China.
The tie-up, which was flagged by executives from both banks early last year, will see the two sides initially invest 3.5 billion yuan ($534 million) in the joint venture. The venture will specialize in investing and managing "village and town banks," China Construction Bank, China's second-largest lender by assets, said in a statement.
China's townships and rural areas have traditionally been neglected by the country's major banks, which have typically focused on big corporate clients in major urban areas. That has become a major concern for Beijing's leaders, who are trying to redress the income imbalances between the country's urban and rural areas.
An increasing number of foreign banks are setting up operations in towns and villages, usually without a Chinese partner. Many are targeting relatively affluent areas that are likely to benefit from the government's drive to shift a greater portion of its population off agricultural land and into nascent cities.
Singapore sovereign-wealth fund Temasek Holdings Pte. Ltd. and Bank of China Ltd. are also planning to set up a rural banking joint venture, which will seek to establish 40 to 60 outlets.
After the first year, Banco Santander and CCB will increase their investment in the joint venture to six billion yuan, the Chinese bank said. China Construction Bank will hold the remaining 80.1% in the venture.
The deal is subject to Chinese regulatory approval.
Separately, CCB said its net profit rose 26% last year, boosted by higher interest income and commissions.
That is broadly in line with Bank of China, the first of China's major four banks to report full-year earnings, which said Thursday that its 2010 profit rose 29% from a year earlier.
State-run China Construction Bank, in which Bank of America Corp. owns a 10% stake, said its net profit for the 12 months ended Dec. 31 totaled 134.84 billion yuan, up from 106.76 billion yuan a year earlier.
Its net interest income, which accounted for about 80% of its operating income, rose 19% to 251.50 billion yuan, and net fee and commission income surged 38% to 66.13 billion yuan.
China Construction Bank said it expects its yuan-denominated loans to grow 13% this year. The bank's outstanding yuan-denominated loans grew 18% last year, slowing from a 27% surge in 2009.
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