Fruitful Cooperation Between China Construction Bank (CCB) and the Bank of America (BoA)　

Guo Shuqing, Chairman of CCB:

Joining hands with leading international financial institutions will bring us advanced management technology and experience. Their large and long-term investment increases the confidence of international investors in China’s financial reform and expectations for the future growth and competitiveness of CCB.

Kenneth D. Lewis, Chairman & CEO of BoA:

CCB is the best positioned bank in China. We see value in combining CCB’s local knowledge and distribution with our product expertise, technology and experience with size and scale.

On June 17 last year, Guo Shuqing and Kenneth D. Lewis signed their names on the strategic investment and cooperation agreement in the 22^nd floor Sunshine Hall of CCB headquarters located along the Financial Street of Beijing, declaring the birth of the largest single investment made by a foreign institution in a Chinese company. This move of CCB which is the first state-owned bank reaching an agreement with the foreign strategic investor also marks a major step of the shareholding reform of Chinese commercial banks.

Time flies. One year later, how the partnership between CCB, which has completed overseas listing, and BoA draws close attention from international investors and the general public as well. Recently the two banks disclosed the latest developments of their cooperation.

3 categories of 20 projects are implemented with focus on facilitating the strategic transition
Since September 2005 when CCB and BoA started executing the strategic assistance agreement, both banks have kicked off projects, shared experiences and held trainings in line with CCB’s development strategy in such areas as governance, risk management, retail business, corporate business, fund transaction, human resources management and information technology. “In this process we are inspired by the new concepts, ideas and methods of our strategic investor, which has well facilitated the management improvement and business innovation initiative of our bank, “a CCB officer told the reporter. Meanwhile BoA will send about 50 people to CCB to offer advices in the above areas.

It is said that their strategic cooperation in 2006 involves three categories of 20 projects, including 6 assistance projects, 12 experience sharing projects and 2 cooperation projects. With retail business as the priority, the cooperation projects cover risk management, information technology, corporate business, finance and human resources. Initial progress has been achieved in projects implementation.

The implementation of the strategic assistance projects well enables CCB to optimize business process, change sale model, raise efficiency, improve services and better meet the demands of customers.

Introducing leading methods and tools and improving services in the process of strategic transition

CCB is clearly aware that strategic partnership means in no way to blindly copy the practices of BoA but to introduce the latter’s management expertise and tools, and integrate such expertise and tools into its own practices to speed up business and management innovation. At the very beginning of their negotiations, the two banks have made it clear that BoA must stop its retail business in mainland China to avoid competition. BoA did close down its retail outlets in mainland China after signing the agreement, showing its sincere attitude towards the partnership.

Strengthening quantitative management is one of the top priorities of CCB. Therefore, the bank decides to introduce the “Six Sigma” management method which has been used successfully by BoA and establish the quality control system based on data analysis and aiming at controlling the error ratio. So far, “Six Sigma” has been applied in the 6 assistance projects in five stages of definition, measurement, analysis, improvement and control, basically realizing the quantitative management of project objective, process and results, which is an unprecedented move in the Chinese banking industry.

The assistance projects are critical to CCB to improve the weak links of its development strategies and management. These projects mainly cover the retail business, including the transition of retail outlets, establishment of personal credit centers, voice of customers, direct link remittance, free ATM cash withdrawal and call center improvement. The projects will get the most technological assistance from BoA. For each of those projects CCB and BoA have set up a joint expert group more than two thirds of whose members come from BoA. The purpose is to use BoA’s leading retail expertise to accelerate CCB’s retail business process optimization and build an efficient operational mechanism. 

Risk management is the priority of cooperation. The two banks join hands in such projects as credit risk measurement, economic capital and risk limit, credit card scoring model and mortgage loan score card. CCB uses BoA’s risk management technologies and tools in a selective way to improve its credit risk warning system, develop the credit scoring card for retail products and perfect the design of economic capital measurement and risk limit.

IT system is the key to the long-term success of banks. It is said that BoA will help CCB analyze and assess its information technology architecture, resources allocation and system development, optimize its IT operational mechanism and raise its business consistency. The two banks will also work together to improve CCB’s online banking services, which will well enhance CCB’s service capacity and market competitiveness.

Sharing leading management experience and improving key management expertise

There are 12 experience sharing projects mainly covering 4 areas, i.e. risk management, information technology, fund and asset & liability management and human resources management.

For those projects, CCB asks for advices from BoA with the purpose of raising its technological and management strength in related areas. BoA will give feedbacks including its leading technologies and management experience through training and exchange programs.

In terms of fund and asset & liability management, CCB selected five items for business consulting and assistance from BoA including the QDII service, aiming at speeding up its financial management reform, optimizing cost allocation process, implementing the ERPF project, tightening internal control of financial statements and increasing fund business capacity. So far, all the projects have finished design and assessment and are being executed as scheduled.

For human resources management, trainings offered by BoA in 2006 mainly include the domestic and overseas trainings for senior managers from CCB branches and headquarters and those for business and technical staffs. In the first half of 2006, 88 senior managers from the headquarters and primary branches attended 2 domestic and overseas training courses, of whom 23 participated in the 10-working-day training in the United States learning BoA’s experiences in customer management, retail and small & medium-sized businesses service, investment banking and wealth management and 65 participated in the domestic risk management trainings exchanging their opinions of risk management culture, model, methods and process with BoA. Such trainings well enable the participants to better understand the practices of leading international bank.

CCB also asks BoA to provide a dozen of business and management trainings for more than 1,000 person-times trainees. Such trainings are fairly effective. For instance, CCB’s two project groups for business outlet transition and personal credit center recently attended a 2-week training in BoA, making field visits to the business outlets of BoA and learning BoA’s practices of customer service, back office operational support and internal risk control, which inspires the CCB management to find out the weak links of their own business process and well facilitates project implementation.

Successful acquisition of Bank of America (Asia) Ltd. and actively expanding overseas business
As the strategic assistance projects move ahead steadily, CCB bought 100% stake in BoA’s wholly-owned Hong Kong subsidiary - Bank of America (Asia) Ltd. on August 24, 2006. The transaction immediately doubles CCB’s business volume in Hong Kong and raises the ranking of its customer credit from the 16^th to the 9^th.

The successful acquisition of Bank of America (Asia) Ltd. complies with CCB’s overseas business development strategy and will help increase its capacity of customer service in the mainland, Hong Kong and Macao and raise its market share in Hong Kong considerably. It will serve as a breakthrough for CCB to expand its overseas business via Hong Kong.

Zhang Jianguo, President of CCB, has high expectation for the bank’s future growth, “I believe that in the foreseeable future CCB will build a comprehensive financial service system integrating the retail, wholesale and investment banking and insurance business. We are committed to providing customers with more sophisticated, quality and efficient financial services.”

Direct communications between the senior management of CCB and BoA ensure high efficiency.
Prior to signing the strategic investment and cooperation agreement, the senior managements of CCB and BoA have defined the assistance projects as their priority. They set up a regular direct communication mechanism to select projects and assess project progress. They establish a special joint group and appoint the project coordinator, project leader and project manager for each assistance project. The project leader reports to the chief coordinator appointed by both banks directly. The project offices of both banks have corresponding functions and dispatch their project manger respectively. The effective project management mechanism and close cooperation of the employees of both banks raise the efficiency considerably.

According to a CCB officer, the purpose of introducing overseas strategic investor is to introduce leading management expertise, change the old ideas and operational mechanism, strengthen risk management, raise core competitiveness and deepen and expand strategic cooperation, which will serve as a driving force for CCB to realize its grand vision of growing into a leading international bank.