19 April 2019

Home appliance giants have a good reason for banking foray

One after another, Chinese home appliance giants have been outlining their intention to venture into the banking business. The list, which includes Suning Commerce Group (002024.CN), GD Midea Holding (000527.CN) and Gree Electric Appliances (000651.CN), does not appear to be a mere coincidence.

Gree Electric, which was the latest to join the banking mania, said in a filing to the Shenzhen Stock Exchange last Wednesday that its subsidiary Zhuhai Gree Group is in initial talks with Zuhai Henqin Village Bank for some deal, but no agreement has been reached yet.

Among its rivals, Haier Group (001169.HK, 600690.CN) already has a stake in Bank of Qingdao, while TCL Group and Hisense Group have set up their own financial arms.

Financial news website quoted an industry insider as saying: “After three decades of development, China’s home appliance industry is in good shape and leading players usually have healthy, big cash flows. But investment return on banking and finance businesses is more attractive, although interest rate liberalization is around the corner.”

Growth of top home appliance companies has slowed down significantly in recent years after their annual revenues crossed the hundred billion yuan level. There is a need for them to search for another growth engine. “The average annual return in the banking sector is over 20 percent, while in home appliance sector, it is just around 6 percent,” Yicai cited its source as saying.

With their strong cash flow, lending to upstream parts suppliers and downstream distributors is a lucrative business opportunity that appliance makers can tap, given their deep knowledge of the business and credit-worthiness of counterparts.

Small and medium-sized companies would likely be another major target for these appliance firms.

Premier Li Keqiang {李克強} has voiced his intention to open up the banking sector to private players and let them play an important role in providing financial support to SMEs, which are usually underserved by the big state-owned lenders.

– Contact the writer at [email protected]



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