Amsterdam, 27 March 2015

Prime Minister of the Netherlands Mark Rutte, Chairman
Bank of Beijing Yan Bingzhu and ING CRO Wilfred Nagel

10 years ago, ING started a broad strategic alliance with Bank of Beijing by acquiring a minority holding in what was then one of the larger city commercial banks in China. This week, ING and Bank of Beijing celebrated the first ten successful years of this alliance and signed an agreement to extend the partnership for the next 5 years during the Dutch trade mission to China.

In the context of the trade mission, China Daily published an interview with Aart Jan den Hartog, ING's Head of Commercial Banking in Greater Chia and Mongolia about how the bank helps clients maximize the potential of China's "new normal".

Journalist Sjoerd den Daas from Het Financieele Dagblad interviewed ING CRO Wilfred Nagel in Shanghai. Please find below the translation of this interview published in the Dutch FD on 26 March 2015.

ING signs up for five more years in China

by: FD Journalist Sjoerd den Daas

ING director Wilfred Nagel prolongs cooperation with Bank of Beijing.

Ten years ago, ING gained access to the Chinese market by acquiring a minority stake in the Bank of Beijing. On Wednesday the Dutch bank signed a new agreement in the presence of prime minister Mark Rutte, who had just started a four-day trade mission. The existing relationship will be reinforced and extended by five years.

ING director Wilfred Nagel, who attended the signing of the contract, warns against all-too rapid growth.

At the time, ING paid € 166m for a 13.6% stake. What has Bank of Beijing brought you?

As a banker you try to create value by combining the knowledge, expertise and capital at your disposal. This is a different way of doing the same thing: here too we bring together knowledge, expertise and capital, and we can both benefit from this. ING, for instance, only has limited access to financing in the Chinese yuan. The cooperation with the Bank of Beijing helps us fill this gap, so that we can finance the activities of the commercial bank, which has already been here much longer.

China has advanced in leaps and bounds over the past ten years. What does the financial landscape look like?

We see signals of further liberalisation. The removal of the ceiling on interest rates and the cautious steps towards making the Chinese yuan more tradable. Also, new legal alternatives are making it possible to take larger interests in the financial sector within certain entities. Clearly, the government used to control a large slice of the market, and that is still the case. But this doesn't cause us too many problems in day-to-day practice: looking purely at our ING branches, about 80% are focused on acting as a bridge between companies engaged in international business. So we hardly compete with local banks in that area.

The National People's Congress this month decided to create more room for private banks in the Chinese retail market. To what extent will ING be seeking to capitalise on this?

China is a country that likes to adopt new things, and a country that moves fast. There are countless examples in the field of e-commerce. Many of the conditions here are ideal for successful banking. At the moment we are looking closely at direct banking for retail customers. All sorts of things still need to be sorted out, but that's one thing we could do in partnership with Bank of Beijing. They have an intimate knowledge of the Chinese market, and we are well-versed in the technical side of things.

The potential customer base you can reach is several times larger than what you are accustomed to in most other countries. That also gives rise to risks.

The greatest risk is that it's a tremendous success. When you rake in bucket loads of savings, you need to figure out how to use that cash in a profitable and sensible way; you have to find somewhere to place all that cash. That is the biggest challenge, getting the balance right.

We've seen what happened with Alibaba, they raised 100 bln euros in no time. It took ING Germany fifteen years of hard work to raise that amount. The non-financial risks are also significant. You have to make sure you know your customer well, even when you are growing fast. As a bank, you can't make any concessions on this.

Talking about non-financial risks: Bank of Beijing board director Lu Hai Jun went off the radar early in February, because of alleged involvement in a corruption scandal. Did that have any consequences?

As a western institution, you cannot afford to become involved in corruption scandals, but you can never entirely rule out becoming indirectly implicated. The appointment of that board director did not come from us; nor did we have any influence over it.

Basically the allegations have nothing to do with his activities at the bank. But - and I do think this is a good example of the corporate governance within the Bank of Beijing - that gentleman was shown the door on the same day that the news broke.

That is inherent in emerging markets. In our day-to-day business dealings, this doesn't present us with too many problems, incidentally. But as we have a director on the board of Bank of Beijing, we not only get better insight into that bank, but also a clearer picture of where the risks lie in the sector as a whole. We, for our part, helped Bank of Beijing to improve the internal control systems. Most people have responded really favourably to that.

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