State-owned commercial banks, listed on the Shanghai and Hong Kong stock exchanges, are finding it difficult to find suitable channels to invest overseas the huge capital gained from shareholders.

The markets, which are going through a bull run, have pooled big sums of money into Industrial and Commercial Bank of China (ICBC), Bank of China (BOC) and China Construction Bank (CCB) since their initial public offerings.

To make a better use of the funds, the banks are trying to tap overseas markets and develop international businesses. The goal of becoming an international giant is attractive to any commercial bank, but it involves also heavy pressure and competition.

To penetrate the international market, commercial banks could acquire or merge with foreign financial institutes, create international businesses or offer localized financial services and products.

While it could take a company many years to sell $1 billion worth of products after setting up an overseas branch, it could take a matter of months for a bank to open an overseas branch and give out $1 billion in customer loans.

However, these loans involve various risks, some becoming bad debts not retrievable.

Banks are distinct from other businesses in the market economy. They gain profits from the inflow and outflow of money. Their business relies on credit and risk pricing. Most bank debts can be traded, giving them more leverage to influence the economy.

Given this uniqueness, the banking business is based on calculations about credibility and risk instead of a material substance.

However, there have been occasions where the economy of a country has been badly hit through the bankruptcy of a lender. Hence, administrations always keep a close eye on the banking sector.

All these factors make it tough for any bank thinking of setting foot overseas.

The advantages, however, are also numerous for the State-owned commercial banks.

By learning advanced management systems of foreign banks, they could sharpen their own competitive edge, find new sources of profit and grab large shares on the global market.

They would also be able to reallocate resources more efficiently around the world, nurture more talents, and support the development of Chinese companies overseas.

But the banks have a lot to overcome before they can make this a reality.

The listed commercial banks have introduced international accounting standards, and a legal framework for corporate governance and services following their IPOs.

But most remain State-owned banks in many respects. It will probably take considerable time and effort to change their enterprise culture and value into a modern, international one, without which they would be unable to integrate into the global market.

The banks also face extra costs as newcomers in a foreign country.

The heavy reliance on credit and risk calculations would make these banks much more vulnerable than the local veterans.

Unfamiliar with the enterprises and clients, the banks may struggle to gain a foothold overseas amid fierce competition.

They would have to spend more heavily to acquire accurate information about businesses, assess the credibility of clients, evaluate competitors, and study the related laws and regulations.

Another thorny issue in the commercial banks' efforts to tap the international market is State intervention in the banking sector. Because of the special position of banks in the economy, every government, some more some less, intervenes to ensure a sound financial industry.

It is therefore a must to have a thorough understanding of the rules and regulations of their target markets before they take the plunge.

It is reported that ICBC has applied to open businesses in the United States and Russia, so that it can become a multinational bank. This is probably the goal of most Chinese banks.

But before they do that, they must ask themselves whether they have the right strategy? Do they have the right professionals?

The banks could establish pilot projects to gain the necessary knowledge, before taking that final step.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences