Financial giants tackle China

08 June 2012

BEIJING: Financial services giants such as HSBC, Citigroup and JPMorgan are taking varied approaches in China, reflecting the challenges of cracking this tightly-regulated market.

Overseas banks currently hold less than 2% of the RMB114tr in assets available in China, the IMF has estimated, a total standing at 22% in Brazil, 18% in the US and 5% in India.

Similarly, international operators claim just 1.6% of the RMB83tr held in deposits, and 1.7% of loans, valued at RMB58tr, according to the China Banking Regulatory Commission.

Moreover, foreign banks have just 387 branches in China, versus 66,000 for the five main state-owned firms. "The problem is their branch expansion is limited by regulatory approvals," Dominic Chan, an analyst at BNP Paribas, told Bloomberg.

HSBC, which boasts links with China dating back to 1865, runs 117 branches and hopes to boost this figure to 800. It is also prioritising affluent customers worth at least 500,000 yuan.

"Domestic banks already retain their natural advantage in their extensive nationwide network, so do you compete on those terms? Probably not," Helen Wong, the firm's CEO in China, said. "You look at niche areas and enter where you can offer a good proposition with a competitive advantage."

Citigroup has 49 Chinese branches and is targeting 100 by next year. The firm has recently received rare permission to issue credit cards in China, which it sees as an important opportunity for the future.

"Citi is a global pioneer in the bank-cards arena, and we believe the cards segment in China has huge growth potential in coming years," said Stephen Thomas, of Citigroup's Chinese unit.

By contrast, Wells Fargo and Bank of America have both opted to avoid the retail banking market, as is the case with JP Morgan.

"We figured it's neither efficient nor realistic to build a meaningful retail banking network of our own at this stage," Shao Zili, its chairman/CEO for China, said. "Focusing on our wholesale-banking business in China at this stage is consistent with our current global strategy."

Indeed, HSBC's personal banking arm lost RMB112m last year, reaching RMB 375m for Citigroup and RMB636m for Standard Chartered, which has 85 branches.

Further demonstrations of such difficulties are shown by the fact global banks have invested $27bn in building Chinese franchises and $33bn in local firms during the last decade, but earned roughly $10bn.

PricewaterhouseCoopers also reported in 2011 that the six biggest overseas banks - HSBC, the Bank of East Asia, Standard Chartered, Hang Seng Bank, Citigroup and DBS Holdings - had less than 1m customers combined.

"It is a very competitive market," said Mike Smith, CEO of ANZ Bank, which has six Chinese branches at present. "The issue has always been in the more senior, middle management. There just wasn't the experience and expertise."

Data sourced from Financial Post/Bloomberg; additional content by Warc staff