Foreign banks start to progress in China

19 July 2012

BEIJING: Foreign banks saw their profits more than double in China last year, but currently still take less than 2% of the market.

PricewaterhouseCoopers, the advisory group, found that the 181 overseas banks in China posted profits of RMB16.7bn in 2011, versus RMB7.8bn in 2010. These firms, however, only took 1.93% of the market.

A survey of 41 providers – including Bank of America, Citibank, HSBC JP Morgan Chase and UBS – revealed 11 expected this percentage to rise in 2012, while three predicted a decline and the rest anticipated no change.

"China's foreign banks have performed strongly despite barriers such as lending caps and the relatively slow pace of new branch approvals," said Mervyn Jacob, PwC Financial Services Leader for China and Hong Kong.

As an example, the analysis suggested the "big six" firms – the Bank of East Asia, Citibank, DBS, Hang Seng, HSBC and Standard Chartered – have a modest 442 branches in China.

Looking ahead, 24 banks argued revenue growth will top 20% this year, and eight placed this total in the 10% to 20% range. By 2015, 29 operators thought returns should expand by 20%, and 17 foresaw at least a 30% lift.

When describing the main challenges, the regulatory environment, talent management and launching innovative products were the top three issues at present.

More broadly, when rating the intensity of competition in the Chinese market, local banks logged a rating of 3.36 points out of five, standing at 3.38 points for their multinational counterparts.

In assessing which segments would yield increasing demand over the next three years using a ten-point scale, other financial institutions were seen as the most profitable source of activity, on 7.5 points.

Global corporations logged 7.5 points, with state-owned enterprises on 7.3 points, privately-owned businesses on 7.2 points, and high net worth individuals on 6.2 points.

Utilising an equivalent scale, respondents were asked to compare the commitment of their parent company to other markets, recording an average of 8.6 points.

Turning to retail banking, investment products, mortgages, services for affluent customers and proprietary credit cards were perceived to be among the most important products in the next three years.

When discussing their primary means of expansion, some 37 of the 41 featured organisations pointed to organic growth, while six selected acquisitions and four expected to pursue joint ventures.

Data sourced from PricewaterhouseCoopers; additional content by Warc staff