[Reuters]

Published date: 12th Sep 2003

12 September 2003

Reuters News

English

(c) 2003 Reuters Limited

BEIJING, Sept 12 (Reuters) – China’s new banking regulator said on Friday foreign banks should begin making up lost ground and challenge local peers within months, dismissing concerns they are losing market share in a potentially highly lucrative market.

Foreign banks now command a mere one to two percent of a market growing at double digits, but this is set to change in December when they will be allowed to serve local firms in yuan, said Wang Zhaoxing, director of the supervision department of the China Banking Regulatory Commission, set up five months ago.

Predicting a “bright future” for 180 overseas banks now in the country, Wang said foreign banks’ business grew an annual 20 to 30 percent in the first half of 2003 alone, though he declined to give specifics.

“Most foreign banks’ business growth in the first half of this year is more than 20 percent … All the indicators show a growth of 20 to 30 percent,” Wang told Reuters in an Interview at their spartan headquarters in downtown Beijing.

“The Chinese market is growing very rapidly, and most of that is in the Chinese currency. So that’s why their market share is shrinking,” he said, referring also to the fact that foreign banks are not allowed to conduct yuan business with individuals until 2006. China is one of the last major untapped retail markets for a global banking industry only just emerging from a protracted downturn that has forced many institutions to tighten belts and lay off staff.

With local currency lending growing 23.9 percent over the year to August to 15.3 trillion yuan ($1.8 trillion) and a savings rate of 30-40 percent – one of the highest in the world – it’s no wonder foreign banks are eager to get in on the action.

HSBC, Citigroup and Standard Chartered are leading the pack, having established a presence in China several years ago.

But others keep coming, with ABN AMRO and Deutsche Bank just some of the names that have set up branches or applied for operating licences this year.

“I’m sure in the next three to five years, the market share of foreign banks will increase gradually, especially next year, when we open the market for foreign banks to do local currency business with Chinese enterprises,” Wang said.

JOCKEYING FOR POSITION
But many bankers complain that their hands are all but tied in the country. One familiar protest centres on high capital requirements for foreign banks: opening a full-service branch requires a whopping 600 million yuan ($72 million).

“It is not a restriction on business, it is a prudential measure to control the risk involved in the local currency business,” Wang said.

“They … will gradually get the same treatment as Chinese banks after the year 2006. But currently, it’s
necessary.”

Still, China remains the place to be.

Analysts say foreign banks must first establish a toehold in a market harbouring a largely untapped $1.3 trillion in savings, jockeying for position before the end of 2006, when restrictions on foreign players will be abolished.

That means full access – in theory – to the booming retail banking market, which consultants Mckinsey & Co estimate would be the third largest in Asia, after Japan and South Korea, by the end of the decade.

Regulators reaffirmed their commitment to a piecemeal liberalisation.

“We will comply with the provision of the WTO negotiations: step by step we will liberalise the restrictions and regulations for foreign banks,” Wang said.