An increase in the ranks of China's newly wealthy and room for product development have made foreign banks willing to accept tight regulations in exchange for more growth opportunities in China, according to a report released Wednesday by PricewaterhouseCoopers (PwC).
Despite China's economic stimulus and lending spree last year, foreign banks failed to gain market expansion in the country. The overall market share of foreign banks in China currently accounts for around 2 percent, and half of the 42 respondents in PwC's survey predicted that the ratio would remain the same in 2010.
However, about 28 respondents expect growth rates ranging from 8-100 percent over the next three years, in areas including swap products, private equity, and debt capital markets, the report stated.
The survey participants continue to believe that increasing affluence and a larger number of high-net-worth individuals will spur demand for wealth management services in retail banking and private banking.
Out of 41 banks, 33 anticipate tighter regulations in 2010, including those offering complex derivatives, asset management, QDII and QFII programs for investing in domestic and overseas stock markets, as well as fresh account opening requirements designed to protect against money laundering.
The China Banking Regulatory Commission reiterated it would guard against cross-border bank risks during a work meeting April 15.
Under tight regulations, more foreign banks will choose to incorporate locally either by forming joint ventures with Chinese banks or becoming independent legal entities instead of retaining their branch status, said Raymond Yung, financial services leader for PwC China.
Compared with the surveys conducted in 2008 and 2009, more respondents in this year's survey believe the number of locally incorporated foreign banks will increase by 10-20 by 2013. Over 30 foreign banks are now locally incorporated, according to PwC's survey. If incorporated, foreign banks must comply with the same standards as Chinese banks, such as maintaining a 75 percent loan-deposit ratio and a capital adequacy ratio as high as 11.5 percent for large commercial banks this year. Overseas banks are required to maintain an 8 percent capital adequacy ratio.
Retaining a branch status makes expansion tougher for foreign banks in China, as such bank branches can only accept deposits larger than 1 million yuan ($146,413). That makes it hard for foreign banks to attract deposits, forcing them into reliance on their overseas headquarters for funding, and thus constraining their ability to expand through lending. |
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