Foreign banks' revenue in China expected to grow at least 20% - PWC

The business of foreign banks in China is booming as the Chinese middle-class takes root, foreign investment in the industry soars and China’s regulatory environment governing the sector continues to open up under World Trade Organisation rules, according to a recent survey from PricewaterhouseCoopers (PwC), the world’s largest professional services firm.

Called Foreign Banks in China, the much-awaited survey, PwC’s second on the mainland’s foreign banking industry, offers a detailed, comprehensive view of China’s fast-changing financial services environment. It includes up-to-date statistical information on market growth and potential. The most attractive option chosen by the respondent banks to increase their market presence continues to be organic growth, followed by partnering with a joint stock commercial bank. Creating a new financial entity is the third choice and this option has increased from 2005 as a result of the opportunity to incorporate a local legal entity since December 2006.

The majority of the banks surveyed predict annual revenue growth rates of at least 20% per annum for 2007. From now through to 2010, only four banks forecast annual growth below 20%. In terms of profits, the performance of the foreign banks has improved since 2005; 50% of respondents believed that their profits have been greater than expected in the past three years, compared to 40% in the 2005 survey. The optimism of the foreign banks going forward was very evident with 100% of the respondents predicting that in the next three years, their profits will be greater than at present, up from 85% in 2005. Assets are expected to double by 2010 to over US$100 billion.

Dominic Nixon, PwC’s Asia Financial Services Leader based in Singapore said “The growing opportunities in the Chinese market will create opportunities for many foreign banks including Singapore banks to grow their revenues.” Mervyn Jacob, PwC’s Financial Services Leader for China and Hong Kong added, “This survey shows that foreign bank interest and commitment to the Chinese banking market has not faltered at all since our first survey in 2005. In fact, it shows that market potential and improved profit performance are encouraging foreign expansion and new entrants.”

The survey, based on in-depth interviews conducted between January and March of 2007 with CEOs and other top executives of 40 foreign banks in China, also revealed that the most important change taking place in the market was not surprisingly, the move towards local incorporation. The impact of this move to incorporation is expected to have far-reaching implications for foreign banks, particularly in the areas of increased capital requirements, wider supervision, greater transparency and new product opportunities. A large majority of the banks predict 20 to 30 banks will incorporate locally by 2010.

Over the next three years, the respondents’ three most important new retail products are expected to be credit cards, investment products and mortgages; the three most important new wholesale products are RMB denominated interest rate and currency swaps, structured products and debt capital markets.

Lastly, nearly all 40 banks surveyed said they currently face staffing shortages. Today the banks together employ some 16,752 staff but this number is expected to grow to 35,685 by 2010, a whopping 113% increase.

“Many foreign banks are already supporting their expansion in China by importing trained personnel from within their banks,” said Raymond Yung, PwC’s Financial Services Leader for China. “There are already almost 3,000 expatriates working in the industry. Over the next three years, the banks surveyed plan to add another 639.”

(This is press release of the Price Waterhouse Coopers)

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