Mainland banks set to resist invaders
Foreign banks operating on the mainland are facing new regulatory challenges and competition from domestic banks following the global economic crisis.
A recent survey by PricewaterhouseCoopers showed that foreign banks have had to adjust to new challenges as the financial crisis has changed the regulatory environment, which is more stringent now, while facing increased competition from domestic banks such as ICBC and the Bank of China with their own ambitions of expanding in every sector.
This also means that foreign banks need to hire more professionals who have experience in dealing with mainland regulatory bodies.
The PwC 'Foreign Banks in China' survey of 42 foreign banks shows that increased competition from domestic banks and a demanding regulatory environment have affected the speed and scope of foreign banks' expansion on the mainland.
For the first time in the five years that PwC has conducted the survey, foreign banks identified increasing competition from domestic lenders as the biggest challenge.
The mainland's massive stimulus package last year resulted in a lending boom by local banks, sidelining many of the foreign banks that have traditionally focused on the corporate lending market.
Some foreign players also expressed concern that the loan surge could lead to a potential rise in non-performing loans next year and in 2012.
Mervyn Jacob, PwC's financial services leader for China and Hong Kong, says: 'Foreign banks now see their domestic counterparts as formidable competitors. With their extensive branch networks and rising service expertise, Chinese lenders are much better placed to fend off competition from foreign banks. In areas such as wealth management, cards and internet banking, domestic banks are continually lifting their game, forcing foreign banks to compete based on a superior level of service.'
The survey warned that, as in the past, the regulatory environment remains a source of concern. Foreign banks now have to deal with increased tightening of regulations, including guidelines on new account openings, confirmation of account balances with their customers, new restrictions on property mortgages and the roll-out of wealth management products. Foreign banks expect regulations to tighten further in the future.
Banking consultants suggest that foreign banks should scout for banking professionals who are well versed in mainland regulations. These professionals can help them avoid any regulatory hitches.
Despite these challenges, foreign banks continue to stake their future in the mainland.
'Foreign banks have been working hard in the last year to expand their reach across China,' Jacob says.
'More are now opting for local incorporation, and those who have are opening new branches. Inorganic growth is also an area of focus, with the banks looking to make investments in areas such as asset management, private equity firms and trust and securities companies.'
