Confidence is high
Foreign banks have always considered the mainland as a potentially lucrative and a 'must-invest' market, despite various restrictions.
Now a survey conducted by international accounting firm PricewaterhouseCoopers (PwC) shows that in an environment of increasing funding constraints, foreign banks operating on the mainland are surprisingly confident about their prospects.
In fact, the PwC findings show that foreign banks expect revenue to continue to grow over the next three years. Their optimism stems from the continued opening up of the mainland economy, and its transition towards a convertible currency, the survey shows.
The high level of confidence belies the continued struggle of the foreign banks in trying to gain a foothold in the mainland. According to PwC, the 127 foreign banks operating in the country commanded only 1.83 per cent of the mainland banking market last year, a slight increase from 1.7 per cent the year before. Notwithstanding this, the 42 foreign banks that participated in this year's survey, made it clear that their commitment to the mainland remains resolute. Mervyn Jacob, PwC's financial services leader for China and Hong Kong, says the market share figure fails to reflect how foreign banks are continuing to redefine market segments on the mainland.
'They believe China still offers exciting growth opportunities, and they're not wrong,' he says. 'China's economy may not be expanding as fast as before, but it's still growing at a faster rate than the banks' own home markets.
'And, with the Chinese government taking steps to internationalise the renminbi, more business opportunities will develop.'
The survey also shows that, as in the past three surveys, debt capital markets continue to be viewed as the area with the greatest future opportunity. This is not surprising given that China's bond market is now the second largest in Asia and the sixth biggest in the world.
And, despite concerns about the broader economy, the majority of foreign banks believe that corporate and consumer credit remains stable, as evidenced by the rise in luxury spending by Chinese consumers. Nonetheless, as in past years, foreign banks continue to feel the increasing weight of new regulations. Coupled with tightening liquidity and rise in interest rates and reserve requirement ratios, the road ahead is expected to be challenging.