Banks find fast reward

FOREIGN financial institutions that make money in Shanghai are generally able to do so within two years of starting their operations, according to the city's financial watchdog.

Despite fierce competition among themselves, their profits appear to be growing.

Wang Huaqing, vice-governor of the Shanghai branch of the People's Bank of China, said about 80 per cent of the foreign banks and insurance companies that had commenced business by July last year were making money.

'Some of them reported a profit only two years after commencement of business, and some even began to see profits in the same year,' Mr Wang said at a conference organised by the Business and Professionals Federation of Hong Kong and the official Shanghai Development Research Centre.

He said the combined balance sheet profit of the 30 profitable foreign banks and insurance companies last July was about US$24 million, up 108 per cent from the same month in 1994.

In June, 27 institutions made a combined profit of $20 million, 80 per cent more than that a year ago. In May, 26 banks and insurance companies made $16 million in all, which was still 98 per cent higher than previously.

'These figures show that the business operations of foreign financial institutions in Shanghai are relatively healthy and their performance is gradually improving,' Mr Wang said.

But a study showed that a few had a higher loans-to-deposits ratio than the stipulated ceiling of 40 per cent. He did not name the banks that broke the rules but said they were now taking steps to correct the situation.

Foreign bankers said balance sheet profits were improved by banks not making provisions for bad loans. Banks are permitted to make provisions of up to 3 per cent, but most do not because it is difficult to win approval from the tax authorities.

Mr Wang said foreign banks in China were doing business in areas such as offshore currency deposits, loans, interbank transactions, import-export settlements, bills discounting and acceptance, currency investment, and guarantees.

'Although they cannot engage in renminbi transactions, their total assets and earnings generally show an uptrend,' he said.

He said that given the uneven playing field between domestic and foreign banks, it was premature to allow the latter to participate fully in the local currency business.

'Nevertheless, Shanghai is seriously studying the feasibility of allowing some foreign banks to do so on a restricted basis.' He said first, foreign investors must be allowed to exchange foreign currency in the same channels as the domestic banks.

Last Sunday, the central bank said this was done in three cities, including Shanghai, in the first half of this year.