Loans to homebuyers and multinationals fuel earnings surge The profits of foreign banks in Shanghai soared more than 70 per cent in the first nine months of the year, even as their market share fell slightly. The figures, released by the China Banking Regulatory Commission (CBRC), showed operating profits of all banks in the city over the nine months were 29.41 billion yuan, a rise of 17 per cent over the same period last year. Profits of the Big Four state banks rose 14.1 per cent to 17.87 billion yuan and those of foreign banks were up 72 per cent at 2.05 billion yuan. At the end of last month, the market share of foreign banks was 12.1 per cent, compared with 12.6 per cent at the end of June and 12.1 per cent at the end of June last year. Shanghai has the biggest concentration and largest market share of foreign banks in China. But, while they are holding their market share there, it is falling nationwide due to the rapid growth of the overall financial sector and restrictions on foreign banks' activities. First Sino Bank chief executive David Kiang in Shanghai said that most foreign banks probably did well in mortgage loans and investment management for individuals. 'Another strength is loans supplementing the huge foreign direct investments, especially in the Yangtze River Delta which are captured by Shanghai-based foreign banks,' Mr Kiang said. 'This is the forte of foreign banks given their global relationships with the multinational corporations. 'I was surprised by the figures. 2004 was a very robust year with the economy going full steam. 2005 is shaping up to be a soft loan year and I suspect the figures for this year are simply a lagging effect where loans booked over the 12 months last year are being fully reflected.' A CBRC official in Shanghai said one reason for the rapid growth in profits was the low base and another was the banks' success in intermediary services and derivatives. Latest official figures showed that at the end of June, foreign banks in Shanghai had derivative contracts worth US$15.4 billion, an increase of 19 per cent over the end of March. Bankers said this was a product sector in which foreign banks had a clear advantage over their Chinese rivals, with greater experience and technology and a wider range of products and currencies. Stephen Green, an economist at Standard Chartered Bank, said the improved profits reflected a wider range of business. 'This year, foreign banks have been allowed to do business with Chinese corporates. Chinese companies beginning operations offshore are keen to use foreign banks' expertise and global networks,' Mr Green said, adding that many foreign banks in Shanghai were growing fast but the costs were still high.