Bank will partner with Royal Bank of Scotland to tap the growing segment Bank of China, the mainland's second-largest lender, plans to set up a joint venture with strategic investor Royal Bank Scotland to tap the nation's rapid growth in credit cards. The Beijing-based state lender would own 51 per cent of the joint venture with Royal Bank of Scotland holding the remainder, according to a report by Goldman Sachs which is helping arrange BOC's US$8 billion Hong Kong initial public offering later this month. The plan is part of BOC's push to grow consumer banking, a business previously overlooked by state-controlled lenders who lean towards corporate clients. Credit cards are already China's fastest-growing consumer credit product, according to McKinsey. The tie-up between BOC and Royal Bank of Scotland, which leads a consortium that owns 9.61 per cent of the Chinese lender, would be similar to credit card arrangements between the Bank of Communications and HSBC, as well as Shanghai Pudong Development Bank and Citigroup. However, such joint ventures would have to clear two hurdles. Chinese regulations have yet to allow credit card joint ventures to operate independently of commercial banks and foreign banks are not yet permitted to offer yuan services to mainlanders - a restriction that is due to be lifted by the end of this year in accordance with China's World Trade Organisation commitments. The first Chinese lender to introduce a bank card in 1985, BOC had issued 1.4 million so-called 'real credit cards' by the end of last year according to BOC International (BOCI), BOC's own offshore investment banking unit that is a book-runner of its initial public offering with Goldman and UBS. It is also the leading domestic issuer of quasi-credit cards that require a cash deposit balance but unlike debit cards, provide cardholders an interest-bearing overdraft line. By the end of last year, the lender sold 6.7 million quasi-credit cards, giving it a 24 per cent market share. BOCI described as 'worrying' the impaired loan ratio of its parent's credit card business, which stood at 11.8 per cent at the end of last year, more than doubling the bank's overall impaired loan ratio of 4.9 per cent. 'However, this is somewhat misleading as a majority of the credit cards are quasi-credit cards, which have cash collateral,' BOCI said. The use of domestic loan classification standards also raised the reported non-performing loan ratio for cards. Actual loss rates were 1.97 per cent for dual-currency credit cards and 3.25 per cent for the 'Great Wall' brand of quasi-credit cards, lower than the 5 per cent booked by BOC's Hong Kong unit, UBS said in its report. BOC has used its higher concentration in retail banking and its wealthier retail clients compared with its domestic peers as key selling points during the pre-marketing for its initial public offering. Among its 118 million retail customers, 335,000 hold more than 500,000 yuan in their BOC deposit accounts while 503,000 are wealth management clients, according to Goldman. Gaining credit Bank of China would hold 51 per cent of the joint venture Plan is part of push to grow consumer banking business Credit cards are China's fastest-growing consumer product
