Foreign lenders expanding rapidly on the mainland risk making rash, loss-making decisions on who they hand out their money to as they pursue high growth, according to Fitch Ratings. The United States-based ratings company expected foreign banks, particularly smaller lenders, to face considerable risk as establishing subsidiaries in the mainland would be costly in terms of capital, staffing, offices, advertising and systems. 'It will inevitably result in the banks lending to higher-risk indigenous Chinese corporates and individuals,' Fitch said in its latest report. Peter Tebbutt, a senior director on Fitch's financial institutions team, said many foreign banks involved in the mainland were now refocused on organic growth, given the recent removal of regulatory restrictions on such expansion and the limited opportunities for further acquisitive growth. Overseas lenders such as HSBC Holdings, Citigroup and Bank of America Corp had invested in 29 mainland banks, which accounted for about 53 per cent of the country's banking assets, the report said. The refocus on organic growth is occurring as the mainland banking market further opens to allow foreign banks to widen their yuan-denominated business through local incorporation. HSBC, Citigroup, Standard Chartered Bank and Bank of East Asia have already set up mainland subsidiaries while eight other lenders including Hang Seng Bank and Wing Hang Bank are moving towards that goal. Hong Kong lenders have substantial direct and indirect experience of mainland-related lending, but mostly involving low-risk loans to existing Hong Kong-based customers in support of their mainland businesses or investment, according to the Fitch report. Fitch expressed concern that foreign lenders might engage in higher-risk lending after securing mainland incorporation to grow their loan books quickly while still relatively inexperienced in the country, especially in evaluating borrowers and dealing with them in the event of default. Other economists took a less critical view. 'It all depends on the banks' strategy,' said May Yan Meizhi, a senior credit officer at Moody's Investors Service. Hong Kong lenders, particular smaller banks, tended to be conservative in their operations and were unlikely suddenly to become very aggressive in the mainland, Ms Yan said. An analyst with a United States banking group said most Hong Kong lenders were targeting high net-worth customers on the mainland to offer services such as residential mortgages and credit cards, rather than the mass market or big local corporations. Banks such as HSBC and Bank of East Asia could also aim to enlarge their state-owned enterprises customers. 'Since they have had a long presence on the mainland and have the know-how, it's not certain that they will face higher risks,' the analyst said.