Foreign Banks in China: Partnerships with Chinese Banks and Acquisitions Remain Key

January 14, 2011
Industry Trends
Asia-Pacific

Abstract

Foreign banks have not attained their forecasted market position in China and have only held steady at about 2% market share in the last five years. In particular, their market share dipped during the financial crisis.

In a new report, Foreign Banks in China: Partnerships with Chinese Banks and Acquisitions Remain Key, Celent examines the asset size, market share, opportunities, challenges, entry strategies, and customer segmentation of foreign banks.

There are many challenges for foreign banks; foremost among them is competition from Chinese banks. The second greatest challenge is the regulatory environment, but, this is becoming more favorable for foreign banks. Brand recognition is low, and consumers view foreign banks as far behind Chinese banks in terms of reliability, brand awareness, branch network, service quality, and compatibility. Chinese consumers are also not very aware of the innovations in products and services of foreign banks.

Seventy-percent of foreign banks have expressed their intention to acquire Chinese banks, in particular small Chinese banks, over the next three years. As for customer segmentation, foreign banks mainly target high-end retail customers and corporate customers who require complex financial products and overseas financial services.

"Banks from different regions are very diverse. For instance, Japanese banks essentially provide corporate services for Japanese clients in China," says Hua Zhang, analyst with Celent’s Asia Financial Services group and author of the report. “Taiwanese banks take a very different approach, focusing on personal financial services.”

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Development of Foreign Banks in China

5

Impact of the Financial Crisis

9

Declining Returns on Wealth Management Products

9

Other Effects

10

Challenges Facing Foreign Banks in China

11

Rapid Development of Chinese Banks

11

Limited Corporate Loans and Major Project Loans

12

Bleak Future for Housing Loans

12

Branding

13

Restriction of Loan-to-Deposit Ratio

14

Other Challenges

15

Expansion Trends for Foreign Banks

16

Establishment of Incorporated Institutions

18

Acquisition of Shares in Chinese Banks

18

Stronger Effects in Building the Branch Network

19

Products and Customers

22

Corporate Lending

22

Wealth Management

23

Investment Banking

26

Raising Interest Rates to Acquire Deposits

26

Corporate Business Targeted at MNCs

26

Local Financing

27

Regional Distribution

28

Japanese Banks in China: Targeting JOCs

28

Taiwanese Banks in China: Building a Domestic Retail Business

30

Outlook

31

Leveraging Celent’s Expertise

33

Support for Financial Institutions

33

 

Support for Vendors

33

Related Celent Research

34

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