Retail Banking in China: Opportunities and Strategies

by Hua Zhang, January 20, 2009
Industry Trends
Asia-Pacific

Abstract

The retail banking business is playing an increasingly important role in China’s banking sector. In 2007, retail banking income increased by 46.9 percent, reaching $84 billion US dollars and accounting for 33% of banks’ revenue and 27% of their profits.

The rapid increase of per capita income and investment channels, continuous improvement of the payment system, relaxation of regulations regarding separate operations, and other factors all contributed to retail banking’s growth in China. In 2007, interest remained the main revenue driver for the retail banking business, accounting for 74.5% of income and having an annual growth rate of 29.6%. Comparatively, fee-based business accounted for only 25.5%, with an annual growth rate of 138%.

According to a new Celent report, Retail Banking in China, deposit and lending business trends will include: the RMB deposit-taking business maintaining a 10% growth rate; foreign currency deposits dropping; the proportion of demand deposits continuing to grow; mortgages experiencing slow growth; and credit card loans having rapid growth, reaching US$200 billion in 2010 to become the second largest loan business after mortgages.

The fee-based businesses with the highest revenue in 2007 include the agency business, bank cards, financial management, and payments. Banks may adopt the following approaches to develop the agency business: develop online banking; make full use of the branches; and expand in both region and scope. The bank card business is growing quickly but has a low yield. Banks need to focus on price, service, market segmentation, and promotion to increase credit card usage and customer spending.

"Banks should take the following strategies into account with respect to the financing businesses: highlighting and stressing brand; taking full advantage of branches, allowing commissioned sales by other banks or developing online channels if the bank doesn’t have enough branches; enhancing wealth management products; and developing telephone banking and online banking, as well as developing employees," says Hua Zhang, Celent analyst and author of the report.

 

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 subsidiary 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

Retail Banking Environment

5

 

China’s Economic Environment

5

 

Institutional Framework

6

 

Summary

9

Retail Banking in China

10

 

Position of Retail Banking in China’s Banking Sector

10

 

Income from Retail Banking Business

11

 

Adoption of Retail Banking Business

12

 

Drivers of Retail Banking Business

12

 

Summary

13

Retail Deposits and Loans

15

 

Renminbi and Foreign Currency Deposits

15

 

Retail Loans

16

 

Home Loans

19

 

Credit Card Lending

21

 

Mortgage Loans

22

 

Summary

23

Fee-Based Business

25

 

Agent Services

26

 

Bank Cards

28

 

Wealth Management

31

 

Summary

38

Conclusion

41

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