Foreign Banks Expand in China Despite Regulatory Concerns

by CFO Innovation Asia Staff, 18 July 2012

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Forty-one foreign banks, including HSBC, intend to increase their work force in China by 56% as most of them forecast at least 20% annual revenue growth over the next three years, according to a recent survey by Big Four accounting firm PricewaterhouseCoopers.

The expansion should be good news for CFOs of foreign enterprises seeking opportunities in China and local companies stepping abroad, which can leverage on the international connections of the foreign banks. China’s private-sector companies can also gain access to new sources of funding. China’s domestic banks tend to favour state-owned enterprises, starving other firms of capital.

The PwC report finds that China’s 181 foreign banks doubled their profits to RMB16.73 billion last year, while their total assets set a record at RMB 2.15 trillion, a 24% increase from 2010. .

Despite the GDP slowdown in the world’s second largest economy, 41 foreign banks expect annual growth in revenue of 20% or more until 2015. Another 17 forecast annual revenue growth of more than 30%.

“China is shifting away from a production-export market to a domestic-consumption driven economy,” says Mervyn Jacob, PwC Financial Services Leader for China and Hong Kong. “This means new opportunities for foreign banks to diversify into emerging market sectors such as IT and clean energy as they mature.”

“They will also be able to leverage their global expertise as more Chinese firms seek to expand offshore. Capitalising on this will require a different and more focused approach to their China strategy.”

However, the stringent regulatory environment for foreign banks continues to be a major concern.

The CEOs and other senior executives of foreign banks interviewed by PwC say they want to see relaxed restrictions on bond underwriting and access to the derivatives and wealth management markets.

They also want higher quotas for offshore funding, membership in the China National Automatic Payment System (CNAPs), and equal treatment with local banks in China’s Qualified Domestic Institutional Investor programme, which allows Chinese investors to open accounts with financial institutions that then invest their money in overseas markets.

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