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Overseas banks face mainland battle

By Lillian Liu (China Daily HK Edition)
Updated: 2009-07-01 15:31

HONG KONG: Local banks and their foreign peers are facing more obstacles operating on the mainland as banking authorities become more cautious after the global financial crisis eroded lenders' balance sheet, a survey by PricewaterhouseCoopers (PwC) showed.

A ferry sails across Victoria Harbour toward Hong Kong Island Tuesday. Hong Kong and foreign banks say in a survey by PricewaterhouseCoopers that the mainland market has become harder for them to grow in since the global financial crisis began last year. [Agencies]

Most of the 41 banks surveyed, including Bank of East Asia and Wing Lung Bank, said the tougher situation pose more challenges over the next few years.

The survey on the outlook of the banking market on the mainland found most overseas banks feel that the credit crunch has made regulators more cautious about a range of financial products, including derivatives, structured deposits and products related to stocks and different types of swaps.

Derivatives and its related financial products and complex investment vehicles are believed to be the very trigger of the financial crisis that has crippled the US property market and world economy. The collapse of US investment bank Lehman Brothers in September last year prompted monetary regulators worldwide to remain on high alert on the operations and distribution of complicated derivative financial products.

"In the past, a large majority of respondents predicted that the market share of foreign banks would continue to grow," said Mervyn Jacob, PwC financial services leader for mainland and Hong Kong. "However, in our latest survey only a minority of banks believe their market share will increase.

The reasons behind this include strong and effective competition from the large domestic banks, economic factors and a decline in global trade.

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It is particularly notable from this survey that competition from domestic banks is now regarded by the overseas banks as the second most difficult aspect of the mainland banking market, after the regulatory environment, the accounting firm said yesterday.

Moreover, the respondent banks hold the view that their limited market share would have to be expanded significantly if Shanghai is to achieve its goal of becoming an international financial center.

However, the commitment of these overseas banks remains relatively unscathed. As of June 2009, 26 overseas banks have incorporated locally. The survey found that a majority of participants expect this number to increase to between 30 and 40 banks by 2012.

The overall commitment score for 20 locally-incorporated banks was 8.7 out of 10. This high score reflects the non-native banks' continued interest in expanding their presence and activities on the mainland.

"We expect that local incorporation continues to be a model that the banks are keen to pursue, particularly to expand their product offerings and scale, but the remaining banks are finding it difficult to meet the evolving and stringent entry requirements," said Jacob.

"Many of those that have already incorporated are of the view that they are constrained by the regulatory environment and the associated extensive reporting requirements."

 

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