“We do have huge ambitions in this market. We
want to be in the top three consumer banks in certain selected
Chinese cities and provinces in consumer banking, SME and premium
banking,” Wilson Chia, head of consumer banking at Standard
Chartered China, tells RBI.

Having set up shop in Shanghai over 150 years
ago (seven years before HSBC established a presence in the
country), it became one of the first foreign banks to incorporate
in China in 2007 and now has one of the largest branch networks
among foreign players in the country, with 15 branches, 34
sub-branches and one representative office.

StanChart’s support for the Chinese market is
further evidenced by its investment in China Bohai Bank, in which
it acquired a 19.9 percent stake for $123 million in 2005.

And despite economic growth slowing in 2009 –
StanChart’s analysts expect Chinese GDP growth of 6.8 percent,
boosted by the government’s economic stimulus package – the bank
will, subject to regulatory approval, open between six and 10 new
retail branches later this year.

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To date, StanChart’s growth in the country has
been organic, with employee numbers increasing fivefold to 2,000 in
the past three years, but it has been linked (along with HSBC and
ANZ) with a bid for the Chinese consumer banking assets of the UK’s
Royal Bank of Scotland which RBS acquired as part of its ill-fated
acquisition of part of ABN AMRO (see RBI 608).

While stressing the bank would focus on
organic growth, StanChart CEO Peter Sands told analysts in Hong
Kong on 17 March that it may consider acquisitions in Asia; Sands
also buoyed the market with news that the bank had a “strong” first
two months of the year, echoing recent, positive comments from
Citi, Barclays, Bank of America, JPMorgan Chase and Nordea.

Deposits up 53% in 2008

StanChart China’s strategy
has certainly paid off, with deposits up 53 percent in 2008 and
income up by an impressive 27 percent to $632 million.

“We have shown good growth. At the consumer
division, income was up 20 percent, driven by deposit growth and
strong volume growth in personal loans and mortgages. Expenses also
increased, to $238 million, as we continued to invest in building
the business in China,” said Chia.

Rival HSBC, by some way the largest
international bank in the country, has also flagged up its
intention to grow its local presence, with plans to increase its
current 82 outlets to 100 this year, having increased its China
profits last year by 85 percent to $320 million.

Investment in an enhanced retail product
line-up has been a key feature of StanChart’s recent success in
China, added Chia. In particular, the bank has high hopes for the
recent Chinese roll-out of the MortgageOne offset mortgage, where a
customer’s savings balance is linked to a mortgage with interest
paid only on the balance.

StanChart is hoping it can replicate the
success of the product in other markets, including Malaysia, where
it first launched in 2001, Thailand, Singapore and India.

While it is early days, Chia said MortgageOne
had enjoyed a successful start in China, augmenting other current
product hits – in particular the bank’s personal loan, business
loan and debit card offerings.

“MortgageOne is a very innovative product
which has been very well received and tested. Based on our global
financial expertise and knowledge of local markets, we believe that
our products should help customers plan, build and protect – and by
reducing the interest a customer has to pay on the loan, they will
own their home faster and easier,” said Chia.

As for its card operation, StanChart obtained
the go-ahead last year from the People’s Bank of China, the
country’s central bank, to issue retail debit cards in the country
– locally incorporated foreign banks were only given the green
light to offer debit cards in May 2007 – resulting in a partnership
with China-based electronic network ChinaUnion Pay (CUP).

At present, CUP has more than 200 domestic and
overseas members. The number of domestic CUP merchants totaled
740,000 with 1.18 million POS terminals, and more than 120,000
ATMs. The Chinese government itself has stated it wants 30 percent
of retail sales to be made through payment cards in major cities by
the end of 2009, up from 10 percent in 2005. Card-based
transactions accounted for 25.6 percent of China’s total retail
sales in the first quarter of 2008, up from 21.9 percent a year
ago.

StanChart cardholders can now withdraw cash
and perform balance enquiries at StanChart’s ATMs in mainland China
or at any CUP-enabled ATM worldwide as well as use the bank’s debit
card at CUP-enabled merchants within and outside China.

“We have also developed a loyalty programme,
the Standard Chartered Debit Card Bonus Miles Program, allowing
debit card users to earn and accumulate bonus miles whenever they
swipe their card – whether it be through ATM transactions or
in-store usage,” said Chia.

In terms of the programme, for every deposit
made into the account of CNY10 ($1.46), one bonus mile is awarded,
with additional bonus miles calculated monthly according to the
average daily balance of the linked StanChart savings account. For
every CNY1 spent in-store on the card, one bonus mile is also
awarded. Cardholders can then redeem their accumulated bonus miles
for free hotel accommodation and airline and rail tickets, with
benefits ranging from package holidays to Japan and Singapore to
train tickets for travel in China.

Debit card usage is being further boosted by
StanChart offering a card personalisation service as well as a fees
concession, with the bank waiving the standard CNY2 service charge
for cross-bank ATM withdrawals of at least CNY2,000.

For the Chinese market, StanChart has
developed a bancassurance suite of products, including annuities,
disease protection plans and children’s education plans. It has
also rolled out a range of investment products.

Segmentation remains
vital

Segmentation, concludes Shia, remains
absolutely vital to Standard Chartered, a bank that has
historically targeted mainly high net worth and mass affluent
customers. All of the its local branches also support another key
segment of the market for StanChart: the growing Chinese SME
sector.

StanChart’s private banking arm is aimed at
high net worth individuals (HNWI) with investable liquidity of at
least $1 million while its premium segment targets the
mass-affluent sector. The bank’s research suggests there is a HNWI
target audience in China alone of around 415,000, in excess of the
combined country totals for India, Singapore, Korea and Hong Kong
(see bar chart right).

Looking ahead, Chia says StanChart remains
confident about China, on the grounds it is better placed for
recovery than Europe and the US. And he argues that StanChart is
better placed than a number of its rivals to gain market share by
capitalising on industry dislocation.

“We have a strong client base with growing
product capabilities and the relaxation of the regulatory
environment should provide opportunities to leverage our strong
balance sheet.”

Microfinance, rural and
village schemes also important for Standard Chartered

At the other end of the segmentation
scale from affluent customers, StanChart has thrown itself
enthusiastically into a microfinance agreement, signed in 2008,
with the China Foundation for Poverty Alleviation (CFPA), a project
Chia was keen to explain.

“In the presence of Chinese premier Wen Jiabao
and UK prime minister Gordon Brown, the bank signed loan and
co-operation agreements with the CFPA, the first time an
international bank has provided credit loan facilities to an
organisation dedicated to microfinance projects in China. By the
end of January 2008, the CNY20 million credit loan has been
disbursed to poor farmers and owners of micro-enterprises who
urgently need funds,” he said.

He estimated that the bank’s loan had
benefited over 6,000 farmers in the Shanxi Province by the end of
December 2008, with loans providing financial support to enhance
production and raise living standards.

Standard Chartered has regarded the
agricultural sector as one of the cornerstones for growth in China
since 2005 and has increasingly focused on providing finance for
the agri sector.

“At group level, we have been committed to the
second Clinton Global Initiative, to establish a $500 million
microfinance facility across our markets by 2011, which is
estimated to benefit four million people currently excluded from
participation in the financial sector.”

In China, the bank has adopted a three-pronged
strategy to rural financing, focusing on agri-business,
intermediaries and direct financing, as well as supporting
international firms which are investing in cultivating and
developing China’s rural areas.

In Beijing and Shanghai, the bank has
developed specialist teams who work closely with agricultural
experts, offering the best solutions for StanChart’s agri-business
clients in 18 provinces across China.

The bank also teamed up with Esquel, a large
garment manufacturer and supporter of cotton farmers in Xinjiang,
signing a memorandum of understanding for a microfinance programme
in 2007. Through this project, Standard Chartered became the first
foreign bank involved in establishing a complete microfinance
programme to support cotton farmers in the remote areas of
Xinjiang. The bank has also sponsored training courses for cotton
farmers to raise basic financial management skills.

StanChart’s latest rural initiative is Village
Bank, providing financial services directly to farmers, offering
deposit accounts and remittances services.

“We were delighted to celebrate the opening of
the first Village Bank in Helingeer, Huhhot, Inner Mongolia, which
opened for business on 27 November 2008, employing ten full time
staff, the first foreign bank to launch operations in Inner
Mongolia,” said Chia.

The bank chose to open its first village bank
in Inner Mongolia due to the region’s significant number of farmers
and businesses engaged in agriculture and believes that the
region’s strong economic growth potential provides a solid
foundation for the bank to build a sustainable business
there.