China’s banking sector has
survived the global banking crisis without the need of government
bail-outs. Lending has continued to rise and profits across the
sector increased by 15% from 2008 to 2009. With an emphasis on
product development, fee income is on the up, reports Douglas
Blakey.
Go deeper with GlobalData
Despite a
small decline in net interest income, overall profits across the
Chinese banking sector increased by 14.6% year-on-year in 2009.
Industrial and Commercial Bank of
China (ICBC) remained the most profitable bank, with an increase in
net profit of 16.3%, while Agricultural Bank of China (ABC), fresh
from its $19.2bn IPO, increased its net profit by 31%.
China’s big four banks – ICBC,
China Construction Bank (CCB), Bank of China (BoC) and ABC – are
now ranked among the world’s largest 10 banks by market
capitalisation.
While net interest income showed a
small decline, non-interest income soared by over one-third across
136 Chinese banks surveyed by consultants KPMG.
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By GlobalDataNon-interest income at ABC more
than doubled, while ICBC and CCB posted an increase of 36.6% and
29.6% respectively.
The growing importance of
non-interest income highlighted the expanding product ranges of the
country’s banks and their expansion into other areas of financial
services.
Sectors such as private banking,
trusts, leasing, insurance and fund management have all shown
substantial growth.
With the rapid increase in high net
worth individuals in China, private banking is regarded as one of
the most attractive and least developed areas of financial services
in the country.
Credit Suisse’s first Global
Wealth Report, published in September, reported that of 24m
high net worth individuals – those with average wealth of $1m or
more – just over 800,000 are in China.
The report added that China stands
out as the third-largest wealth generator in the world, behind only
the US and Japan, and is 35% ahead of the wealthiest European
country, France.
In the retail sector, the People’s
Bank of China reported significant cards growth in 2009, with
1.88bn and 186m debit and credit cards in circulation in China
respectively.
Looking ahead, consultants Celent
forecast in its report The Chinese Credit Card Market that there
could more than 200m people in China with an annual income of more
than $2,000.
It claims this shows the tremendous
potential for growth as these consumers are all possible credit
card customers, and suggested there is potential for the market to
grow from 2bn to 3bn.
ICBC, China Merchants Bank (CMB),
CCB, BoC and Bank of Communications (BoCOM) have each issued more
than 10m cards. In the next four years, Celent said that another
eight banks will have issued more than 10m cards each and a further
30 banks will issue more than 1m.
Celent highlighted the mass
affluent sector as offering scope to grow cards revenue, and said
that cardholders with an annual income of more than $17,600 are
mainly concentrated in Beijing, Shanghai, Shenzhen, and Guangzhou.
Celent forecast that in 2015, the number of people with an annual
income of more than $17,600 in these four cities will account for
45% of this income segment in the whole of China.
The annual income of China’s high
income population is equivalent to one-quarter of the annual income
of the entire population, with a growth rate of 22.5%. High-end
consumer card spending is more than $10,000 – 50 times that of
ordinary credit cards.
Consumer finance
growth
In the past year, consumer finance
has been boosted by a pilot project, launched in 2009 in four
cities: Beijing, Shanghai, Tianjin and Chengdu. The initiative may
yet be extended nationwide.
Four projects have already been
established. Bank of Beijing has set up Bei Yin Consumer Finance;
BoC has set up BoC Consumer Finance Company; Bank of Chengdu has
agreed a joint venture with Malaysian lender Hong Leong Bank, and
Home Credit Consumer Finance has been launched by Czech Republic
lender PPF.
The lending scope for the four
firms is, to date, limited – the reason being to restrict risk.
Loans to new customers are required to be in the form of an
instalment loan for consumer durable goods.
In the meantime, the regulations
relating to the consumer finance firms will inevitably restrict a
substantial growth in customer numbers.
The high capital required to
establish a consumer finance company (CNY300m) will also limit the
number of such firms being set up.
Although there are barriers to
entry and the market remains immature, the potential rewards are
significant.
But as KPMG highlighted in its 2010
China Banking Survey: “Chinese consumer finance companies will need
to set up highly advanced credit risk assessment systems capable of
carrying out timely loan assessments on thousands of small loans
per day.”
Channel growth: mobile
falling short
With around 800m phone users in the
first half of 2010, according to the country’s Ministry of Industry
and Technology, there has long been a belief that mobile banking
offers scope to bring banking services to the unbanked segment of
China.
To date, mobile banking growth has
been disappointing, but may be set for a surge in popularity.
China Mobile – China’s biggest
mobile operator – has invested CNY39.8bn in Shanghai Pudong
Development Bank for a 20% stake, as part of its plan to grow
mobile banking, while Citigroup became the first international bank
to launch a mobile banking service in China.
Elsewhere in the sector:
- China Unicom and China
Merchants Bank have signed a cooperation agreement to jointly
launch mobile banking services through the Apple
iPhone; - BoCOM launched its online
banking services on the iPad, the first Chinese lender to offer
such a service; - In September, ABC and China
United Network Communications Group agreed a joint venture, to
advance cooperation in mobile banking, mobile payments and
e-commerce
At the end of 2009, KPMG estimated
that the market size for mobile banking amounted to CNY2.8bn, but
forecast there was scope for this to grow to CNY100bn if the
service became popular.
In terms of remote mobile payments, Celent has estimated that
the penetration rate in the Chinese market was only 10% in 2009,
but the number of remote mobile payment users is expected to reach
410m by 2013. The penetration rate for contactless mobile payments
was only 0.5% in 2009. This is mainly due to the larger number of
applications supporting remote mobile payments.
