Corporate banking in China accounts for 53% of total banking revenues and 62% of profits. From 2004 to 2007, wholesale banking enjoyed an annual growth rate of 22%, and is expected to maintain a growth rate of around 24% from 2008 to 2010, according to a new report, Corporate Banking in China: Opportunities for Entry from Celent.
Key findings of the report include that, during 2004 to 2007, the annual profit growth rate of China’s wholesale banking industry was 17%; it is estimated that such growth will reach 70% in 2008, and should be approximately 22% during the 2009 to 2010 period. In 2007, wholesale banks’ revenue came mainly from interest income, accounting for 93% of revenues. Although revenues from fee-based business accounts for only 7% of the total, it has experienced rapid growth, with an average annual growth rate of 50%.
In terms of profitability, corporate clients with assets or revenues beyond RMB300m reported the highest profitability, as clients under this category have very high returns on investments, with large scale deposits and loans; corporate clients with assets between RMB5-30m rank second place; corporate clients with assets between RMB30-300m fall last in terms of profitability. Trends regarding corporate loans include:
- The tendency to provide loans to small and medium enterprises (SMEs), with a greater preference towards loans with high risks and returns.
- A rapid increase in new loan products, including those that address trade and supply chain financing.
Fee-based business has experienced rapid growth. Services that have achieved the fastest growth include:
- Cash management: cash management clients of the ICBC have increased at a rate of 135% per year. Meanwhile, cash management clients at many other banks have increased at a rate of 200%. This increase is mainly due to the large-scale development of large enterprises and cross-regional enterprises.
- International settlement: during the period of 2003 to 2007, the annual growth rate for international settlement services was 33%, mainly due to a 26% growth rate in China’s foreign trade.
- From 2005 to 2007, the growth of banks’ financial management services for institutional clients increased by213%, and it is expected that the scale of theseservices will reach RMB648.4bn in 2008.
In terms of assets, the largest bank in China is the ICBC, accounting for 14% of the banking industry’s total assets, the ABC ranks in second place. The bank with the fastest increase of asset scale in 2007 was the ABC, and CMB ranks in second place, while CCB posted the lowest increase, with a negative growth rate of -17.13%.
In terms of fee-based business, the weighting of intermediary services is very closely related to a bank’s scale of operation. Banks with relatively large weighting of intermediary services include the Industry & Commercial Bank, Bank of China, Construction Bank, Bank of Communications and China Merchants Bank; In terms of growth rate, the intermediary services at the Industry & Commercial Bank, China Merchants Bank, Bank of Communications and China Minsheng Bank posted the most rapid growth.
The most popular way for foreign banks to move into China is to:
- Establish branch offices in China.
- Purchase and hold shares of domestic banks.
- Pursue business cooperation with Chinese banking institutions.
In order for foreign-funded banks to move into China, they should enter the markets of SMEs and private enterprises through cooperation with Chinese banks; develop from a single corporate client to all clients on the supply chain through supply chain financing and trade financing services; try to win enterprises with multinational operations as a client through their advantage of having overseas branch offices available; use the online banking channel to make up inadequate subsidiary establishments; turn to intermediary service markets with high levels of growth; choose an appropriate Chinese cooperation partner according to the business services to be developed; and strengthen government and public relations.
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