This month, China Economic Review is co-organizing Retail Banking 2007, a conference that will look at the implications for China’s banking sector as it opens up to wider foreign involvement. In the run up to the conference, we spoke to Lu Hongjun, president of the Shanghai Institute of International Finance, about how the industry as a whole is likely to develop. Meanwhile, Helen Hu, retail banking business manager of China Merchants Bank, offered her insights into how the Shenzhen-based lender has thrust itself to the forefront of the country’s retail banking market.
Q: Foreign banks are now in even closer competition with Chinese lenders. How can the foreign banks gain an edge as the market develops?
A: For the retail banking business, the advantage that foreign banks have in China is their product service system; Chinese banks’ advantage is their branch networks and their familiarity with Chinese banking policy. It’s very difficult to predict trends in the banking business.
Q: Foreign banks have to further their understanding of the Chinese market. How can they achieve this?
A: They do in-depth research. Banks have their systems, such as bank cards, and they can use these to analyze consumption patterns. Foreign banks also need to accomplish three things: 1) Redefine themselves. Take Citibank as an example. It is extremely successful in the Asia Pacific region, but it had to redefine its target market on entering China. It had to adjust its strategy to link in with China’s financial reform and development. We are glad to see that Citibank is now also focusing on small- and medium-sized enterprises, which is a huge market here. 2) Products developed by the foreign banks should suit the Chinese market. They should cooperate with local firms. China’s financial system is not international enough, which directly affects the products offered by local banks. This represents an advantage for foreign banks. 3) At present, foreign banks are focusing on learning from Chinese banks. The next step they should take is to localize their branches. They should not only provide RMB services and employ local staff, but also set up new systems that can bridge Chinese culture and their parent firms’ culture. They should not only integrate with the local banking community, but in a way consider themselves to be Chinese banks.
Q: What can local banks do to improve their business?
A: The key driver in their success is learning from foreign banks. The financial market are changing rapidly; the banks should get used to this and adjust their knowledge structures. China’s banks are making a number of changes. Some are breaking down their business departments into four modules responsible for planning, services, sales and research respectively. They are also increasing branch numbers and improving customer service levels. But they need to do more. They need to strengthen their services. I was talking recently to the CEO from a listed firm in Beijing and he was saying that the city’s service level is 10 years behind Shanghai. If this is the case, we have a lot of catching up to do because China is still 10-15 years behind these international banks in terms of service.
Q: What specific changes do Chinese banks have to make in order to better serve their customers?
A: The banks need to understand that service isn’t just about selling and making money, it should be from the bottom of the heart. Chinese banks are slowing coming to realize they have to put themselves in their customers’ place and think carefully about what these customers need.
Q: A number of foreign banks have taken stakes in China’s Big Four state banks. Is this the best way in or should they invest in smaller banks in which they can have more control?
A: Foreign banks need to do both because China is a huge market. First of all, investing in a big bank means wider influence. Secondly, they can build their brand in China faster by using larger banks. I saw a recent interview with a Saudi Arabian prince on Shanghai TV. They asked him if he planned to invest more in China and he said yes, but wanted Citibank to help develop it. So there is a reputation involved. Thirdly, it is easier for foreign banks to become familiar with domestic operations working with a big bank. All of these things would be difficult to realize by investing in small banks. On the other hand, small banks can have a huge impact in their respective regions.
Q: What is the future outlook for lending in China?
A: It depends on the economic reforms from central government. In the past, many people have defaulted on loans so banks need to strengthen their lending systems along the lines of the US model. Local governments should also play a larger role. In Wenzhou, for example, if you borrow money from a bank, you and your family are responsible for paying back. The debt can be passed down to your children and maybe even your grandchildren. In the future, we will see the development of a much stricter lending policy to distinguish appropriate candidates for loans.
Q: What is the key to China Merchants Bank’s (CMB) success with retail services?
A: I believe that our success in this field has been due to our excellent customer services. We are committed to our exclusive customer service philosophy "Changes for You," which means that we endeavor to satisfy the individual needs of every single customer. Moreover, all of CMB’s staff are here to ensure that customer service in all our branches and sub-branches is carried out according to this philosophy. Without your customers’ full support and trust, no bank can survive.
Q: What systems do you have in place to ensure that the level of customer service is consistently high?
A: We regularly survey our customers to see what they think is good and bad about our customer service. Based on these results, we take the appropriate action. Before we set up our customer survey system, we paid more attention to product innovation. After we set it up, we realised that even though your products may be good, your customers won’t be happy unless your customer service is efficient.
Q: What investments has CMB made in technology?
A: We provide internet banking services, mobile banking services, inquiry machines and ATMs for our customers. We have approximately 400 braches and sub-braches throughout mainland China and more than 4,000 ATMs. We have around three million customers using our internet banking services. We also have a system that allows management to keep an eye on staff efficiency and queuing situations.
Q: How does CMB go about targeting potential customers? What is its marketing strategy?
A: CMB focuses on customers who are young, open-minded and able to adapt to new ideas and technology. When CMB was founded, it was difficult to expand our branch network. This is why we were one of the first to provide internet banking services. Older Chinese people were reluctant to embrace the new technology so we began to focus our attention on younger customers. Although we focus on the youth market in terms of development, we are 100% committed to customers who have grown up with CMB.
Q: What systems does the bank have in place to ensure lending decisions are sensible?
A: "As long as you have savings, we can lend you money" is our motto. However, we do have to consider the risk involved in every loan we make. For instance, we have a scorecard system for credit cards. We allocate customers different lending thresholds according to their career, education and income. We have supplied 10 million credit cards to our customers in the last four years and our aim is to supply 20 million more cards in the next year. We are also working on plans to release a mortgage credit card that will allow our customers greater freedom when it comes to buying the right place.
Q: Does CMB see the greater participation of foreign banks in the Chinese lending market as a threat?
A: No, we don’t. We consider the presence of foreign banks as an opportunity, not a threat. We still have a lot to learn from our competitors, especially our global competitors. The greater participation of foreign banks in China is good for the Chinese lending market and it is also good news for customers.