Citigroup, Bank of East Asia, HSBC, and Standard Chartered are set to become part of China’s huge retail banking market, following formal approval from the central government to operate China-licensed subsidiaries.
The four banks, which could previously carry out foreign currency business quite freely but only engage in local currency business with overseas companies and citizens, will now be able to offer yuan-denominated services to Chinese citizens.
The changes, which give foreign banks access to the country’s US$2 trillion pool of domestic savings, are part of wide-ranging deregulation of the industry that was a condition of China’s entry into the WTO.
By incorporating locally, the banks are able to avoid further restrictions on the size of loan they can make.
With the new approvals, banks have already begun to expand in preparation for their new customer base.
US-based Citigroup announced plans to almost double its China outlets this year, to 30. And the bank also plans to be the first to offer cash cards independently in China. "We’re a tiny fraction of what the local (banks) are; we have to change the way we do business, we’re a local bank now," said Richard Stanley, chairman of Citibank China.
The other three approved banks will also increase their mainland branches. London-based Standard Chartered has announced plans to double its outlets to 40 by the end of this year, while HSBC intends to add 30 outlets in addition to its existing network of 35. Hong Kong-based Bank of East Asia is targeting 100 branches by 2010, up from 27 now.
Foreign banks, with only a reported 2% market share in 2006, will not break into the China market without a battle. The reorganization process will require banks to apply for a business license in each city in which they wish to operate.
They will also have to submit any new product plans to the banking regulator for approval. The foreign banks are expected to focus on high-end services such as credit cards and wealth management – areas in which they hope to exploit the advantages they have over their local rivals in terms of expertise and experience.
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