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Retail Financial Services in China

By: VRL
Published: July 2009

Retail Financial Services in ChinaSince the publication of the first edition of Retail Financial Services in China (on the eve of the opening up of the market to overseas banks), a huge amount of change has occurred within the Chinese market.

This report provides readers with a comprehensive overview of the changes that have occurred within the retail banking, cards and wealth management markets in China and equips them with specific strategy recommendations that can be used to succeed.

 

The potential upside for financial services in China remains incredible.  The Chinese remain one of the greatest savers on earth, still have a large proportion of the population as ‘unbanked’ and even amongst the banked, there is a relatively modest uptake of financial services that are widely used worldwide. It was only in the late 1990s that consumer finance products such as mortgages and auto loans became available.  Not surprisingly, after decades of neglect, retail banking in China has experienced an initial boom, as pent-up demand starts to become fulfilled and consumers become more familiar and comfortable with personal banking. 

The economy has grown at the fastest sustained rate of any major country over the past two decades. While this has largely been an export-led phenomenon, now as a result of the worldwide economic problems, the balance of economic activity is set to shift towards domestic consumption, with the government unveiling plans to inject the equivalent of 16% of GDP into the economy over the next two years.   

Since the publication of the first report some of the major obstacles to the development of the retail banking sector have been overcome. China has a nationwide credit bureau, the government formed and empowered the China Banking Regulatory Commission (CBRC) to oversee and regulate the banking sector.  Best practices in global consumer banking are beginning to seep into the market from foreign players.  Domestic banks have undergone major reforms in corporate governance and the strong 2008 financial performance of  the leading banks have shown just how successful they have been in resolving legacy issues.

Nonetheless for newcomers appraising the market, the potential for failure is as daunting as the prospect for success is alluring.  For a wide variety of reasons a number of the joint ventures between domestic and international banks have produced mixed results, and for a number of players have moved away from the market. China’s banking sector still lacks real transparency, government interests directly or indirectly control most of the major banks, the regulatory environment is challenging to understand, and banking laws are not consistently enforced.  Many feel that corruption remains an issue.

 

This report is the revised and updated edition of the 2006 report "Retail Financial Services in China". Since the publication of the first edition (on the eve of the opening up of the market to overseas bank), a huge amount of change has occurred within the Chinese market. This report provides readers with a comprehensive overview of the changes that have occurred within the retail banking, cards and wealth management markets in China, and equips them with specific strategy recommendations that can be used to succeed.

Although this publication strives to provide its readers with the most recent data and information possible, it will already be out of date once it is published since the market is changing so rapidly. Therefore, this report is designed to also explain the fundamental forces that have shaped and are shaping the development of financial services in China, so that readers can interpret and contextualise new developments in the market for themselves.

The potential upside for financial services in China remains incredible. The Chinese remain one of the greatest savers on earth, still have a large proportion of the population as ‘unbanked’, and even amongst the banked there is a relatively modest uptake of financial services that are widely used worldwide. It was only in the late 1990s that consumer finance products such as mortgages and auto loans became available. Not surprisingly, after decades of neglect, retail banking in China has experienced an initial boom, as pent-up demand starts to become fulfilled and consumers become more familiar and comfortable with personal banking.

The economy has grown at the fastest sustained rate of any major country over the past two decades. While this has largely been an export-led phenomenon, now as a result of the worldwide economic problems the balance of economic activity is set to shift towards domestic consumption, with the government unveiling plans to inject the equivalent of 16% of GDP into the economy over the next two years.

Since the publication of the first report some of the major obstacles to the development of the retail banking sector have been overcome. China has a nationwide credit bureau, The government formed and empowered the China Banking Regulatory Commission (CBRC) to oversee and regulate the banking sector. Best practices in global consumer banking are beginning to seep into the market from foreign players. Domestic banks have undergone major reforms in corporate governance and the strong 2008 financial performance of the leading banks, have shown just how successful they have been in resolving legacy issues.

Nonetheless for newcomers appraising the market the potential for failure is as daunting as the prosect for success is alluring. For a wide variety of reasons a number of the joint ventures between domestic and international banks have produced mixed results, and for a number of players have moved away from the market. China’s banking sector still lacks real transparency, government interests directly or indirectly control most of the major banks, the regulatory environment is challenging to understand, and banking laws are not consistently enforced. Many feel that corruption remains an issue.

Many products have had slow or disappointing beginnings. Auto loans and student loans have seen NPLs soar to nearly 50 percent in some cases. Credit cards have captured the imagination of many banking players, but have yet to produce any significant profits. Clearly the message is that success will come as a result of a long haul.

To succeed in China, decision-makers in the financial services sector need to understand the material contained in this publication so that they can evaluate the potential and hazards in China for themselves. The outline of this report is as follows:

THE BANKING ENVIRONMENT IN CHINA

  • A brief history and description of the Chinese banking market as well as predictions of future developments in the sector
  • Discussion of how large scale market forces are changing the retail banking landscape in China
  • A description of the legal, political, and regulatory environment impacting retail banking in China

BANKING PRODUCTS AND SERVICES

  • The most salient characteristics of the deposit market, how this market will change, and key strategies and issues to watch to succeed in the deposit business in China.
  • The key aspects of the wealth management market, how this market will change, and key strategies and issues to watch to succeed in the wealth management business in China.
  • The most salient characteristics of the cards market, how this market will change, and key strategies and issues to watch to succeed in the cards business in China.
  • A discussion of how alternative channels such as internet banking and m- banking are changing retail banking in China, and suggested strategies to take advantage of this.

DOMESTIC BANKS AND FOREIGN PLAYERS

  • A brief discussion of the most important organisations skills and capacities that players need to succeed in retail banking in China and why.
  • Who’s who amongst the domestic players in the retail banking market, what are they doing, and what is their direction for growth and change in the near future.
  • Who’s who amongst the foreign players in the retail banking market, what are they doing, and what is their direction for growth and change in the near future. A description of the most important partnerships and alliances in the retail banking sector, a discussion of why partnerships form in China, how will they evolve, and what are the risks and benefits associated with this type of business undertaking.

 

Chapter 1: Introduction

Chapter 2: Large scale market forces  

Chapter 3: The legal, regulatory, and political environment as it affects retail banking in China

Chapter 4:

Chapter 5: China’s wealth market  

Chapter 6: Payment cards

Chapter 7: Players in China’s retail banking industry

List of figures

Chapter 2: Large Scale Market forces

Chapter 4: China’s Wealth Market

Chapter 5: Payment cards

Chapter 6: Players in China’s retail banking industry

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Retail Banking Products:

Publications:

Retail Banker International
Banking and Payments Asia

Conferences:

Retail Banking and Cards Forum, September 2010, Bahrain (TBC)  
Retail Banking/Payments Innovation, Kuala Lumpur, 11-12 May 2010

Roundtables:

Retail Banking/Payments Asia Roundtable, detailed subject matter TBC, Hosted by Titien Ahmad, VRL Asia-Pacific, and Hugh Fasken, Editor, Retail Banker International, August 2010

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