Citibank, HSBC Holdings and other overseas banks that have braved China's red
tape and language barriers to get a foothold in the still far from capitalist
economy are earning the rewards for their efforts. The timing could not be
better, as the overseas lenders' domestic headquarters battle with the costs of
the evolving US subprime mortgage crisis and global credit crunch.
Mainland China's contribution to foreign banks' bottom lines has become
increasingly important amid the global economic slowdown and the subprime
turmoil, analysts say.
Nine of 42 overseas banks surveyed by PricewaterhouseCoopers (PwC) expect
revenue from the mainland to double this year. Corporate banking, investment
banking, treasury and trade
finance are among the main profit contributors, the survey found.
The number of overseas lenders involved in China's banking sector is growing,
helped by Beijing last year allowing them to run a wide range of
yuan-denominated services after establishing wholly owned subsidiaries through
local incorporation. HSBC, Standard Chartered and Hong Kong's Bank of East Asia
are among 21 so incorporated at present. That number is expected to treble to
about 60 by 2011, out of about 100 overseas banks with a mainland presence, up
from the existing 76.
Robust growth in most of Standard Chartered's key markets including China and
Hong Kong offset a write-down of US$300 million in indirect subprime exposure
to boost the lender's net profit by 24.85% for last year, the bank said while
announcing its 2007 results.
The bank reported limited indirect exposure to United States subprime assets of
less than US$6 billion.
Hong Kong delivered a record net profit of US$1.19 billion, accounting for 30%
of Standard Chartered's net profit in 2007.
The Chinese market growth outpaced the bank's worldwide growth last year, with
mainland pre-tax profit growing 72% to US$184 million and income jumping 73% to
US$498 million. This is in comparison with the bank's profits before tax of
US$4.04 billion for 2007, up by only 27% year-on-year, according to figures
given by Standard Chartered.
The bank plans to increase its branches to 60 this year from last year's 38 and
boost the number of automatic teller machines to 200 from 130. Last year, the
bank more than doubled staff numbers on the mainland to 4,300 from 2,100, and
increased its branches from 23.
To focus more on its booming Greater China market, the UK-based Standard
Chartered has relocated its Asia CEO office to Hong Kong from Singapore.
"Greater China for a long time will be the biggest engine of growth for the
bank" and "is the bank’s biggest focus," said Jaspal Bindra, Standard
Chartered's chief executive for Asia, earlier this year.
Among the biggest victims of the investment banking industry's troubles in
terms of write-downs is New York-based Citigroup, which has posted about US$41
billion in writedowns and losses and cut about 15,200 jobs globally.
But Citibank (China), the mainland banking unit of Citigroup, last year
reported a 99% jump in operating profit to 2.2 billion yuan, driven by strong
growth in deposits and lending. Net profit at the mainland-incorporated unit
reached 665 million yuan. No comparative figures were given.
According to Citibank (China), total loans grew 30% last year and deposits
jumped 70%. Its non-performing loan ratio was 0.2% at the end of 2007.
A Citibank China spokesman said it would continue to expand its network because
China "remains one of Citi's top-priority markets anywhere in the world".
London-based HSBC aims to increase mainland staff numbers by up to 50% over the
next few months, adding 2,000 to 2,500 new employees this year to its current
4,900.
"There won't be any lessening of commitment to grow our business here in
China," said Richard Yorke, president and chief executive officer of HSBC Bank
(China) Co, in Shanghai.
The bank in March announced the launch of its private banking business in
Beijing, Shanghai and Guangzhou to woo the growing number of millionaires on
the mainland. The bank targets clients with assets of more than US$10 million
and with investable assets of US$3 million.
The mainland has the second-fastest growing population of high net-worth
individuals (HNWI), who have net assets of at least US$1 million excluding
their primary residence, in the world following India, said Merrill Lynch and
consultants Capgemini in their annual world wealth report.
China recorded a 20.3% gain to 415,000 people last year, surpassing France as
the fifth-largest HNWI population globally. India topped the list with the
world's fastest growth rate for rich people, with a 22.7% increase from 2006 to
123,000 individuals last year.
HSBC China's operating income grew 44.2% to $451 million in 2007. Its pre-tax
profit grew 28.7% to US$165 million.
Bank of East Asia chairman and chief executive David Li said mainland
operations would be a key profit driver for the lender following a significant
losses caused by the United States subprime-related investments.
BEA made a combined provision of HK$1.4 billion last year as a result of the
subprime mortgage crisis in the United States as the fifth-largest lender in
Hong Kong increased net profit 20.6% to HK$4.14 billion in 2007 from HK$3.43
billion in 2006.
BEA's net profit from its mainland operations surged 73% to HK$926 million in
2007. Its mainland operations' contribution to the annual total profit rose to
23% in 2007 from 16% in 2006, while its Hong Kong operations' share fell to
68.8% from 72% and overseas operations’ share to 7.5% from 11.1%.
In August last year, Li said he wanted the mainland to account for 40% of the
group's overall profit by the end of the decade.
BEA plans to add 20 outlets to its present 53 across the mainland this year as
it further taps the regions in the west and northeast. It added 19 in 2006.
Yi Xianrong, a senior finance researcher at the Chinese Academy of Social
Sciences, said that although the subprime crisis had forced many financial
institutions to announce global lay-offs, expansion plans in Asia were not
being scaled down.
"The dwindling derivatives market in the US has led to a decline in demand, but
China's capital markets, such as investment banking services and wealth
management services, are expanding in China, offering opportunities for foreign
banks to offset their loss elsewhere," he said.
Overseas lenders are nevertheless concerned with an increasing number of
regulations and problems in retaining staff amid increased competition for
employees, the PwC report said.
About 50% of respondents said their staff turnover rate will be more than 20%
this year, with many people resigning to accept better offers from competitors.
That turnover rate is expected to continue in the next three years.
The survey found the three most difficult hiring positions are senior
executives, compliance officers and wealth management officers.
"Foreign banks are severely challenged in their ability to recruit and retain
personnel," said Raymond Yung, PwC Financial Services leader for mainland
China.
All respondents said they expect their payrolls to almost double in three
years.
Olivia Chung is a senior correspondent with Asia Times Online
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