Taiwanese banks wishing to venture into China should find niches in small and medium-sized enterprises (SMEs), rural banking and wealth management, avoiding neck-to-neck competition with Chinese competitors, a survey of China-based foreign banks showed yesterday.
The annual survey, conducted by PricewaterhouseCoopers Taiwan (普華財顧) earlier this year, showed that stiffer competition with Chinese banks posed the biggest challenge facing 42 foreign financial institutions last year.
That was followed by ongoing regulatory pressures in China, which had topped their concerns in the previous four years, the accounting firm’s partner and managing director Jason Liu (劉博文) told a media briefing.
The foreign banking sector accounted for only 1.8 billion yuan (US$264 million) in last year’s influx of corporate lending in China, underperforming the entire Chinese banking sector’s full-year loan influx of 10 trillion yuan, Liu said.
Currently, the foreign banking sector totals 720 billion yuan in outstanding corporate loans, which represents a 1.71 percent market share in China, he said.
Foreign banks in general saw difficulty in banking with mega state-owned businesses given their limited number of outlets, in addition to regulatory constraints such as quotas for non-yuan-denominated funding and a 75 percent deposit-to-loan ceiling by next year, the survey showed.
However, these foreign banks see lucrative loan potentials with SMEs there, which fewer Chinese banks are interested in competing with given their riskier credit portfolios, Liu said.
Several banks further tapped into rural banking — supporting a population of 900 million across China — by granting loans to agriculture-related businesses, which often incur higher interest rates than those of low-margin corporate lending, he added.
Despite an absence of collateral, small rural loans have a low default risk, since they are often guaranteed by their business partners, Liu said, adding that HSBC tops 41 counterparts in the survey with the largest number of outlets in China at 99, excluding seven rural commercial banking outlets.
He also advised Taiwanese banks to seize business opportunities in wealth management or any other fee income-based businesses, where Chinese banks are less competitive.
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