European lenders mull next China moves
Updated: 2010-12-17 12:36
By Zhou Yan (China Daily European Weekly)
HSBC Holdings Plc, Europe's biggest bank by market value, saw its profits from China dipping nearly 60 percent in 2009 to 718 million yuan (80.5 million euros) compared with 2008 figures, the report says. Standard Chartered Plc says earnings from China fell by 34 percent to 423 million yuan in 2009.
While there are no separate figures for European banks, industry analysts are of the view that the numbers would hardly surpass their global counterparts as they also face problems like regulatory hurdles and intense competition from domestic players.
The market share of foreign banks declined in 2009 due to intense competition from domestic lenders and decreased borrowing needs of foreign companies in China, a recent PricewaterhouseCoopers (PwC) survey reports.
More than half of the 42 participants in the PwC survey expect the market share of European banks in China to be about 2 percent till 2020, in the absence of what they perceive to be a level-playing field and limited product offerings.
That figure is significantly lower than the earlier market share estimates of foreign banks like Standard Chartered Bank. The bank, which set up its first branch in Shanghai in 1858, had envisaged a market share of 10 percent by 2010 compared with 2 percent in 2002. That now looks unlikely.
Senior executives of Standard Chartered were not available for comment.
Though the process of setting up a local entity is "costly and time-consuming" for European banks, it also represents a significant commitment to the China market and serves as the first step toward the creation of a larger organization, which is more independent from the group or head office, KPMG says in its report, adding, "many banks are still pursuing incorporation (in China) as a way to sustain their growth as their existing retail and commercial banking markets weaken".
European lenders have been relatively slow in their China expansion plans as they are facing problems in their home turf, says Geoffrey Wood, professor of Economics at Cass Business School of City University London.
"They have to make sure they're in good order at home before expanding overseas," he says.
The financial turmoil that originated in the United States has engulfed most of Europe and dealt a severe blow to the banking sector. The Chinese market, which remained relatively insulated to the financial crisis, is now emerging as the new frontier of hope for many of the ailing European lenders, analysts say.
Though the opportunities are immense in China, the intense competition from domestic lenders has queered the pitch for most European banks. "As more and more foreign banks set up units in China, competition will also intensify," says Charles Li, country executive of Royal Bank of Scotland (RBS) in China.
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