It's time for local banks to reconsider their strategies and
come up with more innovative products and services for customers
who might otherwise be wooed away by overseas rivals.
Facing unprecedented competition from overseas banks, with four
of them launching locally incorporated businesses on the mainland,
domestic players are beginning to feel the need for a major
paradigm shift.
In Shanghai, the nation's financial hub, where the banking
battle will be the bloodiest, local banks must seek innovative
products and services, especially in the wealth management sector,
to fend off competition in the retail market.
"For the banking industry in Shanghai, this is the best time in
its history to innovate and develop," said the China Banking
Regulatory Commission's Shanghai bureau, citing a double-digit
economic expansion for more than 10 years in the city and an
improvement in the overall financial environment.
Innovative products will appear in sectors including wealth
management, e-banking payment, derivative transactions,
intermediary business and private banking services, the regulator
believes.
For a long time, local banks in the city have been satisfied
with just meeting the basic needs of customers and not actively
pursuing changes.
But as times change, customers have become techno-savvy and the
threat from overseas rivals is far more real, the need for
innovation is more pressing than ever.
"Chinese commercial lenders are quickening their pace to
institutionalize product innovation," the regulator said in a
recent report.
The banks are thus providing a wider range of wealth management
products, becoming more active in renminbi derivative transactions,
and offering new products to boost their housing mortgage lending
business. Shanghai's credit card market is booming, e-banking has
picked up and a wide range of trust products are flooding the
market.
Fee-based income generated by commercial banks in Shanghai
jumped 36 percent in 2006 on the previous year, accounting for 18
percent of the total operating profit, up 2.84 percentage points.
Electronic bank transactions by individuals also jumped 119 percent
in the second half of 2006.
But the regulator has been quick to add that many banks are
merely doing what others have already developed.
Statistics from the Chinese central bank's Shanghai headquarters
indicate that domestic institutions still heavily rely on profit
from the traditional business, namely the spread between lending
and deposit rates.
But this could change as overseas competitors propel local
lenders to innovate, the regulator believes. Foreign banks will
focus on several categories of financial services in which they
have better expertise and which have higher profit potential. These
include intermediate businesses in foreign currency and money
management.
Christine Ip, country head of Consumer Banking at Standard
Chartered Bank's China operations, said customer service is
something overseas lenders could share with local counterparts
through cooperation.
"We know Chinese banks want to learn how international banks
operate wealth management, innovate and provide quality service,"
she said.
To gain a toehold in the mainland's competitive retail market,
overseas institutions are bumping up efforts to put forward
personalized products and services targeting high-end
consumers.
According to China UnionPay, all four overseas institutions that
have been locally incorporated have contacted the nation's largest
credit card company to seek support to enter that market.
"They could offer very attractive personalized services with
plastic cards that combine different features, which make them
stand out from cards issued by their local rivals," said Yan Qiang,
UnionPay's assistant president.
"I'm convinced that foreign banks will improve the Chinese
banking industry as a whole," said Fang Xinghai, deputy director of
Shanghai Municipal Government Financial Services Office.
(China Daily May 22, 2007)