Most of the foreign banks in China expect no erosion in their market share, though some may see declines this year due to stronger competition from local players, according to a report by accounting firm PricewaterhouseCoopers.

The conclusion is totally different from that of 2008 when most of the foreign banks forecast that their market share would continue to grow.

"As domestic banks have enhanced their skills and performance, many foreign banks feel pressured by restrictions on innovation and creativity," said Raymond Yung, PwC's Financial Services Leader for the mainland market.

Most of the banks said the economic crisis has made the industry regulator more cautious in approving derivatives, structured deposits and different types of swaps, thus dwarfing their advantage in product design.

The massive boom in domestic lending has sidelined many foreign banks in the corporate lending market, Yung said.

Chinese banks extended 1.53 trillion yuan of new loans in June, bringing the half-year total lending to 7.4 trillion yuan, far exceeding the country's initial full-year target of disbursing 5 trillion yuan in loans. Total lending so far this year amounted to almost one quarter of last year's GDP.

Foreign banks entering new markets have frequently used competitively priced corporate loans to form initial relationships with new clients. But this door has been closed by the low margin and availability of loans from the large Chinese domestic banks.

However, foreign banks believe that their market share will have a significant increase if Shanghai is successful in pursuing its goal to become an international financial hub.

At the end of 2008, liquidity became a major issue for foreign banks, and many of them scaled back their corporate lending.

Although market share is higher in tier-one cities, nationally foreign banks continue to have a very modest 2 percent market share, the report said.

In terms of revenue income, 17 foreign banks are expecting a growth ranging from 10 to 20 percent in 2009. Nine banks expect no growth this year while two anticipate negative growth. Most of the banks have painted a rosy picture for 2012, based on better expectations for the overall economy.

Most of the foreign banks also said they would like to pursue more mergers and acquisitions this year.

According to the report, 23 foreign banks believe that they will make further acquisitions in China. In 2008, 22 banks expressed this intent.

Those who believe further acquisitions are unlikely said there are not many opportunities available or banks have less funds for the purpose.

PwC's survey, covered 41 foreign banks operating in China, and was carried out between April and May this year.

(China Daily July 16, 2009)