Fuelled by the market potential and the opportunity to expand their customer and product base, foreign banks are poised to double or even triple their growth targets in China over the next three years, according to a survey from PricewaterhouseCoopers.

The survey, based on personal interviews with 35 banks conducted in Beijing, Shanghai, Shenzhen, Tianjin and Hong Kong, focuses on the strategic and emerging issues surrounding the expansion of foreign banks in China.

Over seventy percent of banks surveyed predict an annual revenue growth rate of at least 30 percent for 2005 that will continue over the next three years.

Four banks expect to continue to grow by at least 100 percent annually through to 2008 due to increased market access.

"The ever-growing presence of foreign banks in the Chinese market has contributed to the strong and active support from their head offices," said Mervyn Jacob, partner of PricewaterhouseCoopers.

Thirty percent of the participants attributed a maxiumun score of 10 for the level of commitment from their head office.

In terms of profits, the banks have had mixed success to date. Trade finance, money markets and foreign exchange are the most lucrative segments, while retailing and corporate banking are seeing a comparatively flat performance.

Foreign banks believe that credit cards, mortgages and investment products will become increasingly important in the Chinese retail-banking sector in the next three years. For the wholesale banking segment, the top three concerns would be debt capital markets, credit derivatives and risk management products.

Moreover, the overall market is becoming more client-driven and foreign lenders are going to introduce new products, notably in the treasury market.However, the pace of future market expansion is still uncertain and as one banker observed, even after 2006, there still remains "a bumpy road ahead".

To further increase their market presence, most of the respondent banks will choose organic growth, followed by partnering with a joint stock commercial bank and then with one of the "Big Four" commercial banks.

"This is because foreign banks regard their ability to exercise management control as the most critical issue when choosing a joint venture for expansion," explained Mervyn Jacob.

(China Daily November 2, 2005)