Lining up in front of a counter in a small Bank of China branch in Haikou, the largest city in Hainan Province, Hong Kong businessman Samuel Hui has learnt to put aside at least half an hour to complete his banking transactions.

"Unlike Hong Kong, customers here have to be patient and bear with the slow process," Hui said.

For Hui, who shuttles between Hong Kong and Hainan, the deficiencies of the mainland's banking system are particularly glaring.

However, things are changing. Since the central government opened up the domestic market to allow overseas banks to run renminbi businesses for mainlanders last year, more and more such banks have deepened their footprints on the mainland.

Their entry poses a challenge to local lenders. But these lenders also stand to gain in terms of richer management experiences of overseas banks.

Billy Mak, associate professor of the Hong Kong Baptist University, pointed out that mainland lenders still lag behind their international counterparts in terms of risk management, service diversification and corporate governance. "Learning from the practices of overseas banks will substantially raise the quality of mainland lenders."

Mak said mainland lenders take a relatively lenient stance on risk management.

"Bank of China has disclosed it holds $9.65 billion of US mortgage-related debts. In keeping with their bookkeeping practices, overseas banks would adopt a more prudential approach to deal with the debts," Mak said.

With the opening up of the financial market, domestic lenders will be involved in more complicated businesses and will have to adhere to international rules. Mainland banks should also try to earn more from non-interest income, Mak pointed out.

"Given that interest and non-interest incomes of Hong Kong banks are split in the proportion of 6:4, mainland lenders should tap into the non-interest market."

Mak said he believed that mainland lenders will diversify their income sources by widening the scope of their services and products. "With the stimulus of market competition, they will press ahead to release more investment products."

Lack of efficiency and hospitality used to be a common symptom of mainland banks. "I think the situation will gradually improve when more overseas banks hit the market."

According to a report from consultancy China Chengxin International, the financial health of State-controlled banks has substantially strengthened as a result of their structural reforms.

(China Daily August 30, 2007)