Market Research Report : Banking Industry in China 201


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Netscribes (India) Pvt. Ltd., a knowledge consulting solutions company, announces the launch of its Banking Industry in China 2011 report covering an industry with strong growth potential. Supportive regulatory policies and control are strongly benefiting the development of this market. The entry of foreign players also propels the growth of this sector making it one of the leading markets in the global scenario. China Banking Regulatory Commission (CBRC) has helped banks to successfully broaden their business through an increase in non-interest income lately by introducing a number of pilot programmes. From an international perspective, Chinese banks have continued their international expansion largely through organic growth via the opening of international branches and subsidiaries.

The report begins with an introduction to the banking industry in China, distinguishing the regulatory bodies and the various types of banks. The industry overview section begins with an insight into the overall banking industry in China along with its segmentation. It further delves into the total deposits and loans, total assets and liabilities and owner’s equity of banking institutions in China.

This is followed by a section on key performance indicators, evaluating the industry’s performance on the basis of key financial ratios specific to banks. It covers loan-to-deposit ratio, capital adequacy ratio, non-performing loan ratio, provision coverage ratio and profitability.

Foreign ownership in China’s banking industry has been covered along with growth of foreign institutions and their assets, segmentation, performance of foreign banking institutions, major foreign investments by Chinese banks and major foreign investments in Chinese banks. It also covers entry strategies for foreign players, typical acquisition process, and major acquisition challenges and solutions for foreign players.
An analysis of macroeconomic policies explains the industry’s significance on an economic basis and includes macroeconomic environment of China’s banking sector, adjusting the pace of credit supply, supporting economic restructuring and industrial upgrading, and participating in national policy formulation.

This is followed by the banking reform development section which covers China’s banking reform development, segment-wise reform policies, opening up of the banking sector, financial innovation and regulation, and implementation of BASEL II and BASEL III norms.

The future outlook section highlights the scope for the banking sector in the near future and includes supervisory focus of CBRC in 2011, medium-to-long term banking sector outlook and mitigation of risks in the banking sector.

The competitive scenario in the Chinese banking industry includes brief profile of the major domestics and foreign banks in China (including the “Big Four” banks).

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Market Research Report : Banking Industry in China 201

  1. 1. Banking Industry – ChinaAugust 2011
  2. 2. Executive Summary China has largely weathered the financial crisis with the government stimulus package being channeled through the banks, which has resulted in large expansion of bank lending Bank deposits and loans have both been growing strongly in China, owing to the regulations of the central bank Industry to improve the performance of the banking sector Four state-owned banks of China, referred to as the ‘Big Four’, primarily dominated the banking sector, but lately commercial and other smaller banks are also rapidly gaining market share Loan-to-Deposit Ratio Capital Adequacy RatioKey Performance Non-Performing Loan Ratio Indicators Provision Coverage Ratio Profitability Macroeconomic environment of China’s banking sectorMacroeconomic Adjusting the pace of credit supply Policies Supporting economic restructuring and industrial upgrading Participating in national policy formulation China’s Banking Reform Development Segment-wise Reform PoliciesBanking Reform Opening up of the Banking Sector Development Financial Innovation and Regulation Implementation of BASEL II and Basel III Domestic Players Foreign Players Competition Player 1 Player 2 Player 3 Player 4 Player 5 Player 6 BANKING INDUSTRY IN CHINA 2011.PPT 2
  3. 3. •Introduction•Industry Overview•Key Performance Indicators•Foreign Ownership•Macroeconomic Policies•Banking Reform Development•Future Outlook•Competition BANKING INDUSTRY IN CHINA 2011.PPT 3
  4. 4. Chinas banking industry has significant government control but banks have gained more autonomy over time Banking Industry in China China Banking Regulatory Commission (CBRC) Primarily responsible for the formulation of supervisory rules and regulations governing the banking institutions and their business operations in China PLE Central Bank (People’s Bank of China) M Vested with the authority to implement policies and regulations throughout the banking institutions in China State-owned Commercial Banks • Bank of China SA Joint-stock Commercial Banks •Bank of Communications City Commercial Banks •Bank of Beijing • China Construction Bank •China Merchant’s Bank •Bank of Shanghai Rural Commercial Policy Banks Foreign Banks Banks • China Development Bank • Guangzhou Rural •Bank of East Asia • Export-Import Bank of Commercial Bank •Standard Chartered Bank ChinaSource: Note: The list is not exhaustive BANKING INDUSTRY IN CHINA 2011.PPT 4
  5. 5. Rising bank interest rates to curb lending and encourage higher deposits in China Banking Industry – Total Deposits and Loans of Banking Institutions • Bank deposits and loans have both been growing strongly in China, owing to the regulations of the central bank to improve the performance of the banking sector • In Apr 20--, the government raised the one-year bank deposit rate to a% and the one- year lending rate to b%, both by a quarter of a percentage point Raising interest rates would encourage higher deposits and lower lending, which would help reduce spending and ease upward pressure on prices Total Deposits Total Loans USD bn Trust deposits Other deposits PL Deposits of enterprises Saving deposits E Trust loans Other loans Short-term loans Medium- & long-term loans M Bill financing USD bn X% SA Y% 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010Source: BANKING INDUSTRY IN CHINA 2011.PPT 5
  6. 6. Key Performance Indicators (1/5) Loan-to-Deposit Ratio Total Loans and Deposits • Loan-to-deposit ratio is the proportion of loan-assets Total Loans created by banks from the deposits received Total Deposits • It indicates how much of the advances lent by banks Loan-to-deposit ratio is done through deposits USD tr % • Higher the ratio, the higher the loan-assets created from deposits E • Outcome of this ratio reflects the ability of the bank L to make optimal use of the available resources Performance Analysis MP • As of 20--, deposits maintained by banking institutions increased by a % year-on-year SA Household saving deposits grew by b% year-on-year Corporate deposits rose by c% year-on-year 0 2006 2007 Ratio (2010) 2008 2009 Value 2010 Change • Outstanding balance of loans made by banking Loan-to-Deposit Ratio x% y institutions went up by d% year-on-year Note: Year-on-year change indicated in percentage points Short-term loans grew by e% year-on-year Medium-to-long term loans grew by f% year-on-year Low loan-to-deposit ratio on account of increasing Consumer loans increased by g% year-on-year deposits and decreasing loans represents a Bill financing declined by h% year-on-year favourable scenario for the sectorSource: BANKING INDUSTRY IN CHINA 2011.PPT 6
  7. 7. Foreign banks are gradually increasing their presence in China’s banking sector Foreign Ownership – Overview Foreign Ownership – Growth • As of end-20--, a banks from b countries and regions No. set up c representative offices in China X% d banks from e countries and regions were locally incorporated which maintained f branches Foreign banks have presence in g cities of h provinces • In 20--, foreign banks performed sound with sufficient capital, good asset quality, reasonable 0 profitability and abundant liquidity Foreign Ownership – Segmentation PLE 2006 2007 2008 Foreign Ownership – Growth of Assets 2009 2010 Locally incorporated institutions (LII) Foreign Bank Branches LII branches and subsidiaries S WFO companiesM Wholly foreign-owned banks (WFO) A Joint-venture banks USD bn Share of Total Bank Assets Foreign Bank Assets Y% % 2010 0 0.0 2006 2007 2008 2009 2010Source: BANKING INDUSTRY IN CHINA 2011.PPT 7
  8. 8. Macroeconomic Policies – Summary Participating in national policy Macroeconomic environment of formulation China’s banking sector Key Policies Supporting economic Adjusting the pace of credit restructuring and industrial upgrading supply BANKING INDUSTRY IN CHINA 2011.PPT 8
  9. 9. Banking Reform Development – Summary China’s Banking Reform Development Implementation of BASEL II Segment-wise Reform and Basel III Policies Key Initiatives Financial Innovation and Opening up of the Banking Sector Regulation BANKING INDUSTRY IN CHINA 2011.PPT 9
  10. 10. Major Domestic Players in the Market (x/y) Company Snapshot: Player Corporate Information Financial Performance Headquarters City 1 Revenue Revenue Profit Profit / Loss USD bn USD bn Founded ---- Products and Product 1, Product 2, Product 3 Services Key People Person 1 – Co-Chairman PLE 0 2007 2008 2009 2010 0 Business Highlights SAM • Player 1 and Player 2 have signed a comprehensive cooperation agreement • Player and W Municipal Government to jointly launch an investment fund • Has signed a MoU with Player to promote trade relations and financial cooperation across the Taiwan • Player and University of ABC have inked a scholarship MOU • Has finished first round of institutional layout for private banking • Player has gone into operation in Beijing • Has also signed a MOU with XYZSource: BANKING INDUSTRY IN CHINA 2011.PPT 10
  11. 11. Thank you for the attentionThe Banking Industry - China report is a part of Netscribes’ Financial Services Series.For more detailed information or customized research requirements please contact: Jitendra Punjabi Gagan Uppal Phone: +91 33 4064 6215 Phone: +91 22 4098 7530 E-Mail: E-Mail: gagan.uppal@netscribes.comAbout NetscribesNetscribes is a knowledge-consulting and solutions firm with clientele across the globe. The company’s expertise spans areas of investment &business research, business & corporate intelligence, content-management services, and knowledge-software services. At its core lies a truevalue proposition that draws upon a vast knowledge base. Netscribes is a one-stop shop designed to fulfil clients’ profitability and growthobjectives.Disclaimer: This report is published for general information only. Although high standards have been used the preparation, Research on India,Netscribes (India) Pvt. Ltd. or “Netscribes” is not responsible for any loss or damage arising from use of this document. This document is thesole property of Netscribes (India) Pvt. Ltd. and prior permission is required for guidelines on reproduction. 11