foreign banks in china - pwcforeign banks in china 2010 4 pricewaterhousecoopers overview foreign...

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Foreign banks in C

hinaM

ay 2010

Banking and Capital Markets

Foreign banks in ChinaMay 2010

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Foreword 1

Executivesummary 2

Background 3

Overview 4

Marketenvironment 11

Riskmanagement 28

Productsandmarketsegments 36

Investments 46

Liquidityandfunding 53

Regulation 59

Performance 68

Peerreview 75

Appendices 82

• Methodology 84

• Bankgroups 85

• Locallyincorporatedbanks 86

• Participantsbycountry/territoryoforigin 87

• Backgroundcommentsonparticipants 88

• EuropeanChamberofCommerce–RecommendationsfortheBankingandSecuritiesWorkingGroupSeptember2009 100

• Top30ChinesebanksrankedbyTier1capitalandassets 102

• Branchnetworksoflargerforeignbanks 103

Partnersinsuccess 107

Tableofcontents

ForeignbanksinChina2010DatePricewaterhouseCoopers 1

Foreword

WelcometothefifthPricewaterhouseCoopers1(PwC)surveyonforeignbanksinChina.Thisyear,wespoketo42financialinstitutionsinChina.

Ouraimsincarryingoutthissurveyareto:

• RaiseawarenessofstrategicandemergingissuesforforeignbanksinChina;

• Establishdataoncertainindustrytrends;

• Understandthethinkingofchiefexecutiveofficersinthebankingindustry;

• Provokediscussionanddebateonthebestoptionsforforeignbankstocapitaliseontrendsanddevelopments;and

• ProvideinsightsandperspectivesonhowbankinginChinamayevolveoverthenextthreeyears.

ForeignbankshavebeenworkinghardinthelastyeartoexpandtheirreachacrossChina.Localincorporationispredictedtorisemarkedlyin2010,newbranchesareopeningandforeignbanksplantoincreasetheirpartnershipswithlocalcompaniestoboosttheirmarketaccess.

Theyhavenotbenefitedfromthesurgeinlendingcreatedbythegovernment’sstimulusplan.Domesticbanks,bycontrast,substantiallyincreasedtheirlending,whichisoneofthereasonswhy,forthefirsttime,respondentscitedtheriseofcompetitionfromdomesticbanksasthebiggestchallengetheyfaced.

Thesecondconcernistheregulatoryenvironment,withsomeperceivedimbalancesintherequirementsforforeignbankscomparedtotheirdomesticcounterparts.Thepaceofchangeandthecomplexityofregulationscontinuetoprovedifficultforsomebankstokeepupwith.Foreignbanksanticipateregulationstocontinuetotightenandchangetobesignificant,witharesultingimpactonthespeedandscopeoftheirprogression.

Noneofthishasdampenedthebanks’enthusiasmfortheirChinaoperations.Supportandcommitmentfromheadofficeishigherthanever,andwhilethebanks’predictionsofgrowthfor2010weremodest,they

MervynJacob

PricewaterhouseCoopersChinaandHongKongFinancialServicesLeader

May2010

weregreatlyimprovedfromlastyear.Projectionsofemploymentby2013arehigh,withbankssayingtheyexpecttoemploy48%morestaff.

Asthemostchallengingaspectsofthefinancialcrisisrecede,foreignbankswillseeareturnofthestaffingdifficultiesthatprecededthedownturn.Increaseddemandandcompetitionareloomingforkeypostssuchasrelationshipmanagersandcomplianceprofessionals.Humanresourcecostswillrisethisyear,withbothbasesalariesandbonusessettoincreaseastheglobaleconomypicksup.

FindingsofparticularinterestinthesurveyincludeobservationsonthecontinuinggrowthandexpansionofservicesbyChina’sdomesticbanks,newproductandserviceopportunitiesfortheforeignbankssuchaswealthmanagementanddebtcapitalmarkets,reflectionsonthedegreeofsuccessofequityinvestmentsinChinaandtheresultsofthepeerreview.

Wetrustthatbankersandotherreaderswillfindthematerialinthisindustry-widesurveyuseful.

Iwouldliketothankthechiefexecutiveofficersandseniorexecutiveswhoparticipatedinthissurveyfortheirtimeandeffortinmakingthispublicationpossible.IwouldalsoliketothankDrBrianMetcalfeforhisresearchandanalysis.WelookforwardtofeedbackonthissurveyandyoursuggestionsontopicstobeincludedinfuturesurveysontheChinabankingindustry.

Forfurtherinformation,pleasecontactthePwCChinaandPwCHongKongbankingandcapitalmarketindustrypartners.Theyarelistedatthebackofthissurvey.

1 “PricewaterhouseCoopers”referstothenetworkofmemberfirmsofPricewaterhouseCoopersInternationalLimited,eachofwhichisaseparateandindependentlegalentity.

ForeignbanksinChina2010PricewaterhouseCoopers2

Executivesummary


Thissurveyfocusesonthestrategicandemergingissuessurroundingforeignbanks’expandingactivitiesinChina.Itbuildsonfoursurveysundertakenbetween2005and2009.

Thesurveyattemptstosynthesisediverseviewpoints,protectconfidentialityandofferinsightsintothisfast-changingfinancialservicesenvironment.

ItisbasedoninterviewswithCEOs,seniorexecutivesandbranchmanagersof42foreignbanksinChina.

TheinterviewswereapproximatelyonehourinlengthandwereconductedinBeijing,HongKong,ShanghaiandShenzheninJanuaryandFebruary2010.

Background

Theparticipantsinalphabeticalorderwere:

JPMorganChase

KBCBank

MizuhoCorporateBank

Natixis

NorddeutscheLandesbank

OCBCBank

Rabobank

RaiffeisenZentralbankÖsterreichAG

RoyalBankofCanada

RBS

SociétéGénérale

StandardCharteredBank

SumitomoMitsubishiBankingCorp.

TheBankofEastAsia

UBS

VTB

WachoviaBank

WestLB

Westpac

WingHangBank

WingLungBank

Australia&NewZealandBankingGroup(ANZ)

BancoSantander

BankofAmerica

BankofMontreal

BankofNovaScotia

BNPParibasS.A.

BNYMellon

CréditAgricole

Citibank

Commerzbank

CommonwealthBankofAustralia

CreditSuisse

DahSingBank

DBSBank

DeutscheBank

FirstSinoBank

FortisBank

HangSengBank

HSBC

INGBank

IntesaSanpaoloBank


Overview

Foreign banks fail to gain extra tractionThe2009stimulusplanandlendingsurgebydomesticbanks(overallanincreaseof26%inassetsin2009)hadamajorimpactontheactivitiesoftheforeignbanksandtheirabilitytofurtherpenetratetheChinesebankingmarket.

Despitethesurgeandeconomicstimulustheforeignbanksfailedtogainanyextramarkettraction.Whiletheyhavecontinuedtobeproactiveinseekingoutnewopportunities,theyremainchallengedbypolicyconstraintsthatdictatethepace,scopeanddirectionoftheirmarketpenetration.

Meanwhile,thedomesticbankscontinuetoaddtotheirserviceofferingsastheysteadilyevolvetowardsmorebroadlybasedmulti-serviceinstitutions.Examplesofthisincludedirectinvestmentsinnewlinessuchasfundmanagementandinsurance.

Incontrast,theforeignbanksarerequiredtonavigateamuchnarrowerspace.Theirprimarymethodofexpansionremainsorganicgrowth.

Inthefirsthalfof2009,foreignbanklendingdeclined,inpartbecauseofcompetitionfromdomesticbanksandinpartbecauseforeigncompaniesinChinareducedtheirborrowingneeds.Asaresult,foreignbanks’marketsharedeclined.Theiroverallmarketshareremainsaround2%andhalfofthe42participantsinthissurveypredict

thatitwillremainthesamein2010.Reasonsgivenforthelackofgrowthinmarketshareincludedanunlevelplayingfield,economicfactorsandalimitedproductoffering.

Againstthischallengingoperatingenvironment,theparticipantscontinuetobelievestronglyinthefutureopportunitiesoftheChinesefinancialservicesmarket.

Different approaches to the market

Local incorporationForeignbankscontinuetoselecttheoptiontotransitionfrombranchstatustolocalincorporation.Over30foreignbanksarenowlocallyincorporatedandpredictionsin2010regardingthisoptionaremoreoptimisticthanthoserecordedinlastyear’sreport.

Threequartersoftherespondentsanticipatemorethan40locallyincorporatedbanksandaboutathirdbelievethenumbercouldriseabove50by2011.

Somebanksthathadpreviouslybelievedthatincorporationwastoooneroushavealteredtheirstrategies.Onerespondentarguedthatthecapitalrequirementstooperatetwoormorebranchespersuadedthemtochooselocalincorporation.(TheminimumcapitalrequirementforeachbranchisRMB200million).

Anotherparticipantsaidtheabilitytoofferadeeperproductrangehadchangedtheirthinking.ThisbankvaluedtheopportunitytoofferRMBbonds.


Banksthatremaincautiousonincorporationcontinuetocitethedifficultyinsatisfyingthe75%loan-to-depositratioby2011.Onthisissue,opinionsvariedonwhethertherulewouldbeappliedrigidlyorphasedinoveraperiodoftime.

Someofthebanksthatembracedlocalincorporationearlyonhavemovedforwardonnetworkexpansion.ForthefirsttimeinthisreportthebranchnetworksofHSBC,StandardCharteredBank,Citibank,BankofEastAsia,HangSengBank,DBSandABNAMROareshownintheappendix.ThesetablesillustratehowsomeforeignbankshaveexpandedtheirabilitytocaptureRMBdepositsandgainacompetitiveedge.

TheforeignbankscontinuetoreviewthemostsuitablewaytocapitaliseontheirstrengthsanddeveloptheirChinapresence.

Equity stakesEquityinvestmentshavebeenapopularrouteforawidenumberofplayersandthistrendisexpectedtocontinue.(Foreignbanksarelimitedtoa20%individualshareinnomorethantwobanks).

Fewparticipantsquestionthefinancialsuccessoftheseinvestmentsbutmostquestionwhethertheyhavebeensuccessfulinthecontextofabroadermarketdevelopment.Manyoftheforeignbankshavebeenunabletoexertanymeaningfuldegreeofmanagementcontrol.

However,theparticipantspredictthatforeignbankswillcontinuetomakeinvestmentsintheremainingcitycommercialbanks.

Participation in rural bankingSeveralparticipantsmentionedthattheywereinterestedininvestinginruralcommercialbanksasastrategicoption.Forexample,ANZownsa19.9%shareinShanghaiRuralCommercialBankandinSeptember2009openeda100%ownedsubsidiary,theChongqingANZRuralBankinWesternChina.

InJanuary2010,newsreportssuggestedBancoSantanderandChinaConstructionBank(CCB)wouldcreateafinancialholdingcompanythatwouldfocusonruralbankingandautomobilefinancing.CCBwouldhold60%andBancoSantandertheremainder.

ThelargerforeignbankswitharetailpresencesuchasHSBC,StandardCharteredBankandCitibankhavealsoopenedruralbranches.

Diversification across the financial services sectorOtherfinancialsectorsthatwereattractivetoparticipantsincludedassetmanagement,leasing,consumerfinance,privateequityandtrustcompanies.Inaddition,eightforeignplayersnowhaveinvestmentsinsecuritiescompaniesandthissectorisattractingtheattentionofplayerswhoseekanexpandedroleininvestmentbanking.

Aroundthreequartersoftheparticipantsindicatedthattheyareinterestedindevelopingpartnershipswithlocalparties.Theyseethisasawaytoexpandbusinesswithoutfacingsomeofthetightregulationassociatedwithastand-aloneforeignentity.


AnadditionalchallengefacedbytheforeignbanksistheCBRCrequesttotracktheuseoffundstoensureclientsarenotdeployingthemintorealestateormarketinvestments.Theforeignbankscontendthattheydonotpossessreadilyavailablemechanismstotrackandmonitorsuchmovements.

The continuing rise of domestic bank competitionThespecialdifficultiesarisingfromthedomesticbanklendingsurgehavealreadybeenmentioned.Whilethesurplusliquiditycausedproblemsfortheforeignbanksin2009,theymaybeimpactedasthependulumnowswingsintheotherdirection.Someforeignbanksexpressedconcernaboutpossiblelendingcapsandmanymoreexpressedapprehensionaboutthepotentialriseofnon-performingloans(NPLs)in2011and2012.

Forthefirsttime,themostdifficultaspectoftheChinesebankingindustrywasidentifiedas“competitionfromdomesticbanks.”In2008,theregulatoryenvironmentandfindingandretaininggoodpersonnelwereatthetopofthelist.In2009,itwastheregulatoryenvironment.

In2010,competitionfromdomesticbanksisjustaheadofregulatoryenvironmentandhiringandretainingpersonnelhasfallentofifthplace.

Domesticbanksarenowconsideredtobeformidablecompetitors.Withtheirextensivebranchnetworksandrisingservice

However,asreferencedabovethemostimportantdevelopmentvehiclefortheforeignbankscontinuestobetheorganicgrowthoftheirexistingoperations.In2010,37banksselectedthisoptionaheadofjointventuresandacquisitions.

Ongoing regulatory pressuresPreviousreportshaveemphasisedthesignificanceoftheregulatoryenvironmentonthespeed,directionandscopeoftheforeignbanks’progression.Inthisreport,regulationcontinuestofeatureprominently.

InaquestionseekingtoexploretheconcernsofforeignbankersregardingtheChinesebankingmarket,responsessuggestedmanyforeignbankerscontinuetobelievethattheyaretreatedlessequitablythantheirdomesticcounterpartsbytheregulator.

Lookingtothefuture,theforeignbanksanticipatethatregulationwillbetightened.In2010,33banksanticipatethatregulatorychangewillbeeithersignificantorverysignificant.Examplesofincreasedtighteningofregulationsthattheforeignbankshavealreadyexperiencedincludenewaccountopenings,confirmationofaccountbalanceswithcustomers,newrestrictionsonrealestatemortgages,theloan-to-depositratio,wholesalefundingrestrictions,quotas,currencyregulations,roll-outofwealthmanagementproducts,onshorelocationofcorebankingsystemsetc.


expertisetheyaremuchbetterplacedtofendoffcompetitionfromforeignbanksintargetmarkets.Thelimitedproductrangeapprovedfordeploymentbytheforeignbanksmeansitisincreasinglydifficultforthemtodifferentiatetheirproductsfromtheirdomesticcounterparts.

Inareassuchaswealthmanagement,cardsandinternetbanking,domesticbanksareallcontinuallyliftingtheirgame,andasoneEuropeanbankerreflectedtheonlydimensiononwhichforeignbankscancompeteisbyprovidingasuperiorlevelofservice.

ThedomesticbanksareexpandingtheirbranchnetworksincentressuchasNewYork,London,Paris,FrankfurtandSydney.Asaresult,theyarecontinuingtobroadentheirglobalservicingcapability.

Growing concerns in HRIn2008,concernsaboutpersonnelshortagesabatedandstaffturnoverdroppeddramatically.Manyforeignbankemployeesseemedcontenttositouttheeconomicstorm.In2009,onlyfourbankshadturnoverabove20%and22bankssaiditwasbelow5%.In2010,mobilityisexpectedtorise.22banksprojectbetween10%and20%staffturnoverandfivebanksexpecttoexceed20%.

Salarieswhichremainedflatin2009areexpectedtospikeupwardsin2010.38banksexpectanincreasein2010.Theexpectedsalaryincreasesfallbetween3%and20%butmostanticipate

increasesinthe7%to8%range.Threequartersofrespondentsalsoexpectbonuses(whichhadgenerallyremainedthesamein2009)toincreasein2010.Asaresult,humanresourcecostsareexpectedtogrowsignificantlyin2010,especiallyamongstforeignbanksthatcontinuetoexpandtheirbranchnetworks.

Reflectingthenatureoftheforeignbanksbusinessanddesiretogrow,themostcriticalstafffunctionremainsrelationshipbankersonthecorporatebankingside.Riskmanagementpersonnelmoveduponepositiontosecondplacewhilelegal/compliancewasinthirdplace.

Risk management at the domestic banksTheforeignbanksremainpositiveontheCBRC’sdesirethatthe“TopSeven”domesticbanksalignwithBaselIIcapitalstandardsbytheendof2010.Someforeignbankersremainscepticalthatthedomesticbankswillbeabletomeetthisaggressivedeadline.

Asaresultofthe2009lendingsurgeChinesebanksarenowengagedinasignificantcapitalraisingprogramme.ByMarch2010uptoadozenChinesebankshadannouncedplanstoraisecapital.ThesebanksincludedICBC,BankofChinaandBankofCommunications.

Despiteconcernsaboutloanexpansion,theforeignbanksrecordedrelativelyoptimisticviewsonthecurrentpositionforbothcorporateandconsumer


credit.Themajorityofrespondentsassessedthecorporatecreditpositiontobestablewhileconsumercreditwasalsobelievedtobegenerallystable,althoughninebanksbelieveditwasactuallyimproving.

Product opportunities

Retail bankingRetailproductsthatareexpectedtoexperienceincreaseddemand,includehighnetworthindividuals/privatebanking,investmentproductsandresidentialmortgages.TheparticipantscontinuetobelievethatincreasingaffluenceinChinawillspurdemandforwealthmanagementservicesatseverallevels.

Private banking and wealth management

Therespondentsidentifiedthetopthreedriversofsuccessinprivatebankingasstrongproducts,topqualitypeopleandarecognisableglobalbrand.

Inadditiontothesedrivers,theparticipantsalsoemphasisedtheneedforexcellentclientserviceandstrongrelationshipbuilding.Thereisaneedfortheforeignbankstoeducatetheirclientsbecausemanyhavejustrecentlyacquiredtheirwealth,andlacktherequiredlevelofknowledgeandsophisticationtomakefullyinformedinvestmentdecisions.ThissituationrequiresadifferentapproachtoservicepromotionanddeliveryinChinarelativetomaturemarkets.Finally,foreignbanksmovingintoprivatebankingneedtomakesuretheyhavecuttingedgesystemstosupportandenhancetheirservices.

InMay2009,theCBRCstatedthatdomesticandforeignbanksofferedacombined4,100wealthmanagementproductsto2.3millionclients.Itisclearfromtheforeignbankers’commentsthatthedomesticbanksarenowactivecompetitorsinthissegment.Asaresult,innovativeproductsremainakeyaxisofdifferentiation.However,theabilitytointroduceinnovativeproductsintothemarketislimitedbytheregulator.

OneNorthAmericanbanker,however,cautionedthatwealthmanagementservicesanddeliverymechanismscouldnotbesimplydroppedintoChina.Theyrequiredcarefulmodificationgiventhehighpercentageofrecentlyaffluentindividualswhofavoureddifferentinvestmentvehiclesandwantedtohavemoreofaparticipatoryrole.

Corporate banking

Onthecorporateside,opportunitiesareanticipatedwiththegradualopeningupofthedebtcapitalmarket.Thereisalsoaviewthatstructuredproductswillreturnandbecomemorewidelyused.ThereisanexpectationthatprivateequitymayexpandatafasterpaceasforeigninvestorsentertheChinesemarket.ForeignfirmssuchasBlackstoneandCarlylearealreadypositionedtotakeadvantageoftheseemergingopportunities.In2009,theBlackstoneZhonghuaDevelopmentFundwasestablishedwiththegovernmentofthePudongNewAreaofShanghai,withagoaltoraiseRMB5billion.

In2010,CarlyleinpartnershipwithFosunGroup,alsosetupanRMBfund.OthercompaniesinvolvedinprivateequityinChinaincludeSAIF


Partners,HonyCapital,LegendCapitalandtheNewHorizonFund.ItisenvisagedthatthesefirmswillsupportprivateSMEsinChinawithpre-IPOgrowthcapital.

Trouble in the SME sectorAnoteofcautionwassoundedontheperformanceofloanstosmallandmediumsizedbusinesses.

AlthoughtheCBRChasencouragedforeignbankstobemoreactiveinthissector,anumberofbanksremainreticent.Theyarguethatthisisadifficultmarketforforeignplayersandsomehavedeclinedtomakesuchamove.

TheSMEsectorisoftenassociatedwithexport-orientatedcompaniesandasaresult,hasexperienceddifficultiesduetotheglobaleconomicslowdown.Severalrespondentssuggestedthatforeignbankshavesufferedlossesinthissector.

The Cross-Strait connectionThependingCross-StraitFinancialCooperationAgreementisexpectedtospurbankingopportunitiesinbothdirectionsbetweenthemainlandandTaiwan.SeverallargeChinesebanksareexpectedtoenterTaiwanandusetheirentrancetoexpandrelationships.

AtthesametimeundertheEconomicCo-operationFrameworkAgreement(ECFA),TaiwanesebankswillbeabletofasttracktheirentryintotheRMBmarketandalsoinvestinChinesedomesticbanks.TaiwanesebanksareexpectedtoswellthenumberoflocallyincorporatedbanksandtotakebusinessawayfromsomeforeignbanksthathavebenefitedfromAsiantradenetworks.

Future funding sourcesTheforeignbanksprovidedadetailedbreakdownoftheirfundingsources.Thisshowedthecontinuedheavydependenceontheirparentbank.Almostallthebanksreceiveatleast20%oftheirfundingfromtheirparent,14banksreceive50%ormorefromtheirparent.By2013,eightbankshopetoattract20%ormoreoftheirfundingfromretaildeposits.Threeofthisgrouppredictahigherlevelofretaildeposits.

Commitment to ChinaTheforeignbanks’commitmenttoChinaremainsexceptionallystrong.Asagrouptheyaveragedascoreof8.3outof10.TheUSbanksrecordedthehighestscorewith9.2outof10whiletheEuropeanandAsianbanksdisplayedaverymarginaldecline.Lookingforwardto2013,thenumberofbanksassigningthemaximumscoreof10outof10increasesfrom11to13banks.

ItisveryevidentfromthesescoresthatChinaremainsattheforefrontoftheforeignbanks’futuregrowthstrategies.

Anotherexampleofthiscommitmentisthegrowinginterestinforeignbanklistings.HSBC’sCEO,MichaelGeoghegansaidinMarch2010thatthebankwas“ready”foraShanghailisting.FurthermorebothStandardCharteredBankandBankofEastAsiaarealsounderstoodtobeseekingmainlandlistings.


Asummaryofthepeerranking(topthreepositions)oftheforeignbanks/financialinstitutionsisshowninthetablebelow.PeerrankingsarebasedontheopinionsofCEOs,seniorexecutivesandbranchmanagersthatparticipatedinthissurvey.Pleaserefertopage76forfulldetails.

Peerrankingsummary

First Second Third

Foreignexchangeandtreasury HSBC Citibank DeutscheBank

Derivatives Citibank HSBC DeutscheBank

Corporatelending HSBC StandardChartered Citibank

Projectfinancing StandardChartered HSBC Citibank

Investmentbanking GoldmanSachs MorganStanley JPMorganChase

Privatebanking HSBC Citibank StandardChartered/UBS

Corporatefinance HSBC JPMorganChase GoldmanSachs

Mergersandacquisitions GoldmanSachs MorganStanley HSBC

Tradefinance HSBC StandardChartered Citibank

Cashmanagement Citibank HSBC StandardChartered

Equitycapitalmarkets GoldmanSachs MorganStanley UBS

Debtcapitalmarkets HSBC Citibank StandardChartered

Retailbanking HSBC StandardChartered Citibank

Creditcards BankofEastAsia HSBC Citibank

Brandawareness HSBC StandardChartered Citibank

Corporatesocialresponsibilty HSBC Citibank StandardChartered

Marketenvironment


Backgroundprofile

Future employment growth

Inthe2010survey,the42banksinterviewedemployed29,739people.Thisisalmostidenticaltothenumberprovidedbythe41banksinterviewedin2009.ThetopfivebanksbyemploymentsizewereHSBC,StandardCharteredBank,Citibank,BankofEastAsiaandHangSengBank.Togethertheyemployedover19,000peopleor64%ofthetotalnumbers.

The42banksprojectthattheywillemploy44,192by2013.Thisrepresentsa48%increaseor14,453newemployees.Fivebanksplantoincreasetheirstaffnumbersbymorethan1,000employees.Ninebanksanticipatethattheywillincreasetheiremployeenumbersbyover100%by2013.

Theprojectiontoexpandby48%overthenextthreeyearsisbelowthatforecastin2009when41banksanticipateda62%increase,liftingthetotalnumberofemployeesto48,084by2012,althoughonelargerforeignbankscaledbackits2013projectionincomparisontothenumbergivenin2009for2012.

The42foreignbanksemployed1,201non-PRCnationalsin2010.Theyplantoincreasethisnumberto1,323or10%by2013.Thisnumberincludesestimatesfortwobanksbasedonthe2009dataprovidedpreviously.Mostbanksdonotforeseeanincreaseinthenumberofnon-PRCemployeesoverthenextthreeyears,suggestingtheywillmakeeveryefforttorecruitlocally.

Total assetsThetotalassetsbasedondataprovidedby31bankswasUS$124.22billion.Thisestimateomitstworelativelylargebanks.In2009,twolargebankswerealsoleftoutandthe29banksthatprovideddata,estimatedtheirtotalassetstobeUS$116.7billion.Thissuggestsamodestexpansionoftheirassetbasebetween2009and2010.

Lookingforwardto2013,theforeignbanksexpectamuchhighergrowthintheirassets.Thistime,estimateswereappliedtothreeofthe31banksthatprovided2010estimates.The2013projectionforthegroupof31bankspredicted81.49%growthintotalassetsfromUS$142billiontoUS$225billion.Twoverylargeforeignbankspredictedverysignificantgrowthinassetsby2013.

Net incomeThenetincomefor23banksin2010wasestimatedtobeUS$1.28billion.Thisfigureisalmostidenticalto2009butomitsoneverylargeforeignbankthatwasincludedinlastyear’sfindings.

Onceagain,severalforeignbankswillexceedUS$100millioninnetincomebut11ofthe23banksthatprovidedestimatesindicatedthatnetincomewouldbebelowUS$10million.Twobanks,oneAsianandoneEuropean,saidtheywouldbreakevenin2010whileoneEuropeanbanksaiditwouldmakealoss.

NegativeZero

0-50% 50-100%

100%+

200%+300%+

400%+

Percentage increases in employment by 2013Based on responses from 42 banks

Projected employment increases by 2013


Backgroundprofile

Retail customersDatafor15foreignbanksindicatedthattheyhad835,600retailcustomersin2010.Thisrepresentsasizeableincreaseover2009when16banksrecorded444,610retailcustomers.

TheBigFourforeignbanks,HSBC,Citibank,StandardCharteredBankandBankofEastAsia,saidthattheyhad728,000customers;amajorincreaseover2009whenthisgroupclaimed340,000retailcustomers.

Inthe2009report,thebanksforecastaggressivegrowthto2012andexpectedtoservice1.35millioncustomers.Inthisreport,the15reportingbanksgoevenfurtherandanticipate2millionretailcustomersby2013.Fourbanksexpecttoaddaminimumof100,000newretailcustomerstotheirtotalsby2013.

AccordingtoCBRCstatistics,asoftheendofDecember2009,thetotalassetsofthebankingsectoramountedtoRMB78.8trillion,anincreaseof26.3%year-on-year.TheassetsofthestateownedcommercialbanksstoodatRMB40.1trillion,anincreaseof25.9%;theassetsofthejoint-stockcommercialbanksstoodatRMB11.8trillion,anincreaseof33.7%;theassetsofcitycommercialbankswereRMB5.7trillion,anincreaseof37.5%;theassetsofotherfinancialinstitutionsreachedRMB21.2trillion,anincreaseof20.5%.

Duringthesameperiod,thetotalliabilitiesofthebankingsectoramountedtoRMB74.3trillion,inincreaseof26.8%year-on-year.TheliabilitiesofthestateownedcommercialbanksstoodatRMB37.9trillion,anincreaseof26.9%;theliabilitiesofthejoint-stockcommercialbanksstoodatRMB11.2trillion,anincreaseof34.1%;theliabilitiesofthecitycommercialbankswereRMB5.3trillion,anincreaseof37.7%;andtheliabilitiesofotherfinancialinstitutionsreachedRMB19.9trillion,anincreaseof20.6%.

(Source:CBRCwebsite)

High net worth individualsTwelvebanksprovideestimatesonthenumberofhighnetworthindividuals(HNWIs)basedonthedefinitionofUS$1millioninvestableassets.

Inthe2010survey,these12bankshad33,026HNWIclientsandtheyexpecttoalmostdoublethisnumberto63,650by2013.

Inthe2009survey,theirprojectionwere29,920HNWIclientsby2012.Asaresult,thisyear’sresultssuggestthatthebanksareadvancingquicklyintothewealthmanagementmarket.

However,thetotalsareinfluencedbyonemajorplayerthatdidnotrespondtothisquestionin2009andtwoparticipantsthatrecordedasignificantlyhighernumberin2010versus2009.

Therefore,interpretationonthelevelofgrowthdescribedshouldbetreatedwithcaution.


Q How would you characterise the commitment of your parent bank to the Chinese market in comparison to other markets around the world on a scale of 1 to 10 (where 1 represents no commitment and 10 is extremely aggressive)?

Despitethecontinuinguncertaintyintheglobalfinancialmarketsandincreasingcompetitionfromdomesticbanks,theforeignbanks’commitmenttotheChinamarketremainsextremelystrong.

In2010,thecommitmentscoresforboththelocallyincorporatedbanksandtheNorthAmericanbanksincreasedmarginally.

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Based on responses from 41 banks in 201041 banks in 2009, 42 banks in 2008 and 39 banks in 2007

Number ofbanks

BoththeAsianbanksandtheEuropeanbanksindicatedamodestreduction.However,asagroup,theforeignbanksaveraged8.3outof10in2010.

Onlyfourbanksassignedscoresof6orbelowin2010versussixbanksin2009.ThefourbanksthatexpressedtheselowercommitmentscoreswereallEuropean.

Commitmentofparent 2010 2009 2008

Locallyincorporated(20) 9.05 8.7(20) 9.47(16)

Europeanbanks(21) 7.7 7.8(19) 8.3(20)

NorthAmericanbanks(8) 9.0 8.6(8) 8.6(9)

USbanks(5) 9.2 9.0(5) N/A

Asianbanks(12) 8.8 9.0(13) 9.23(13)

Average(41) 8.3 8.4(40) 8.64(42)


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2013

45678910

Based on responses from 40 banks for 2010 and 40 banks for 2013

Number ofbanks

Q How would you characterise the commitment of your parent bank to the Chinese market in 2013 versus 2010?

Goingforward,thenumberofbanksawardingthemaximumlevelofcommitmentincreasedfrom11to13,whilethenumberscoringninemovedupfrom7to10.

By2013,allbanksanticipatealevelofcommitmentof7orgreater.ThissuggeststhatbanksthathavesufferedduringthefinancialcrisispredictthattheirheadofficeswillincreasetheirsupportforChinainthefuture.Someofthese

bankshavehadtoseekhomegovernmentsupportwhichhasslowedtheirrateofexpansioninChina.

Inafewcasesithasstalledtheirplanstolocallyincorporate.Inprevioussurveys,severalbankshadindicatedthattheyplannedtolocallyincorporateandtocreatearetailoperation.Theseplanshavebeenputonhold.


AminorityofforeignbankshavehadtoaltertheirbusinessmodelinChinaasaresultoftheglobalfinancialcrisis.

In2009,20bankssaidthecrisishadnoimpactontheirbusinessmodelinChina.In2010,thisnumberincreasedto24banks.

Intheyescategoryarebanksthatwereseverelyimpactedintheirhomecountrymarkets.ThisincludesanumberofEuropeanbanks.

AEuropeanbankadmittedthatithadaffectedthetimingoftheirlocalincorporation.AnotherEuropeanbanksaidithadbeenforcedtoretreatto“corerelationshipbanking”.

AnAsianbanksaidithadrestrictedtheirbranchexpansionstoTier1andTier2cities.Ifnotforthecrisis,theywouldhaveexpandedintomoresecondarycities.

Finally,anotherAsianbanksaidthatithaddiversifieditsproductlineandrecruitedmorelocaltalentasaresultofthecrisis.

Q Has the global financial crisis changed your business model in China?

No Yes

Based on responses from 38 banks

No Yes


2010

2009


Asinthe2009survey,theforeignbankscontinuetobelievethatregulatorychangedictatesthepaceofmarketdevelopmentinChina.

Thesecondmostimportantdriverin2010wasidentifiedasfundingconstraints.Thisfactormovedfromsixthpositionin2009.

Inthirdplacewastheglobalfinancialcrisis.Inotherpartsofthisreport,therespondentscontendthatthecrisishasresultedintheregulatoradoptingamoremeasuredandconservativeapproachtotheopeningupofthemarket.

Capitalmarketsremainsinthesamepositionas2009,butliquiditydeclinedfromthirdtofifthposition.

Q What are the major drivers of change in the Chinese banking industry?

0

30

60

90

120

150

2009

2010

Joint

vent

ure b

anks

Disint

erm

ediat

ion

Comm

oditis

ation

Other

new

entra

nts

Mer

gers

/Con

solid

ation

Secur

itisat

ion

Econo

mies

of s

cale

Tech

nolog

y

Loca

l inco

rpor

ation

Globali

satio

n

Econo

mic

cycle

Liquid

ity

Capita

l mar

kets

Global

finan

cial c

risis

Fund

ing co

nstra

ints

Regula

tory

chan

ges

Score

Based on responses from 40 banks in 2010and scores have been re-adjusted from 38 banks in 2009


Q How many foreign banks will have incorporated by 2013?

Thepredictionsfor2010lookquitesimilartothoseprovidedin2008.Thenumberofbanksthatselected30to39,40to49and50to59areverysimilarinthosetwoyears.

Incontrast,almosthalftherespondentsin2009predictedthatthenumberoflocallyincorporatedbankswouldbebetween30and39.In2010,18respondentsbelievethenumberwillbearound40-49banks.

Giventhattherearecurrentlyjustover30locallyincorporatedforeignbanks,thissuggeststhatthegroupexpectsatleastanother10to15foreignbankstoseeklocalincorporation.Thirteenrespondentsselectedthe50to59category.

ThereisalsoaclearexpectationthatgiventhependingCross-StraitFinancialCooperationAgreement,anumberofTaiwanesebankswillalsochoosetolocallyincorporate.

70-79 70-7960-69

50-59

50-59

50-59

40-4940-4940-49

30-39 30-3930-39

20-29 20-29

Based on responses from 40 banks in 2010,35 banks in 2009 and 28 banks in 2008

200820092010


Negative

Neutral Positive


Q From the perspective of your head office, has the agenda for your bank’s operation in China changed positively/negatively/or neutral?

Theresponsetoaquestiononthebanks’futureagendaforChinareflectsasignificantupswinginthe2010survey.

In2009,18bankssuggestedapositivechangeintheagendaforChina.In2010,thisnumberalmostdoubledto35banks.

Twobanksnotedanegativechange.BothbanksareEuropeanandbothhaveneededgovernmentalsupport.

ThreeNorthAmericanbankssuggestedsignificantlystrongersupportfortheiroperations.

OnenotedthatChinaandIndiahavebecomeveryimportant;anothersaidChinawasnowa“priority”;whileathirdsuggestedChinawasoneofitsmostimportantgrowthmarkets.

Negative

Neutral

Positive


2010

2009


Q If you have incorporated locally, how have your expectations changed since incorporation?

Q Has the growth in locally generated deposits been less than expected/as expected/or greater than expected? Less

than expected

As expected

Greater than expected


Theexperienceoftheforeignbanksthathavechosentolocallyincorporatehasbeenpositive.

Thirteenofthe18respondentsindicatedapositiveexperience,whilefoursaidneutral.

IntermsofthegrowthoflocalRMBdeposits,sevenbankssaidithadbeengreaterthanexpected,ninebanksasexpectedandthreebankslessthanexpected.

ThetopfiveforeignbanksbybranchnetworksareHSBC,StandardCharteredBank,Citibank,BankofEastAsiaandDBS.Onlytwointhisgroupsaidthattheirdepositgatheringhadbeengreaterthanexpected.

Gatheringlocaldepositsisacriticalneedgiventherequirementtomeetthe75%loan-to-depositratiodeadlinesetfortheendof2011.

No comment

NeutralPositive

Based on responses from 18 banks in 2010

Experience since local incorporation

Growth in locally generated deposits since incorporation


Q What concerns do you have regarding the Chinese banking market?

TheforeignbankersexpressedanumberofconcernsabouttheChinesebankingmarketastheylookforwardtothenextthreeyears.

Someofthecommonthemesexpressedbymultipleparticipantsincluded:

• Manyoftheforeignbanksexpressedconcernovertheimpactofregulationontheirnascentoperations.Theybelievethattheyaretreateddifferentlybytheregulatorthantheirdomesticcounterparts.Theyciteexamplesoftightcontrolssuchasfundingrestrictions,branchapprovals,newproductdevelopmentandapprovalandrulesonopeningaccounts

• Thereisuncertaintyonhowthelendingsurgebydomesticbanksin2009mayplayoutinthefuture.TwoNorthAmericanbanksexpressedconcernsaboutnon-performingloansin2011-2012

• Slowpaceofchangeinthemarketplace.Theforeignbanksarguethatregulationsareconstantlychangingandareunpredictable.Theyarenervousaboutthepossibleintroductionoflendingcaps

Otherconcernsthatwerementionedare:

• Transparencyofthedomesticbanks(Europeanbank)

• AbilityofChinesebankstodevelopasuccessfulpersonalbankinglendingmarket(Europeanbank)

• ConvertibilityoftheRMB(manybanks)

• Narrowrangeofproducts(Europeanbank)

• CBRCverypolicydriven,henceremovingthecommercialroleofbanks(Europeanbank)

• DangeroustimeforChinesebanksbecauseofexcessliquidityandnon-floatationoftheRMB(Europeanbank)

• Limitedsizeofhumanresourcetalentpool(twoNorthAmericanbanks)

• AbilityofforeigncompaniestoraisecapitalinChinaorissuecorporatebonds(Europeanbank)

• Intensecompetitionfromdomesticbankswithextensivenetworks(Asianbank)

• TheChineserealestatemarketmaytriggerafinancialcrisis(Asianbank)

• Lackofsynchronisationbetweenvariousgovernmentregulators(Asianbank)

• Citycommercialbanksmayhavecreatedfuturenon-performingloan(NPL)problems(NorthAmericanbank)

• Macro-economicguidancemayhaveworkedwellinacrisisbutmaynotfunctionaswellinarecovery(Europeanbank)


Q What does your bank find the most/least difficult aspects of the Chinese banking industry?

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

2007

2008

2009

2010

Competition from Non-Bank FIs

Level of NPLs

Ownership restrictions

Identifying profitable clients

Corporate governance

Risk management

Competition from foreign banks

Brand name recognition

Building a customer base

Economy and market volatility

Innovative product/service offerings

Finding and retaining good personnel

Product/revenue diversification

Accounting and tax framework

Regulatory environment

Competition from domestic banks

increasing difficultyLess difficult


ThemostdifficultaspectoftheChinesebankingindustryin2010wascompetitionfromthedomesticbanks.Itwasfollowedbytheregulatoryenvironmentandtheaccountingandtaxframework.

In2007,competitionfromdomesticbankswasinninthplace,whiletheaccountingandtaxframeworkwasinseventhplace.

Findingandretaininggoodpersonnelincreasedslightlyin2010,movingupbyoneplace.

Theoverallscore,however,remainsmuchlowerthanthatrecordedin2008whenitwasthesecondmostdifficultfactor.

Competitionfromotherforeignbanksremainsintenthpositionwitharelativelylowscore.Thissuggestedthatforeignbanksoperateintheirownmarketspaceanddonotdirectlycompetewithotherforeignbanks.

Theriseofcompetitionfromdomesticbankshasbeenstronglyinfluencedbythe2009stimulusplananda33%surgeinbanklending.

(Source:FinancialTimes,20March2010)

Forexample,ICBC,China’slargestbankbyassets,reportedinMarch2010thatloansgrewby24.27%in2009.(Source:WallStreetJournal,7March2010)


Q What was your staff turnover in 2009 and what is it expected to be in 2010?

Theadjacentchartsshowthelevelofstaffturnoverthatoccurredin2008and2009andwhatparticipantsanticipatetheturnoverwillbein2010.

Theeconomicuncertaintyexperiencedin2009hadapositiveimpactonturnover.

In2008,eightbanksrecordedturnoverabove20%.

Inthisyear’ssurvey,participantsindicatedthatin2009thisnumberfelltojustfourbankswhile22bankssaiditwasbelow5%.

Lookingforwardtoprojectedturnoverlevelsin2010,thelessthan5%categoryisanticipatedbysevenbanks.

However,22banksprojectbetween10%and20%,andfivebanksexpectmorethan20%.

Thissuggeststhatbankemployeeswerereluctanttomoveduring2009butthatmobilityisexpectedtopickupagaininthecomingyear.

20 to 29%

15 to 19%

10 to 14%

5 to 9%

Less than 5%

22 banks recorded 10% to 19%Based on responses from 41 banks

Anticipated staff turnover in 2010

30 to 39%

20 to 29%

15 to 19%

10 to 14%

5 to 9%

Less than 5%

Eight banks recorded 20% or higherBased on responses from 41 banks

Staff turnover in 2008

Staff turnover in 2009

20 to 29%

15 to 19%

10 to 14%

5 to 9%

Less than 5%

22 banks recorded less than 5%Based on responses from 41 banks


In2009,23banksstatedthatbasesalarieswouldremainthesame,while17banksprojectedanincrease.

Thisestimatehaschangeddramaticallyfor2010,38banksnowanticipateanincreaseandonlytwobanksexpecttoremainatthe2009level.

Theexpectedsalaryincreasesrangefrom3%to20%.

Twelvebanksestimatearound7%to8%increases,butninebanksanticipate10%ormore.

Q In 2010 will base salaries remain the same, increase or decrease?

0

1

2

3

4

5

6

7

8

2015109876543

Based on responses from 36 banks that indicated they would increase salaries in 2010

Percentage

Number ofbanks

Decrease DecreaseRemain the same

Remain the same

IncreaseIncrease

Based on responses from 41 banks in 2010 and 2009

20092010


Decrease

Remain the same

Increase


Q Will incentives and bonuses remain the same, increase or decrease in 2010?

Asimilarreversalisfoundwitharelaxationofcontrolsonsalariesandbonuses.

Threequartersoftherespondents,30banks,expectbonusestoincreasein2010.

Thisisamajorchangefrom2009whenhalfthegrouppredictedtheywouldremainthesameand14bankssaidtheywouldbereduced.

Severalinterestingobservationsweremadebyparticipants:

• OneAsianbanksaidthatbonusmethodologyhadchanged.In2009,nobonuseswerepaidbutin2010,theywouldresumebutmorecloselymatchedwithperformance

• AnAsianbanksaidinthepast,thebonuswereequivalenttoonemonth’ssalarybutthisyearitwouldbetwomonthssalary

• AEuropeanbanknotedthatitwasobligedtopaybonusesinlinewithcompetitors

• OneNorthAmericanbanksaidthatbonuseswerefrozenlastyear,whileanotherNorthAmericanbanksaidbonuseswouldreturnto2007levels

Don’t knowDecrease

Remain the same

Increase


2010

2009


Ascitycommercialbanksexpandfromtheirhomecitybases,itwassuggestedthattheymaybecomearecruitmentthreattotheforeignbanks.Theassumptionwasthattheywouldbeanxioustorecruittrainedforeignbankemployeesandcouldmatchsalariespaidbyforeignbanks.

Theexperienceoftheforeignbanksonthisdevelopmentwasmixed.Eightbankssupportedthisviewwhile27banksdisputedthisview.

Itwasacknowledgedthatthecitycommercialbankswereexpandingnationally,particularlyintocoastalareasandthatdomesticbankswerewillingtopaythesamesalariesandbenefits.

However,thegreatestimpacthasbeenonthelargerforeignbankswhichhavemoremiddlemanagersandbroaderbranchnetworks.

Q As the city commercial banks expand nationally, they are hiring qualified personnel. What impact is this having on foreign banks? Is the landscape changing?

Q Will you contain or reduce overall HR costs in your China operation in 2010?

Decrease

Contain

Increase


Fourteenforeignbanksexpectpersonnelcoststoincreasein2010while22bankshopetobeabletocontainthem.

Anumberofbankssuggestedthattheywouldbeincreasingstaffnumbersinresponsetonewbranchopeningsandon-goingproductdevelopment.

Twobanksresponded“Contain”,indicatingthattheyplantoreducestaffnumbersin2010.Theyarerelativelysmallforeignbanks,bothareEuropeanandbothhavegovernmentshareholdings.

Contain Increase


20092010


Q Which staff functions have the highest hiring priority in 2010? Can you rank the “Top 3”?

0

10

20

30

40

50

60

70

80

2009

2010

Finan

ce

Accou

nting

Other

Produc

t des

ign

Credit m

anag

emen

t

Relatio

nship

ban

kers

-Ret

ail

Treas

ury

Operat

ions (

includ

ing b

ranc

h op

ening

s)

Lega

l/com

plianc

e

Risk m

anag

emen

t

Relatio

nship

ban

kers

-Cor

porat

e

Score

Based on responses from 41 banksin 2010 and 40 banks in 2009not all banks provided three rankings

Thestafffunctionthathasthehighestpriorityin2010remainsthesameas2009andthatiscorporaterelationshipbankers.

Astheforeignbankscontinuetogrowtheircorporateactivities,theyseekeffectiveclientfacingcorporatebankers.

Riskmanagementemployeeswhichwereinfifthplaceinthechartin2009havemoveduptosecondplacein2010,reflectingtheincreasedimportanceofthisfunction.

Operations(includingbranchopenings)alsogrewinimportance,movingupfromseventhtofourthposition.


Riskmanagement


Q Chinese regulators plan to apply Basel II capital standards to seven top banks by the end of 2010 as part of their efforts to limit risk as a result of the global financial crisis. Will such a move be 1) positive, 2) negative or 3) are you unsure?

Don’t know

Negative

Positive


AlthoughalargenumberofforeignbanksacknowledgedthatadoptionofBaselIIbytheChinesebankswasastepintherightdirection,severalbelievethatitwillbeaChineseversionofBaselII.In2010,32banksindicatedthatitwasapositivemoveversus28banksin2009.

OneAsianbankobservedthattheuncertaintyoftheadoptionbythefirstsevenbanksisreflectedinthefactthatthereisnotimeframeformorebankstofollow.

Someforeignbankscommentedthatitwasbeneficialfromariskmanagementperspectivebutnoteditwouldincreaseborrowingcosts.

WhileoneAsianbanksaidthebigbankswereactivelyrecruitingtohelpprepareforBaselIIanotherAsianbankpredictedthatthebigbankswouldfailtomeetthe2010deadlinebecausetherequireddisciplineswouldnotbeinplacewithintherequiredtimeframe.

Don’t knowNegative

Positive


2009

2010

InMarch2009,theCBRCannounceditplannedtointroduceBaselIIcapitalstandardstothefollowingsevenChinesebanks:

• ICBC

• BankofChina

• ChinaConstructionBank

• AgriculturalBankofChina

• BankofCommunications

• ChinaMerchantsBank

• ChinaDevelopmentBank

BaselIIembracesasetofguidelinesoncapitalstandardswhichhavebeenagreedbytheCentralBankGovernorsoftheIndustrialisedNations.ItisrecognisedthattheChinesebanksmayhavedifficultymeetingtheserequirementsbytheendof2010.Asaresult,athree-yearwindowto2013hasbeenbuiltintotheregulatoryguidance.


Q Will the global financial crisis impact the rollout of certain financial products in China?

Theoverwhelmingmajorityofparticipantsbelievethatthefinancialcrisishasaffectedtherolloutofnewproducts.

Onlytwoofthe41respondentsdisagreed.TheyarguedthattheCBRCpermittednewproductsona“dripbydrip”basisandaNorthAmericanbankstatedthattheyhadnotexperiencedaslowdown.

In2009,29outofthe40respondentsbelievedthecrisiswouldslowdowntherolloutofnewproducts.

Thegeneralfeelingwasthatthespreadofsecuritisationandderivativeshadbeensloweddownbytheregulator.

Otherrelatedcommentswereasfollows:

• Investment-linkedproductsaffected(Asianbank)

• SlowdowninthederegulationofRMB(Europeanbank)

• CBRCstillseekinginnovativeproductsbutcautiousandprefersexperiments(Europeanbank)

• CBRCwillonlyapproveeasytounderstandproducts(NorthAmericanbank)

Yes

No


Yes

No


2010

2009

The People´s Bank of China outlined the following objective at its conference in January 2010

Acceleratefinancialproductinnovationtopromotehealthydevelopmentofthefinancialmarket.Inthisregard,effortswillbemadetoacceleratethedevelopmentofthebondmarket,developawiderrangeoffinancialderivatives,expandtheissuanceofshort-termfinancingbillsbySMEsandcollectivebills,andstudytheintroductionofconvertibledebtfinancingtoolsforSMEsandthird-partybondrepos.Asset-backedbillsbyenterprisesandproductinnovationinthegoldmarketwillbeencouraged,andfinancinginthepropertymarketwillbeimproved.Programsthatallowmainland-basedfinancialinstitutionstoissueRMBbondsinHongKong,foreigninstitutionsandenterprisestoissueRMBbonds,orforeignbankswithlegalpersonstatustoissuefinancialbondsinChinawillbecontinued.

(Source:PBOCwebsite)


InMay2009,theState-ownedAssetsSupervisionandAdministrationCommissionoftheStateCouncil(SASAC)issuedanoticeregardingthesupervisionofstate-ownedenterprises’useoffinancialderivatives.

ThepurposeofthenoticewastopreventtheuseofspeculativederivativetransactionswhichhaveresultedinhugelossesatCentralSOEs.

Thenoticecoveredthefollowingkeyareas:

1. Thecleanupofexistingtransactions

2. Internalriskcontrol

3. TheneedforCentralSOEstoadheretothehedgingprincipleandnottoundertakespeculativetransactions

4. Reportingrequirementsandmanagementaccountability

(Source:ChinaLaw&Power,May2009)

Airline Hedging Contracts

Thecentralgovernmentandforeignbanksarethreateninglegalactionagainsteachotherinanescalatingrowoverballooninglossesrackedupbystate-ownedairlineswhichranintotheredonderivativescontracts.

AirChina,ChinaEasternandShanghaiAirlineshavereportedlossesofalmostUS$2billionsincelastyearonaviationfuel-hedgingcontractsaftertakingwrong-waybetsonoilpriceswiththeirbanks.

TheState-ownedAssetsSupervisionandAdministrationCommission(SASAC)saidinastatementyesterdayitwouldconductaninternalinvestigationintothecontractsbankssoldtheseairlines.

‘Thepurposeofthemoveistoprotectourowninterestsbyresortingtolegalactionsincommercialactivities,’thestatementsaid.Individualsfamiliarwiththecommission’sthinkingsaiditmighttakelegalstepstoforcethebankstoforgivethelosses.

Beijing’shardlinestanceonwhatthebanksconsiderabread-and-butteractivityofsellingasimpleproducthasrattledglobalfinancialinstitutionsandworldcommoditiesmarkets.InHongKong,banksincludingCiti,GoldmanSachs,JPMorganandMorganStanleyregularlysellthesederivativestomainlandcompanies.

(Source:ExtractsfromSouthChinaMorningPost,8September2009)


China’s Rules Put Foreign Banks in a Bind

CreditDemandsforDerivativesTradeWillBeaHighHurdle

Theircreditreputationsdamagedbytheglobalfinancialcrisis,foreignbanksfacetheprospectofbeinglargelyshutoutofChina’srapidlyexpandingmarketsforfinancialderivatives,apotentialkeysourceofrevenue.

OnSept.16,Chinawillputintoeffectanagreementgoverninghowbankstradedomesticderivativeproductsamongthemselves.Butasaconditionofdealingwithforeignbanks,China’sfivelargestcommercialbanksareseekingtoimposetoughcreditdemandsthatwillbedifficulttocomplywith,accordingtolawyersandknowledgeablepeopleatseveralforeignbanks.

BankofChinaLtd.,Industrial&CommercialBankofChinaLtd.,ChinaConstructionBank,AgriculturalBankofChinaCo.andBankofCommunicationsdominatethedomesticmoneymarkets,supplyingasmuchas80%ofmarketliquidity.NotbeingabletodealwiththemwouldpunchabigholeintheoperationsofforeignbanksinChina.

China’sderivativesmarketsarerapidlydeveloping,andforeignbankshavebeenhopingtheirextensiveinternationalexperiencewillhelpthemtapastreamofrevenuefromthosemarkets.Underthenewtradingregime,bankswillbeallowedtotradeonlywithcounterpartieswithwhomtheyhavesignedamasteragreement.Thatagreementwillinitiallycoverexistingtradingininterest-rateswaps,bondforwards,foreign-exchangeswapsandforwardsandcross-currencyswaps.

Butthefivebigbanksareinsistingthatforeignbanks,andinsomecasestheirmajorshareholders,guaranteethecreditoftheirChinaunitsbeforetheysignanyagreement,accordingtoforeignbankerswithdirectknowledgeofthesituation.Underexistingarrangements,foreignbankscantradederivativeswiththosebankswithoutprovidingcreditguarantees.

Agreeingtocoveranytradingdefaultswouldforceforeignbankstoputasidecapitalthatcouldotherwisebeusedproductively.Callingonbanks’majorshareholderstoprovideanadditionalguaranteeishighlyunusualelsewhereintheworld,andmaybeanevengreaterstumblingblock.

MostmajorChinesebankshadatleastsomeexposuretoLehmanBrothersHoldings,theWallStreetinvestmentbankwhosecollapselastSeptembersparkedaglobalcreditcrunch,orwerehitbylossesoncomplexderivativeproducts.Thesizeoftheirlosses,however,paleincomparisonwiththoseofmajorWesternbanks.

Thedemandforcreditguaranteesisafurthersourceoffrustrationforforeignbanks,giventhatmanyofthemrecentlyhavebeenthroughacostlyprocessofincorporatingtheirlocalunits,whicharegenerallycapitalizedataroundfourbillionyuan($586million).ThatwassupposedtoqualifythemforequaltreatmentwithChinesebanks.

“Itgoesagainsttheregulatorwantingustostandonourown,”saidatreasuryofficialatabigforeignbankinShanghai.“Itdefeatsthepurposeofalocalsubsidiary.”Beijing’srules,whichrequirelocalincorporationasaprerequisiteforconductingdomestic-currencyretailbusiness,haveallowedtheregulatortotightencontroloverthebankingsector,givingitrecoursetoassetsheldwithinthecountryincaseaforeignbankdefaults,whilealsofencingoffforeignbanks’localoperationsfrompotentialriskselsewhereintheirorganizations.

(Source:ExtractsfromWallStreetJournal,3September2009)


Q Can you comment on “risk adjusted returns” in the context of foreign banks in China?

Don’t know

NoYes


AlmostthreequartersoftherespondentsbelievethatlocalincorporationhashadapositiveinfluenceonriskmanagementbytheforeignbanksinChina.

AnAsianbankcommentedthatlocalincorporationrequiredthebanktofocusonitsownbalancesheetandrespectiveratios.

AnotherAsianbanksaiditenhancedaccountability,whileanothersaidthatitencouragedamorelocalisedmarket-orientedapproach.

AEuropeanbankbelieveditwouldleadtomorevigorousregulationbytheCBRCwhileanotherEuropeanbanksaiditsignificantlyaddedtocosts.

AlargeAmericanbankheldaneutralpositionandemphasisedthatbranchescanbejustaseffectiveaslocalincorporation.

In2009,24foreignbankssaidlocalincorporationwaspositive.By2010thisnumberhadincreasedto29banks.

Q Has local incorporation had a positive influence on risk management?

Don’t knowNeutral

No Yes


2010

2009

Theforeignbanksingeneralbelievethattherisk/rewardrelationshipinChinaatthepresenttimeisfavourable.Theyrecognisethatmarginscameunderpressureasaresultofthesurgeinlendingbydomesticbanksin2009,butatthetimeofthisresearch,Chinawasdeemedtobeanattractivemarket.

OneAsianbanknotedthewiderangebetweendepositratesandloanrates.Typicalcommentswereasfollows:verypositive(Europeanbank),goodreturns(European

bank),verysatisfactory(Asianbank),marginsshrinkingbutstillveryattractive(Europeanbank),decentreturns(Europeanbank),andhigherrisksbutsolidrewards(Asianbank).

Despitetheseverypositiveendorsements,aroundeightbanksbelievethatriskadjustedreturnsarelowinChina.OneEuropeanbankcommented“lastyearChinesebanksalmostgaveawayfreemoney,andasaresultwehadtoavoidanydirectcompetition”.


Q How would you describe the current credit position for corporate credit and consumer credit?

Don’t know

Deteriorating Stable

Improving


Deteriorating

Stable

Improving


Corporate credit

Consumer credit

Althoughseveralbanksmentionedthatthegovernmentstimulusplanandloansurgein2009mayresultinariseinNPLsin2011andbeyond,theirassessmentofthecorporatecreditpositiondidnotreflectthisview.

Instead,incontrasttoresponsestoasimilarquestioninthe2009report,theforeignbanksbelievethecorporatecreditsituationisstable.Infact,14banksbelieveitisimproving.

In2009,onlyeightbankssuggesteditwasimproving,while20bankscontendeditwasdeteriorating.

Deteriorating

Stable

Improving


Don’t know

Deteriorating Stable

Improving


2009

2009

2010

2010

Consumer creditAsimilarmoreoptimisticoutlookwasalsoexpressedonconsumercredit.

In2009,20bankssaidconsumercreditwasstablewhilesevenbanksbelieveditwasdeteriorating.

In2010,ninebankssaiditwasimproving,while10banksthoughtitwasstableandonlyfourbanksthoughtitwasdeteriorating.


Q Do you believe the Chinese banks’ risk management systems are sufficiently robust?

Don’t know

No

Yes


Althoughtherehasbeenaslightimprovementintheforeignbanks’assessmentontherobustnessofthedomesticbanks’riskmanagementsystems,thevastmajorityofthemremainsceptical.

Aselectionofcommentsisasfollows:

• GoodinsomebankssuchasCCBbutnotinthecitycommercialbanks

• Insufficientchecksandbalances,subjecttooutsideinfluence

• IfpushedintoSMElending,theywillneedbetterriskmanagementsystems

• Stillalongwaytogo;improvementatheadofficelevelbutquestionableatthebranchlevel

• Toomuchgovernmentinfluence;notreallycrediblejudgements

Onamorepositivenote,severalbanksrecordedprogressbythedomesticbanksonriskmanagement.

Anumbernotedthatriskmanagementwasimprovingandhasadvancedsignificantly.AEuropeanbanksaidthatinsomeshareddeals,thedomesticbankswerebecomingmoredetailedandprecise.

AnotherEuropeanbanksaidriskmanagementwashighontheCBRCagendaandtherefore,improvementswouldfollow.

Don’t know

No

Yes


2010

2009

AnAsianbanksaidthattheChinesebankshadbettersystemsthansomeoftheforeignbanks.

TheyalsocommentedthatthePBOChasapowerfulcentraldatabasewhichisveryeffectiveattheretaillevel.


Productsandmarketsegments


Q Which product areas do you see as becoming increasingly important in the Chinese retail banking industry in the next three years?

Thetopthreeproductsontheretailsidearepredictedtobe:

• Highnetworthindividuals/privatebanking

• Investmentproducts

• Mortgages

Thisgroupremainsthesameasin2009althoughinvestmentproductsreplacedmortgagesinsecondposition.In2010,onlyparticipantsthatpossessedanin-depthknowledgeofretailandprivatebankingwereaskedtorespondtothisquestion.

China’scontinuedeconomicgrowthhasacceleratedthenumberofhighnetworthandultrahighnetworthindividuals.

Inthe2010,Forbeslistofbillionairestherewere97newadditionsand27ofthesewerefrommainlandChina.

ChinarankssecondbehindtheUnitedStatesontheForbeslist.

0

5

10

15

20

Other

reta

il pro

ducts

Credit c

ards -

pro

prieta

ry

Leve

rage

d inve

stmen

t pro

ducts

Credit c

ards -

co-b

rand

ed

Mor

tgag

es

Inves

tmen

t pro

ducts

HNWIs/

Privat

e ban

king


Number ofbanks

mentioningproduct

China Unionpay Reports Soaring Card Use During Chinese New YearChineseconsumersspentmorethan56.9billionyuan(US$8.3billionor6.1billioneuros)usingtheirdebitandcreditcardsduringtheweek-longChineseNewYear,up45%from39.2billionyuanduringthesameperiodlastyear,datafromcardcompanyChinaUnionpayreveals.

Consumersinitiatedmostofthetransactionsatretail,cateringandtravel-serviceslocations.Theyspent15.7billionyuanusingcreditcardsthatweek,up44%from10.9billionyuanayearearlier,whiledebitcarduserswerestilldominant,spending41.2billionyuan,up45.6%from28.3billionyuanayearearlier.

MoreandmoreChineseconsumersaregettingaccustomedtousingplasticthankstotheconstantmarketingeffortsofallthebanks,HaoHongrui,ananalystatBeijing-basedresearchfirmBeijingDHDconsultingCo.Ltd.,tellsPaymentsSource.However,banksshouldkeepaneyeonthegrowinguseofcreditcardsbecausethecountry’scredit-informationsystemisstillnotfullydeveloped,Haowarns.

Thejobmarketisstillstagnant,andchancesarecardowners,especiallymigrantworkers,wouldnotrepaythedebtiftheylosetheirjobs,shesays.

Chinaestablishedanationalcredit-informationsystemin2006.Setupbythecentralbank,thePeople’sBankofChina,thesystemconnects23bankslocatedinmajorcities,coveringonly640millionoutof1.3billionindividuals.

ChinaUnionPayissued420millionnewdebitandcreditcardsin2009,up40%from300millionin2007.Transactionvolumeonallthecardstotalled7.7trillionyuanlastyear,up67.4%from4.6trillionyuanin2008,accordingtotheissuer.

(Source:PaymentsSource,24February2010)


Q Which product areas do you see as becoming increasingly important in the Chinese retail banking industry in the next three years? (continued)

ManyoftheforeignbanksareactivelypursuingwealthmanagementandsomearepositioningtheirservicesbelowthenormalthresholdofUS$1millionininvestableassets.Thisstrategyisdevisedtoacquireclientswhentheyhavebasicneedsandthentodevelopandexpandtherelationshipastheirwealthgrowsandneedsmature.

However,theforeignbanksfaceincreasingcompetitionfromthedomesticbanks.ICBC,BankofChina,ChinaConstructionBankandBankofCommunicationsareallactiveinthisarea.

Inadditiontothebigbanks,medium-sizedbankssuchasChinaMerchantsBank,ChinaCITICBankandChinaMinshengBankarealldevelopingsuccessfulwealthmanagementarms.

Forexample,ChinaMerchantsBankwasawardedthetitleof“BestPrivateBankinChina2009”byEuromoney.

Mortgageopportunitiesareanticipatedbythelocallyincorporatedforeignbanks.

Inearly2010thenumberofmortgagesissuedbythedomesticbanksdeclinedsharplyasthecentralgovernmentimplementedmeasurestocooltherealestatemarket.

Forexample,thePBOCannouncedinMarch2010thatindividualmortgagesfellbyover50%inShanghaiinFebruary.

BanksinShanghaiextendedindividualmortgagesofRMB7.86billion(US$1.15billion)inFebruary,adropofRMB11.74billionoverJanuary2010.(source:ShanghaiDaily,12March2010)


Q Which product areas do you see as becoming increasingly important in the Chinese wholesale banking market in the next three years?

Astrongconsistencyexistsbetweentheopinionsonproductdevelopmentexpressedinboth2009and2010.

Onthewholesaleside,theemergenceofdebtcapitalmarketscontinuestobedefinedasthemostimportantopportunity.

0

5

10

15

20

25

30

2009

2010

NPL tra

ding

Equity c

apita

l man

agem

ent s

olutio

ns

Hybrid

finan

cing

tech

nique

sOth

er

Credit d

eriva

tives

Online

tran

sact

ions s

yste

ms

Secur

itisat

ion

Projec

t fina

ncing

/Infra

struc

ture

loan

s

Perfo

rming

loan

trad

ing

Equity c

apita

l mar

kets

Leas

ing

Cross

curre

ncy s

waps

Inter

est r

ate s

waps

Privat

e equit

y

Struct

ured

pro

ducts

Debt c

apita

l mar

kets

Based on responses from 39 banks in 2010 and 38 banks in 2009

Number ofbanks

mentioningproduct

Thisisfollowedbystructuredproducts,privateequityandinterestrateswaps.

Onenoticeablecontrastfrom2009isthediminishedsignificanceofprojectfinancingandinfrastructureloans.Theseareasmayofferlessopportunityinthefutureasaresultofthescalingbackofthestimulusplan.


0

1

2

3

4

5

6


Number ofbanks

109876543

2010

2009

0

1

2

3

4

5

6

7

109876543


Number ofbanks

2010

2009

Q In your opinion, how serious, on a scale of 1 to 10, where 10 represents the maximum level of severity, are the following issues at a retail bank’s branch level?

Theforeignbankswereaskedtocommentonthreeareasofthedomesticretailbanks’operations.Thesewerethelevelofexpertiseofbranchstaff,themis-sellingofproductsandthirdly,theexerciseofcontrolsinthedistributionchannels.

Allthreeareasexperiencedlowerscoresin2010versus2009.

Regardingthelackofexpertiseinsellingparticularproducts,theoverallscorefellfrom7.5to7.16in2010.

Mis-sellingofproductsregisteredthegreatestwithadeclinefrom7.2to6.2in2010.Sevenoutofthe19respondentsscoredthisfactorat5orbelow.

Controlsinthedistributionchannelalsoimproved,fallingfrom7.0to6.1in2010.

Thesescoresalthoughsubjective,suggestthattheforeignbanksbelievethattheirdomesticcounterpartsarecontinuallyimprovingtheirservicedelivery.

Lack of expertise by staff in selling particular products

Mis-selling of certain products

Controls in the distribution channel

0

1

2

3

4

5

6

7

8


Number ofbanks

109876543

2010

2009


Q Can you elaborate on how structured products are being used in the market?

OneEuropeanbanksuggestedthatthestructuredproductsmarkethadtakenastepbackwardtoasimplerandmorestraightforwardproductoffering.AnothernotedtheimmaturityofbothcustomersandtheindustryandhowtheCBRChadbecomemuchmorecautiousoverthelasttwoyears.Itwashoweverpredictedthatopportunitieswouldfurtheropenupby2013.

Severalbanksinthewealthmanagementsegmentbelievethatstructuredproductswillgainwideracceptanceastheyseektoimprovetheiryields.

Aselectionofindividualbankcommentsarerecordedbelow:

• Weareatastageofwaitandsee(Europeanbank)

• Chinesecustomerswillreturntohigherriskproducts(Asianbank)

• Themarketsaretightlycontrolled(Europeanbank)

• Greatercustomerexpertiseneeded(NorthAmericanbank)

• Thereisagrowingneedformoreriskprotectionproducts(Europeanbank)

• Thereisarealneedformorestructuredproducts,enormouspotentialforbanks(Europeanbank)

• Therewillbemorebondsissuedbylargeenterprises.Thistrendisalreadyhappening(Europeanbank)

• Themarketwillbecomeincreasinglysophisticatedandtheregulatorwillbecomemorereceptive(NorthAmericanbank)

Thesecommentswereinlinewiththosemadeinthe2009survey.Progresshasbeenslowbuttherespondentsbelievethatthemarketwillcontinuetoevolvetowardsawideruseofstructuredproducts.


Q Will the aggregate market share of foreign banks in China (versus local banks) continue to increase, stay the same or decline?

Reasons for changes in market share Thereasonsforthedisappointingmarketsharearehighlightedinorderofimportanceasfollows:

• Unlevelplayingfield

• Economicfactors

• Smallsizeofmarket

• Consolidation

• Limitedproductrange

Severalbankspointedoutthatmarketsharedoesnotrevealthetruestory.

Anumberofbankshavegrownbutthesignificantgrowthintheoverallmarketasaresultofthestimulusplanhasmaskedtheirindividualexpansions.

Otherexplanationsgivenforthelackofprogressonmarketshareincludedaloweringofriskappetitebysomeforeignbanksinthepostfinancialcrisisenvironmentandlimitedifany,involvementinmajorinfrastructureprojects.

Areviewofthemarketshareexpectationsoverthelastthreeyearsrevealsthatin2008,asizeablegroupanticipatedanincrease;by2009,elevenbanksforecastadecrease;andby2010,thisnumberdroppedtosixbanks.

In2010,almosthalf,20outofthe42banksexpectedmarketsharetoremainthesame.

Withinanoverallmarketshareofaround2%,maintenanceofthestatusquoreflectsalackofprogressfortheforeignbanks.

DecreaseDecrease

Stay the same

Stay the same

Stay the same

Increase Increase

Increase

Based on responses from 42 banks in 2010,40 banks in 2009 and 41 banks in 2008

200820092010


Q What is your bank’s primary method of expansion in China?

Themostimportantgrowthoptionfortheforeignbankscontinuestobeorganicexpansionoftheirexistingoperations.

In2010,37banksselectedthisoptionversus38banksin2009.Thiswasfollowedbyjointventures(eightbanks)andacquisitions(sevenbanks).

In2009,12banksselectedacquisitionssuggestingthisoptionhasbecomemorechallenging.

ANorthAmericanbanksaidithadformedaleasingjointventurewhileaEuropeanbankhadformedajointventureinthesecuritiessector.

0

5

10

15

20

25

30

35

40

Other

Green

field/s

tart

up

Acquis

ition

Joint

vent

ure

Organ

ic gr

owth

Based on responses from 40 banks in both 2010 and 2009 where on occasion banks selected more than one factor

Number ofbanks

2010

2009

No comment

No

Yes


Q Will you become involved in partnership relationships over the next three years?

Inaseparatequestionlookingatpartnerships,theforeignbanksclearlyseethisasapositivewaytoexpandtheirbusinesses.

Aroundthreequartersoftherespondentsindicatedtheywoulddeveloppartnerships.

Partnershipswereseenasawaytocollaboratewithlocalcompaniesandgainaccesstothemarket.

Leasing,securitiesandtrustcompanies,capitalmarketsactivitiesingeneral,corporatefinanceandassetmanagementwereallsuggestedasopportunities.

Interested in partnerships


Q What are the top three drivers of success in private banking?

ManyforeignbanksrecognisethatwealthmanagementwillbeanimportantcomponentintheirfuturestrategicdevelopmentinChina.

TheywereaskedtoidentifythethreemostimportantdriversofsuccessintheChinesemarket.

Thetopthreedriversofsuccessareasfollows:

• Strong products. Respondentsrecognisetheneedtoofferascomprehensivearangeofwealthmanagementproductsaspossibleandtodemonstratesuperiorinvestmentperformance

• Top quality people. AnAsianbankbelieved“people”werethekeydifferentiator

• Recognised brand.SeveralEuropeanbanks,oneNorthAmericanandoneAsianbankplacedbrandasthemostimportantsuccessfactor;understandablythesebanksareall“globalnames”inthewealthmanagementsector

Closelyfollowingthesetopthreesuccessfactorsare:

• Client Service/relationship.Thisfactorisrelatedtotopqualitypeople.OneAsianbankhighlightedtheimportanceofprovidingaone-stopserviceexcellence.

• Client education.Manyoftherespondentsmentionedthatmanyclientswere“newlyrich”andrequiredadviceonhowtogrowandpreservetheirwealth.ANorthAmericanbankadvisedthatwealthmanagementproductsofferedbyitsbankinotherpartsoftheworldneededadoptionforChina.OneforeignbankCEOrecountedhowhehadarrangedameetingwithapotentialbillionaireclientandhadbroughtalonghistopprivatebanker.Theprospectiveclienthowever,couldnotrelatetoorempathisewiththeprivatebankerandthediscussiononawealthmanagementstrategyfailed.

• Systems support.Itwasconsideredcriticaltohavetopqualitysystemssupport.Thissuccessfactorsupportsseveralofthepreviouslymentionedcriteriasuchasproductdesign,productperformanceandclientservicing.

Inadditiontothesefactors,participantsalsomentionedtheimportanceofpowerfulpromotions(Asianbank),areceptivemarketenvironment(Asianbank),abilitytoprovideanonshore/offshorelink(Europeanbank)(althoughitisnotpermittedtomakereferrals),andfinallyaccesstoprivateRMBquotas(Europeanbank).


Q How do you differentiate your services from the domestic banks?

Theforeignbanksbelievethattheyhavetheabilitytodifferentiatetheirservicesfromthedomesticbanksinafewareas.

AEuropeanbanksuggestedthatitcannotcompeteonproductsbutratheronservice.

OneAsianbanksaid“Weprovideaone-stopservicetoourtargetcustomers;asinglepointofaccesstoourservicesuite,aprofessionalwealthmanagementportal.”

ANorthAmericanbankreferredtoitsseamlessservicewhichallowsanintegratedonshore/offshorelinkage.

Q Can you comment on impairment losses and the specific sectors that have had the greatest impact on your bank?

Thesectorthathascreatedthegreatestchallengesfortheforeignbankshasbeensmallandmediumsizedcompanies.

OneEuropeanbankobservedthatsomeofthelarger,locallyincorporatedbankshad“jumpedintothissectorwithbothfeet”.Morespecifically,aNorthAmericanbankcitedtheproblemsofsmalltoymanufacturers.

AEuropeanbankmentionedsectorssuchassteel,cementandtextiles.

RespondentscollectivelyreferredtosomeforeignbanksthattheythinkhavesufferedimpairmentsintheSMEsector.


Investments


Q Do you envisage making further acquisitions in China over the next three years?

No comment

No

Yes


No comment

No Yes


2009

2008

No comment

No

Yes


2010In2010,foreignbankshaveahigherexpectationthattheywillmakeacquisitionsoverthenextthreeyearsthanineither2008or2009.

In2008,22bankssaidyes,thisincreasedto23banksin2009and32banksin2010.

Thegeneralfeeling,however,wasthatacquisitionswouldbeundertakenincrementally.ThestronglevelsofcommitmenttoChinaexpressedelsewhereinthereportsuggeststhattheforeignbankshaveastrongdesiretoacquireanddiversify.Marketconstraintsonthescaleandpaceofgrowthmaybeattractingthemtowardsdiversificationandintolesstypicalareasofexpansionforforeignbanks.

Thepotentialtargetsectorsforacquisitionsareasfollows:

• Assetmanagement

• Securities

• Leasing

• Ruralbanking

• Insurance

• Consumerfinance

• Privateequity

• Factoring

• Trustcompanies

Inaddition,itwasthoughtthatTaiwanese,ItalianandSpanishbanksmightstillbeinterestedinacquiringa20%stakeinacitycommercialbank.


Q Can you provide a few examples of equity investments made by foreign financial institutions that you believe were successful or unsuccessful?

Responsestothisquestionwerevaried.Inafewcases,onebankwouldconsidertheinvestmentsuccessfulwhileanotherwouldholdacontraryview.Respondentsquestionedthecriteriausedtojudgethelevelofsuccess.Ifitwasfinancialreturnoninvestmentsthenmost,ifnotall,werejudgedtohavebeensuccessful.Ifontheotherhandtheyweretobemeasuredonleveragingskillsetsanddevelopingcollaborativeandbeneficialstrategies,thegroupweremuchmorejudgemental.

OneinvestmentthatwasmentionedonnumerousoccasionsasaperceivedsuccesswasHSBCandBankofCommunications.

AsecondexamplementionedbyseveralbanksasasuccesswasCitibankandGuangdongDevelopmentBank.

GuangdongDevelopmentBankisreportedtobeplanninganIPOin2010(source:Xinhua,12March2010).

ParticipantsdidnotbelievethatCitibank’sinvestmentinShanghaiPudongDevelopmenthadbeensuccessful.InMarch2010,ChinaMobileannouncedplanstobuya20%stakeinSPDB.

Otherforeignbankinvestmentsthatwereperceivedas“successful”included:

• BNPParibasandBankofNanjing

• DeutscheBankandHuaXiaBank

• StandardCharteredBankandBohaiBank

• BankofMontrealandFullgoalFundManagementCo.

• INGandBankofBeijing

• OCBCandNingboBank

“ChinaiscriticallyimportanttoCitiandourlong-termgrowthambitions,andremainsoneofCiti’sprioritymarketsaroundtheworld.WearecommittedtopursuinggrowthacrossmultiplelinesofbusinessinChina.”VikramPandit,CEOCitibankCitibankpressrelease,4February2010


RBS seeks securities licence in China

RoyalBankofScotlandisseekingasecuritieslicenceinChinaaspartofplanstorefashionitsmainlandbusinessfollowingthedisbandingofakeystrategicpartnership.ThebankhassignedasecuritiesjointventuredealwithalocalpartnerandappliedtoBeijingforregulatoryapproval,peoplefamiliarwiththemattersaid.

Severalforeignbanks,includingJPMorganandBarclays,arescramblingtoobtainmainlandlicencesforsecuritiesjointventuresabletounderwriteinitialpublicofferingsandtradedomesticstocks.Onlyahandfulhavereceivedlicencessofar.TheapprovalprocessislengthyandRBS’scapitaloutlayislikelytobenegligible.

However,themoveisnoteworthybecauseitisthefirstsignofRBS’swillingnesstoinvestinglobalgrowthopportunitiessincebeingrescuedbytheUKgovernmentin2008,andcomesasEuropeanregulatorsareforcingittosellcovetedassets.

AsecuritieslicencewouldmakeiteasierforRBStohelpUKcompanies,andthecountry’sdebt-riddengovernment,totapChina’sdeeppoolsofcapital.RBSdeclinedtocommentaboutitsplansregardingasecuritiesjointventurebutJohnMcCormick,RBSAsiaPacificchiefexecutive,toldtheFinancialTimesthatthebankwasworkingonseveralfrontstoexpanditsChinaplatform.

“Wehavemany‘acorns’plantedinChinaandIamconfidentthesewillgrowsteadilyinthecomingyears,”hesaid.

Fiveyearsago,RBSacquireda5percentstakeinBankofChinaaspartofastrategictie-upthatspawnedjointventuresincreditcardsandwealthmanagement.However,itsoldthestakefor$2.4bnlastyeartobolsteritsbalancesheet,triggeringadisbandingofthetwojointventures.

Instead,itsignedafreshmemorandumofunderstandingwiththeChineselendercoveringglobalwholesaleandinvestmentbankingdeals,dovetailingwithitsnewstrategicfocusintheregion.”Chinaremainsacoremarket,”saidMrMcCormick.“OurcorporateandpersonalrelationshipswithBankofChinaremainstrong.”

RBSlastyeardecidedtoexitretailandcommercialbankingintheAsiaPacificregion.ItsoldassetsinsixcountriestoAustralia’sAustralia&NewZealandBankingGroupandiswaitingregulatoryapprovaltodivestoperationsinChina,IndiaandMalaysia.

InadditiontotherevampedBankofChinatie-up,RBSretainsamainlandcorporatebankinglicence,ownershipofaprofitableleasingoperationandstakesindomestictrustandfuturescompanies.RBSownsa20percentstakeinSuzhouTrust,acompanythatstandstobenefitfromrisingdemandforannuityandpensionproducts.Italsoretainsa16.8percentstakeinthefuturessubsidiaryofGalaxySecurities,aleadingtradinghouse.

(Source:FinancialTimes,7March2010)

Deal seen for stake in China Investment Bank

KohlbergKravisRoberts&CompanyandTPGCapitalhavetentativelyagreedtopaycloseto$1billiontoacquireMorganStanley’s34percentstakeinChina’sleadinginvestmentbank,accordingtopeoplewhohavebeenbriefedonthedeal.

ThedealforastakeinChinaInternationalCapitalCorporationwouldbeoneofthelargestsingleforeigninvestmentsevermadeinChina’sfinancialservicesindustry.Itisthelatestsignthatglobalprivateequitygroupsaremakingahugepushtoenteramarketthathaslongbeenrestrictedtooutsideinvestors.MorganStanleyandoneofthiscountry’sbiggestbanks,theChinaConstructionBank,helpedformChinaInternationalCapitalin1995.ButformorethanayearMorganStanleyhasbeentryingtosellitsstaketofocusonestablishingaChinesejointventurethatwouldgiveMorganStanleymoremanagementcontrol.

Thedealhasnotbeencompletedandmuststillgettheapprovalofregulators.Peopleinvolvedinthedealsaidanagreementwasweeksormonthsaway.MorganStanleyandChinaInternationalCapitalofficialsdeclinedtocommentTuesday,andspokesmenforK.K.R.andTPGCapitalalsodeclinedtocomment.AreportthatK.K.R.andTPGCapitalwereclosetoadealwithMorganStanleywasreportedonTuesdayinTheWallStreetJournal.

AmericanprivateequitygroupsandglobalinvestmentbanksaremovingaggressivelytoincreasetheirpresenceinChina’sboomingeconomyanditssizzlinghotmarketforinitialpublicstockofferings.

TheBlackstoneGroup,theCarlyleGroupandotherfirmsareevenformingprivateequityfundsdenominatedinChina’scurrency,therenminbi.ChinaInternationalCapital,whichisrunbyLevinZhu,thesonoftheformerChineseprimeministerZhuRongji,generateshundredsofmillionsofdollarsinrevenueandusuallytopsthelistofChinesestockunderwriters.

Butforyears,MorganStanleyhashadlittleornoroleinthecompany’smanagementdecisions,havinglostmuchofitscontrolafterrockyrelationsintheearliestyearsoftheventure.

Now,GoldmanSachs,MorganStanley,UBSandotherinvestmentbanksaretryingtostrengthentheirbusinesshereandalsoformsecuritiesfirmstocompetewithChinaInternationalCapitalandChinesebrokeragehouses.

(Source:NewYorkTimes,24February2010)


Q In your opinion, in which markets are the big Chinese banks likely to expand? How will they undertake this expansion?

ThemajorityofforeignbanksbelievethattheChinesebankswillopttobothgrowtheirdomesticbusinessandexpandinternationally.SevenrespondentssuggestedtheChinesebankswouldoptforlocalexpansiononlyversusfivebanksforinternationalexpansiononly.

Thosethatselecteddomesticexpansioncommentedthatthehighlevelsofliquidityrequiredattentiontothelocalmarket’sexpansion.

InternationalexpansionisalreadyunderwayformanyofthelongerChinesebanks.Theforeignbanksnotedtheirpresenceintheirownhomemarkets.Forexample,aGermanbankcommentedthatallofthe‘BigFive’werenowpresentinFrankfurt,anAustralianbanksaidBankofChinaandICBCwereveryaggressiveinSydney.OneNorthAmericanbankcommentedonbranchopeningsinNewYorkandthepotentialinterestinacquiringaregionalbanketc.

Theobservationmadeinthe2009reportthattheywouldfirstexpandintoHongKongiswellunderway.OneNorthAmericanbanksuggestedthatthedomesticbankswouldbeinterestedinHongKongbankswithsecuritiesarms.

Australia,BrazilandAfricawerefrequentlycitedastargetmarketsastheChinesebanksfollowtheirclientsandbecauseofopportunitiestosourcefornaturalresources.

Go both domestic and international

Go international

Focus on domestic franchise


Expansion of large Chinese banks


Taiwan draws up regulations for mainland financial operations on island Taiwan’sfinancialsupervisorybodyissuedregulationsonmainlandbanks’operationsontheisland,twomonthsafterChinaandTaiwansignedamemorandumofunderstandingonfinancialcooperation.

TheregulationswillnotgointoeffectuntiltheEconomicCooperationFrameworkAgreementissigned.

MainlandbanksthatmeetthecriteriaoutlinedintheregulationscannowsetuprepresentativeofficesinTaiwanandupgradethemtobranchesaftertwoyears,thoughtheECFAmaystipulateexceptions.TheycanalsoholdaminoritystakeinaTaiwanesebanktoformapartnership,thoughtheyarelimitedtohandlingsingledepositsoverNT$1.5million.

MainlandbanksthatwanttoenterTaiwanmusthaveexperiencerunningbranchesinOECDcountriesandaresubjectedtoTaiwaneselawsandfinancialregulations.Currently,fivemainlandbanksmeetthecriteria:BankofChina,IndustrialandCommercialBankofChina,ChinaConstructionBank,BankofCommunications,andChinaMerchantsBank.

Besidesbanks,mainlandinsurancecompaniesandstockdealersreceivedthegreenlightaswell.Currently,threeinsurersareeligibletosetuprepresentativeoffices,whileanothertwoarequalifiedtoformjointventureswithTaiwaneseriskcompanies.

MainlandsecuritiesandfuturescompaniescanformjointventureswithonlyoneTaiwanesefirm.Likebanksandinsurers,experienceinoverseaspracticesisrequired.

TheFSCalsoprovideddetailedregulationsforTaiwanesefinancialinstitutionsontheirentryintothemainland.ThirteenofTaiwan’s15financialholdingcompaniesarequalifiedtoseekpartnershipsinthemainland.FourteenTaiwanesebankscanupgradetheirrepresentativeofficesinthemainlandtobranches,includingChinatrustCommercialBankofTaiwan,whoisconfidentenoughtoskipthelocalbranchrouteandhasappliedtobeadirectsubsidiaryinstead.

FinancialanalystsinTaiwanarestillconcernedabouttheoutcomeoftheECFAnegotiationsbutareconfidentthatthemainlandbanks’participationwillbenefitthelocalfinancialmarket,suchashelpinglocalinstitutionsbecomemorefamiliarwiththerenminbiandpreparingthemforfuturecompetitionacrosstheTaiwanStrait.

TaiwanesestockbrokerssaygivingclearanceformainlandfinancialinstitutionsisahistoricaltrendbutalsopointoutthattheTaiwanesemarketistoolimitedtoattractmoremainlandinvestment.Butsomefinancialchiefsareoptimisticabouttheiroperations,sayingthattheirmarketsharesareunlikelytobeaffectedbymainlandcompanies.

(Source:www.china.org.cn,17March2010)

Anumberofparticipantshighlightedthesigninginlate2009ofaMemorandumofUnderstandingonCross-StraitFinancialCooperation.

CommentsmadebyaTaiwanesebankinTaipei(forthisreport)suggestedthatthefirsttwoChinesebankstoenterTaiwanwouldbeBankofCommunicationsandBankofChina.However,hesuggestedthatTaiwanisasmalloverbankedmarketandtheChinesebanksmightbeattractedtotheoptionofcooperatingwithTaiwanesebanksinordertodeveloprelationshipinothermarkets.

Taiwanesebanks,primarilythelargenon-governmentownedbanks,areexpectedtotakeadvantageoftheEconomicCooperationFrameworkAgreement(ECFA)whichwillfasttracktheirexpansiononthemainland.

UndertheECFA,TaiwanesebankswillbeabletoinvestinChinesebanksand,incomparisontootherforeignbanks,establishbranches,subsidiariesandentertheRMBmarketatanacceleratedpace.

Severalforeignbankshintedthatexpandedcross-straitactivitybybothmainlandandTaiwanesebanksmighthaveanegativeimpactontheexistingbusinessofsomealreadyestablishedforeignbanksthathaveanactivepresenceinbothmarkets.

Recent foreign banking developments as a result of the pending agreement on Cross-Strait Financial Cooperation


Six Taiwanese banks apply to open branches in China

SixTaiwanesebanksappliedonMondaytosetupbranchesinChinaunderapackageofagreementssignedbytheformerarchrivalslastyear,theisland’stopfinancialregulatorsaid.

Theagreements,thelatestsignofimprovingtiesbetweentheneighbours,aredesignedtofosterclosercooperationinbanking,insuranceandsecuritiesandbecameeffectiveinJanuary.

TheagreementsareeventuallyexpectedtomakeiteasierforTaiwaneseandChinesebankstobuyeachother’sassetsandtomakeitpossibleforChineseinvestorstobuysharesontheTaiwanesestockmarket.

ThesixapplicantswereCathayUnitedBank,TaiwanCooperativeBank,ChangHwaCommercialBank,LandBankofTaiwan,FirstCommercialBank,andHuaNanCommercialBank,theFinancialSupervisoryCommissionsaidinastatement.

ChinastillconsidersTaiwanpartofitsterritory,eventhoughtheislandhasgoverneditselfsince1949attheendofacivilwar.

ButtiesbetweenthetwosideshaveimprovedmarkedlysinceMaYing-jeouoftheChina-friendlyKuomintangcametopowerin2008,pledgingtobeefuptradelinksandallowinmoreChinesetourists.

(Source:AgenceFrancePresse,19April2010)

Liquidityandfunding


Yes


2010

2009

Yes No

Q Has there been an impact on lending as a result of liquidity issues?

Your bank

All foreign banks

Yes No

Based on responses from 41 banksin 2010 and 40 banks in 2009

Don’t know

2009

2010

Yes No

Based on responses from 41 banksin 2010 and 40 banks in 2009

2009

2010

Don’t know

Domestic banks

Theimpactofliquidityissuesthatwassoevidentattheendof2008haddeclineddramaticallybyearly2010.

Withregardtotherespondents’ownbank,20banksindicatedliquiditywasstillanissuebut21bankssaidthiswasnolongerthecase.In2009,29banksrecordedanimpactonlendingasaresultofliquidityissues.

Commentingonthegroupasawhole,31outofthe41respondentsbelievedliquiditywasanissue.Althoughthisisahighpercentage(around75%)itrepresentsareductionfrom2009when39outofthe40respondentssuggestedliquidityhadanimpactonlending.

Finally,inrelationtothedomesticbanks,theforeignrespondentsbelievethattherehasbeenlittleproblemofliquidityissuesandtheresultsarereversed.ThesixbanksthatbelievedthedomesticbankshadliquidityrelatedissuesincludedfourEuropeanbanksandtwoAsianbanks.


In2009,therespondentsprovidedamixedresponseregardingthecontroversialissueofloan“quotas”.AlthoughtherearenolongerRMB“quotas”,thereisstillaneedtorequestanallocationfromtheStateAdministrationofForeignExchange(SAFE)regardingforeigncurrencyloans.

Themajorityofbanksrespondedthattheyanticipatetheirforeigncurrencylendingallocationsareexpectedtobethesamein2010astheywerein2009.ThenormalprocedureisthatthebanksareadvisedoftheirquotasattheendofMarchorthebeginningofApril.

Thebanksexpressedavarietyofviewsontheimplementationofthisrestriction.Someanticipatedthat2010mayseeatighteninginquotasinresponsetoabroadereconomicrestraintandconcernoverinflation.Othersbelievedtheremightbeamodestrelaxation.

AlargeEuropeanbankanticipateda10%increasewhileanothersimilarlysizedbankpredicted2010wouldbethesameas2009.

Severalbanksmentionedthatthesizeoftheforeigncurrencylendingopportunitywasakeycomponentintheirmarketdevelopmentstrategy.Rigidcontrolofthisallocationwillthereforehaveasignificantinfluenceontheirgrowthplans.

Q Has the regulator relaxed restrictions on lending?


Q Can you describe your funding sources in 2010 and in 2013 in very approximate percentages?

Thirtyninebanksansweredthisquestionandeachbankhasbeenassignedanumbertoprotecttheiridentities.

Asin2009,themostimportantsourceoffundingfor2010remainstheforeignbanks’parent.Percentagesinthiscategoryrangedfrom6%upto100%.Closelyfollowingparentalsupport

isfundingfromcorporatedepositsanddepositsfromdomesticbanks.

Fundingfromotherforeignbankswasimportantto17banks,while12banksindicatedtheywereabletosecureretaildeposits.

In2009,10bankssaidtheyattractedretaildeposits.

Parent Corporatedeposits

Domesticbanks

Foreignbanks

Retaildeposits–HNWI/Premier

clients>RMB250K

Retaildeposits–Other<RMB

250K

Other

Bank1 50% 50% 100%Bank2 6% 65% 10% 10% 9% 100%Bank3 50% 50% 100%Bank4 25% 25% 25% 25% 100%Bank5 20% 30% 10% 40% 100%Bank6 10% 50% 10% 10% 15% 5% 100%Bank7 13% 65% 12% 5% 5% 100%Bank8 60% 20% 20% 100%Bank9 30% 40% 15% 15% 100%Bank10 20% 60% 20% 100%Bank11 20% 75% 5% 100%Bank12 60% 20% 20% 100%Bank13 34% 33% 33% 100%Bank14 20% 50% 15% 5% 5% 5% 100%Bank15 9% 5% 50% 36% 100%Bank16 90% 10% 100%Bank17 50% 50% 100%Bank18 30% 30% 40% 100%Bank19 80% 5% 10% 5% 100%Bank20 60% 30% 10% 100%Bank21 60% 10% 30% 100%Bank22 30% 40% 30% 100%Bank23 30% 3% 57% 10% 100%Bank24 60% 20% 20% 100%Bank25 80% 10% 5% 5% 100%Bank26 40% 10% 30% 20% 100%Bank27 50% 40% 5% 3% 2% 100%Bank28 25% 75% 100%Bank29 80% 5% 15% 100%Bank30 30% 70% 100%Bank31 30% 10% 40% 20% 100%Bank32 50% 25% 25% 100%Bank33 85% 15% 100%Bank34 20% 50% 30% 100%Bank35 5% 50% 45% 100%Bank36 50% 20% 10% 20% 100%Bank37 20% 20% 40% 20% 100%Bank38 100% 100%Bank39 30% 5% 40% 20% 5% 100%


Parent Corporatedeposits

Domesticbanks

Foreignbanks

Retaildeposits–HNWI/Premier

clients>RMB250K

Retaildeposits–Other<RMB

250K

Other

Bank1 50% 50% 100%Bank2 6% 65% 10% 10% 9% 100%Bank3 20% 60% 10% 10% 100%Bank4 15% 35% 5% 45% 100%Bank5 50% 5% 5% 40% 100%Bank6 5% 80% 15% 100%Bank7 60% 20% 20% 100%Bank8 40% 30% 15% 15% 100%Bank9 20% 55% 25% 100%Bank10 50% 30% 20% 100%Bank11 60% 20% 20% 100%Bank12 31% 31% 32% 6% 100%Bank13 20% 50% 15% 5% 5% 5% 100%Bank14 11% 8% 60% 21% 100%Bank15 50% 50% 100%Bank16 70% 30% 100%Bank17 10% 50% 40% 100%Bank18 50% 10% 20% 20% 100%Bank19 50% 20% 30% 100%Bank20 60% 10% 30% 100%Bank21 10% 40% 30% 20% 100%Bank22 30% 10% 50% 10% 100%Bank23 60% 20% 20% 100%Bank24 50% 10% 20% 20% 100%Bank25 30% 20% 30% 20% 100%Bank26 10% 70% 20% 100%Bank27 25% 25% 25% 25% 100%Bank28 55% 5% 40% 100%Bank29 30% 70% 100%Bank30 30% 10% 40% 20% 100%Bank31 20% 75% 5% 100%Bank32 50% 30% 20% 100%Bank33 20% 50% 30% 100%Bank34 20% 50% 10% 20% 100%Bank35 30% 30% 20% 10% 10% 100%Bank36 100% 100%Bank37 30% 10% 20% 20% 20% 100%

By2013,parentfundingwillcontinuetobeimportantfor30banksbuteightbankshopetohavemigratedawayfromthisfundingsource.Corporatedepositswillbecomethemostimportantfundingavenue.

Itisinterestingtonotethatthenumberofbanksthatwillbeaccessingretaildepositsisonlyexpectedtoincreasefrom12banksin2009to13in2010.

Oneoutofthe12banksin2009wasunabletoprojectforwardto2013butitexpectstocontinuetoaccessitsretaildeposits.Asaresult,the13banksshowncouldbeincreasedto14banks.

Depositswillbecomeacriticalfactoroverthenexttwoyearsasthelocallyincorporatedbanksnavigatetoconformtothe75%loan-to-depositratiobytheendof2011.

Q Can you describe your funding sources in 2010 and in 2013 in very approximate percentages? (continued)


Q Can you provide some details on your loan portfolio?

Thepatternofdistributionintermsoflendingcategoriesremainedverysimilarin2010comparedto2009.Forexample,withinatotalof34banksthatprovideddatain2010,29saidthattheyhadloanstoChinese-basedlistedcorporates(29banksin2009),18bankshadloanstoChineseprivatecompanies(16in2009and10hadloanstoChineseSMEs(12in2009).

ThemostcomprehensivecategorywasChineselistedcorporates.However,asexpected,boththeglobalcorporatesandhomecountrycorporatescategoriesremainextremelysignificanttotheforeignbanks.Forexample,eightwithinthegroupof34reporting

banksacknowledgedthattheyhad50%ormoreoftheirloanportfoliowithglobalcorporates.

Fifteenbanksindicatedthat20%ormoreoftheirloanportfolioresidedwithcorporatesfromtheirhomecountry.Forexample,loansfromaGermanbanktoaGermancorporate.

Followingthestimulusplan,theforeignbanksfounditincreasinglydifficulttocompetewiththedomesticbanksandthisstrongdependenceonglobalorhomecountrycorporatesreflectthechallengesfacedbytheforeignbanksinattemptingtoserviceChinesecorporates.

ToChinesebasedlarge

listedcorporates

ToChinesebasedprivate

corporates

ToChinesebasedSMEcorporates

ToGlobalcorporates

Tohomecountry

corporates

ToChinesebanks

ToForeignbanks

Other Total

Bank1 25% 12% 3% 60% 100%Bank2 5% 10% 15% 40% 15% 15% 100%Bank3 20% 20% 50% 10% 100%Bank4 50% 50% 100%Bank5 20% 10% 40% 15% 15% 100%Bank6 30% 20% 10% 30% 10% 100%Bank7 1% 47% 27% 10% 15% 100%Bank8 70% 30% 100%Bank9 10% 10% 80% 100%Bank10 60% 20% 10% 5% 5% 100%Bank11 80% 20% 100%Bank12 20% 80% 100%Bank13 30% 70% 100%Bank14 20% 10% 5% 60% 5% 100%Bank15 5% 10% 25% 40% 20% 100%Bank16 20% 10% 20% 50% 100%Bank17 7% 3% 90% 100%Bank18 40% 30% 10% 20% 100%Bank19 5% 10% 5% 5% 40% 10% 10% 15% 100%Bank20 40% 60% 100%Bank21 40% 30% 30% 100%Bank22 10% 70% 20% 100%Bank23 10% 90% 100%Bank24 30% 70% 100%Bank25 60% 40% 100%Bank26 30% 40% 10% 20% 100%Bank27 30% 5% 35% 30% 100%Bank28 40% 45% 15% 100%Bank29 40% 60% 100%Bank30 80% 20% 100%Bank31 10% 20% 40% 30% 100%Bank32 30% 30% 10% 30% 100%Bank33 100% 100%Bank34 20% 80% 100%Bank35 25% 75% 100%Bank36 30% 20% 5% 20% 10% 10% 5% 100%Bank37 20% 50% 30% 100%Bank38 30% 10% 10% 20% 20% 10% 100%

Regulation


Q How significant will the change, in terms of regulation of the foreign banks in China, be as a result of the global financial crisis?

Theforeignbanksanticipatetighterregulationinthefutureinanumberofareas.

Intherecentpasttheregulatorhaspaidcloseattentiontocomplexderivatives.OneEuropeanbanksaidthattherehadbeenemphasisontherisksideofoperations,includingcreditrisk,marketriskandliquidityrisk.

Tenbanksmentionedareasassociatedwithassetmanagement.SixbanksanticipatetighterregulationsonbothQualifiedDomesticInstitutionalInvestors(QDII)andQualifiedForeignInstitutionalInvestors(QFII),whilethreebankscitedfee-basedincome.

However,theareainwhichforeignbanksinShanghaiwasmostvocalrelatedtocomprehensiveKnowYourCustomer(KYC)rulesandproceduressurroundingtheopeningofnewaccounts.

ForeignbanksinShanghaihadbeeninstructedbyCBRCShanghaitohaveofficersofanewborrowing

clientappearinpersonattheirbranchwiththeappropriatecorporatedocumentation.

Theywerethenrequiredtosignthedocumentationwhichwouldbevideotaped.Thisvideorecordwasthentobeheldbythebankfor30days.

Anumberofbanksmentionedthedifficultyassociatedwiththisprocess.OneEuropeanbankmentionedthataproposeddealhadcollapsedbecauseitsclientwasunwillingtotravelfromSouthernChinatoShanghaitocompletetheloandocumentation.Thisbanksaidthatasaresult,RMB600,000inincomewerelost.

TheforeignbanksbelievethatthesestringentKYCrulesplacedthematadisadvantagerelativetotheirdomesticcounterpartswhohaveextensivebranchnetworks.

OneNorthAmericanbankanticipatedtighterregulationofsecuritiescompanies.

Very significant

Significant

Neutral

Insignificant

Very insignificant

27 banks recorded significant or very significantBased on responses from 39 banks

Very significant

Significant

Neutral

33 banks recorded significant or very significantBased on responses from 41 banks

20092010


Therewasageneralfeelingthattheapplicationofbusinesstaxtotheforeignbanks’operationwastoobroadinscope.

AEuropeanbankcommentedthatthelevyingoftaxonserviceincomeisnotthesameasvalueaddedtax.AnotherEuropeanbankindicatedthatbusinesstaxwasappliedtogrossinterestincomeandnotnetinterestincome.

Overall,thelevelofdisagreementonbusinesstaxhasfallenin2010from2009.

Q Have there been disagreements between your bank and the Tax Bureau?

Business tax

Withholding tax

No

Yes


2010

2009

No comment

No comment

No Yes

Based on responses from 41 banks in 2010and 39 banks in 2009

2010

2009

Manybanksstillbelievethatthewithholdingtaxwasimplementedinanunsatisfactorymanner.

Nevertheless,thenumberofbankswhosaidtheyhaddisagreementsdeclinedfrom27in2009to23in2010.

OneEuropeanbanksaidtheystillhadnotpaidthe2008withholdingtaxassessment.

AnotherEuropeanbanksaiditwasstillanirritantbuttheissuewasmoreaboutthenoticegiven.


Income tax

Other tax issues

Thereappearedtobelittledisagreementonincometax.Asin2009,onlyafewbankssaidtheyhadissues.

ANorthAmericanbanksaidthatincometaxistoohigh,whileaEuropeanbankcommentedthatoveralltheyfaceaheavytaxburden.

Q Have there been disagreements between your bank and the Tax Bureau? (continued)

Similarly,theparticipantsexpressedonlyminorconcernsregardingothertaxissues.

Onebankmadethegeneralobservationthattaxesonexportsaretoohigh.

No

Yes


2010

2009

No comment

No

Yes


2010

2009

No comment


No comment

No comment

No

No

Yes


Yes

2010

2009

Q Are there tax rules you would like to see changed?

Twentynineoutof36reportingbankssaidthattherearetaxrulestheywouldliketoseechanged.

Thetaxwhichattractedthegreatestamountofcriticismremainswithholdingtax(14banks)followedbypersonalincometax(ninebanks)andbusinesstax(ninebanks).

Theparticipantsalsomentionedthattheywouldliketoseealoweringofthecorporatetaxrate.

ThepersonaltaxratecommentswerebasedonthefutureprogressofShanghaitowardsbecomingaglobalfinancialcentre.Withatoppersonalrateof45%,severalbanksrecommendedthatShanghaiwouldneedtolowerpersonaltaxesiftheyweretoattracttoptalents.

OneEuropeanbankmentionedthatpersonaltaxwasverycomplicatedandthatsomeexpatriatestaffhadexperienceswhererebateswerenotforthcoming.


Q Do you have specific concerns regarding regulation?

Twentyfiveoutofthe29banksthatrespondedtothisquestionexpressedconcernsaboutthedirectionofregulation.Thegeneralconsensuswasthatthescaleandscopeofregulationwasexpandingovertime.

OneEuropeanbankpointedoutthatalthoughChinesebankingwaschangingthroughincreasedinternationalisationandgradualderegulationsimultaneously,theforeignbankswereexposedtotighteningsupervision.

Examplesofthisincludeaccountopenings,confirmationofaccountbalances,newrestrictionsonrealestatemortgages,theloan-to-

depositratio,wholesalefundingrestrictions,quotas,currencyregulationsetc.

OneAsianbanksaidthatitscomplianceofficerhasfiveorsixconversationsadayoncomplianceissues.

AEuropeanbanknotedthatiftheCBRCover-emphasisedrisk,itcouldimpedenewproductdevelopment.

AnotherEuropeanbankstatedthatregulationsarebeingusedtohindertheprogressofforeignbanks.

Q The CBRC has issued a directive requiring all core banking systems to be located onshore by 2011. Will you comply with this by 2011?

TenbanksconfirmedthattheyhavetheircorebankingsystemsforChinaonshoreandarealreadycompliant.ThislistincludedfourEuropeanbanksandsixAsianbanks.

Elevenbanksbelievetheywillmeetthe2011deadline.ThisincludesseveralNorthAmerican,EuropeanandAsianbanks.

Elevenbankssaidtheywouldnotbemovingtheircorebankingsystemsonshore.Thisgroupincludedmanybanksthatdonotintendtoincorporatelocally.

Inadditiontothe32responsesabove,somebankssuggestedthattheywouldbe“potentiallycompliant”,implyingtheremightbesomeflexibilityontheinterpretationofthisrequirement.Forexample,severalbankscitedglobalsystems,somesaidSingaporeistheirAsianhub,whileoneEuropeanbankbelievedlocatinginChinacreatedanadditionaloperationalrisk.


InDecember2009,theCBRCannouncednewmorestringentregulationsassociatedwithKnowYourCustomer(KYC)andanti-moneylaundering(AML).ThiswasreportedintheWallStreetJournalarticlebelowwhichsuggestedthenewmeasureswereinresponsetoirregularitiesintheSMEsector.

Thenewmeasures,althoughapplicabletoallbanks,wereparticularlychallengingfortheforeignbanksbecauseoftheirlimitedbranchnetworks.

Forexample,therulesrequireclientsopeninganaccounttovisitthebranchinperson.Theforeignbanksarealsorequiredtovideotapethenewclientwiththenecessarydocumentationashe/sheopenhis/heraccount.

Theparticipantsinthissurveyconsideredthesenewmeasurestobeveryintrusiveandcumbersome.Anumberofbankswereaffrontedbytheregulations,sayingthattheirowninternalguidelinesarealreadyverystrictandcomplywithEUandUSrequirements.

OneNorthAmericanbanknoteditwasnotunusualtohavesitevisitsintheUSbutfeltthenewregulationsamountedto“collectivepunishment”ofalltheforeignbanks.

Manyofthebanksbelievedthattheuseofavideocamerawastooharsh.

ANorthAmericanbanksaidtheywerewillingtogototheclienttocompletethedocumentationbutmanyotherbanksfeltitwasachallengeiftheclientislocatedatasignificantdistancefromhis/herofficeinShanghaiorBeijing.

Q How significant is the application of Know Your Customer rules and Anti-Money Laundering (AML) prevention?

AEuropeanbankerbasedinShanghaisaidthatundernewdraftregulationsfromtheChinaBankingRegulatoryCommission,bankclientscouldonlyopennewaccountsbyvisitingabankbranchinperson.Whilethenewruleswouldapplytoallbanks,foreignbankshavemuchsmallerbranchnetworksthantheirdomesticpeers,limitingtheirabilitytofindcustomers.Someforeignbankshaveonlyasinglelocation.

Thedraftregulationsalsorequirethatclientsbevideotapedwhiletheyopennewaccounts.TheregulatorhasaskedthatthenewmeasuresbeinplacebytheendofDecember,andhassaidthatbanksaren’tallowedtoopennewaccountsuntiltherequirementsaremet,thebankersaid.Violationscouldpotentiallyresultinthesuspensionofoperationsforthreemonths,thispersonsaid.

InaninternalnoticesentbytheregulatortoforeignbanksinmidNovemberandreviewedbyTheWallStreetJournal,YanQingmin,headoftheCBRC’sShanghaibranch,urgedforeignbankstoincreasethenumberofemployeesinvolvedininternalriskcontrolandtosetupanti-frauddepartments.

“Chineseenterpriseshavegraduallybecomethemajorsourceofclientsforforeignbanks,butmanyforeignbankshaveinadequateexperienceindealingwithChinesecustomers,especiallysmall-andmedium-sizedChinesecompanies,”Mr.Yansaidinthenotice.“Thefailureofforeignbankstoidentifypotentialrisks(uniquetoChina’ssmall-andmedium-sizedfirms)hascreatedopportunitiesforcriminals.”

China’sbankingsystemhashadanumberofproblems.InFebruary,China’schiefauditor,LiuJiayi,saidhisofficeuncoveredillegalactivitiesinvolvingsixbillionyuan($878million)lastyearduringitsregularauditofmajorChinesefinancialinstitutions,includingitsbiggeststatebanks.

ExtractsfromWallStreetJournal15December2009


Q The China Banking Association (CBA) has recommended locally established foreign banks to produce a Corporate Social Responsibility (CSR) report by June 2009. Did you meet the deadline?

TheChinaBankingAssociation(CBA)recommendedthatlocallyestablishedforeignbanksshouldproduceaCorporateSocialResponsibility(CSR)reportbyJune2009.

Inthe2009,PwCForeignBanksreport,itwasrevealedthatwhilemanyforeignbanksembraceCSRinChina,fewhadformalisedandpresentedtheiractivitiesinaCSRreport.

In2010,eightbanksindicatedthattheyhaveproducedCSRreports.Theseforeignbanksarealllocallyincorporatedandarerepresentativesofthelargestforeignplayers.

Fiveofthesebankssaidtheyhadpublishedareportandtheremainingthreesaidtheyhadcommunicatedwiththeregulator.

ManyofthebanksthatacknowledgedtheyhaveyettoproducealocalCSRreportsaidthisresponsibilitywascarriedoutattheheadofficelevel.

Q Have you published a CSR report?

No comment

No

Yes


TenforeignbanksclaimedtohavelocalCSRdepartments,althoughsomeofthese“departments”weremadeupofjustoneindividualandsomeappearedtobepartofabroadermarketingcommunicationsandpublicrelationsgroup.

Q Do you have a Corporate Social Responsibility (CSR) department?


TheforeignbanksacknowledgedthattheCBRCwouldliketoseethemfocusmoreattentionontheSMEsector.Thisremainsamajorchallengetoforeignbanksinanycountrysimplybecausetheyhavelimitednetworks,managementrepresentationandmarketintelligencetoefficientlycatertotheneedofthissegment.SomeoftheparticipantscommentedthatSMEsectorhasahigherriskprofile.TheparticipantsagreedthattheCBRChasdirectedthemtowardsthissector.

Thirtysixoutofthe38participatingbanksrespondedaffirmatively.However,theircommentsconfirmedthatonlyafewofthemwereactivelyengagedinthissector.

Forexample,only10bankswithinthe34banksthatprovideddetailsoftheirloanportfoliorecordedthattheyhadexposureintheSMEsector.Oneofthreebanksindicatedthat60%oftheirportfoliowastoSMEsbutsixoutofthe10banksrecordedalevelof10%orbelow.Incomparisontodataprovidedin2009,the2010exposurestoSMEsarelower.

Someoftheparticipants’commentswereasfollows:

• EveryoneknowsthatSMEsarehighrisk;severalforeignbankshaveaspecialSMEprogrammebutfinancialstatementsofSMEarenottransparentandarequestionable

• SMEsareaminefield

• Averydifficultsector.Wehavelimitedcapitalandprefertouseitwithmoresecurecorporates

• Veryimmature.Concernedoverinformationgathering,transparency,governance.Verycostly.Thenetworkisnotyetready

• Verydifficulttocheckcredit.Notenoughdisclosure

• WeareveryfocusedonSMEs,notaproblemforus

• PrefertogowestwardratherthanaddresstheSMEmarket

Q The CBRC has instructed foreign banks to devote greater attention to the SME sector. Can you comment on the challenges in the sector in China?


Performance


Growthprospectshaveimprovedformanyforeignbanksin2010.

Inthe2009,surveytwobanksforecastnegativegrowthofminus25%andminus40%andninebanksforecastzerogrowth.(Seefollowingpageforlastyear’sgrowthprojections).

Norespondentsexpressedsuchapessimisticoutlookin2010,althoughthreebankspredictedflatgrowthof0to3%.Sixteenbanksfellinthe10%to20%range,whileafurther12bankswerebetween20%and40%.

Q What is your business’ estimated annual revenue growth in 2010 and over the next three years?

Fivebanksanticipatedgrowthabove100%,whileoneinthisgroup,asmallEuropeanbank,predicteda200%growth.

Lookingforwardtoannualgrowthratesin2013,thelowestpredictionprovidedbyaEuropeanbankwas8%.

Thehighestfuturegrowthpredictionwas100%andthiswasselectedbythreebanks.

In2013,thenumberofbankschoosing10%to20%increasedto18banksand10banksselectingthe20%to40%range.Theremainingfivebanksfellinthetargetareaof40%to70%.

0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100

Expected annual growth rate in 2013

Exp

ecte

d a

nnua

l gro

wth

rat

e in

201

0

0,10


0,20 3,100

8,10 10,10 (2) 10,45

10,1515,15 (3)

18,1820,25

20,20 (5)

30,2030,30 (5)

25,20 (3)

30,4035,35

40,25

50,50 (2)

100,50100,40 100,100 (2)180,70200,20

20,15


0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100


Exp

ecte

d a

nnua

l gro

wth

rat

e in

200

9

-10

-20

-30

-40

One bank projected 500% in 2009 (from a small base) and 20% in 2012

Two banks projected negative growth in 2009


For comparative purposes, the 2009 and 2012 annual growth in revenues are shown in the chart on this page.

Lastyear’sprojectionsareshownbelowtoallowadirectcomparisonwiththe2010to2013projectionswhichareshownonthepreviouspage.


0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100


Exp

ecte

d a

nnua

l gro

wth

rat

e in

201

0

Based on responses from 20 locally incorporated banks

10,10 10,4510,15

15,1518,18

20,20 (4)

30,2030,30 (3)

25,20 (3)

30,40

35,35

100, 40

20,15

Q What is your business’ estimated annual revenue growth in 2010 and over the next three years?

(Locally incorporated banks only)

Asonemightexpect,therevenuepredictionsforthelocallyincorporatedbanksweremoreconservativethantheforeignbanksasawhole.In2010,thelowestexpectedgrowthratewas10%(threebanks).Mostbanksfellinthe15%to25%range,10banksinall.

Sixbankswereinthe30%to35%rangeandjustonebankpredicteda100%.

Asteadyrateofgrowthisexpectedtocontinueoverthenextthreeyears.

Mostbankscloselymatchedtheir2013growthrateswiththatin2010.

Therewereafewexceptions.TheAsianbanksthatpredicted100%growthin2010scaledthisnumberbackto40%by2013,whileaEuropeanbankthatpredicted10%in2010optimisticallyforecast45%by2013.


In2009,18locallyincorporatedbankspredictedrevenuegrowthrangingfromminus25%to100%.

Threebankspredictedflatgrowth,whileninebanksfellinthe5%to15%range.

Goingforward,allbutonebankanticipatedgreaterthan10%growthin2012,while11banksprojectedgrowthof20%orabove.

0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100


Exp

ecte

d a

nnua

l gro

wth

rat

e in

200

9

-10

-20

-30

-40

Based on 18 locally incorporated banks

For comparative purposes, the 2009 and 2012 annual growth in revenues are shown in the chart on this page.

(Locally incorporated banks)


Q Can you outline any opportunities for growth for foreign banks in China over the next three years?

Inmakingtheirpredictionsaboutfuturegrowth,thebankswereaskedtoelaborateonfutureopportunities.

Suggestionsonnewopportunitiesthatmaycontributetogrowthareasfollows:

• SWAPproducts

• Debtcapitalmarkets

• FinancingforlargeChinesecorporates,SOEsandPOEs

• Tradefinance,forexamplebetweenChinaandAfrica

• Insuranceandpensionmanagement

• Syndicationmarket

• Tradegrowth

• InternationalisationofChinesecorporates

• Commodityfinance

• Deregulationofthefixedincomemarket


Q Are there pressures from your head office to reduce the cost of operations in China?

Q If you are implementing cost reductions, will they be blanket reductions/targeted reductions?

Yes

No


2010

2009

In2010,eightbanksacknowledgedthattheywereundercostpressures.In2009,21bankssaidtheywereundercostpressures.

AnAsianbankrevealedthatithadreviewedadvertisingcosts,ITcostsandgeneraloperationalcostsattherequestofitsheadoffice.

Manybankscommentedthattheyareinagrowthmodeandtherefore,costcontainmentisimpossible.

Theresponsetothisquestionwaslimitedtojusttwobanks.

AEuropeanbanksaidthatithadbeenaskedtoreducecostsby10%thisyear.However,inreply,thebranchindicatedthatsuchactionwasimpossiblewithoutputtingitsbusinessatrisk.

Peerreview


Q Can you name the top three banks in terms of success (performance, presence, momentum etc.) across a variety of different markets?

Derivatives

Asimplescoringmethodawardedthreepointstofirstplace,twopointstosecondandonepointtothirdplace.Thisallowedthebankstoberankedbasedonatotalscore.

Bankswereaskednottorecordanopinionunlesstheywereactiveinthatsegmentandwerecomfortableinprovidinganaccuraterankingintermsofsuccess(performance,presenceandmomentum)asopposedtomeresize.

Foreign exchange and treasury

First Second Third Score Change

HSBC 12 8 3 55

Citibank 5 7 6 35

DeutscheBank 6 3 2 26

StandardChartered 1 5 9 22

JPMorganChase 2 1 1 9

BNPParibas 1 1 5

BankofMontreal 1 3

BankofEastAsia 1 2

BankofTokyoMitsubishi

1 1

Basedon28banks

Theywerenotpermittedtoranktheirowninstitution.Oftenbankswouldchoosejusttoindicatefirstorsecondplaces.

The“Change”columnindicateswhethertherankinghasmovedup,downorremainsunchangedfromthatrecordedinthe2009survey.


Citibank 6 5 4 32

HSBC 6 2 6 28


JPMorganChase 5 3 21


BNPParibas 2 2 6

SociétéGénérale 1 1 5

UBS 2 1 5

GoldmanSachs 1 2

CreditSuisse 1 1

CréditAgricole 1 1

RBS 1 1

Basedon25banks


Corporate lending First Second Third Score Change

HSBC 21 8 79


Citibank 4 8 5 33

BankofEastAsia 2 4 8

DBS 3 2 8

DeutscheBank 1 2 4

HangSengBank 2 2

BNPParibas 1 1


1 1

MizuhoBank 1 1

Basedon32banks



HSBC 4 3 1 19

Citibank 3 3 12

BNPParibas 1 4 11

SociétéGénérale 2 1 2 10

CréditAgricole 1 1 1 6

ING 1 1 5

RBS 1 3

BankofEastAsia 1 2

Natixis 1 2

DeutscheBank 1 1

SMBC 1 1

ANZ 1 1

Basedon17banks

Project financing


Investment banking

Private banking

Corporate finance


GoldmanSachs 10 5 3 43

MorganStanley 2 6 3 21



UBS 2 4 2 16

HSBC 3 2 11

Citibank 2 2 6

SociétéGénérale 1 2

StandardChartered 1 1

Basedon23banks


HSBC 11 6 1 46

Citibank 5 3 4 25


UBS 4 1 3 17

CreditSuisse 1 2 1 8

DeutscheBank 2 1 5

BankofEastAsia 2 4

BNPParibas 1 3

RBS 1 1 3


Basedon24banks


HSBC 8 2 1 29


GoldmanSachs 4 1 14

Citibank 2 2 1 11


MorganStanley 3 1 7

DeutscheBank 2 1 5

BankofEastAsia 2 4

Barclays 1 2

UBS 1 2

BNPParibas 1 1


1 1

DBS 1 1

Basedon18banks


Mergers and acquisitions

Trade finance


GoldmanSachs 8 3 30


HSBC 4 2 16


Citibank 1 2 3 10


MerrillLynch(BankofAmerica)

2 4

StandardChartered 1 1 3

UBS 1 1

DBS 1 1

Basedon18banks


HSBC 20 6 2 74


Citibank 3 3 9 24

BNPParibas 2 2 6

BankofEastAsia 1 1 1 6

Wachovia(WellsFargo)

1 1 4

BankofMontreal 1 3


DeutscheBank 2 2

ANZ 1 2

Nanyang 1 2

DBS 2 2

Natixis 1 2

JPMorganChase 1 1

Scotiabank 1 1

SumitomoMitsuiBC 1 1

Basedon33banks


Cash management

Equity capital markets

Debt capital markets


Citibank 14 6 3 57

HSBC 11 9 51



BankofEastAsia 2 4

JPMorganChase 1 1 3

Basedon27banks




UBS 3 1 2 13


Citibank 2 1 1 9

HSBC 2 1 8


JPMorganChase 3 3

BankofEastAsia 1 2

Basedon17banks


HSBC 6 5 2 30

Citibank 5 3 1 22



MorganStanley 1 2 7

UBS 1 1 2 7

DeutscheBank 2 1 5

BNPParibas 2 1 5

JPMorganChase 1 1 3

CréditAgricole 1 3

DBS 1 2

RBS 1 1

Basedon19banks


Credit cards

Retail banking First Second Third Score Change

HSBC 28 3 90


Citibank 1 8 12 31


HangSengBank 1 2 4

DBS 3 3

ANZ 1 1

Basedon32banks



HSBC 3 6 21

Citibank 1 1 4 9


HangSengBank 1 2

Basedon30banks

Brand awareness First Second Third Score Change

HSBC 34 102


Citibank 13 12 38


HangSengBank 1 2

UBS 1 1

DBS 1 1

GoldmanSachs 1 1

Basedon35banks


HSBC 17 2 55

Citibank 1 6 5 20



JPMorganChase 1 2

CréditAgricole 1 2

DeutscheBank 1 1

ING 1 1

Basedon20banks

Corporate social responsibility


Appendices


Methodology 84

Bankgroups 85

Locallyincorporatedbanks 86

Participantsbycountryoforigin 87

Backgroundcommentsonparticipants 88

EuropeanChamberofCommerce–RecommendationsfortheBankingandSecuritiesWorkingGroupSeptember2009 100

Top30ChinesebanksrankedbyTier1capitalandassets 102

Branchnetworksofthelargerforeignbanks 103

Appendices


Methodology

Previousexperiencehasshownthatpersonalinterviewswithseniorbankersusingastandardquestionnaireoffersthebestresearchapproach.Thequestionnairecontained50questionsandwascompletedduringinterviewsofapproximatelyonehour.TheauthorconductedallinterviewsinJanuaryandFebruary2010inBeijing,HongKong,ShanghaiandShenzhen.

Responseshavenotbeenattributedtoindividualbanksbutrathercollectivelywithinthreegroups:Asianbanks(14),Europeanbanks(20)andNorthAmericanbanks(8).Agroupoflocallyincorporatedbanksisalsoused.

Attimes,individualbanksdeclinedtoanswerparticularquestionsorwereunabletoprovidesufficientlyaccuratedata.Thisisnotedwhereapplicable.

Thetimecommitmentandsupportbyallbanksinthissurveywasoutstanding.

About the authorDrBrianMetcalfeisanAssociateProfessorintheBusinessSchoolatBrockUniversity,Ontario,Canada.Hehasadoctorateinfinancialservicesmarketingandhasresearchedforandproducedover40reports,suchasthisone,onbehalfofPricewaterhouseCoopersfirmsin11differentcountriesincludingAustralia,Canada,China,India,JapanandSouthAfrica.

Previousreportshaveexaminedstrategicandemergingissuesincorporate,investmentandprivatebanking,lifeandpropertyandcasualtyinsurance,insurancebroking,andwealthmanagement.

In2009,heauthoredthereportsonForeignBanksinChina,ForeignJointVentureFundManagementCompaniesinChinaandForeignInsuranceCompaniesinChina.

Hehasconsultedforawiderangeoforganisations,includingRoyalBankofCanada,BankofNovaScotia,BarclaysBank,SunLifeInsuranceCompany,EquitableLifeofCanadaandseveralmajorconsultingfirms.

Hehasalsotaughtanexecutivemanagementcourseentitled“FinancialServicesMarketing”intheGraduateSchoolofBusinessattheUniversityofCapeTown.


Bankgroups

Bank groupsTheinformationprovidedhasbeenconsideredproprietaryandremainsconfidential.Resultsarethereforepresentedina“disguised”groupformat,intheformofregionalgroupsofbanks.Themembersofthebankgroupsareasfollows:

†ANZBankingGroup,CommonwealthBankofAustraliaandWestpacareAustralianbanksandforconveniencehavebeengroupedwiththeAsianbanks.

*VTBisbasedinStPetersburg,RussiaandhasbeenincludedintheEuropeanbanks.

European banks• BNPParibasS.A.

• CréditAgricole

• Commerzbank

• CreditSuisse

• DeutscheBank

• FortisBank

• HSBC

• INGBank

• IntesaSanpaoloBank

• KBCBank

• Natixis

• NorddeutscheLandesbank

• Rabobank

• RaiffeisenZentralbankÖsterreichAG

• RBS

• SociétéGénérale

• StandardCharteredBank

• UBS

• VTB*

• WestLB

North American banks• BankofAmerica

• BankofMontreal

• BankofNovaScotia

• BankofNewYorkMellon

• Citibank

• JPMorganChaseBank

• RoyalBankofCanada

• WachoviaBank

Asian banks• ANZ†

• BancoSantander

• BankofEastAsia

• CommonwealthBankofAustralia†

• DahSingBank

• DBS

• FirstSinoBank

• HangSengBank

• MizuhoCorporateBank

• OCBC

• SMBC

• Westpac†

• WingHangBank

• WingLungBank


• ABNAMROBank(RBS)

• BankofEastAsia

• BankofTokyo-MitsubishiUFJ

• BNPParibas

• Citibank

• CITICKaWahBank

• DahSingBank

• DeutscheBank

• DBS

• FirstSinoBank

• HanaBank

• HangSengBank

• HSBC

• JPMorganChaseBank

• MizuhoCorporateBank

• NanyangCommercialBank

• OCBC

• ShinhanBank

• SociétéGénérale

• StandardCharteredBank

• SumitomoMitsuiBankingCorp.

• UBS

• UOB

• WingHangBank

• WooriBank

• BankofBangkok(1July2009)

Locallyincorporatedbanks


Participantsbycountry/territoryoforigin

Nameofbank Country/Territory CityANZ Australia Shanghai

CommonwealthBankofAustralia Australia Shanghai

Westpac Australia Shanghai

RaiffeisenZentralbankÖsterreichAG Austria Beijing

FortisBank Belgium Shanghai

KBCBank Belgium Shanghai

HSBC Britain Shanghai

RBS Britain Shanghai

StandardCharteredBank Britain Shanghai

BankofMontreal Canada Shanghai

BankofNovaScotia Canada HongKong

RoyalBankofCanada Canada Beijing

BNPParibas France Shanghai

CréditAgricole France Shanghai

Natixis France Shanghai

SociétéGénérale France Shanghai

Commerzbank Germany Shanghai

WestLB Germany Shanghai

NorddeutscheLandesbank Germany Shanghai

DeutscheBank Germany Shanghai

BankofEastAsia HongKong Shanghai

DahSingBank HongKong Shenzhen

HangSengBank HongKong Shenzhen

WingHangBank HongKong HongKong

WingLungBank HongKong Shenzhen

IntesaSanpaoloBank Italy Shanghai

MizuhoCorporateBank Japan Shanghai

SMBC Japan Shanghai

INGBank Netherlands Shanghai

Rabobank Netherlands Shanghai

VTB Russia Shanghai

DBS Singapore Shanghai

OCBC Singapore Shanghai

BancoSantander Spain Shanghai

CreditSuisse Switzerland Beijing

UBS Switzerland Beijing

FirstSinoBank Taiwan Shanghai

BankofNewYorkMellon USA Shanghai

Citibank USA Shanghai

BankofAmerica USA Shanghai

JPMorganChaseBank USA Beijing

WachoviaBank USA Shanghai


BackgroundcommentsonparticipantsAsianbankgroup

†Thebackgroundcommentsweretakenfromtherespectivebanks’websitesinMarch2010

Asianbanks

WorldrankingTheBanker,July2009

Homecountryranking

Backgroundcomments†Tier1 Assets Tier1

ANZ Bank

400employees

www.anz.com

53 52 2 HeadquarteredinMelbourne,ANZoperatesinmorethan30countries.WithassetsofA$471billion,ANZhasnearsixmillionpersonal,privatebanking,smallbusiness,corporate,institutional,andassetfinancecustomersworldwide.

ANZhashadacontinuouspresenceinmainlandChinasince1986whenarepresentativeofficewasestablishedinBeijing.ItistheonlyAustralasianbasedbankwithbothlocalandforeigncurrencycommercialbankingcapabilitiesinmainlandChina.ANZalsohaslong-termstrategicpartnershipswithTianjinCityCommercialBank(20%stake)andShanghaiRuralCommercialBank(19.9%stake).

The Bank of East Asia

3,500employees

www.hkbea.com

216 208 4 IncorporatedinHongKongin1918,TheBankofEastAsia(BEA)isthelargestindependentbankinHongKong,withconsolidatedassetsofHK$434.13billion.BEAoperatesover140outletsinHongKongandover70outletswithinChina,offeringbothretailandcommercialservices.

BEAhasaninternationalnetworkofmorethan240outletsandover10,000employeeswithapresenceinUS,UK,Canada,andSoutheastAsia.HeadquarteredinShanghai,BEAChinasetupitsfirstbranchin1920andhasbeenoperatingcontinuouslyinthecountryeversince.

Commonwealth Bank

of Australia

70employees

www.commbank.com.au

58 51 3 TheCommonwealthBankwasfoundedin1911andnowheadquarteredinSydney,Australia.Between1920sandtheendof1950s,itfunctionedasbothacommercialbankandacentralbank.

ItsfirstChineserepresentativeofficewasestablishedinBeijingin1994,andinShanghaiinthefollowingyear.


Asianbankgroup

Asianbanks


Homecountryranking


Dah Sing Bank

120employees

www.dahsing.com

628 480 12 DahSingBankingGroupLimitedhasbeenlistedontheHongKongStockExchangesince2004.MajorityownedbyDahSingFinancialHoldingsLimited,ithasfourbankingsubsidiaries(DahSingBank,MEVASBankandBancoComercialdeMacauandDahSingBank(China)Limited)),andasecuritiestradingcompany,aswellasanoffshorejointventureprivatebankingbusinesswithSGHambrosBank.DahSingBankwaslocallyincorporatedinChinain2008andnowhasaheadofficeinShenzhen.DahSingBankisthestrategicinvestorholdinga20%interestinBankofChongqing,whichisaleadingcitycommercialbankinChongqing,thelargestcityinWesternChina.BankofChongqingisoperatingmainlyinChongqingwithabranchnetworkofover70branches.

DBS

1,000employees

www.dbs.com

54 74 1 Singapore-basedDBSisalargefinancialservicesgroupinAsiathatoperatesin16marketsincludingChina.ItfirstenteredtheChinesemarketwitharepresentativeofficeinBeijingin1993.InMay2007DBSbecameoneofthefirstfewforeignbankstoincorporateinChina.DBSofferscommercial,corporateandconsumerbankingservices.OtherthantheheadofficeinShanghai,DBSnowhas8branchesand7sub-branchesinmainlandChina.Inthepastthreeyears,DBSChinahasincreaseditsnumberofcustomersbyfourtimesanddoubleditsemployeehired.

First Sino Bank

450employees

www.fsbankonline.com

N/A N/A N/A Establishedin1997asthefirstjoint-venturebankbetweenTaiwaneseinvestorsandaChinesebank,FirstSinoBankisheadquarteredinShanghai.ItsshareholdersincludetheHongKong-registeredLotusWorldwideLimited,ShanghaiPudongDevelopmentBankandWingHangBank.ThemajorshareholdersofLotusWorldwideareTaiwaneseinvestors.FirstSinoBankalsohasbranchesinTianjin,ShenzhenandShanghai.

Hang Seng Bank

1,500employees

www.hangseng.com

N/A N/A N/A HangSengBankisaprincipalmemberofHSBCGroup,whichholdsa62.14%equitystakeinthebank.Itofferspersonal,commercialandcorporatebankingservices.HangSengBank(China)Ltd.wasestablishedon28May,2007asawholly-ownedsubsidiaryofHangSengBank,andoperatesanetworkof11branchesand27sub-branchesinmainlandChina.



Asianbankgroup

Asianbanks


Homecountryranking


Mizuho

Corporate Bank

1,200employees

www.mizuhocbk.co.jp

*MizuhoFinancialGroup

16* 14 2 HeadquarteredinTokyo,MizuhoBankwasestablishedon1April,2002byMizuhoFinancialGroupInc.MizuhoBankhasbranchesinAsia,Europe,theAmericasandtheMiddleEast.About25millionindividualcustomershaveaccountswithMizuhoBank,andithasloansoutstandingtoroughly100,000SMEsandmiddle-marketcorporations.ItislocallyincorporatedinChinawith6outlets.

OCBC

500employees

www.ocbc.com.sg

90 120 3 Singapore-basedOCBCoffersbothconsumerandbusinessbankingservicesthrough500branchesandrepresentativeofficesin15countries.IthasgroupassetsofS$194billionandamarketcapitalisationofS$27.8billion(asat26Feb,2009).On1August,2007,OCBCopeneditslocallyincorporated,wholly-ownedsubsidiary.

Sumitomo Mitsui

Banking Corp.

1,001employees

www.smbc.co.jp

19 19 3 BasedinTokyo,Japan,SumitomoMitsuiBankingCorporation(SMBC)wasestablishedinApril2001throughthemergeroftwoleadingbanks,TheSakuraBankandTheSumitomoBank.InDecember2002,SumitomoMitsuiFinancialGroup,Inc.wasestablishedthroughastocktransferasaholdingcompany,underwhichSMBCbecameawhollyownedsubsidiary.SMBCChinaislocallyincorporatedinShanghai,andnowhas6branchesand2sub-branches.

Westpac

20employees

www.westpac.com.au

62 57 4 Westpacbegantradingin1817inSydney.Westpacemploysapproximately37,000peopleworldwideandhasglobalassetsofA$590billion.IthasbeenrepresentedinHongKongsince1971andmainlandChinasince1982.ItsfirstbranchinChinaopenedin2008inShanghai.ItoffersservicesincludingCorporateandinstitutionalbanking,foreignexchangeandtreasury.In2008WestpacmergedwithStGeorgeBanktobecomeAustralia’sleadingproviderofhomelending,withamarketshareof25percent,Australia’slargestwealthmanagerwithfundsunderadministrationof$108billionandthelargestbankbymarketcapitalisationatapproximatelyA$66billion.



Asianbanks


Homecountryranking


Wing Hang Bank

679employees

www.whbhk.com

532 436 9 WingHangBank(WHB)wasfoundedinGuangzhouasamoneychangingbusinessin1937andhasoperatedinHongKongforthepast70years.WHBnowhasover60branchesandrepresentativeofficesthroughoutHongKong,MacauandMainlandChina.TheprincipalactivitiesofthebankinHongKongandMacauareretailbanking,corporatebankingandforeignexchangeandtreasuryservices.BankofNewYorkMellonowns20.28%stakesofthebank.InJune2007,WHBestablisheditslocalincorporationinmainlandChina,andWHBisthefirstforeignbanktobeheadquarteredinShenzhen.

Wing Lung Bank

41employees

www.winglungbank.com

551 531 10 WingLungopenedin1933inHongKong.TheBankhasaltogether39bankingoffices.WingLungBankprovidescomprehensivebankingservices,suchasdeposits,loans,corporatefinancing,securities,creditcards,wealthmanagement,etc.TheBankalsoprovideshire-purchaseandleasing,trustee,insuranceagencyandunderwriting,throughitswholly-ownedsubsidiaries.

In2008,ChinaMerchantsBankstartedbuyingWingLungBank’sequityandbecamethelargestshareholderofthebank.InJanuary2009,ChinaMerchantsBankacquiredtheremainingsharesandnowfullyownsWingLungBank.


Asianbankgroup


Europeanbankgroup

Europeanbanks


Homecountryranking


Banco Santander

21employees

www.santander.com

*SantanderCentralHispano

10 15 1 HeadquarteredinSpain,BancoSantanderisthethirdlargestbankintermsofprofitin2008.SantanderoperatesmainlyinContinentalEurope,theUnitedKingdomandLatinAmerica.ItopenedthefirstChineserepresentativeofficeinBeijingin1993.

BNP Paribas

300employees

www.bnpparibas.com

14 1 2 BNPParibasisaglobalbankingandfinancialservicesgroupthatispresentinover84countries.Thegroupoperatesinthreemajorsegments:CorporateandInvestmentBanking,InvestmentSolutionsandRetailBanking,withbankingincomeofEURO40.2billionbytheendof2009.InOctober2005,BNPParibassignedanagreementtobuy19.2percentofBankofNanjing(BON).InJune2008,itconvertedthebranchesofBNPParibasinBeijing,TianjinandGuangzhouintobranchesofitsexistinglocalsubsidiary,BNPParibas(China)Limited,whichisnowheadquarteredinShanghai.

Crédit Agricole

150employees

www.ca-cib.com

9 6 1 Withanetworkofmorethan59millioncustomersglobally,160,000staffin70countries,CréditAgricolespecialisesincapitalmarkets,investmentbankingandfinancing.ItearnedEURO2.7billionnetincomein2009.BuildingonoveracenturyofactivityinChina,CréditAgricolehasfivefullyoperationalbranchesinShanghai,Beijing,Guangzhou,Tianjin,XiamenandarepresentativeofficeinShenzhen.CréditAgricoleChinawasamongthefirstforeignbankstobelicensedforChinesecurrency(RMB)operations.

Commerzbank

100employees

www.commerzbank.com

29 28 2 CommerzbankisthesecondlargestcreditinstitutioninGermany,WiththemergingofDresdnerBankintoCommerzbankinMay2009,ithasatotalofaround14.5millionprivateandcorporatecustomersworldwide.InChina,CommerzbanknowhasthreebranchesinShanghai,BeijingandTianjin.

Credit Suisse

100employees

www.csfb.com

27 21 1 CreditSuisseGroupisaglobalfinancialservicescompanyheadquarteredinZurich.Foundedin1856,CreditSuisseservescompanies,institutionalclientsandhigh-net-worthprivateclientsworldwide.CreditSuisseisactiveinover50countriesandemploysmorethan47,600peoplefromapproximately100differentnations.TheCompanyprovidesitsclientswitharangeofproductsandservicesthatincludeInvestmentBanking,PrivateBankingandAssetManagement.



Europeanbankgroup

Europeanbanks


Homecountryranking


Deutsche Bank

600employees

www.deutsche-bank.de

21 2 1 FoundedinBerlinin1870,DeutscheBankisaglobalinvestmentbank,employingover80,000peoplein75countries.DeutscheBankfirstestablisheditspresencein1872inShanghai.DeutscheBankinChinaandHongKongnowhavebusinessinterestsincorporateadvisoryandcapitalmarkets,transactionbanking,privateandretailbanking,aswellasassetmanagement.DeutscheBankalsohasaretailpresenceinChina,acquiringa13.7percentstakeinHuaXiaBank.DeutscheBanklocallyincorporatedinChinainJanuary2008.

Fortis Bank

44employees

www.fortis.com

31 30 1 Fortisisaninternationalproviderofbankingandinsuranceservicestopersonal,businessandinstitutionalcustomers.Confrontedwiththeinternationalfinancialcrisis,itsDutchbankingandinsuranceactivitieswereacquiredbytheDutchState.TheotherbankingactivitieshavebeenacquiredbyBNPParibas.WithinChina,FortisBankoffersarangeofservicesincludingcorporatebanking,personalbanking,tradefinanceandriskmanagement.

HSBC

5,300employees

www.hsbc.com

5 5 2 EstablishedinHongKongandShanghaiin1865,HSBCoperatesroughly9,500officesin86countriesandterritories.HSBCBank(China)CompanyLimitedbeganoperationsonApril2,2007asawholly-ownedsubsidiaryofTheHongkongandShanghaiBankingCorporation(HSBC)Limited.HSBChashadacontinuouspresenceinmainlandChinafor144years.IthasinvestedoverUS$5billioninselectmainlandfinancialservicesentities,includingacquiring19%stakesofBankofCommunication.ItscurrentnetworkinmainlandChinacomprises99outlets.IthasbecomethefirstforeignbankinChinadoinggold-exchangebusinessanddebitcardslinkingwithRMBandforeigncurrencyaccounts.

ING Bank

70employees

www.ing.com

20 11 1 INGisaglobalfinancialservicescompanyprovidingbanking,investments,lifeinsuranceandretirementservices.Itservesmorethan85millioncustomersinEurope,theUnitedStates,Canada,LatinAmerica,AsiaandAustralia.INGexpandedintoretailbankingthroughacquisitionofa16.07%stakeintheBankofBeijing.INGisactiveinlending,financialmarketsandcorporatefinanceinChina,aswellasprivatebankingservicesoperatingoutofHongKong.



Europeanbankgroup

Europeanbanks


Homecountryranking


Intesa Sanpaolo Bank

24employees

www.intesasanpaolo.com

25 26 2 IntesaSanpaoloisanItalianbankinggroupresultingfromthemergerbetweenBancaIntesaandSanpaoloIMI.InadditiontoitsoperationsintheItalianmarketithasaninternationalpresencefocussedonCentral-EasternEuropeandtheMediterraneanbasin.WithtotalassetsofmorethanEURO630billion,itservers19.6millioncustomersandhasabout8,000branchesworldwide.IntesaSanpaoloexpandeditsbusinessinChinabyacquiringa20percentstakeinBankofQingdao,whichisalocalcommercialbankinShandongProvince.

KBC Bank

50employees

www.kbc.com

51 49 3 Establishedin1935,KBCBankN.V.isabankandinsurancecompanyinBelgium.Itoperatesin30countrieswithover2,200branches,aswellassubsidiariesinGermany,theNetherlands,Ireland,theUnitedKingdom,theUnitedStates,FranceandSingapore.KBC’sShanghaibranchoperationwasestablishedinMay1997,followedbytwootherbranchesinShenzhenandNanjing.

Natixis

44employees

www.natixis.fr

*GroupeBanquesPopulaire

36* 46 5 NatixisisthelistedsubsidiaryoftheBanquePopulaireGroupandtheCaissed’EpargneGroup.NatixisisaFrench-basedfinancing,investmentbanking,andservicesbankwith22,000employeesand116officesin68countries.NatixisoffersCorporateandInvestmentBanking,AssetManagement,PrivateEquityandPrivateBanking,ServicesandReceivablesManagement.IthasabranchinShanghai.

Norddeutsche Landesbank

25employees

www.nordlb.de

89 61 8 NorddeutscheLandesbank(NORD/LB)hasrepresentationsandserviceofficesworldwideandanetworkofmorethan1,500correspondentbanks,astaffof6,200employeesandaconsolidatedbalancesheettotalofEURO242.3billion.Itoffersawiderangeoffinancialservicestoitsprivate,corporateandinstitutionalclientsandtothepublicsector.ThemainareasofspecialisationofNORD/LBareinvestment,agriculturalandrealestatebanking,corporatefinance,shipandaircraftfinancingandprivatebanking.



Europeanbankgroup

Europeanbanks


Homecountryranking


Rabobank

60employees

www.rabobank.com

22 29 2 Rabobankisafull-servicefinancialservicesproviderfoundedoncooperativeprinciples.RabobankGroupcomprises152independentlocalDutchRabobanks,acentralorganisation,andseveralinternationalofficesandsubsidiaries.FoodandagribusinessisthemainfocusofRabobank.ItactivelyexpandeditsChinesebusinessintoagriculture,foodprocessing,communicationandenvironmentalsectorsthroughitstwobranchesinShanghaiandBeijing.Italsohasaruralbankingpresence.In2005,Rabobankacquireda10percentstakeinUnitedRuralCooperativeBankofHangzhou,whichhas124branchesand10millioncustomers.

RBS

1,200employees

www.rbs.com

4 1 1 RBShashadapresenceinChinasinceopeningasaNationalWestminster(afterwarditwasmergedbyTheRoyalBankofScotland)RepresentativeOfficeinShanghaiin1994andaRepresentativeOfficeinBeijingin1997.RBSChinahadastrategicpartnershipwithBankofChinabyanacquisitionofa9.6%stakein2005,butitsoldthemoffinJanuary2009.

RBShasbranchesinShanghaiandBeijing,aswellasthoseofABNAMROChinaacquiredin2007.ABNAMROopeneditsfirstbankingbranchinShanghaiin1903.ItmaintainsfivebranchesinShanghai,Shenzhen,Beijing,ChongqingandChengduandthreerepresentativeofficesinGuangzhou,TianjinandWuhan.Thebankhasobtainedlicensestoprovidederivativesservices,QFII,andisauthorisedtoinvestinthedomesticstockmarkets.ABNAMROalsobecameoneofthefirstforeignbankstoenterChina’sinter-bankforeignexchangetradingmarket.

RZB

110employees

www.rzb.at

85 85 2 WithabalancesheetofEURO151.3billionon30September2009,RaiffeisenZentralbankÖsterreichAG(RZB)isthethird-largestbankinAustria.RZBwasfoundedin1927andisheadquarteredinVienna.InadditiontooperationsinAustriaandCentralandEasternEurope,RZBisalsoactiveinanumberofinternationalcentres.WithinChina,RZBoffersservicestoretailandcorporatecustomers,aswellasfinancialinstitutionsandsovereigns.RZBhastwobranchesinBeijingandXiamen,andthreerepresentativeofficesinZhuhai,HarbinandHongKong,togetherwithafinancecompanyinHongKong.



Europeanbankgroup

Europeanbanks


Homecountryranking


Société Générale

550employees

www.sgcib.com

23 13 3 SociétéGénéraledatesbacktoMay,1864,thedateoftheauthorizationdecreesignedbyNapoleonIII.SociétéGénéraleGroupserves30millioncustomersinFranceandworldwide.OutsideofFranceitsretailbankingarmispresentin36countries.TheCorporateandInvestmentBankingarmoftheSociétéGénéraleGroupoperatesinover41countriesacrossEurope,theAmericasandAsiaPacific,andemploysaround12,000staffworldwide.SociétéGénéralehaslocallyincorporatedinChina.

Standard Chartered Bank

4,800employees

www.standardchartered.com

50 50 6 StandardCharteredhasanextensiveglobalreach.Ithasanetworkofover1,600branchesandoutletsinmorethan70countriesacrossAsia,theMiddleEast,Africa,EuropeandtheAmericas.StandardCharteredemploys70,000people,representing115nationalitiesandderivesover90percentofitsprofitsfromtheemergingtradecorridorsofAsia,AfricaandtheMiddleEast.InChina,theBanksetupitsfirstbranchinShanghaiin1858andhasremainedinoperationthroughoutthepast150years.StandardCharteredBank(China)LimitedisoneofthefirstforeignbankstolocallyincorporateinChinainApril2007.StandardCharteredhasoneofthelargestforeignbanknetworks–with15branches,37sub-branches,1representativeofficeandaVillageBankinChina.

UBS

500employees

www.ubs.com

28 10 2 WithheadquartersinZurichandBasel,Switzerland,UBSoperatesinover50countriesandispresentinallmajorinternationalcentres.UBSemploysmorethan65,000peopleglobally.Itoffersglobalwealthmanagementandbusinessbanking,globalassetmanagementandinvestmentbankingservices.



Europeanbanks


Homecountryranking


VTB Bank

16employees

www.vtb.com

70 121 2 VTBGroupisthefirstinternationalfinancialgroupofRussianoriginrepresentingRussiainglobalmarketsandprovidingprofessionalfinancialservices.Asof1October2009,itsshareholdersequitytotalledmorethanUS$19billionandassetsmorethanUS$90billion.Presently,theGovernmentoftheRussianFederationisthemajorshareholderofVTB,withitsshareaccountingfor85.5%.VTBworkswithforeignexportinsuranceagenciesandtheExport-Importbanks,includingExport-ImportBankofChinaandtheIndustrialandCommercialBankofChina.

WestLB

19employees

www.westlb.de

104 55 11 WestLBAGisaEuropeancommercialbankwithGermanroots.WithtotalassetsofEURO258.8billionasof30September2009,itisaninternationallyoperatingcommercialbankwithlinkstotheglobalfinancialmarkets.WestLBoffersarangeofproductsandservices,focusingonlending,structuredfinance,capitalmarketandprivateequityproducts,assetmanagement,transactionservicesandrealestatefinance.



NorthAmericanbankgroup

NorthAmericanbanks


Homecountryranking


Bank of America

400employees

www.bankofamerica.com

2 12 2 BankofAmericaservesindividualconsumers,smallandmiddlemarketbusinessesandlargecorporationswitharangeofbanking,investing,assetmanagementandotherfinancialandrisk-managementproductsandservices.WithintheUnitedStates,itservesapproximately59millionconsumerandsmallbusinessrelationshipswithmorethan6,000retailbankingoffices,morethan18,000ATMs.Thecompanyservesclientsinmorethan150countriesandhasrelationshipswith99%oftheUSFortune500companiesand83%oftheFortuneGlobal500.AfteritsacquisitionofMerrillLynchinJanuary2009,itbecamethelargestfinancialservicescompanyintheworld.

Bank of Montreal

230employees

www.bmo.com

52 53 4 BMOBankofMontreal,Canada’sfirstcharteredbank,openedforbusinesson3November1817.WithtotalassetsofC$389billionin2009andalmost36,000employees,BMOprovidesabroadrangeofretailbanking,wealthmanagementandinvestmentbankingproductsandsolutions.ItiscurrentlyactiveinEurope,LatinAmerica,andEastAsiaaswellasintheUnitedStates.BMO’shistoryinChinadatesbacktotheearly1800s.BMOcurrentlyhasbranchesinmainlandChinaandHongKong,aswellasarepresentativeofficeandanInvestmentBankingRepresentativeoffice.

Bank of Nova Scotia

55employees

www.scotiabank.com

40 48 2 Withapproximately68,000employees,ScotiabankGroupanditsaffiliatesservemorethan14.6millioncustomersinsome50countriesaroundtheworld.ScotiabankhasbeeninChinaformorethan20years.ItsChinesebusinessincludesloans,deposits,tradefinance,cashmanagementandtreasuryservices.ScotiabankpurchasedaminoritystakeinXi’anCityCommercialBank,aninvestmentinitiativeundertakenjointlywiththeInternationalFinancialCorporation.Italsohasa20%stakeinDalianCityCommercialBank.

BNY Mellon

150employees

www.bnymellon.com

60 79 11 HeadquarteredinNewYorkandestablishedin2007fromthemergerofMellonFinancialCorporationandTheBankofNewYorkCompany,Inc.,BNYMellonhasUS$1.1trillionassetsundermanagementand42,000employeesin34countriesworldwide.ThecompanyhashadaphysicalpresenceinChinasince1994whenitopeneditsfirstofficeinShanghai,andlateranotherinBeijing,



NorthAmericanbankgroup

NorthAmericanbanks


Homecountryranking


Citibank

4,000employees

www.citi.com

3 9 1 CitiisaUS-basedfinancialservicescompanywithsome200millioncustomeraccountsinmorethan100countries.Citi’shistoryinChinadatesbackto1902whenitbecamethefirstAmericanbanktoestablishoperations,andnowofferscorporateandinvestmentbanking,consumerbankingandprivatebankingservices.On2April2007,CitilocallyincorporatedasCitibank(China)Co.Ltd.AsofApril2009,Citioperateseightcorporatebankbranchesand27consumerbankoutletsinChina.

JPMorgan Chase

260employees

www.jpmorganchase.com

1 7 1 JPMorganChase&Co.isaUS-basedglobalfinancialservicesfirmwithassetsofUS$2trillionandoperationsinmorethan60countrieswithover200,000employees.JPMorgan’shistoryinChinadatesbacktothe1920s,yetinthepastfewyearsitsrevenuesmorethandoubledandonshorestaffincreasedtoover200.Itofferswholesaleandcommercialbankingproducts,withoverathirdofJPMorgan’semployeesinAsiabasedinGreaterChina.On23July2007,JPMorganChaselocallyincorporatedinChina.

Royal Bank of Canada

20employees

www.rbc.com

34 33 1 RBCprovidespersonalandcommercialbanking,wealthmanagementservices,andcorporate,investmentbankingservicesonaglobalbasis.RBCemploysmorethan77,000fullandpart-timeemployeeswhoservemorethan18millionclientsinCanada,theUSand53othercountries.RBC’shistoryinChinabeganin1954,andcurrentlyhasoperationsinthemainlandandHongKong.

Wachovia National Bank

60employees

www.wachovia.com

*WellsFargo&Co.

6* 18 4 WachoviaisaUS-basedinstitutionanditofferscompletebankingservices,retailbrokerageservices,assetmanagement,andwealthmanagementservices.Globally,internationalcorrespondentservicesandtradefinance,aswellascorporateandinvestmentbankinginselectedsectorsareprovided.WachoviaCorporationwaspurchasedbyWellsFargoon31December2008.InJuly2005,aswellasmarkingtheten-yearanniversaryofitspresenceinMainlandChina,WachoviaopeneditsfirstbranchinShanghai.



I. General Issues

1. Risk Based Lending•AdopttheBaselIIprinciples

moreswiftlyandriskweightedvalueaddedconceptsaswellassectorandportfolioconcentrationthresholdstomeasureloangrowth

2. Foreign Debt Quota•Increase(andultimately

remove)theshort-termdebtquotaforgenuinetraderelateduseswhicharenotaffectingthemoneysupplyinChina

•Deepenonshoreliquiditybyputtinginplacemarket-basedmeansoffundingwiththePeople’sBankofChina(PBOC)actingaslenderofthelastresortusinginternationalratesasabenchmark

•Waivethe5%businesstaxononshoreandoffshorelending

•Waivethe10%withholdingtaxonoffshoreintergroupfunding

3. Ownership Rules•Clarifyownershiprulesof

ChinesefundedbanksbyforeignfundedbankstobeundoubtedlyinlinewithgovernmentstatementsandtheagreedWorldTradeOrganization(WTO)commitments

4. Data Processing System Location•Maintainsection13.5ofthe

currentexistingbankcardpolicystatingdataprocessingsystemsshouldbe“safeandefficient”withoutspecifyingwheretheyshouldbelocated

•Applytheprinciplesof“safeandefficient”ratherthanlocationspecificrulesfordatabasesrelatingtoallbankingproductsandservices

II. Wholly Foreign-funded (Locally Incorporated) Banks

1. Branch/Sub Branch Network and Business Expansion•Allowmultiplebranchand

subbranchsimultaneousexpansionsubmissions

•EnableauniqueandbundledRMBretailandcorporateprocessafterincorporationtoallowthenewlyincorporatedbankstostartoperationsimmediately

2. Capital Requirements•Allowlocallyincorporated

foreignbankstotake30%ofworkingcapitaldepositsfromotherbranchesofforeignbanks,onanequalbasiswithlocalbanks

3. Loan Deposit Ratio•Broadenthedefinitionof

depositsusedtocomputetheloantodepositratio

•Foreseeatransitionperiodof5yearsforthenewlyincorporatedbanks,startingfromthedayofincorporation,tocomplywiththeloantodepositratio

4. RMB Derivatives Market•AllowequalaccesstotheRMB

derivativesmarketandprovidecleartransparentapplicationrulesonqualificationsforapproval

III. Branches of Foreign Banks

1. Waiting Period for RMB Licences•Abolishthewaitingperiodfor

RMBlicences

2. Capital Requirements•Eliminatethemandatory30%

depositofworkingcapitaloratleastincorporatethe30%intotheliquidityratiocalculations

•ReducethecapitaladequacyratioforbranchesoratleastallowcalculationonaconsolidatedbasisforallChinesebranchesofthesameforeignlegalentity

EuropeanChamberofCommerce–RecommendationsfortheBankingandSecuritiesWorkingGroupSeptember2009


3. Prudential Ratios•Removethenetoflong-term

borrowingsfromoverseasbranchesfromthecurrentliabilities,tocompareassetsandliabilitieswiththesametenor

4. China National Advanced Payment System (CNAPS) Membership•ImproveCNAPSpayment

formatstoallowtheidentificationofthefinalbeneficiaryinaspecificallyallocatedfieldtoincreaseefficiency,cutmanualinterventionandreducerisks.NotethatthisrecommendationisapplicableforallCNAPSmembers,includinglocallyincorporatedforeignbanks

•AllowCNAPSmembershiptoallmarketplayers

IV. Securities and Fund Management Related Business

1. Custody Business•Grantequaltreatmentto

foreignbanksanddomesticbankswithregardstoQualifiedDomesticInstitutionalInvestors(QDII)authorisation

•Allowtheparentcompany’scapitalbasetoapplyfornewcustodybusinesslicences

underthelocalincorporationmodel.Licencesgivenbeforeincorporationshouldbegrandfathered

•Allowlocallyincorporatedbankstoobtaincustodylicencestomanageinsurancefunds,trusteeproducts,privateequityfunds,andsocialsecurityandpensionfunds

2. Bond Underwriting•Grantforeignbankstheright

tounderwritebondstradedonthesecuritiesstockexchangeonthesametermsaslocalbanks

•Allowforeignbankstotradecorporatebondsfortheircustomeraccounts

3. Local Fund Agency•Openlocalfundagencysales

toforeignbanksonanequalfootingwithChinesebanks

4. Ownership Access•Raisethe33%limitonforeign

ownershipinSecuritiesJointVenture(SJV)toallowmajorityforeignownership

•RemovetherestrictionthatthedomesticpartnerinaSJVfirmhastobeanexistingdomesticsecuritiesfirm

•GrantSJVfirmsafulllicenceinsteadofthepresentonewhichislimitedtounderwriting

•Raisethe49%limitonforeignownershipinJointVenture(JV)fundmanagementcompaniesandallowforeignmajorityownership


Top30ChinesebanksrankedbyTier1capitalandassets

Rank Bank Tier1capital Assets

China World US$m %ch. US$m Rank

1 8 IndustrialandCommercialBankofChina(12/08) 74,701 12.7 1,427,685 1

2 11 BankofChina(12/08) 64,961 15.6 1,017,718 4

3 12 ChinaConstructionBankCorporation(12/08) 63,113 20.7 1,105,471 2

4 24 AgriculturalBankofChina(12/08) 39,998 229.7 1,026,300 3

5 49 BankofCommunications(12/08) 19,336 17.5 391,867 5

6 67 ChinaCITICBank(12/08) 13,467 152.0 173,798 8

7 87 ChinaMerchantsBank(12/08) 10,457 20.8 229,976 6

8 107 ChinaMinshengBankingCorporation(12/08) 7,507 28.3 154,267 9

9 117 IndustrialBank(12/08) 6,777 33.7 149,372 10

10 137 ShanghaiPudongDevelopmentBank(12/08) 5,537 46.4 191,588 7

11 158 BankofBeijing(12/08) 4,641 23.0 68,917 15

12 166 ChinaEverbrightBank(12/08) 4,200 26.1 124,636 11

13 177 HuaxiaBank(12/08) 3,865 124.2 107,049 12

14 241 GuangdongDevelopmentBank(12/08) 2,691 27.4 79,890 13

15 256 BankofShanghai(12/08) 2,516 27.9 53,805 16

16 280 ShenzhenDevelopmentBank(12/08) 2,152 23.9 69,417 14

17 340 ShanghaiRuralCommercialBank(12/08) 1,674 43.6 25,360 19

18 351 HuishangBank(12/08) 1,574 278.5 19,212 22

19 360 BankofJiangsu(12/08) 1,529 18.8 33,701 17

20 366 NanjingCityCommercialBank(12/08) 1,513 17.7 13,711 26

21 430 ShenzhenPingAnBank(12/08) 1230 43.4 21,351 21

22 432 BankofNingbo(12/08) 1229 17.8 15,109 24

23 476 BeijingRuralCommercialBank(12/08) 1088 13.0 33,303 18

24 513 TianjinCityCommercialBank(12/08) 950 30.5 17,970 23

25 609 BohaiBank(12/08) 726 9.3 9,106 33

26 634 HangzhouCityCommercialBank(12/08) 655 37.3 14,575 25

27 644 DalianCityCommercialBank(12/08) 632 na 10,473 30

28 661 ChinaZheshangBank(12/08) 602 103.9 12,262 27

29 663 EvergrowingBank(12/08) 600 119.9 22,093 20

30 666 ShenzhenRuralCommercialBank(12/08) 595 29.2 9,593 31

(Source:TheBanker,July2009)


City Province Branch Sub-branch

Beijing Beijing 1 8

Changsha Hunan 1

Chengdu Sichuan 1 3

Chongqing Chongqing 1 4

Dalian Liaoning 1 4

Dongguan Guangdong 1

Guangzhou Guangdong 1 9

Foshan Guangdong 1

Hangzhou Zhejiang 1 3

Hefei Anhui 1

Jinan Shandong 1

Ningbo Zhejiang 1

Qingdao Shandong 1 4

Shanghai Shanghai 1 9

Shenyang Liaoning 1 2

Shenzhen Guangdong 1 9

Suzhou Jiangsu 1 3

Taiyuan Shanxi 1

Tianjin Tianjin 1 6

Wuhan Hubei 1 4

Xiamen Fujian 1 5

Xi'an Shaanxi 1 2

Zhengzhou Henan 1

HSBC Branch network

Branchnetworksoflargerforeignbanks

(Source:HSBCwebsite)


City Province Branch Sub-branch Repoffice

Beijing Beijing 1 3



Foshan Guangdong 1


Dalian Liaoning 1 4

Zhuhai Guangdong 1 3

Zhongshan Guangdong 1

Xiamen Fujian 1 4

Xi'an Shaanxi 1 4




Wuhan Hubei 1

Nanjing Jiangsu 1

Chengdu Sichuan 1 2

Shenyang Liaoning 1 2

Tianjin Tianjin 1

Urumqi Xinjiang 1

Hefei Anhui 1

Shijiazhuang Hebei 1

Fuzhou Fujian 1

Suzhou Jiangsu 1


Bank of East Asia Branch network


(Source:BEAwebsite)



Beijing Beijing 1 6

Tianjin Tianjin 1 2


Dalian Liaoning 1


Nanjing Jiangsu 1 2

Suzhou Jiangsu 1 2

Hangzhou Zhejiang 1

Nanchang Jiangxi 1



Zhuhai Guangdong 1 2

Xiamen Fujian 1 2


Chengdu Sichuan 1 2

Standard Chartered Bank Branch network


City Province Branch Sub-branch ATMsonly

Shanghai Shanghai 1 9 8

Beijing Beijing 1 3 4

Tianjin Tianjin 1

Nanjing Jiangsu 1 1

Hangzhou Zhejiang 1

Ningbo Zhejiang 1

Fuzhou Fujian 1

Guangzhou Guangdong 1 6 6

Shenzhen Guangdong 1 5 8

Foshan Guangdong 1

Dongguan Guangdong 1 1 1

Kunming Yunnan 1

Hang Seng Bank Branch network

(Source:SCBwebsite)

(Source:HSBwebsite)




Beijing Beijing 1 6


Xiamen Fujian 1


Chengdu Sichuan 1 1

Tianjin Tianjin 1 1


Dalian Liaoning 1

Chongqing Chongqing 1

Citibank Branch network



Beijing Beijing 1 2



Nanning Guangxi 1



Suzhou Jiangsu 1 1

Tianjin Tianjin 1

Fuzhou Fujian 1

Hangzhou Zhejiang 1

DBS Branch network



Beijing Beijing 1 2


Chengdu Sichuan 1

Chongqing Chongqing 1

ABN AMRO Branch network

(Currently part of RBS)

(Source:Citibankwebsite)

(Source:DBSwebsite)

(Source:RBSwebsite)

Partnersinsuccess


AboutPricewaterhouseCoopers

PricewaterhouseCoopers(www.pwc.com)providesindustry-focusedassurance,taxandadvisoryservicestobuildpublictrustandenhancevalueforitsclientsandtheirstakeholders.Morethan163,000peoplein151countriesacrossournetworksharetheirthinking,experienceandsolutionstodevelopfreshperspectivesandpracticaladvice.

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ThePricewaterhouseCoopersfirmsinChina,HongKongandSingaporeprovideawiderangeofservicestohelporganisationssolvebusinessissues,identifyandmaximiseopportunities.Ourindustryspecialisationenablesustoidentifytrendsandcustomisesolutionsforyoursectorofinterest.Eachlineofserviceisstaffedwithhighlyqualified,experiencedprofessionalsandleadersinourprofession.Theseresources,combinedwithourglobalnetwork,allowustoprovidethesupportyouneedwhereveryoumaybelocated.

Wearelocatedinthesecities:Beijing,HongKong,Shanghai,Singapore,Chongqing,Dalian,Guangzhou,Macau,Ningbo,Qingdao,Shenzhen,Suzhou,Tianjin,XiamenandXi’an.


FinancialServices

Theongoingtransformationofthefinancialservicesindustry,throughthekeydriversoftechnologyandcapitalmarkets,isdramaticandcomplex.Aslegalbarriersfallbetweenthevariouscomponentsintheindustry,thefinancialservicessectorisbeingshapedbymegatrendssuchasconvergence,consolidationandglobalisation.Eachofthesemegatrendshasasignificantimpactonthewayourclientsmanageandthinkabouttheirbusinesses.

WehavethelargestspecialistfinancialservicespracticeinmainlandChinaandHongKong.Ourstrategyistobringsignificantbusinessadvantagetoourclientsthroughcombiningourglobalmultidisciplinaryteams,integratedacrossindustrysectors,geographiesandfunctionalskillstobringourglobalbestpracticesandcreativeproblem-solvingskillstobear.

PwCChinahasbeenattheforefrontinworkingwithbanksinmainlandChinatoreformtheirgovernancestandardsandsystems,whetherasauditororadvisor.Toguidetheseandotherbanksthroughthechallengingprocessofrestructuring,wedevelopedthe

ChinaBankReformRoadmap,whichoutlinestheoperationalrestructuring,financialreengineeringandfinancialreportingchangesneededtopreparebanksforthenewenvironment,includingpoliciesandproceduresthatwillcreatetruetransparency.

FollowingtheCBRC’sannouncedintentiontoapplytheBaselIIprincipleswithinitssupervisionframeworkfordomesticbanks,PwCChinasuccessfullyintegrateditscollectiveglobalexperienceintotailoredservicesforthelocalmarket.PricewaterhouseCoopersisregardedastheleadingadvisoryfirminassistingbanksinplanningfor,implementingandobtainingbenefitsfromthesignificantchangesthatwillberequiredtogiveeffecttoBaselIIreadiness.

SomerelevantPwCthoughtleadershipandotherpublicationsinclude:

• TheJournal:Globalperspectivesonchallengesandopportunities

• BankingBananaSkins2010:Afterthe‘quake—theCSFI’sannualsurveyontherisksfacingbankssponsoredbyPwCUK(February2010)

• AnewsletterfortheChinabankingcommunity—Emergingissuesandpracticalguidance(February2010)

• ForeigninsurancecompaniesinChina(September2009)

• Thedayaftertomorrowforassetmanagement:ContinuingthePwCperspectiveseriesontheglobalfinancialcrisis(August2009)

• Globalprivatebankingandwealthmanagementsurvey:Anewera—redefiningwaystodelivertrustedadvice(July2009)

• Re-engineeringtheorganisation:Managingtalentinthedayaftertomorrow(July2009)

• Shariah-compliantfunds:Awholenewworldofinvestment(July2009)

• Anewplayingfield:TheoutlookforFSM&AinAsia(June2009)

• ForeignfundmanagementcompaniesinChina(April2009)

Banking & Capital Markets

RaymondYung–BeijingPricewaterhouseCoopersChina+86(10)[email protected]

SimonCopley–HongKongPricewaterhouseCoopersHongKong+85222892988simon.copley@hk.pwc.com

Insurance

TomLing–BeijingPricewaterhouseCoopersChina+86(10)[email protected]

PeterWhalley–HongKongPricewaterhouseCoopersHongKong+85222891192peter.whalley@hk.pwc.com

Asset Management

RobertGrome–HongKongPricewaterhouseCoopersHongKong+85222891133robert.grome@hk.pwc.com

AlexWong–ShanghaiPricewaterhouseCoopersChina+86(21)[email protected]

Financial Services

MervynJacob–HongKongPricewaterhouseCoopersHongKong+85222892700mervyn.jacob@hk.pwc.com


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(forservicesprimarilyoutsidetheUS)

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Simon Copley – Hong KongPricewaterhouseCoopers Hong Kong+852 2289 [email protected]

Advisory

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Tax

Rex Chan – BeijingPricewaterhouseCoopers China+86 (10) 6533 2022 [email protected]

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Foreign banks in C

hinaM

ay 2010

Banking and Capital Markets

Foreign banks in ChinaMay 2010

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