Foreign banks to step up growth In China, says S&P

February 7, 2018

HONG KONG - Foreign banks in China are likely to step up growth in the next on-to-two years after a rather lacklustre performance in their first decade of operations there, says ratings agency Standard and Poor’s.

"We believe a policy-induced slowdown in the business expansion of local banks, and China's latest plan to reduce red tape for foreign banks' market access, could help revive growth of foreign banks in China," said S&P Global Ratings credit analyst Panpan Bu.
"However, foreign banks' generally cautious view on credit risk in China, together with intense competition from local banks and fintech companies, could limit their expansion appetite."
S&P Global Ratings expects foreign banks to continue to see China as offering significant growth prospects.
Apart from China's large market and strong economic growth, foreign banks can benefit from various China initiatives, including internationalization of the renminbi, the Belt and Road initiative, and relaxation of regulations on foreign banks operating in China, the agency said.
“Foreign banks in China have a competitive advantage in corporate banking, particularly trade finance and other cross-border businesses, in our view.
“However, they are still taking baby steps in gaining market share from local banks amid rapidly-changing economic and regulatory conditions in China.
“We believe a few larger global banks will continue to explore local opportunities.
“Chinese manufacturers' fast ascent in the value chain, the country's growing affluence, and financial liberalisation for cross-border products and services should support these banks' expansion in China.”
S&P said the foreign banks now also have the advantage of experience of over a decade, and the more relaxed regulations concerning their operations in China today.
“We expect foreign banks in China to maintain healthy asset quality and to contain credit losses through a targetted clientele base and generally prudent underwriting standards.
“A cautious approach and steadily-improving conditions in global banks' home markets provide these banks a stronger footing than local players to withstand credit risks in China.” (ATI).