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Foreign Banks triple China profit growth

(Bloomberg)
Updated: 2007-07-04 17:12

Profit growth at Citigroup Inc, ABN Amro Holding NV and other foreign banks in China tripled this year after they were allowed to offer local-currency services, a central bank report said.

Overseas banks earned a combined 3.05 billion yuan ($401 million) in the first five months, up 43 percent from a year earlier, the People's Bank of China said in a research report published by China Securities Journal. Profit growth accelerated from an average 14 percent over the past five years.

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China fully opened its banking industry in December, sparking a rush among foreign banks to add outlets and workers to compete for the nation's $2.2 trillion of household deposits. They're still dwarfed by the likes of Industrial & Commercial Bank of China Ltd, which earned 18.7 billion yuan in the first quarter.

"A rising tide lifts all the boats," said Zhang Xi, a banking analyst at Beijing-based Galaxy Securities Co. "Foreign banks will never achieve the economies of scale to pose a serious challenge to domestic rivals given their current speed of expansion in China."

As of May 31, 75 foreign banks operated 186 outlets in 25 Chinese cities, according to the report. They had 514.3 billion yuan of outstanding loans and 305 billion yuan of deposits. Their non-performing asset ratio stood at 0.6 percent at the end of May.

Overseas banks' combined profit from local-currency services more than doubled to 1.3 billion yuan through May, today's report said.

"Business has never been so good," Jeroen Drost, ABN Amro's Asia chief executive, said in an interview yesterday. "The key challenge here is to keep up with the growth."

Foreign banks expect to double their total workforce in China to almost 36,000 by 2010, according to a survey by PricewaterhouseCoopers LLP published in May. HSBC Holdings Plc, Citigroup, Standard Chartered Plc, Bank of East Asia Ltd and eight others have become locally incorporated to offer yuan- denominated bank cards and mass-market services this year.