While China holds obvious attraction for foreign banks as a very large and increasingly prosperous market, patience will be required for international brands to maximize opportunities, according to GlobalData, a leading data and analytics company.
The South China Morning Post reported last month that the Chinese government intends to allow foreign banks to take a controlling stake in joint ventures on the mainland. Currently, foreign banks can hold no more than a 49% stake.
Sean Harrison, Financial Analyst at GlobalData, commented: “Although the news has been welcomed by foreign banks, these restrictions won’t be lifted for another three years.
“While permitting foreign banks to take a controlling stake in a joint venture could allow them to pursue an acquisition-based growth strategy, there are other challenges to overcome.”
GlobalData’s Market Opportunity Index (MOI) classifies China as a medium opportunity market and the country is ranked 9th out 29 global retail banking markets.
While the likes of Citibank, HSBC, and other global banks are not attempting to grow their business in the outer reaches of rural China where credit coverage is expectedly low, this accentuates competition for the urbanized middle class and mass affluent customers with good credit information. As such, the domestic competition has the advantage due to their extensive branch networks and established relationships with customers.
However, China scores quite highly for the consumer receptivity component of the MOI. This component gauges consumers’ willingness to switch provider, their level of dissatisfaction with existing providers, and attitudes towards local and international brands. China’s score reflected that consumers did show a preference for international brands over domestic ones.
“The intention to liberalize restrictions on foreign ownership is a positive step, but in the meantime foreign banks should seek to maintain and build their reputations among Chinese customers, and await the further liberalization measures on the horizon,” concludes Harrison.