Analysis: Chinese Banks Adopt New Business Concepts

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Last updated at: (Beijing Time) Sunday, August 11, 2002

Analysis: Chinese Banks Adopt New Business Concepts

The foreign banks' arrival on the Chinese financial market has exerted a significant impact on banking management and concept rather than market share reshuffle as people expected.

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The foreign banks' arrival on the Chinese financial market has exerted a significant impact on banking management and concept rather than market share reshuffle as people expected.

Chinese banks have proved to be quick responding to the changedmarket conditions and have performed satisfactorily in adapting themselves to the new conditions.

The four State-owned commercial banks, the mainstream of China's banking industry, have worked out new reform measures this year,giving up some traditional ways of management and adopting advanced business ideas in line with international practice.

People with the banking sector believe the pressure from foreign banks has not only helped promote China's banking reforms,but also brought about great changes in traditional banking concepts and people's ideas about how to manage their finances.

"Different services for different clients" is one of the ideas Chinese banks have learned from their foreign counterparts and most China's commercial banks have adopted the system of arrangingmanagers for specific clients.

The China Construction Bank announced earlier this month that its president Zhang Enzhao has taken the lead and will act as chief manager for 10 quality clients. The bank has also arranged chief managers for 1000 key clients to provide them with the best possible services.

In China's large cities and developed coastal areas, many bankshave opened VIP services for key clients.

When Citibank in Shanghai began to charge a monthly financing service fee of 6 US dollars for deposit accounts of less than 5000dollars in March, it set off a heated debate on whether Chinese banks should follow suit. Although this debate has come to an end without any result, it will certainly encourage banks to charge for intermediate business.

Statistics show that large international banks get over 70 percent of their income from intermediate businesses, while Chinese commercial banks get only about 10 percent as interest margins remain the major source of profit for Chinese banks.

Chinese banks have all listed intermediate business as a key area for development, and so far this year their income growth from intermediate businesses has mostly exceeded their overall income growth.

Sources close to the central bank say procedures governing the charging of intermediate businesses is being formulated and will be promulgated soon in a bid to promote the development of intermediate businesses.

Chinese banks have also stepped up their efforts to build good corporate governance. This year the four State-owned commercial banks have begun to release information about their major activities, and for the first time published details of their assets.

At the same time, the banks have invited international accounting firms to audit their assets and look at their methods of management.

Financial experts hold that with the gradual lifting of business restrictions on foreign banks, the competition between Chinese and foreign banks will intensify in China's financial market. The changing concepts of management by China's commercial banks is both timely and critical to their development prospects.

John J. Mack, CEO of the Credit Suisse-First Boston, said that in the face of challenges from foreign counterparts, China's localbanks have great advantages in their understanding of the local markets and their widespread business networks within the country.

However, local banks lack the necessary understanding of foreign markets and international rules of practice and in this respect, it is right for them to learn from their foreign counterparts.

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