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Foreign banks lower unsecured loan fees

By Wang Fei’er (Global Times)

08:06, June 26, 2012

Citibank will lower the lending costs for individual borrowers taking out unsecured consumption loans, effective July 2, the bank announced on its website over the weekend.

Specifically, the bank will cancel monthly management fees on unsecured loans as well as overdue payment charges, according to the statement.

Citibank is not the only foreign bank in China to have recently begun courting local customers with incentives on personal loans. Earlier this month, Standard Chartered Bank cut its monthly lending rate on personal unsecured loans exceeding 30,000 yuan ($4.713.70) from 1.95 percent to 1.75 percent.

As overseas lenders move to expand their unsecured loan businesses in China, they are tipping their hands and revealing a growing concern about their place in the country, especially as State-owned banks make inroads of their own into the uncollateralized credit market, Frank Song, director of the Center for China Financial Research, told the Global Times.

Although a surge in unsecured personal borrowing will push up credit risks for banks, foreign lenders are heavily reliant on these loans, which State-owned banks have typically been less willing to extend, as lenders from overseas lack the resources, including the large customer bases, government-controlled banks in China enjoy, said Song.

The few local banks that have pushed to develop their personal loan business often only provide unsecured loans to borrowers who have a certain amount of funds in their accounts, Sheng Jingjing, an account manager from Standard Chartered Bank, told the Global Times. At present, more than half of the unsecured loans in China are made using credit cards in order to limit how and where their customers accrue debt, Sheng noted.

However, following the central bank's reserve requirement ratio cut on May 18, China's financial regulators advocated an increase in domestic consumption and State-owned lenders have begun to expand their personal loan businesses accordingly, which will erode the still-insecure position foreign banks have in this area, Meng Jinxian, an account manager from Citibank, told the Global Times.

Agricultural Bank of China, one of the country's largest State-owned banks, introduced its first personal unsecured loans early this month, which borrowers can put towards car purchases, home renovations, travel and other personal consumption expenses.

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