The foreign banks in mainland China look to be brighter in 2023 amid the country’s reopening and exit from strict zero Covid policies. Although, it does put pressure on lenders to rework on their strategies as there is a speedy change and demand in the market, analysts said.
Offshore banks-including those based in Hong Kong that are doing business with China can trade in finance, wealth management, and consumer finance. They can face issues while carving their niches and finding good lending opportunities after a property bubble burst, analysts said.
“ This year will be better than 2022- it will be a market which recovers and restores,” said Nicole Zhou, Senior partner at McKinsey & Company. “ The benefits for Hong Kong banks are relatively clear, as the reopening provides an important opportunity for them to serve as a connector between China and [The rest of the world].
“But for almost all multinational companies including foreign banks, the story is more complicated. They need to reassess their China strategies because the market is not what it was three years ago,” she added.
For many foreign banks, China reopening is beneficial and they will continue to expand into the mainland. Foreign banks are expecting that this year could make some improvement. Standard Chartered gave approval to set up wholly-owned securities brokerage on January 19, the day when JP Morgan took full control of its China mutual fund unit the same day.
Economic experts have predicted that business and investment activity will grow this year which directly benefit international banking; they will record higher demand on loans and cross border financing, analysts said. The Greater Bay Area (GBA) of wealth management could contribute to its major role.
“Our biggest growth drivers and biggest innovation drivers are going to be those in the northbound connector with GBA in particular, given its concentration of high technology talent, thriving market size, and as a global commercial and trade hub,” said Jianing Song, KPMG’s head of banking and capital markets sector, Hong Kong.
Analysts further stated, lending for companies’ international transactions, as well as for consumers, as China prioritizes consumption, could act as additional revenue factor for lenders. Adjustment to banks’ onshore strategies will be the key.
Many lenders started working on their strategies so that they can get higher returns and profitable deals. They are rethinking on building their business stronger in the mainland from the country’s dominant domestic player.
“For foreign banks in China, in particular, it really is about finding that niche,” said Grace Wu, head of Greater China bank ratings at Fitch Ratings. Banks should focus on value-added areas through differentiated products and customer services, without adding on cost, she added.
“Foreign banks will have to launch a new round of China strategies,” said Zhou at McKinsey. “It should not be an extension of previous strategies or small tweaks, but [rather] a re-evaluation of the Chinese market’s importance to them and their own value propositions to the market.”
As far as Hong Kong is concerned, the banks in China will enhance their revenue and profit this year, but margin growth could be a problem. “We expect rises in interest rates in Hong Kong as a result of US interest rates rises, and typically we would expect to see margins rising for banks,” said Paul Mcsheaffrey, senior banking partner, Hong Kong, KPMG China.
“Hong Kong banks are still quite cautious in lending. Even if they see opportunities [from mainland clients], whether they have capacity, or they have the appetite to do every business from China, it is a question mark for them,” he said.
- Published By Team Hongkong Journalist