Foreign banks saw their profits in China double in 2011 and expect at least 20 percent annual revenue growth over the next three years despite a bleak economic outlook, a survey by PricewaterhouseCoopers said on Tuesday.
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A total of 181 foreign banks in China reported a combined revenue growth from 7.78 billion yuan ($1.22 billion) in 2010 to 16.73 billion yuan in 2011, according to the PwC's seventh annual report of foreign banks in China.
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The total assets of foreign banks in China also grew 24 percent to 2.15 trillion yuan over last year, and accounted for about 2 percent of the total assets in China's banking sector. The share is up from a decline during 2008, which was the result of massive liquidity injected into Chinese banks.
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Although China's economic outlook was shadowed by a series of weak data recently, annual revenue growth of 20 percent or more until 2015 is still in the sights of the 41 CEOs, senior executives, and branch managers surveyed.
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The foreign banks have set their own sights on four target growth areas: financial institutions, multinational corporations, State-owned enterprises and private-owned enterprises. Debt capital market is expected to offer the greatest opportunity.
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Facing a talent shortage, many foreign banks are on an aggressive recruitment drive, aiming to increase the industry's headcount by 56 percent to 55,000 by 2015 from the current 35,000.
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"The significant growth (in profit) was a result of strong demand for corporate credit from multinationals expanding within China and an increasing number of State and private-owned enterprises customers," said Jimmy Leung, banking and capital market leader with PwC China.
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He added that the internationalization of the renminbi has generated a strong demand and growing revenue in derivatives, which also helped drive results.
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The central bank's recent advancement on interest-rate liberalization is also viewed as advantageous, as foreign banks can now compete with more flexibility, Leung said.
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"The exponential growth in the number of high net-worth individuals in China is leading some foreign banks to renew and develop their retail and wealth-management businesses," said Raymond Yung, PwC China financial services leader.
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"Many foreign banks, which set up their China offices during 2007 and 2008, were focusing on staff recruitment and infrastructure. Now that those are in place, it's time to seek a return on the investment," said Charles Chow, PwC China assurance partner.
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The strong results were achieved despite barriers such as lending caps and a relatively slow pace of new-branch approvals, PwC's report said.
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The strict regulatory environment continues to be a major concern among bankers. Relaxed regulatory restrictions on bond underwriting, access to the derivatives market and wealth-management market, as well as a higher quota of offshore funding are on the respondents' wish lists.
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But surprisingly, the participants surveyed consider the China Banking Regulatory Commission a more supportive regulator than even their own respective home regulators.
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"In the long run, foreign banks in China will be in a better position if they continue to view and engage with regulators like any key client relationship," the report said.
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The fundamental challenge for the foreign banks over the next three years will be balancing the investment and needs of a dynamic and fast-developing Chinese market against the constraints of a slowing economy back home.
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"China is shifting away from a production-export market to a domestic consumption-driven economy, which means new opportunities for foreign banks to diversify into emerging-market sectors such as IT and clean energy as they mature," the report said.
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"They will also be able to leverage their global expertise as more Chinese firms seek to expand offshore. Capitalizing on this will require a different and more focused approach to their China strategy."
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Foreign banks are also supportive of Shanghai's plan to become an international financial center by 2020 and believe they can play a major role in making it happen. Foreign banks hold a market share of 12 percent in Shanghai. However, only half of them have active plans regarding Shanghai.
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"In order for Shanghai to really claim to be an IFC, the liberalization of interest rates and the RMB exchange rate is critical," Leung said.Â