Sluggish growth takes its toll on foreign lenders

The performance of foreign banks in China dropped last year compared with the previous year, as the country witnessed the slowest growth in three years and the authorities further liberalized interest rates.

According to an annual report released by the China Banking Regulatory Commission on Wednesday, foreign banks achieved profits after taxes of 16.3 billion yuan ($2.61 billion) in 2012, down from 16.7 billion yuan in 2011.

Their asset quality also fell as the ratio of soured loans against total loans rose to 0.52 percent at the end of last year, from the 0.41 percent one year earlier, said the report.

The total assets of the banks went up 11 percent year-on-year to 2.38 trillion yuan, but their proportion to the total banking assets in China dropped to 1.82 percent, from the previous 1.93 percent at the end of 2011.

The asset proportion of foreign banks in China has been falling since 2006, when they had 2.11 percent of the total banking assets. The figure bottomed in 2009, when their Chinese counterparts lent out 9.5 trillion yuan after the government announced a 4 trillion yuan stimulus package to shore up the economy.

"Chinese banks, especially the five State-owned lenders, have dominated the market, and their growth has affected foreign banks' market shares," said Jimmy Leung, China banking and capital markets leader partner of PricewaterhouseCoopers China.

He said the economic environment had more influence on foreign players as their financing business is more important to them than to their Chinese counterparts, and that the CBRC's tighter regulations on fees last year have also hurt their income more severely than Chinese banks, which are still highly dependent on traditional lending business.

The capital adequacy ratio among foreign banks in China rose to 19.74 percent by the end of 2012, from 18.83 percent the previous year. Their core capital adequacy ratio stood at 19.25 percent, in contrast with 18.38 percent at the end of 2011.

"Overall the main indicators of foreign banks are all higher than the regulatory standards, and they are basically in a healthy condition," the CBRC said in the report.

By the end of last year, banks from 49 countries and regions had set up 42 locally incorporated banks, 95 branches, and 197 representative offices in China.

Outstanding loans extended by those banks increased 6.2 percent to 1.04 trillion yuan from one year earlier, while their deposits rose 7.7 percent to 1.43 trillion yuan.

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