KPMG REPORT:
RETAIL BANKING IN CHINA: NEW FRONTIERS
Bank executives, local and foreign alike, are encouraged by the progress China is making in reforming its financial services industry and excited by the prospect that China could quickly become one of the world’s largest banking markets. For overseas players, the enthusiasm is tempered by the constraints, natural or regulatory, that still exist.
KPMG’s upbeat report looks closely at the retail market and provides much useful, if somewhat startling, data. The ‘Big Four’ state-run banks have more than 75,000 branches between them, HSBC, the biggest foreign bank, has more than 30; the country’s 1.3 billion citizens hold nearly $2000bn in personal savings.
For KPMG, the growth of consumer markets is now the biggest story in China with the credit card business viewed by many international banks as a first step into the country. Meanwhile, foreign banks are jostling for position, building networks in the country’s richest cities and preparing to serve the needs of China’s middle classes.
There is no single blueprint for building a successful financial services franchise in China. Some banks have chosen to take on the expense of building a network from scratch, while others paid for goodwill in a joint venture structure. Organisations will continue to explore other avenues to fully serve their clients on the mainland, which could also include teaming up with insurers and forming securities joint ventures.
MERCER OLIVER WYMAN REPORT:
BASEL II: PAYBACK TIME
Basel II is less than a year from becoming reality in most European countries. Banks have spent a staggering €1.3bn on implementation and most have seen their original cost estimates surpassed by actual developments. Consequently, many players are now becoming increasingly interested in turning this massive cost base into benefits beyond regulatory compliance and Basel II programme managers may soon experience pressure to justify high budgets as ‘Basel II payback’ moves on up senior management’s agenda.
While the Basel II accord is designed to help banks go beyond better risk control, few banks are fully embracing business benefits beyond explicit regulatory requirements. This report outlines the different stages of benefit capture from regulatory-driven implementation through to a repositioning of business model and strategy.
Furthermore, it discusses the low level of benefit implementation in the industry, which simultaneously creates an opportunity for leading players that can devote time and resources to go beyond regulatory requirements and a threat for followers to be left with a competitive disadvantage.
Basel II has far-reaching consequences and from the overall design it is clear that the intention was to create incentives for banks. However, in Mercer Oliver Wyman’s experience, players are currently not very innovative in capturing this opportunity but are highly focused on getting over the regulatory hurdle.
