Skimming off the top

In Yang Deyong's opinion, overseas banks usually target investors and higher-income individuals, instead of focusing on a large number of small accounts. This will likely remain an advantage for Chinese banks for the foreseeable future.

"Overseas banks won't take much interest in an ordinary Chinese personal account, even though the renminbi retail sector is open," said Yang.

The newcomer banks' main focus will remain on investment, foreign currency, foreign exchange and commercial banking.

"The high-end clients will cost them less," said Yang.

In line with international norms, it is usually only in turbulent times such as war and state disorder that large numbers of people flood multinational banks to deposit their savings, according to Yang. Another advantage for domestic banks is that most ordinary Chinese will not be influenced by overseas banks entering the market.

"I have no idea about overseas banks," said Mei Mei, an officer from China Radio International. "Though their personal service seems pretty good, I choose to deposit in Chinese banks."

Preparing to play catch up

As they attempt to remain competitive, Chinese banks have undergone recent restructuring. In October last year, Industrial and Commercial Bank of China (ICBC) became the first bank to be listed on both Shanghai and Hong Kong stock exchanges.

Jiang Jianqing, President of ICBC, said that the listing is good for the bank and will help build a modern financial system by speeding up improvements of both operations and management, according to a Xinhua report.

"When playing in the same arena with overseas lenders, Chinese banks have to improve their services and update their products," said Zhao Xijun, Deputy Dean at the School of Finance of Renmin University of China.

In December 2006, ICBC updated its individual financial management services, focusing on the personal deposit business above 200,000 yuan in Beijing, Shanghai, Guangzhou and Shenzhen. The bank also plans to rapidly expand service from 80 branches to about 500 branches this year. Moreover, 200 "fortune centers" are expected to go into operation during 2007, targeting individuals with accounts over 1 million yuan.

China Minsheng Banking Co. Ltd., Bank of Communications, China CITIC Bank and China Merchants Bank are also scheduled to enhance their personal banking services this year.

Through updated services, varied investments and efficient control of costs, some Chinese banks have ensured robust growth in recent years. Domestic-listed Shenzhen Development Bank (SDB) recently reported its net profits had soared to 1.3 billion yuan last year, an annual growth rate of 319 percent.

The company attributed its three-digit growth to a healthy loan increase and efficient use of funds. Last year, SDB also focused on developing relationships with small and medium-sized businesses, an effort that seems to have paid dividends.

According to CBRC statistics, by the end of last year, the non-performing loan ratio from domestic banks decreased 1.52 percentage points to 7.09 percent, compared to the end of 2005. Meanwhile, non-performing loans slid down to 1.25 trillion yuan.

Two can play at that game

While overseas banks are poised to take on the Chinese market, domestic lenders are finding ways of their own into overseas markets, aiming to get an upper hand on the competition.

By the end of last year, BOC had acquired Singapore Aircraft Leasing Enterprise Pte. Ltd., one of Asia's largest plane renting companies, for a total of $965 million.

Just days after BOC's acquisition, China Construction Bank merged with Bank of America (Asia) Ltd., Bank of America's Hong Kong subsidiary, with 100 percent equity, for HK$9.71 billion.

ICBC, in another big merger that year, announced in late 2006 that an agreement had been struck with Halim Bank Indonesia to purchase 90 percent of its holdings. This was the first time ICBC had tapped into overseas markets through acquisition, ICBC's website reported.

As they are in the early stages of overseas exploration, Chinese banks are unlikely to expand their businesses quickly in the short term, said Yang Deyong. Their frequent visitors will remain overseas Chinese and Chinese-owned enterprises. It takes time for them to build up solid multinational networks.

However, "Chinese banks need to realize that their profits should not only come from the domestic market," Yang said.