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Banks morph into full financial services
By Hu Xiaocen |
January 14, 2013, Monday
|
Print Edition
Print Edition
MORE Chinese commercial banks are moving toward universal banking models, offering an array of services under one roof to boost profits and attract consumers looking for the convenience of a one-stop shop.
In addition to traditional banking services such as money transfers, deposit-taking and loans, banks are offering customers insurance products, securities broking, fund management, financial leasing and trust options.
Insurance
China's "Big Five" lenders - Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, and Bank of Communications - all have insurance arms, creating what is known in the industry as "bancassurance."
Most recently, Agricultural Bank purchased a 51 percent of stake in Jiahe Life Insurance Co and renamed it ABC Life Insurance Co. "Bancassurance has promoted the rapid growth of China's life insurance industry," China International Capital Corp (CICC), the nation's biggest investment bank, said in a report in early January.
"In the first decade of the 21st century, life insurance premiums in China grew at an average rate of 26.5 percent per year, far surpassing the nation's economic expansion during the same period," the report went on to note. "Bancassurance has become the top sales channel for life insurance since 2008."
The integrated services model does create competition among various units within a single bank. For example, money used to buy an insurance policy may be what is not spent on a wealth management product. The CICC report said some banks have seen savers drain their deposits to buy other financial products on offer by the same lender.
China Construction Bank, the nation's second-biggest lender, outperformed the other big lenders in the insurance business, in both premium income and growth. Its Shanghai-based insurance arm CCB Life Insurance Co raked in 4.9 billion yuan (US$778 million) in premiums during the first 10 months in 2012, about fivefold more than a year earlier.
"A more liberal interest rate regime and a credit-supply slowdown will raise the lenders' appetite for the insurance business as a new profit growth point," said the CICC report. "From the experience of developed markets, bank-owned insurance companies have a promising future in China."
Hong Kong is the second-biggest insurance center in Asia by per-capita premium. The top two bank-insurers there are Bank of China and HSBC.
Investment banking
China Minsheng Banking Corp, the nation's first privately owned lender, was the latest to try to capitalize on the deregulation of the yuan offshore by following the "Big Five" and opening an investment-banking arm in Hong Kong.
The continuous appreciation in the yuan and relaxed regulatory controls on its use in international trade and debt issuance have whetted investor demand for the Chinese currency.
Sales of so-called dim sum bonds, or yuan-denominated debt offshore, have mostly occurred in Hong Kong. The value of dim sum issuance is expected to increase to 360 billion yuan this year from 263 billion yuan in the first 11 months in 2012, according to HSBC, the top underwriter of such debt.
Chinese banks are encouraged by the central government to expand the borrowing beyond Hong Kong to other financial centers, like London and Singapore.
In November, China Construction Bank became the first Chinese bank to issue a London-listed dim sum bond. In 2012, it ranked 10th among underwriters by market share, according to Bloomberg data.
HSBC topped the list last year with a market share of 26 percent, followed by China's biggest foreign-exchange bank, Bank of China, which had 14 percent. Industrial and Commercial Bank of China was fifth at 5 percent.
Apart from bond underwriting in offshore markets, Chinese banks have lagged their foreign rivals in the lucrative segment of mergers and acquisitions advisory work.
The Chinese government has been urging domestic companies to accelerate overseas expansion and acquisitions, given the country's hefty foreign-exchange reserves and the underpriced assets now available in countries facing financial problems.
Outbound M&As by Chinese companies surged to a record high in the first three quarters of last year, and the trend is expected to continue this year, Deloitte Touche Tohmatsu said in a report.
Citigroup last month said overseas acquisitions accounted for nearly 40 percent of China's M&A activities in 2012.
The top 10 financial advisors for such transactions were all foreign financial institutions, which have executed outbound acquisition deals valued at more than US$100 billion, led by Citigroup and Goldman Sachs.
It will be difficult for Chinese banks to grab a share of the pie until they develop the same high level of global networks and professional services of their foreign peers, analysts said.
Fund management
The Chinese government recently allowed more commercial banks to establish fund management companies. All of the "Big Five" lenders already have such units, while smaller rivals like China Merchants Bank, Minsheng Bank and Shanghai Pudong Development Bank are quickly following suit.
Eight bank-owned fund management companies in China, with 16 percent of that market, expanded their assets by 70 percent in 2012 to 461 billion yuan, the greatest growth in the past five years, according to China Galaxy Securities Co.
The fund management units of Industrial and Commercial Bank of China, Bank of China and China Construction Bank were among the top 10 players, managing to maintain growth even amid a general industry slump.
China's aim to further liberalize the nation's interest rate regime is expected to further erode lenders' margins, forcing them to cast their nets wider for new profit growth.
Domestically, the powerful, pervasive branch networks of Chinese banks give them an edge when trying to market new financial services.
In addition to traditional banking services such as money transfers, deposit-taking and loans, banks are offering customers insurance products, securities broking, fund management, financial leasing and trust options.
Insurance
China's "Big Five" lenders - Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, and Bank of Communications - all have insurance arms, creating what is known in the industry as "bancassurance."
Most recently, Agricultural Bank purchased a 51 percent of stake in Jiahe Life Insurance Co and renamed it ABC Life Insurance Co. "Bancassurance has promoted the rapid growth of China's life insurance industry," China International Capital Corp (CICC), the nation's biggest investment bank, said in a report in early January.
"In the first decade of the 21st century, life insurance premiums in China grew at an average rate of 26.5 percent per year, far surpassing the nation's economic expansion during the same period," the report went on to note. "Bancassurance has become the top sales channel for life insurance since 2008."
The integrated services model does create competition among various units within a single bank. For example, money used to buy an insurance policy may be what is not spent on a wealth management product. The CICC report said some banks have seen savers drain their deposits to buy other financial products on offer by the same lender.
China Construction Bank, the nation's second-biggest lender, outperformed the other big lenders in the insurance business, in both premium income and growth. Its Shanghai-based insurance arm CCB Life Insurance Co raked in 4.9 billion yuan (US$778 million) in premiums during the first 10 months in 2012, about fivefold more than a year earlier.
"A more liberal interest rate regime and a credit-supply slowdown will raise the lenders' appetite for the insurance business as a new profit growth point," said the CICC report. "From the experience of developed markets, bank-owned insurance companies have a promising future in China."
Hong Kong is the second-biggest insurance center in Asia by per-capita premium. The top two bank-insurers there are Bank of China and HSBC.
Investment banking
China Minsheng Banking Corp, the nation's first privately owned lender, was the latest to try to capitalize on the deregulation of the yuan offshore by following the "Big Five" and opening an investment-banking arm in Hong Kong.
The continuous appreciation in the yuan and relaxed regulatory controls on its use in international trade and debt issuance have whetted investor demand for the Chinese currency.
Sales of so-called dim sum bonds, or yuan-denominated debt offshore, have mostly occurred in Hong Kong. The value of dim sum issuance is expected to increase to 360 billion yuan this year from 263 billion yuan in the first 11 months in 2012, according to HSBC, the top underwriter of such debt.
Chinese banks are encouraged by the central government to expand the borrowing beyond Hong Kong to other financial centers, like London and Singapore.
In November, China Construction Bank became the first Chinese bank to issue a London-listed dim sum bond. In 2012, it ranked 10th among underwriters by market share, according to Bloomberg data.
HSBC topped the list last year with a market share of 26 percent, followed by China's biggest foreign-exchange bank, Bank of China, which had 14 percent. Industrial and Commercial Bank of China was fifth at 5 percent.
Apart from bond underwriting in offshore markets, Chinese banks have lagged their foreign rivals in the lucrative segment of mergers and acquisitions advisory work.
The Chinese government has been urging domestic companies to accelerate overseas expansion and acquisitions, given the country's hefty foreign-exchange reserves and the underpriced assets now available in countries facing financial problems.
Outbound M&As by Chinese companies surged to a record high in the first three quarters of last year, and the trend is expected to continue this year, Deloitte Touche Tohmatsu said in a report.
Citigroup last month said overseas acquisitions accounted for nearly 40 percent of China's M&A activities in 2012.
The top 10 financial advisors for such transactions were all foreign financial institutions, which have executed outbound acquisition deals valued at more than US$100 billion, led by Citigroup and Goldman Sachs.
It will be difficult for Chinese banks to grab a share of the pie until they develop the same high level of global networks and professional services of their foreign peers, analysts said.
Fund management
The Chinese government recently allowed more commercial banks to establish fund management companies. All of the "Big Five" lenders already have such units, while smaller rivals like China Merchants Bank, Minsheng Bank and Shanghai Pudong Development Bank are quickly following suit.
Eight bank-owned fund management companies in China, with 16 percent of that market, expanded their assets by 70 percent in 2012 to 461 billion yuan, the greatest growth in the past five years, according to China Galaxy Securities Co.
The fund management units of Industrial and Commercial Bank of China, Bank of China and China Construction Bank were among the top 10 players, managing to maintain growth even amid a general industry slump.
China's aim to further liberalize the nation's interest rate regime is expected to further erode lenders' margins, forcing them to cast their nets wider for new profit growth.
Domestically, the powerful, pervasive branch networks of Chinese banks give them an edge when trying to market new financial services.
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