Foreign banks in China dropping out of retail banking

July 28, 2013 Leave a comment

Foreign banks in China dropping out of retail banking

Staff Reporter

2013-07-28

Due to adjustment in business structure and continuing deficits, a number of foreign banks have started closing their retail banking branches in China. In mid-July, Deutsche Bank China folded its last retail banking branch in Huamao, Beijing. According to the Beijing Business Today, the the bank closed the branch, opened on Nov 29, 2007, after deciding to focus on corporate banking, forgoing its original ambition to diversify its services. Deutsche Bank is not the first foreign bank exiting the retail banking market in China. Previously, the Royal Bank of Scotland left the retail banking sector in order to concentrate its resources on corporate and wholesale banking. The Bank of East Asia (China) has also pulled out of the retail banking business for some of its smaller branches, according to Beijing Business Today.Despite slim profits and a tiny client base, foreign banks set up retail banking branches in China in order to bolster their image, according to the paper.

In the wake of the global financial tsunami, many foreign banks have successively scaled down their global operations and focus on niche markets, according to their respective advantages. In addition, following the outbreak of the European debt crisis, some European banks have further contracted their overseas operations. “The closure of the Huamao branch is not an abrupt decision. We had already decided to terminate our retail banking business two years ago,” said an official of Deutsche Bank China. Before the move, the bank had already made proper arrangements for its customers.

In the future, Deutsche Bank China will continue to engage in the nation’s retail banking market via strategic investment in and cooperation with Beijing-based Hua Xia Bank, in which it owns 19.99% stake. According to the website of Deutsche Bank of China, retail banking is not included in its list of businesses, which include private and commercial banking, private investment management, global market, corporate banking and global trade banking and property loans.

“Due to the consideration of manpower and resources, a bank will not close its branch except for the sake of a business adjustment or unsustainable deficits,” said the president of the retail banking section of a banking company limited by shares. The banker explains that for most foreign banks, retail banking branches are designed mainly to bolster their profile and image in the nation.

A foreign bank manager admitted that most foreign banks in China are still in the red for their retail banking operations. Foreign banks are additionally subject to restrictions absent from their domestic counterparts, in terms of the number of business offices and customer groups. In the uncertainty of whether they can turn around their retail banking operations, many foreign banks decide to forego the business and focus their resources on sectors with a comparative advantage. The retail banking operations of foreign banks in China derive income mainly from interest spread and commissions from wealth management and insurance products.

Filed under Macro Trends

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