Overseas banks are likely to expand their presence in the Chinese market in the next few years, encouraged by the Chinese government's efforts to open up the banking sector to overseas capital, analysts said on Monday.
The comments came as overseas banks' business is growing fast in China.
According to statistics revealed by Zhang Liang, deputy secretary-general of the China Banking Association, overseas banks' assets in the mainland surged 7.56 percent on a yearly basis as of the end of June 2018, reported the Economic Daily on Monday.
Zhang also disclosed that overseas-based banks had established 41 foreign legal-person banks, 115 branches and 156 agencies in the mainland as of the end of June 2018.
Overseas banks' performance in the mainland market has also constantly improved. According to Zhao Yarui, a senior research fellow at the Financial Research Center under the Bank of Communications, overseas banks had a 0.82 percent return rate on assets in China as of September 30 this year, 0.34 percentage point higher than at the start of the year and 0.36 percentage point higher compared with the beginning of 2017.
"Overall, overseas banks have had relatively fast growth in the mainland market in recent years," Zhao told the Global Times on Monday.
Overseas-based banks are expanding in China, where the government is gradually opening up the financial sector to foreign capital. National initiatives like the Belt and Road initiative (BRI) are providing more business opportunities for overseas banks, experts said.
"In particular, the government's decision to phase out the shareholding ratio for overseas capital will be a stimulus for overseas banks to plan their business expansion, such as setting up wholly owned entities, in the mainland," Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, told the Global Times on Monday.
In November 2017, the Chinese government announced it would ease the 20 percent individual ownership limit and 25 percent aggregate ownership limit for foreign investors' shareholdings in domestic banks. That move also means that foreign-invested banks should be treated equally with Chinese banks in terms of their business scope and other matters, Xi said.
The China Banking and Insurance Regulatory Commission (CBIRC) is also seeking public opinion on a new management guideline on overseas banks, which will continue to push opening-up of the banking sector, the Economic Daily cited a representative from the CBIRC as saying.
"In the long term, opening up the banking sector will broaden the variety of banking and financial institutions in China as well as increase market vitality. In this policy environment, overseas-based banks will accelerate their business development in China," Zhao said.
According to Zhao, many foreign banks have operated for quite some time in China. They are now entering a phase of "intensive cultivation" that will focus their business on the strategic development of the Chinese economy, which could include serving companies related to the BRI.
But experts warned that overseas banks still face challenges in the Chinese market, particularly as the nation undergoes industrial structural transformation.
"The general economic environment currently is not very friendly to domestic companies, and the economics of many Chinese industries are changing very fast. This will add difficulties to the lending activity of overseas banks, which are less familiar with China's conditions compared with domestic banks," Xi told the Global Times, adding that this is also one reason why some smaller foreign banks are hesitant to enter the domestic market.