Bank focuses on wealth management biz
By Zhao Renfeng (China Daily)
Updated: 2005-01-06 09:06

The race is hotting up among China's commercial banks to lure lucrative wealth management business to improve their margins, and CITIC Industrial Bank is no stranger to this.

As foreign banks will be granted unlimited access to the domestic market by the end of next year, in line with China's commitments to the World Trade Organization (WTO), the nation's banks are under great pressure to strengthen their value-added services.

A top CITIC official said it is essential for the bank to improve its retail banking business in the next two crucial years, in addition to maintaining its strong presence in the corporate banking sector.

Such are the huge pressures that Chen Xiaoxian, the CITIC Industrial Bank's new president, wishes that China's banks "could have five years to prepare" for the upcoming competition from foreign banks, instead of the actual two.

"But that is beyond our control," Chen told reporters.

The top priority for China's banks is to strengthen themselves "as soon as possible in order to remain competitive after 2007," Chen insisted.

Expert opinion holds that the wealth management market will be an important battlefield where domestic and foreign banks will fight it out.

Targetting the most profitable customer base will be a key component of banks' future strategy. Despite having just a handful of branches in China and less than 20 per cent of the market share, foreign competitors could very quickly get their hands on up to 80 per cent of the market's profits.

It is believed that the wealthiest 20 per cent of the Chinese population holds 80 per cent of the nation's total personal wealth. So banks that are able to attract this wealthy slice of society can grab almost an entire market.

"It is a matter of urgency for us to fully develop the retail banking business," Chen said.

"We have found a great need to look at the opportunities (presented by wealth management) as market potential is rapidly growing."

The bank launched its new wealth management business last week in China's more developed cities.

According to the National Bureau of Statistics, a prosperous section of society has emerged and grown rapidly in recent years.

By the end of 2005, 13 per cent of China's urban families, or 24.5 million households in the nation, will be defined as "middle class," with this proportion set to rise to 25 per cent by 2010.

And according to a survey by the Social Survey Institute of China, wealth management services are very popular among urbanites in China's big cities of Beijing, Shanghai, Tianjin and Guangzhou, where 74 per cent are interested in these services and 41 per cent said that they would definitely purchase wealth management products if possible.

It is estimated that China's wealth management market will grow by an annual rate of 30 per cent over the next 10 years.

Chen said: "Our aim is not to launch a series of dazzling wealth management products, but to set out the concept that our products centre on customers' financial needs."

CITIC has yet to firm up its listing plans, but the market is definitely the best place for the bank to obtain extra capital, said Chen.

Restructuring and centralizing risk management are CITIC's major tasks for this year.

"We have to learn how to create greater scale with less capital," he said.

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