Local banks hot on China credit card market
They say Citibank's entry into yuan credit cards will give clear direction
By JOYCE KOH
THE first inroad has been made by a foreign bank into China's credit card market - a development that sets the pace for local banks as they look at ways to enter the mainland's consumer market.
The China Banking Regulatory Commission (CBRC) said yesterday that Citigroup and its local partner Shanghai Pudong Development Bank have received a licence to offer foreign-branded yuan credit cards and Citigroup is setting up a credit card centre on the mainland.
Citigroup, the world's largest financial services company, bought 5 per cent of Shanghai Pudong Development Bank, China's second largest publicly traded lender, at end-2002.
CBRC, which announced new measures to open China's banking sector to foreign banks on Monday, also said yesterday that it is developing rules with the People's Bank of China to allow more overseas banks to issue credit cards in China.
'Chinese customers have a very strong desire to use credit cards,' CBRC's chairman Liu Mingkang said. What are the local banks doing then to satisfy this interest?
For them, Citigroup's move into the Chinese market is significant.
Apart from being described as a 'breakthrough' by Sunny Cheung, managing director and head of consumer banking for DBS Hong Kong, it is seen by UOB as providing a direction on how to proceed in the Chinese card market.
Refering to Chinese regulations that don't allow foreign banks to provide renminbi banking services to Chinese individuals until December 2006, senior vice-president and head of UOB Card Centre Francis Hsu said: 'As it is still a pre-requisite now for foreign banks to tie-up with Chinese banks to issue yuan credit cards in China, this new development helps set a clearer direction to issue a foreign-brand credit card.'
DBS agrees that forming a joint venture with a local partner is one way forward in China's credit card market, but says it hopes to use Hong Kong as a platform to vault into the mainland.
Currently, DBS, with 950,000 credit cards in Hong Kong, is the fourth largest credit card issuer there.
'It is not difficult for us to replicate the operations, infrastructure and systems we have in Hong Kong to China. Besides, for a card business, you need the economies of scale to make it viable,' Mr Cheung said.
OCBC says it prefers to bank on a similar strategy to DBS - that is, to build on operations and capabilities in Singapore and Malaysia, and then transfer these successful business models to China.
But OCBC has not discounted the possibility of partnerships with Chinese banks however.
Mr Cheung said the credit card market in general is particularly attractive because a bank does not need to open a lot of branches to develop the business.
According to an August BT report, Citigroup has about one million of the 4.7 million credit cards in circulation in Malaysia, despite opening only three outlets there.
The attractions of the credit card market in China are huge - US$1.3 trillion in household savings, 1.5 million international credit cards in a market of 1.3 billion people and annual GDP growth of more than 5 per cent.
But there are also potholes along the credit card road. 'Credit cards are the riskiest form of consumer lending and as such, the ability to separate borrowers who are good credit risk from those who are not is pivotal to success,' said Peter Zheng, head of OCBC's group corporate communications.
business-times.asia1.com.sg |
