Banking

Corporate banking in China – my crystal ball grows cloudy

Corporate banking in China – my crystal ball grows cloudy. Image CC
Written by Patricia Hines

Despite weathering the global financial crisis, can China’s corporate banking sector survive current stock market shocks? Story by Patricia Hines.

I’m in the midst of writing a Celent research report on how corporate banking is faring amid increasing economic, regulatory, competitive, and technology headwinds. Part of my research includes looking at the performance of 20 of the top global banks over the past 10 years. Four of these banks are headquartered in China, a country currently struggling with a government-directed transition to a ‘new normal’ characterized by a shift to a ‘real economy’.

Perusing Chinese banks’ 2014 annual reports, in early 2015 the banks were looking forward to continued acceleration of growth in a stable and healthy environment. What a difference a few months make! China’s economy traditionally depended on expanding exports and massive infrastructure spending, yet China’s move to a services-based economy built on an expanding middle class and private entrepreneurship is proving challenging.

Looking back at the past 10 years, China grew to be the largest exporting nation, with $2.3tn in exports and a CAGR of 15%, the fastest growth rate among top exporting countries. China also weathered the global financial crisis dramatically better than the rest of the world, with its GDP growth rate only dipping to 9% at the same time as world output contracted by 0.5%.

China GDP growth

China’s growth into a global economic powerhouse and its resilience during the financial crisis contributed to a nearly 20% CAGR for corporate banking operating income across the top four banks, from 2004 to 2014. Similarly, these banks enjoyed a 17% CAGR for corporate banking customer deposits.

Corporate banking income and deposits in China.

Even as China’s economic growth decelerates, the IMF estimates that it will continue to outperform advanced economies. For the corporate banking sector, small-to-medium enterprises are expanding, increasing their need for more sophisticated trade and treasury banking products. This presents an opportunity for global and regional banks to expand transaction services, broadening the options available to corporations doing business in the region.

What remains to be seen in my cloudy crystal ball is how China’s corporate banking sector (and its client base) weathers the current stock market shocks. Will China be able to grow its ‘real economy’ into a ‘new normal’, or will China finally experience its own financial crisis with a severely contracting GDP and bursting economic bubble?

This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.

About the author

Patricia Hines

Patricia Hines is a senior analyst with Celent’s Banking practice. Her areas of research include global transaction services and wholesale banking, with emphasis on treasury and cash management, corporate banking delivery channels, and trade and supply chain finance, along with commercial and small business lending.

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