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5.4.4 Asset quality

Because of the massive NPLs, in 2007, the commercial banks also continued their reform and restructuring, accelerated their write-offs of NPLs to improve their assets quality. 

Figure 4 NPL ratios of Major Commercial Banks

Source: CBRC

In 2007, the NPLs dropped 0.93 percentage point from the NPLs ratio in 2006, however, the quality of assets of Chinese banks remains not achieved ideal. In 2006, the average NPL ratio at the SOCBs had declined to 3.28 percent, in 2002 they were 20.62 percent. If they compare with the top world banks, the NPL ratios below 2 percent, the Chinese banks’ NPL ratios are still high. (Kumiko 2007)

5.4.5 Profitability

The profit of the SOCBs increased after 2004. However, when they compete with the foreign banks, the profitability of them are not strong enough, because they were supported by various tax exemptions in 2004 and 2005. Compare with top world banks. In 2005, the average ratio of ROA of the world’s seven largest banks is 1.05 percent, the top three banks was 1.39 percent, however, the Chinese SOCBs is highest ROA ratio only 0.94 percent. In 2007, the ROA of the banking sector were RMB 446.7 billion, 16.7 percent respectively. The Chinese banks explain they use larger investment in their network infrastructure and technology, so can not easy to reduce the costs. (Kumiko 2007)

5.5 Chapter summary

This chapter analysis the current domestic banking industry is including the measures of the domestic banks’ reform and the domestic banks’ structure and situation have been discussed. Faced the domestic banks become stronger and the open up all financial market, the foreign banks also have some strategies to expand their business. Next chapter will analysis foreign banks in China.

Chapter Six Foreign banks in China

6.1 Introduction

China is the large market, if in this market performance well; it can gain the considerable profits. The foreign investors gradually entry to China use different way invest, especially foreign financial institutions. After China’ WTO accession, foreign banks set many networks in China. Faces the policy broaden and the domestic banks’ accelerate reform. Foreign banks have the opportunities and new challenge in China.

This chapter will review the history of foreign banks in China. Then, analysis the foreign banks entry modes, finally discussed the current situation of foreign banks in China, the distribution, business scope, and consumer group will be discuses.

6.2 History of foreign banks in China

The foreign financial institutions have old history in China, the earliest period is 1840s, after opium war, the foreign financial institutions were first located at treaty ports and in Beijing. From 1949 to 1978, some of foreign banks were withdrawal. Some of the foreign banks were allowed to remain, such as the Hongkong and Shanghai Banking Corporation, the Standard and Chartered Bank. After “open door policy” in 1979, Chinese economy experienced the rapid growth; foreign banks were allowed to open representative offices and branches in China. From 1980s to early 1990s, foreign banks were allowed to open branches in SPZs.

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