China’s retail banking poised to outgrow corporates as lenders aim for lower cost, better assets
Retail banking enjoys strong growth momentum in China as lenders are gearing up to build up the business with lower funding cost and better assets quality.
China’s retail banking market is on path to become the world’s second largest by 2020, with the industry’s aggregate income growing 10 per cent to 3.2 trillion yuan (US$471 billion) according to a forecast by McKinsey & Co.
Retail banking contributed to 27 per cent of the country’s total banking income last year, up from 22 per cent five years earlier, but still a long way from the international norm of between 40 and 50 per cent. That compels Chinese banks to seek out fresh income sources, especially since corporate banking -- traditionally the biggest revenue contributor -- has been pinched by rising bad loans amid the slowest economic growth in almost three decades, and structural reforms to retire obsolete capacity among state enterprises.
“The coming five to 10 years could be the golden era for China’s retail banking sector as its potential is yet fully tapped despite years of sizzling growth,” McKinsey’s partner Nicole Zhou said in Shanghai.
Leading Chinese banks have already seen the increasing urgency to reshape their retail banking operations to meet the evolving needs of retail clients, and face off competition brought by disruptive internet finance players, McKinsey said.
Micro financing, including small-sum credits extended to small business owners, is rising to become the largest income contributor, accounting for 29 per cent of total retail banking income by 2020, up from 2016’s 23 per cent, the consultant firm said.
That’s followed by wealth management, whose contribution is projected to rise to 27 per cent from 22 per cent in 2016.
