With the gradual relaxation of restrictions on foreign banks, since 2007, the corporatization of foreign banks has become a trend and the main business form in China. According to incomplete statistics, 365,438+0 foreign banks were transformed from branches to locally registered corporate banks. In recent years, the number of wholly foreign-owned banks with legal personality has increased steadily.

By the end of 1 quarter in 2020, foreign banks had established 4 corporate banks, 5 bank branches, 49 representative offices and 975 business institutions (including head offices, branches and sub-branches) in China. Foreign-funded banking institutions in China are already globally representative. Among the global systemically important banks (20 19) published by the Bank for International Settlements, 14 have set up foreign-funded corporate banks in China, and the rest have set up branches or representative offices. At the end of 20 19, the scale of assets operated by foreign banks in China reached 4.5 trillion yuan, nearly twice that of the end of 201/kloc-0. The number of foreign-funded banking institutions and the absolute scale of assets have increased substantially.

But in terms of relative scale, the development of foreign banks in China is not so successful. According to the statistical quarterly report of the People's Bank of China, the assets of foreign banks accounted for 2.4% at the end of 2007, and decreased to 65,438+0.6% at the end of 2065,438+09. Moreover, the profitability of foreign banks is relatively low. According to official website data of China Banking Regulatory Commission, ROA of foreign banks was 0.63% in the fourth quarter of 2065438+2009, which was lower than that of city commercial banks and obviously lower than that of rural commercial banks, joint-stock banks, private banks and large commercial banks.

It can be seen that the business scale of foreign banks in China is relatively small, but it is not small and beautiful, but small and impossible. This brings us back to the question raised before this column: Are the challenges faced by foreign-funded institutions in China unfair or unacceptable? Taking foreign banks as an example, our survey reveals the following analytical perspectives:

Debt end: the source of deposits of foreign banks is limited, while the interbank lending market is costly.

It is difficult for foreign banks to obtain low-cost household savings like Chinese banks. According to the statistical quarterly report of China People's Bank in the fourth quarter of 2065438+2009, personal deposits only account for 3% of the total liabilities of foreign banks, far lower than those of rural credit cooperatives (57.5%) and large Chinese banks (33.4%).

For a long time, there has been a lower limit of 6,543,800 yuan for foreign bank branches to absorb China residents' time deposits. 20 19+ 19 The Regulation on the Administration of Foreign-funded Banks issued on June 5 reduced this lower limit to 500,000 yuan, but it is still an explicit constraint on foreign-funded branches (excluding foreign-funded corporate banks).

However, the limited development of foreign banks is also related to the acclimatization to some extent. On the one hand, foreign banks have relatively few branches, high investment cost, long payback period and few branches, which makes it difficult to form a network effect. On the other hand, except for a few foreign banks that can easily attract local customers when they enter the market by virtue of the international influence of their parent banks, most other foreign banks mainly serve their local customers in China. These factors make the personal deposit business of foreign banks develop slowly.

In addition, the developed economies where the parent banks of foreign banks are located have developed financial markets and a high degree of marketization in capital pricing, so their sources of funds mainly rely on interbank lending, with less retail business and less physical network layout. However, the interbank lending market in China is immature, and the benchmark interest rate and its interest rate corridor are in the stage of development and construction. Neither Shibor (Shanghai Interbank Offered Rate) nor DR007 (7-day repo rate pledged by deposit-type inter-agency interest rate bonds) can be used as the benchmark interest rate in China in terms of lending scale and frequency. This also causes foreign banks to face higher capital costs, limited sources of funds, and it is difficult to expand their business scale.

Why are foreign banks "smaller, worse"?

Note: Figures in brackets indicate the classification of obstacles. Please refer to the second part of the column series for specific meaning.

Asset side: Foreign banks missed the period of rapid expansion of China's financial market.

In the commercial banking system, the proportion of assets of foreign banks once rose from zero to 2.4% in 2007. Since then, China's real estate market, local government financing platform and shadow banking have expanded rapidly. Domestic banks have taken advantage of the trend, expanded their scale and even formed certain financial risks. However, due to strict compliance and internal constraints, foreign banks rarely participate in these businesses and miss a window of development. On the eve of deleveraging in 20 16, the proportion of assets of foreign banks once fell from a high point to 1.4%. In fact, in 20 16 years, compared with 2007, the assets of foreign banks increased by 156%, which still made great progress. However, during the same period, the assets of Chinese banks expanded faster, with a growth rate of 334%, so the proportion of assets of foreign banks declined.

After 20 17, China began to reshape and strengthen financial supervision. While some domestic financial institutions are facing the pressure of risk prevention and deleveraging, the strict risk control and compliance management of foreign banks have gradually changed from disadvantages to advantages. The regulatory environment faced by foreign banks has also become more neutral. After 20 17, the proportion of assets of foreign banks has rebounded to some extent. At the same time, thanks to stricter compliance, the non-performing rate of foreign banks has also remained at a low level. According to the data of CBRC at the end of 20 19, the NPL ratio of foreign banks is only 0.67%, which is lower than the overall NPL ratio of commercial banks (1.86%) and the ratio of other banking institutions. After the outbreak of the epidemic in 2020, the data as of the third quarter showed that the NPL ratio of foreign banks was stable at 0.67%.

Intermediary business: market access factors make the competitive advantage of foreign banks not fully exerted.

Intermediary business is the competitive advantage of foreign banks, but its development is also facing constraints. In fact, the proportion of assets of foreign banks in commercial banks (1.6% 20 19) is even significantly higher than the proportion of profits in the same period (1. 1%). This shows that the advantages of intermediary business of foreign banks have not been fully exerted. Generally speaking, the intermediary business of foreign banks is mainly restricted by the following aspects:

China's national debt and foreign exchange derivatives market is immature, which restricts the development of related intermediary business. Bond investment lacks pricing benchmark and price discovery tools, so it is difficult to hedge risks with derivatives. In addition, the pilot and access of some derivatives markets also have certain restrictions on foreign investment. At present, the pilot of treasury bond futures trading does not include foreign capital. At the same time, the "real need" supervision of foreign exchange derivatives lacks flexibility. From the point of view of enterprises and banks, when managing the annual exchange rate risk, such strategies may be adopted: 1/3 settles now, 1/3 locks the risk through foreign exchange forward, and the remaining 1/3 is allowed to float, so it is impossible to report accurate "real demand" data. However, foreign exchange management requires one-by-one write-off according to "actual needs", which also hinders the implementation of a package of hedging plans.

In terms of business access, it is difficult for foreign banks to obtain the qualification of bond lead underwriter. In the survey, some foreign-funded institutions indicated that they have rich experience in overseas bond business, and the scale of bond issuance and trading is considerable. However, these institutions have not yet obtained the qualification of Class A lead underwriter. If we only look at the conditions of domestic and foreign corporate banks, it is really difficult to win in terms of asset scale, customer network and other indicators. However, in recent years, the relevant qualification standards have been adjusted, and the advantages of foreign-funded parent banks have also been partially considered. 2065438+September 2009, Deutsche Bank (China) and BNP Paribas (China) obtained the first batch of Class A underwriting qualifications in the inter-bank bond market. However, at present, the three major chambers of commerce in Europe, America and Japan still have strong demands in this regard.

In addition, foreign banks have a high degree of internationalization, have resource advantages in overseas markets, have richer international business experience and a wider international customer network. However, the incomplete convertibility of capital financial accounts also limits foreign banks to carry out intermediary business through this channel.

To sum up, the difficulties faced by foreign banks are caused by acclimatization and unfair treatment to some extent. Specifically:

In terms of unfair treatment, China has implemented pre-entry national treatment and negative list management for foreign-funded enterprises this year. Generally speaking, especially in terms of institutional access, foreign banks have basically received the same treatment as Chinese banks. However, after obtaining institutional access, foreign banks still face practical difficulties in obtaining business licenses and permits. It should be noted that the negative list and the licensing system are not contradictory. The negative list means that foreign capital can enter areas that are not prohibited, while the license means that entry must be approved by the regulatory authorities. The two are not contradictory. It's like driving with a driver's license.

However, foreign-funded institutions generally believe that in the process of formulating some qualification standards, their participation is low, which leads to the qualification standards tilting towards Chinese-funded institutions. In this regard, the key demands of foreign banks include: the qualification of lead underwriter of inter-bank bonds, the access conditions of bond repurchase market, the qualification of "bond connect" market makers in the onshore market, the pilot and access qualifications of derivatives such as treasury bonds futures, and so on. In recent years, the financial regulatory authorities have paid more and more attention to the demands of foreign-funded institutions and gradually improved the market access standards. The situation in some of the above areas has changed.

At the same time, foreign banks are also facing the problem of acclimatization and need their efforts to adapt. As a new entrant, the cost of establishing new outlets is high, and it is difficult for foreign banks to obtain a large number of low-cost household savings, which restricts the expansion of foreign banks' capital sources and business scale. But this problem has its own market logic, which requires foreign banks to adapt through their own efforts. In this regard, some foreign banks have set up R&D departments in China to actively participate in innovation in the field of financial technology. With the development of financial technology, the role of physical outlets of banks has declined, and the disadvantages of foreign banks in the layout of outlets may be transformed into advantages with lighter historical burdens.

There are still some unaccustomed problems, which are related to the imperfect financial supervision system in the past. In the past, foreign banks missed the rapid expansion of China's financial market, which was not only due to the strict compliance of foreign banks and their particularity of not adapting to the China market, but also related to the imperfect financial supervision system to some extent. Since 20 18, China has attached great importance to preventing systemic financial risks and strengthening the construction of financial supervision system. In this context, the financial supervision system of foreign banks has become more neutral. With the further improvement of China's financial supervision system, the strict compliance and internal management of foreign banks will, to a certain extent, turn disadvantages into advantages.

There are also some symptoms of acclimatization, which are related to the imperfect financial supervision and immature financial market, and put forward higher requirements for China's financial reform. For example, the immature interbank lending market limits the sources of funds for foreign banks and increases the cost of funds. The immaturity of derivatives market and the real demand principle of foreign exchange derivatives restrict the development of intermediary business of foreign banks and the risk hedging operation of cross-border investment. The incomplete convertibility of capital financial accounts also makes it difficult for foreign banks to play their international business advantages. In addition, the domestic accounting and auditing rules are not in line with the international system, which also significantly increases the business docking cost of foreign financial institutions. In fact, banks and financial institutions in China are also facing many of the above problems. These problems are also the direction of further deepening the reform of China's financial market.

Reflecting on the original intention of China's financial opening, as a high savings economy, China itself is not short of capital in quantity. Therefore, the purpose of introducing foreign banks is to take advantage of their comparative advantages. From this point of view, we should give full play to the comparative advantages of foreign banks, promote the further improvement of China's financial market structure, make it better serve the real economy, and make the above process sustainable through the benign development of foreign banking business. In this process, financial reform and financial opening must be promoted at the same time.