Since the long-awaited opening of China’s retail banking sector to overseas financial institutions in December, foreign banks have been lining up to incorporate local entities in the mainland and provide general renminbi banking services to locals.

Most of the new entrants, including multinational giants Citigroup and HSBC, are targeting high net-worth individuals. But one Hong Kong bank is taking a different approach.

The Bank of East Asia, Hong Kong’s largest independent bank, is betting that an early embrace of smaller customers will pay off by building name recognition and a loyal customer base over the long term.

“BEA welcomes all customers in China to open accounts with us,” says Chan Kay-cheung, vice chairman of BEA’s China subsidiary, which started operations in April. “We believe that our customers will grow with the bank in China and later on they will have larger balances.”

BEA has operated branches linked to its Hong Kong banking business since the 1980s, adding to their number and services as allowed by Beijing. It now has 33 offices in China and the new renminbi services for locals come on top of similar services for foreign residents, foreign exchange services and services for commercial customers.

According to a recent online survey by the official China Daily newspaper, 57 per cent of respondents would like to move their money into foreign-owned banks. Until now, all but the wealthiest Chinese have been confined to depositing their money in state-owned banks, which are plagued by long queues and bureaucratic inefficiencies.

Yet most foreign banks entering China are turning away or charging steep fees for would-be account holders with less than Rmb50,000 ($6,500) to deposit, more than the average Chinese college graduate earns in a year. BEA by contrast has set no minimum deposit and will waive monthly fees for balances above Rmb5,000.

As negative real interest rates have pushed more of the country’s estimated $2,200bn in household savings into the stock market, BEA expects its open-door approach will help it to establish a strong foothold in the consumer banking sector. This could help in meeting a December 2011 government deadline to raise the proportion of local currency deposits to loans in its portfolio to 100:75.

“Of course we still target high-net-worth individuals, but China’s economy is still growing at double-digit rates and there is a long way to go in terms of incomes and savings,” Mr Chan says.

Founded in 1918, BEA was the first Chinese-owned bank in Hong Kong, and Mr Chan says it continues to enjoy strategic advantages. “We were there in 1920 and when China opened [up] in 1979 we went back We are a Chinese bank so know the culture. All the general managers in our China branches have at least 10 years.”

The bank posted an impressive net profit growth of 25.1 per cent in 2006, with profits from China operations rising by an even heftier 87 per cent to HK$546m ($70m), equal to 16 per cent of total earnings. “China will be a key area for our future growth,” Mr Chan said.

BEA plans to increase its presence in mainland China to 50 outlets in 18 cities this year as it converts existing representative offices into bank branches, with a target of 100 branches across the country by 2010. HSBC has 36 branches in China, about half of which offer general renminbi services, while Citi has 20 outlets.

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