Copyright The Asian Banker 2010. All rights reserved 1/104 Copyright The Asian Banker 2011. All...

Copyright The Asian Banker 2010. All rights reserved 1/104 Copyright The Asian Banker 2011. All rights reserved

China International Banking Convention 2011How the Asian Banker evaluates the competition in China’s banking industry today

26th May 2011Beijing


The Retail Banking Working Group is keeping track of retail banking trends

Copyright The Asian Banker 2011. All rights reserved


How we assess the financial services industry in China

Retail Banking Product Awards - Best Wealth Management Product- Best Internet Banking - Best Branch Banking - Best Mobile Phone Banking Application- Best City Bank Branch - Best Provincial Town Bank Branch - Best Mortgage Product - Best Credit Card Product - Best Bancassurance Product - Best SME Product- Best Deposit Product

Technology and Infrastructure Awards - Best Banking Technology - Best Core Banking Implementation- Best Risk & Analytics Project- Best Data Center Initiative- Best E-Banking Project- Best HR Systems Implementation- Best Call Center Project- Best Banking Security System

Risk Management Award

Scope of Financial InstitutionsNational Banks, Joint Stock Banks, City Commercial Banks, Rural Banks, Foreign Banks (overall 96 banks)

Evaluation CriteriaRational and transparent evaluation process based on balanced scorecards

Retail Banking Product Awards Taking stock of innovative products and process improvements

Technology/Infrastructure/Risk AwardsImplementations that make an impact on the business

International Panel of RefereesSupervises and verifies the comprehensive 2 months evaluation exercise of The Asian Banker Research team


Number of customers for the largest banks (million, 2010)

China’s largest bank has more customers than entire financial industries in Asia Pacific


Total Banking Assets of the Financial System ($ trillion, 2010)

China’s financial industry dwarfs other countries by its asset size


Num

ber o

f Bra

nche

s

Number of Branches in Asia Pacific (Ex China and India) Number of Branches in China and India)

China has twice as many branches as India


The evaluation of China’ s retail financial services is based on 10 dimensions

Value of Franchise

Core Deposits

Market Share/Change in Core Deposits

3rd party providers

Financial Performance

Operating Profit (%, $)

Retail Return on Assets (%)

AUM (%, $)

Sustainability Strategy

Clearly Conceptualized Strategy

Excellence Submission

Depth of Reporting (AR)

Portion of Recurrent Income (%)

NIM (bps)

Portion of Fee Income (%)

Cost to Income Ratio (%)

Risk Management

Gross NPL (%)

Net Credit Loss ($)

Classification of Delinquencies

Risk Reporting Structure

Process & Technology

Time to Market

Customer Cycle Times

Straight through Processing

Centralisation of Branch Processes

Automation Levels of Assets/Liabilities Mgmt

Distribution People’s Skill

Portion of Senior Executives with more than 13 years of Experience in the Bank (Retail, IT)

Attrition Rates (Sales, IT)

Budget for Training (% of operational Cost)

Proportion of Self Service Transaction to Total

Branch - Fee Income/Core Deposits

Uptime of ATM (monthly)

Proportion of Active Bill Payment Users (e/banking)

Sales Management

Average Cross Sell (Mass)

Average Cross Sell (Affluent)

Market Share Mortgages

Market Share Credit Cards

Ethical Banking

Published Ethical Service Document

Depth of Social Corporate Responsibility

Scorecard for Best Retail Bank


Ranking StrategyValue of

FranchiseFinancial

PerformanceSustainability

Sales Risk Process

Technology Efficiency

Penetration Efficiency

Distribution Channels

People Skills

Ethical Banking

Total Scores

2009 2010 2011 4.0 4.0 7.0 5.0 5.0 5.0 5.0 5.0 5.0 2.0 47.0

2 1 1 ICBC 2.6 1.4 5.3 2.7 1.4 2.5 2.2 2.0 2.7 1.3 24.1

na 4 2 BOC 2.4 1.2 5.1 2.7 1.7 2.5 1.9 2.2 2.8 1.5 23.9

1 2 3 CMB 2.5 1.3 4.3 2.2 2.2 2.6 3.1 2.6 1.7 1.3 23.6

15 3 4 CCB 1.6 1.0 4.2 2.2 1.2 2.4 2.1 2.0 2.8 1.2 20.8

9 11 5 ABC 0.9 1.6 4.0 2.6 1.0 2.4 1.7 2.1 2.7 0.5 19.5

3 5 6 SPDB 1.6 1.7 2.9 1.5 1.3 1.6 2.4 2.3 2.7 1.3 19.2

6 8 7 BoB 1.3 1.9 2.3 1.3 1.2 1.9 3.0 2.4 3.0 1.0 19.2

7 15 8 BoS 1.4 1.5 3.1 2.0 0.9 2.1 2.1 2.3 2.3 0.5 18.3

16 6 9 CITIC 1.1 1.1 2.5 1.5 1.2 1.8 2.3 2.3 2.5 1.3 17.5

4 7 10 BoCom 0.8 0.6 2.6 1.4 1.2 2.0 2.0 2.2 2.5 1.3 16.6

Average Score Top 10 2.7 1.9 3.4 2.4 2.2 3.6 3.5 3.3 2.3 1.6 26.9

Average Score Chinese banks 1.7 1.2 2.6 1.7 1.7 2.2 2.3 2.4 2.5 0.9 19.3

GAP 1.5 0.6 0.6 0.7 1.0 1.6 1.7 1.2 0.0 0.7 9.6

Areas managed wellSource: Asian Banker Research

Ranking of Chinese Retail Banks 2011

Large scale Chinese banks balance their revenues by diversifying their competencies

Highest GAP to Top 10


The Evaluation Criteria for Internet Banking are based on 6 key dimensions

Financial Performance

Revenue generated Revenue per registered customer Revenue structure Fee income Fee income per customer Fully loaded cost per transaction Cost of an internet banking

transaction to branch transaction

Transactional Strength

Value and volume of transaction (annually)

% contribution to total value and volume of retail transactions

YoY growth of users Number of transactional services

deployed

Sales Strength of Usage

Number of registered users Active users (one transaction

within < 3 months) Active bill payment customers Number of billing institutions Financial tools Participation rate of real time

online support Customer interface Usability

Number of product s offered online

Average product holding for internet banking users compared to non internet banking users

Internal revenue sharing model

Operations and Technology

Straight through processing of product applications and account opening

Level of consolidated view of all customer holdings

Analytics and segmentation CRM connectivity

Security

Scorecard Internet Banking

Security standards and systems Security features deployed Authentication model and

processes Alert features Fraud incidences


Most of the Top 10 players generate significant more revenue from this channel than their peers

Evaluation Scorecard for Internet Banking (2011)

Most of the Top 10 players generate significant more revenue from this channel than their peers

Evaluation Scorecard for Internet Banking (2011)

Country Rank Bank Financial

PerformanceTransactiona

l StrengthSales

Strength of Usage

Operations & Technology

Security Total Score

8 6 8 8 5 5 32

Hong Kong 1 HSBC 6.8 1.8 5.7 3.3 4.5 3.1 25.1

South Africa 2 Absa Bank 6.3 2.6 3.8 4.3 4.4 2.9 24.3

Malaysia 3 Maybank 3.1 2.9 3.1 4.7 3.4 1.9 19.1

Japan 4 Rakuten Bank 7.8 2.6 2.8 1.6 2.5 1.7 19.1

Australia 5 Citibank 3.9 0.6 2.6 3.4 4.5 1.7 16.6

UAE 6 Abu Dhabi Commercial Bank 2.7 0.9 2.5 2.5 3.8 3.6 16.0

China 7 ICBC 1.8 4.1 2.0 3.5 2.1 2.3 15.8

Taiwan 8 Taishin International Bank 3.7 1.0 2.6 3.2 2.7 2.4 15.6

Korea 9 Citibank 1.7 0.7 4.3 2.7 4.3 1.6 15.2

India 10 Citibank 3.2 1.9 2.0 1.6 3.8 2.4 15.0

Saudi Arabia 11 Samba 3.9 1.5 2.2 4.0 2.1 0.9 14.6

Hong Kong 12 Citibank 5.1 1.0 2.2 3.1 0.5 1.7 13.7

Philippines 13Bank of the Philippine Islands 1.8 2.1 2.8 3.2 2.5 0.6 13.0

India 14 ICICI Bank 0.3 1.5 2.6 3.8 2.9 1.5 12.5

Japan 15 HSBC 2.9 0.0 1.8 2.7 3.6 1.3 12.3


Our technology scorecards are based on general and specific criteria

General Criteria Awards Specific Criteria (Core Banking)

Strategy Alignment ROI & Cost Benefit

Delivery of the overall articulated business value Project Size vs Business Size

Project Management Meeting Regulatory Compliance

Project Execution Architecture & Technology

Vendor Strategy/Evaluation

Contract Development Management

Clear Project Management Guidelines

Cost Management

Meeting Quantifiable Targets

Meeting Goals

Risk Mitigation


Foreign banks face an uphill battle in China

Bank Assets Pre-Tax Profita

NPL (%) ROA (%)

HSBC 256,960(e) 1,456 n/a 0.42(e)

Standard Chartered Bank 207,912(e) 482 0.32 0.19(e)

Bank of East Asia 191,760 1,243 0.19 0.49(e)

Bank of Tokyo-Mitsubishi UFJ 123,108(e) 1,724(e) n/a 1.05(e)

DBS 62,459 347 0.78 0.42

BNP Paribas 45,182(e) 253(e) n/a 0.45(e)

The Royal Bank of Scotland 44,843(e) 56(e) n/a 0.10(e)

OCBC Bank 34,000(e) 61(e) 0.20 0.14(e)

JP Morgan Chase 25,562(e) 259(e) n/a 0.81(e)

United Overseas Bank 22,762 126 2.88 0.41

Rank Bank Assets Pre-Tax Profita

NPL (%) ROA (%)

1 ICBCb 13,328,791 164,426 1.08 1.32

2 CCBb 10,706,029 173,470 1.14 1.32

3 BOCb 10,358,958 140,774 1.1 1.14

4 ABCb 10,237,683 34,192 2.51 0.99

5 China Development Bankc 4,951,766 49,364(e) 0.68 0.75(e)

6 Bank of Communicationsd 3,913,473 49,471 1.12 1.10

7 China Merchants Bankd 2,379,333 33,018 0.68 1.15

8 China CITIC Bankd 2,061,233 28,417 0.67 1.13

9Shanghai Pudong Development Bankc 2,009,000(e) 25,098(e) 0.51 1.00(e)

10China Minsheng Banking Corpd 1,806,144 22,755 0.69 1.09

Top 10 Chinese and Foreign Players in China (Ranked by Assets at End 2010 – RMB million)

(a) After NPL provisions. (e) Figures Estimated. ROA was calculated via net income over assets based on the financial figures provided by the banks unaudited figures published on their website. (#) Does not include banks with asset value that is unavailable

(a) After NPL provisions. (e) Figures Estimated. ROA was calculated via net income over assets based on the financial figures provided by the banks unaudited figures published on their website. (#) Does not include banks with asset value that is unavailable.


Chinese banks seek to leverage on a comprehensive product scope, brand and distribution channels

Data management and integration

Continuing internationalisation of Chinese banks and opening of Taiwanese market (interoperability issues)

The rise of foreign players in wealth management and private banking?

Aggressive cross selling and product bundling calling the regulator into action

Banks have to decide which platform and device to utilize in mobile banking

Agility is enabled both by technical solutions and institutional changes

Key Emerging Themes in Retail Financial Services 2010/2011

Asia Pacific China

Institutionalisation of businesses (i.e. process standardisation and operational issues in wealth management and private banking)

Online and mobile phone banking

Growing regionalisation of domestic banks and integration of systems

Foreign banks are pushing the edge in innovation

Consumer protection as regulatory theme in Asia Pacific? (i.e. consumer finance)


Conclusion

The Asian Banker Body of Knowledge will be organised 100% online

The Chinese financial industry differs relative to scale and merits is own approach

Finding suitable benchmarks and peers to compare with

Chinese banks seek to leverage on a comprehensive product scope, brand and distribution channels


END

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