Wednesday, April 04, 2007

Canadian Banks Have 'Unique 'Advantages' in China

Financial Post, Duncan Mavin, 4 April 2007

Canada's banks have "unique advantages" over banks from other countries seeking to reap vast rewards from doing retail banking business in China, according to the author of a new report on the fast-developing Chinese financial services sector.

The Canadian banks have a "distinct" lead because they know how to run a retail branch network across a large area, said Don Brean, a professor of finance at the University of Toronto's Joseph L. Rotman School of Business.

"In branch banking and everything associated with it -- marketing or operations or sorting out different divisions -- Canada has a lot of experience and that would serve China very well," Mr. Brean said.

China's household and commercial wealth is estimated at $4.9-trillion.

But the country's retail banking system is inefficient, relies on "archaic" technology and is in need of regulatory reform, according to Mr. Brean's report, compiled on behalf of the Asia Pacific Foundation of Canada.

The Canadian banks are not likely to try to build their own branch networks in China.

They could have more success by selling advice and expertise in some of the technological and back-office aspects of retail banking, such as risk management and credit management, said Mr. Brean.

Some banks in other countries, such as those in the United States, do not have the same history of running large retail branch networks as Canadian banks, he said. U.S. branch banking is still relatively fragmented despite some recent consolidation.

Canada's banks have already made some investments in China.

Bank of Montreal, for instance, was the first Canadian bank to get permission to provide commercial banking services in Beijing in local currency, and also has the right to sell derivative products in China. The bank also has a 28% stake in a Chinese fund manager.

Bank of Nova Scotia and Royal Bank of Canada also have investments in China.

In March, Scotiabank signed an agreement to buy a minority stake in the Bank of Dalian, China's seventh-largest city commercial bank.

But the banks lag Canada's top life insurers in the region, said Mr. Brean.

Manulife Financial Corp. and Sun Life Financial Inc. have both entered into joint ventures with Chinese partners.