Foreign banks see huge rise in profit

Foreign banks in China outperformed their domestic peers by a number of metrics in 2011, with their combined profits more than double the previous year, said a report released by consulting firm KPMG Wednesday.

While still modest as a percentage of total banking assets in China, assets of foreign banks in China accounted for 1.95 percent of total banking assets in 2011, compared with 1.87 percent in 2010, the report said.

Asset of foreign banks grew 24 percent in 2011, outpacing the 18 percent average growth of the overall sector, the report said.

Net profit surged 109 percent in 2011 from the previous year while interest income and non-interest income rose 57 percent and 27 percent respectively, it said.

"While there is variance from bank to bank, in terms of the business model, what is clear is that most foreign banks did well last year and saw profits reach record levels," Simon Gleave, regional head of financial services at KPMG, said in a statement.

Gleave attributed the strong performance of foreign banks to their substantial growth of net interest income as well as increases in their bond and foreign exchange trading.

"Foreign banks have also been actively providing products and services for local Chinese enterprises in relation to their increasing outbound investments and overseas expansion," he said.

KPMG's report covered the financial information of 33 of the total of 37 foreign banks that incorporated in China by the end of 2011.

"China's economy grew robustly in the past few years and the number of wealthy people whom foreign banks largely targeted was also increasing fast. Foreign banks were able to benefit from the boom given their low asset base," Zhao Xijun, deputy dean of the School of Finance at Renmin University of China, told the Global Times.

"The central bank implemented a monetary tightening policy last year to fight inflation and gave limited lending quotas to domestic banks, prompting the interest rate to rise," Song Guoliang, a finance professor at the University of International Business and Economics, told the Global Times.

"The central bank's control over lending by foreign banks in China was relatively loose, and with the higher cost of private lending last year, it was easier to get loans from foreign banks who were thus able to charge more and profit more last year," he said.

However, analysts expected a decline in earnings for foreign banks in China this year amid the economic slowdown.

"Foreign banks that lent more and saw their assets grow most last year may face greater pressure from non-performing loans as the economy slows," Zhao from Renmin University of China said.