BIG CELEBRATION: Hong Kong-based Bank of East Asia opens its 100th mainland outlet in Zhangjiang of Pudong, Shanghai, on December 8, 2011, and introduces a special commemorative credit card (CHEN FEI)

After struggling to find solid footing, overseas banks operating in China may finally be hitting their stride, according to the seventh PwC Overseas Banks in China survey released on July 17.

China's 181 overseas banks more than doubled their profits to 16.73 billion yuan ($2.66 billion) in 2011 from 7.78 billion yuan ($1.23 billion) in 2010. Growth was achieved as a result of strong demand for corporate credit from multinationals expanding within China and an increasing number of state-owned and private enterprise customers. Internationalization of the yuan with strong demand in derivative trading with financial institutions and corporate clients also helped drive results.

Despite China's subdued economic outlook and speculation of a soft landing, overseas banks are nonetheless predicting annual revenue growth of 20 percent or more until 2015.

Strong growth

Overseas banks experienced their most profitable year in China in 2011.

In addition to soaring profits, total assets increased 24 percent to 2.15 trillion yuan ($341.3 billion) at the end of 2011. The market share of overseas banks increased to 1.93 percent from 1.83 percent.

This strong result was achieved despite difficulties in their home markets and a less than favorable outlook for Chinese and global economies, said the report.

According to Beijing-based Securities Times, last year overseas banks performed noticeably well in retail business and wealth management via innovation in product lines and an increasing number of outlets.

"Many banks, which established their China offices in 2007 and 2008, focused on staff recruitment and infrastructure. Now that those are in place, it's time to seek a return on the investment," said Charles Chow, PwC China assurance partner.

Standard Chartered PLC's annual report in 2011 showed that consumer banking profit climbed 26 percent to $1.65 billion in 2011. It opened another 19 branches and sub-branches in 2011, expanding its total network to 81 branches in 21 cities. Taken together, Hong Kong, Taiwan and China's mainland delivered profits of $2.1 billion, up 46 percent. Greater China thus represents 25 percent of the group's total income and 31 percent of its total profits.

Hang Seng China recorded encouraging profit growth before tax to HK$482 million as it increased its foothold on the mainland. The business from the mainland contributed 22 percent to the bank's total profit before tax, compared with 15 percent in 2010.

Through focusing on the growing financial needs of target mainland customers with rapidly rising incomes, Hang Seng China's mainland personal banking customer base increased by 21 percent and the enhancement of wealth management services facilitated a 26-percent rise in the number of prestige banking customers in 2011, according to the report released by Hang Seng China.

"The exponential growth in the number of high net-worth individuals in China is leading some overseas banks to renew and develop their retail and wealth-management businesses," said Raymond Yung, PwC China financial service leader.

Overseas banks further benefited from the growing number of global companies entering China and the increase in Chinese firms expanding overseas, said the Securities Times.

According to the Ministry of Commerce, total utilized foreign direct investment reached a new high at $116 billion in 2011, up 9.72 percent compared to the previous year. Chinese companies expanded their overseas presence, and non-financial outward direct investment reached $60.1 billion last year, a rise of 1.8 percent on 2010.

Figures offered by PwC show that overseas banks in China saw their net profits grow by an average of 115.04 percent last year, outpacing the 29.03 percent growth recorded by the country's top five state-owned commercial banks during the same period.

The blistering growth is primarily attributable to an increasing demand for corporate credit from multinationals expanding within China and state-owned firms looking to spread overseas, said Jimmy Leung, PwC's China banking and capital market leader. "To facilitate cross-border settlement, these companies are favoring overseas banks, who have developed their global banking networks better than state-owned ones," said Leung.

"Overseas banks are the only choice for those Chinese companies that expand overseas. Only these banks are capable of dealing with international cash management business—domestic banks are not," said Yung of PwC China.

Citi has launched a "China desk" in eight locations around the world, including three in Africa and one in the Middle East, serving large Chinese clients. "We staff the desk with Mandarin speakers, so that culturally they are very familiar with their customers," said Andrew Au, Chief Executive of Citi China.