Editor’s Letter : Don’t look, Leap!

Dear Reader

After going through this months cover story (see page 14), readers might be left with the impression that Western banks are being a little hasty in their headlong rush to gain a slice of the Chinese banking market. After all, while the banking landscape in China looks a whole lot better now than it did a few years back, there are still plenty of enduring wrinkles that have yet to be ironed out. Corruption is still rife, as is the endemic inefficiency fostered by the unwelcome intrusion of party politics into the banking business. And while both the government and the banks themselves have worked hard to deal with Chinas huge non-performing loans problems, there is still a way to go before the situation can truly be described as under control.

So are those banks, which between them are pouring billions of dollars of investment into this immature and risky market, going dangerously far out on a limb? It certainly seems possible that in their determination not to miss out on some sweet profits, some banks might find themselves making investments that quickly turn sour.

Mostly, it is the big global banks that are wading into China, and the fact remains that those big global banks are very, very good at what they do. And, as we see in this years developed market banks awards (see page 34), one of their most remarkable talents is making money. Almost across the board, the banks are turning in sharply increased profits and better returns on investment.

With annual profits produced by the multinational banks now reaching routinely into the billions of dollars, they can certainly afford to take some risks blazing a trail into a new marketparticularly one as large and potentially profitable as China. Of course, with their ever-more advanced risk management techniques, the chances of the banks making a disastrous investment are slimmer than ever.

With competition between the big banks being fiercer than ever, any hesitation could lead to a bank losing out to a more aggressive rival in the great market-share land-grab. So, while leaping with both feet into the murky waters of the Chinese banking market might seem like a wild gamble, not leaping in is probably even more risky.

Until next month,

Dan Keeler