Foreign bank branches line Shanghai's Pudong Avenue. China's policy and regulatory changes, such as interest rate liberalization and renminbi internationalization, will have a dramatic impact on the strategies of foreign banks. Yan Daming / for China Daily

Many institutions likely to move into new areas, emphasize profits

Foreign banks' share of Chinese business will remain at the 2 percent level in 2014 even as they expand into new territory to meet the challenges brought by their Chinese counterparts, industry experts said on Tuesday.

"Foreign banks' market share should remain stable in 2014, hovering at around 2 percent," said Raymond Yung, PwC China financial services leader. "But they will put more emphasis on profitability."

In its latest efforts to deal with growing financial risks, the State Council is said to have approved new rules to strengthen regulation of the shadow bank lending that has helped fuel an explosion in debt starting in 2008.

The regulations include new restrictions on banks' cooperation with trust companies, securities brokerages and other intermediaries that help carry out off-balance-sheet business.

The shadow banking regulations, Yung said, are good news for foreign banks as it plays to their strengths in risk control.

Meanwhile, the banks are considering expanding into new areas, including offering more services to small and medium-sized enterprises, according to the eighth edition of PwC's Foreign Banks in China survey

Other focuses for them include winning mandates from State-owned enterprises that are restructuring and going global, offering rural banking services, pushing inland to follow manufacturing growth, and launching e-banking or other innovative digital and Internet-based services, the PwC survey showed.

A number of banks voiced the need to create more distinctive products, either through attributes or pricing, to provide them with more market opportunities.

Many also discussed plans to develop more fee-based services, particularly in the wealth management and cash management arenas.

"We have noted increased competition among foreign banks, particularly larger private companies and those that are well-placed to consolidate their respective sectors," said Yung.