Foreign banks trim China branch networks as low returns test strategy
Almost two decades after gaining permission to conduct yuan business for local clients, foreign-funded banks are still refining their strategy in China, where the financial sector is dominated by state-owned lenders. While Citi exited its China retail banking business, other foreign banks have continued to close branches and sub-branches, focusing instead on digitalisation, wealth management and…
Nearly two decades after being permitted to provide yuan services to local clients, foreign-owned banks in China are reassessing their approach to the market. Amid increasing profitability challenges, these institutions have been closing branches and sub-branches to concentrate on digitalization, wealth management, and key clientele. Citigroup withdrew from its China retail banking operations, while other foreign banks have followed suit, shuttering branches in Chongqing and Qingdao, as well as a sub-branch in Beijing.
Foreign banks contend with a lack of profitability, with median return on equity at 1.61 percent for 27 locally incorporated institutions, as cited by Jason Bedford, a visiting senior research fellow at the National University of Singapore. This level of return on equity is notably low, falling far below the generally accepted threshold of 10 percent.
The expansion of foreign banks in China remains limited, focusing mainly on assets worth 4.87 trillion yuan (US$727 billion) by the end of 2025, accounting for merely 1.3 percent of the country's total banking industry assets.
Despite the closures, foreign banks continue to emphasize digitalization, wealth management, and core clients as their primary strategies for maintaining a foothold in the Chinese market. Grace Wu, a senior director for financial institutions at Fitch Ratings, views the sub-branch closures as a form of selective network optimization rather than a retreat from the market.
Wu attributes the closures to digitalization's impact on physical presence requirements, particularly in lower-scale locations, and underscores the importance of yuan internationalization and digital payments as strategic priorities for foreign banks in China.
Foreign banks recognize the need to adapt, with an average of 2.1 times the assets under management per private banking client compared to domestic banks. HSBC and Standard Chartered have announced plans to open additional wealth centers across China, while Deutsche Bank maintains its long-term commitment to the country.
Written by urgent.news from South China Morning Post's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
