(China Daily)
Updated: 2007-12-19 14:33

Chinese banks have made considerable progress improving corporate governance and profitability since the domestic banking sector was fully opened to foreign competitors at the end of last year.

However, while applauding their achievements, it is important to remind domestic lenders that most of their successes have yet to be tested by an economic slowdown.

Moreover, their lack of enthusiasm for improving customer service, contrasting sharply with their lust for profits, may seriously undermine their long-term competitiveness against foreign banks rushing into the country.

A year after the country formally opened the banking sector to global competition, Chinese banks have significantly sharpened their competitive edge.

For instance, all Chinese banks will meet the 8 percent capital adequacy ratio requirement this year. Only eight banks had reached that standard at the end of 2003.

Among the 10 most profitable companies listed on the domestic stock market, five are in the banking sector. And the average non-performing loan ratio for the four big State-owned banks is now 3.3 percent, compared with more than 22 percent at the end of 2003.

Such improvements are a testament to their progress in transforming themselves into smart commercial lenders.

Yet, while domestic banks have benefited from the country's robust economic growth this year, they will have to face the challenge of slowed lending growth next year when the government goes all out to prevent overheating and rein in inflation. Aggressive measures to curb the growth of lending will make it much harder to sustain this year's exuberant growth, especially for those banks that still rely heavily on loans for profits.

Another issue that Chinese banks must pay equal attention to is the quality of their customer service. Though they enjoy a scale that foreign competitors have not yet reached, big Chinese banks seem blas about the need to make customers more satisfied with their financial services. They should not take their current competitive advantage for granted.

It may seem like a profitable business strategy for domestic banks to provide services as good as those on offer by foreign competitors for a few high-end clients. But if they continue to ignore public complaints about excessive charges for bare-bones customer services and slowness in responding to customers' needs, domestic banks will risk losing a loyal customer base.