Loan leverage

When 28-year-old Li Shanshan strolled around the Beijing Spring Property Trade Fair in early April, she was surprised to find the booths of several foreign banks.

Although overseas banks were not allowed to provide consumer services to local customers at that time, they have been preparing to begin, especially with mortgage services.

As one of the most lucrative businesses for banks, mortgages not only bring in steady revenue, but also help with ancillary business such as deposits, bankcards and mortgage insurance. It also has comparatively lower risks, in all making mortgages an attractive way to expand consumer business.

After four locally incorporated overseas banks - HSBC, Citibank, Standard Chartered and Bank of East Asia (BEA) - were given the nod to establish domestic deposit and mortgage services on April 23, they complied with the same policies for interest rates and down payments as local banks.

Quality of service then becomes the important element in competition.

"At each step, we will have professional staff to help customers find the right mortgage product and payment terms," a manager with BEA tells China Business Weekly.

Customers of foreign banks are also different from local banks. Due to limited outlets and staff, they mainly target high-end customers and usually join with luxury apartments.

Mortgages are part of the bank's integrated operation rather than an independent department, says Zhang Dandan, spokesperson for HSBC.

"With the addition of mortgage business, we will make our 'premier service' a more comprehensive package for our customers," says Zhang.

HSBC's mortgage services are available in Beijing, Shanghai, Shenzhen, Qingdao, Tianjin and Guangzhou.

Foreign banks' entry into the local mortgage business will have a limited impact on Chinese banks in the short term, says Yao Libao, vice-manager of the individual loan department of Shenzhen Development Bank (Beijing branch).

"Chinese banks' wide outlets and better brand awareness among the local people still give us competitive edges," Yao tells China Business Weekly.

"But foreign banks are more experienced in services and product design, given their long history in the mortgage business."

Li Lulu, deputy director of the financial department of 21st Century, a leading real estate company, shares a similar view.

"For the time being, foreign banks don't show too much competitiveness in the mortgage business," says Li. "It usually takes more time for applicants to get mortgage approval from foreign banks and their charges are a bit more expensive than Chinese banks."

But as the foreign bank model runs more smoothly, they have large growth potential, Li adds.

Some foreign banks are trying to attract more customers by offering favorable terms. Standard Chartered will not ask their customers to pay insurance and attorney fees before the end of June.

"Such a program will help them better understand the market and customers," says Li.

As Chinese banks have more mature operating models for new home mortgages, experts believe foreign banks may have more opportunities in mortgages for home resale.

A staff member with Standard Chartered tells China Business Weekly that the bank is now mostly dealing with mortgages for second-hand homes.

"It is not so easy for foreign banks to run mortgages of new houses, as they are usually linked with loans for property developers," says the staff member.

Foreign banks' entry into the second-hand home mortgage business will expand the size of the cake, but not to a large extent, says Kang Sheng, general manager of Weijia Anjie Houses Loans and Warranty Company.

"But it may lead to a reshuffle in the brokerage market," Kang says.

Statistics show that around 70 percent of local bank mortgage business comes from brokerage companies, even though they are striving to expand into direct channels.

Because foreign banks have limited outlets and staff, they need more help from intermediary companies to reach customers and so strengthen the market share of some brokerage companies.

(China Daily 05/21/2007 page7)