Shifting from primarily servicing larger enterprises to individuals and small business presents Chinese banks with a major challenge.
After several years of seemingly clear sailing for China, bank analysts are now fretting about the nonperforming loans that the 2009 economic stimulus left behind and the proliferation of wealth-management products manufactured by underregulated trust companies. These problems are real, but bank executives face a much bigger longer-term challenge.
Using international benchmarks, China’s historic growth patterns, and our understanding of upcoming reforms, we have developed projections suggesting that the structure of China’s banking market will continue to change at an unprecedented rate as business opportunities shift from large state-owned enterprises to small and midsize businesses and the newly enlarged ranks of middle-class consumers (exhibit). The implications for the business and organizational models of banks, and for the capabilities they’ll need to succeed in this new environment, are profound. Regardless of the impact of the cyclical issues worrying analysts at the moment, the profits of those banks unable to respond to the structural shift in the sector will come under growing pressure.