Evaluating Competition in China's Banking Industry

1. China International Banking Convention 2011 How the Asian Banker evaluates the competition in China’s banking industry today 26th May 2011 Beijing

2. The Retail Banking Working Group is keeping track of retail banking trends

4. How we assess the financial services industry in China Scope of Financial Institutions National Banks, Joint Stock Banks, City Commercial Banks, Rural Banks, Foreign Banks (overall 96 banks) Evaluation Criteria Rational and transparent evaluation process based on balanced scorecards Retail Banking Product Awards Taking stock of innovative products and process improvements Technology/Infrastructure/Risk Awards Implementations that make an impact on the business International Panel of Referees Supervises and verifies the comprehensive 2 months evaluation exercise of The Asian Banker Research team • Retail Banking Product Awards • Best Wealth Management Product- Best Internet Banking - Best Branch Banking - Best Mobile Phone Banking Application- Best City Bank Branch - Best Provincial Town Bank Branch - Best Mortgage Product - Best Credit Card Product - Best Bancassurance Product - Best SME Product- Best Deposit Product • Technology and Infrastructure Awards • - Best Banking Technology - Best Core Banking Implementation- Best Risk & Analytics Project- Best Data Center Initiative- Best E-Banking Project- Best HR Systems Implementation- Best Call Center Project- Best Banking Security System • Risk Management Award

5. China’s largest bank has more customers than entire financial industries in Asia Pacific Number of customers for the largest banks (million, 2010)

6. China’s financial industry dwarfs other countries by its asset size Total Banking Assets of the Financial System ($ trillion, 2010)

7. China has twice as many branches as India Number of Branches in Asia Pacific (Ex China and India) Number of Branches in China and India) Number of Branches

8. The evaluation of China’ s retail financial services is based on 10 dimensions Scorecard for Best Retail Bank Value of Franchise Financial Performance Sustainability Strategy Sales Management • Core Deposits • Market Share/Change in • Core Deposits • 3rd party providers • Operating Profit (%, $) • Retail Return on Assets (%) • AUM (%, $) • Portion of Recurrent Income (%) • NIM (bps) • Portion of Fee Income (%) • Cost to Income Ratio (%) • Clearly Conceptualized Strategy • Excellence Submission • Depth of Reporting (AR) • Average Cross Sell (Mass) • Average Cross Sell (Affluent) • Market Share Mortgages • Market Share Credit Cards Risk Management Process & Technology Distribution People’s Skill Ethical Banking • Gross NPL (%) • Net Credit Loss ($) • Classification of Delinquencies • Risk Reporting Structure • Time to Market • Customer Cycle Times • Straight through Processing • Centralisation of Branch Processes • Automation Levels of Assets/Liabilities Mgmt • Proportion of Self Service Transaction to Total • Branch - Fee Income/Core Deposits • Uptime of ATM (monthly) • Proportion of Active Bill Payment Users (e/banking) • Portion of Senior Executives with more than 13 years of Experience in the Bank (Retail, IT) • Attrition Rates (Sales, IT) • Budget for Training (% of operational Cost) • Published Ethical Service Document • Depth of Social Corporate Responsibility

9. Large scale Chinese banks balance their revenues by diversifying their competencies Ranking of Chinese Retail Banks 2011 Areas managed well Highest GAP to Top 10 Source: Asian Banker Research

10. The Evaluation Criteria for Internet Banking are based on 6 key dimensions Scorecard Internet Banking Financial Performance Transactional Strength Sales Strength of Usage • Revenue generated • Revenue per registered customer • Revenue structure • Fee income • Fee income per customer • Fully loaded cost per transaction • Cost of an internet banking transaction to branch transaction • Value and volume of transaction (annually) • % contribution to total value and volume of retail transactions • YoY growth of users • Number of transactional services deployed • Number of product s offered online • Average product holding for internet banking users compared to non internet banking users • Internal revenue sharing model • Number of registered users • Active users (one transaction within < 3 months) • Active bill payment customers • Number of billing institutions • Financial tools • Participation rate of real time online support • Customer interface • Usability Operations and Technology Security • Security standards and systems • Security features deployed • Authentication model and processes • Alert features • Fraud incidences • Straight through processing of product applications and account opening • Level of consolidated view of all customer holdings • Analytics and segmentation • CRM connectivity

11. Most of the Top 10 players generate significant more revenue from this channel than their peers Evaluation Scorecard for Internet Banking (2011)

12. Our technology scorecards are based on general and specific criteria

13. Foreign banks face an uphill battle in China Top 10 Chinese and Foreign Players in China (Ranked by Assets at End 2010 – RMB million) (a) After NPL provisions. (e) Figures Estimated. ROA was calculated via net income over assets based on the financial figures provided by the banks unaudited figures published on their website. (#) Does not include banks with asset value that is unavailable. (a) After NPL provisions. (e) Figures Estimated. ROA was calculated via net income over assets based on the financial figures provided by the banks unaudited figures published on their website. (#) Does not include banks with asset value that is unavailable

14. Chinese banks seek to leverage on a comprehensive product scope, brand and distribution channels Key Emerging Themes in Retail Financial Services 2010/2011 Asia Pacific China • Data management and integration • Continuing internationalisation of Chinese banks and opening of Taiwanese market (interoperability issues) • The rise of foreign players in wealth management and private banking? • Aggressive cross selling and product bundling calling the regulator into action • Banks have to decide which platform and device to utilize in mobile banking • Agility is enabled both by technical solutions and institutional changes • Institutionalisation of businesses (i.e. process standardisation and operational issues in wealth management and private banking) • Online and mobile phone banking • Growing regionalisation of domestic banks and integration of systems • Foreign banks are pushing the edge in innovation • Consumer protection as regulatory theme in Asia Pacific? (i.e. consumer finance)

15. Conclusion • The Asian Banker Body of Knowledge will be organised 100% online • The Chinese financial industry differs relative to scale and merits is own approach • Finding suitable benchmarks and peers to compare with • Chinese banks seek to leverage on a comprehensive product scope, brand and distribution channels

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