Stick to strengths, regional banks urged

Regional banks are advised to strengthen their core business of serving long-term customers and diversify products to survive in an increasingly challenging market, according to a recent report by EY.

There are more than 1,500 regional banks in China, about half in the country based on number and nearly a quarter in terms of assets. They face a market environment that has grown much more complicated since 2013 when fintech began to transform the traditional banking ecosystem, said David Wu, a financial services partner at EY.

The report said that return of equity among regional banks in China dropped to 12.28 percent by the end of 2018 from more than 20 percent in 2013, indicating a decrease in their ability to make a profit. 

“But regional banks have strength in serving some particular customers due to their better network in designated areas, and their closer relations with local customers,” Wu said.

Also, regional banks are most likely to foster smaller firms financially. With such customers doing well, regional banks will have quality customers in the longer run, Wu added.

The report suggested regional banks stick to their core strength and avoid head-on competition with larger banks that are investing heavily in fintech.