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Chinese credit cards: Guangdong's confidence should encourage foreign interest

10th March 2006
By Staff Writer

Having broken even in 2004 and become the first Chinese bank to move into the black in the credit card business in 2005, Guangdong Development Bank is hoping to double its earnings in 2006. This first tangible example of profit making coupled with Guangdong's desire to secure a foreign partner is sure to generate significant interest from abroad.

The Shanghai Daily reports that China's 11th largest lender Guangdong Development Bank (GDB) is expecting a 'huge' increase in its credit card earnings in 2006, following what it sees as a pick up in momentum in the credit card sector in China.

The revelation has important implications for foreign banks eyeing the market, as it offers potential investors a lucrative opportunity in a geographical sector where product options are limited. Restrictions on foreign banks entering the Chinese market make it difficult for them to offer anything other than basic banking and loan products.

Like other Chinese banks GDB has some problems with non-performing loans (NPL) and Lu Shifeng, general manager of credit cards at GDB, told the Shanghai Daily that the bank's NPL ratio was almost 2% in 2005. As a result, GDB wants to align with a foreign investor with deep pockets to underpin its standing.

However, apart from a vast customer base, the fact that in credit cards the bank has had fewer problems than in its overall loan portfolio will also interest potential overseas partners. Furthermore, GDB reportedly has 2.8 million credit cards on issue in the market. And after becoming the first Chinese lender to report a profit from the sector in 2005, the bank expects a major surge in revenues this year.

Credit cards are one product that foreign players can get involved in and, in addition to the opportunities that such a large market promises, this news is the most tangible indication yet that the credit card market in China can provide a lucrative return. It is therefore not surprising that Guangdong already has a long list of suitors at its door in the form of foreign banks such as Citigroup and Societe Generale.

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