Bank of East Asia to issue yuan debit cards

Bank of East Asia will on Tuesday become the first foreign bank to issue yuan-denominated debit cards in mainland China, taking advantage of the recent removal of a key restriction on foreign banks’ retail business in the country.

Hong Kong’s third-biggest bank is expected to be followed within months by Citigroup, HSBC and Standard Chartered, which were among the first batch of banks to apply for the right to start debit card businesses in China.

Foreign banks were allowed to incorporate subsidiaries locally within China last year. This in theory entitled them to the same treatment as their mainland counterparts. However, they still need to seek specific approval before launching new initiatives such as debit cards.

While foreign banks are still not allowed to issue credit cards within China, debit cards are a far more important prize as they are more popular. According to the People’s Bank of China, the central bank, there were 1.4bn debit cards in issue by the end of last year, up 30 per cent from the year before. This compared to just 71.6m credit cards active in China last year.

Cartier Lam, executive vice-president at Bank of East Asia’s China subsidiary, said the bank would issue the debit cards jointly with China UnionPay, the country’s only bankcard network operator.

He said the launch of debit cards would help attract retail banking customers by giving them greater convenience in accessing their deposits. “It will provide a boost to our retail banking business,” he said.

Michael Chan, a Hong Kong-based banking analyst for JPMorgan, said foreign banks were keen to launch debit cards because they need to expand their local deposit base. Foreign banks now fund the loans issued by their Chinese subsidiaries largely using their own capital or by borrowing from the interbank market.

Banking regulations, however, require them to lower their loan to deposit ratio to 75 per cent within the next three to five years. Bank of East Asia’s loan to deposit ratio last year stood at 178 per cent, according to Mr Chan. “Debit cards are going to be a common products for foreign banks in China,” he said.

(FT)