Will China continue to benefit from Europe's financial turmoil?

Reports say that Chinese banks grabbed a third of global banking profits in 2011 as European banks retrench - but will this last?

ABF: Will China continue to benefit from Europe's financial turmoil? Why or why not?

Oliver Wyman: Jason Ekberg, Consultant
I would say that Chinese banks are in a good liquidity position versus some of their European peers. They have the backing of strong domestic market liquidity. I could imagine that the Chinese banks being in a strong liquidity position shows the ability to increase international position as encouraged by PBoC. Plus the fact is the competition for heavy lending businesses have been decreasing as the European banks retrench. The Chinese are able to fund offshore operations, not to mention that the Chinese banks are increasingly able to repatriate and/or export liquidity between onshore and offshore market. So anywhere there's a strong need for capital. The European banks aren't there, so the Asian banks are settling in.

We published a report on this and it basically said that there are those markets that have excess liquidity which they can use to export liquidity to capture market share and what we know is that in Asia there's only a select number markets, and China is one of them. European banks are retrenching because of the liquidity constraints and the impact of Basel. It's creating a window of opportunity for Asian banks. At the same time, Asian banks are still unclear when they're going to adapt new Basel regulations, if they will at all. So there is a unique window of opportunity. Chinese banks are well-positioned with strong domestic liquidity.

IG Markets: Justin Harper, Head of Research
I think Chinese banks have been fortunate to be in the right place at the right time to capitalise on the weaknesses of European banks. But I think once the Eurozone recovers, European banks will snatch back markets share. Chinese banks are heavily supported by the state and lack the expertise and international know-how to seriously challenge the big European banks in the long-term.