Huaxia Bank, which has just signed an investment deal with a foreign consortium, plans to launch a credit card early next year, a manager at the bank told China Daily.

This follows the mid-October news that a consortium made up of Deutsche Bank and private bank Sal Oppenheim jr & Cie KGaA signed an agreement with Huaxia to buy a total of 587.2 million shares.

That amounts to a 14 percent share of the Beijing-based joint stock bank.

"We have been preparing for our credit card launch from as early as this May, and our partner Deutsche Bank has also shown great interest in developing our retail business," said Song Xiaobo, deputy general manager of Huaxia's personal business department.

Subject to regulatory approval, the consortium will purchase the shares from 18 shareholders of Huaxia Bank for 272 million euros (US$329 million). Deutsche Bank will take a 9.9 percent stake, while Sal Oppenheim jr & Cie KGaA will have 4.1 percent.

Teaming up with Deutsche Bank to develop the credit card is part of the wide-ranging cooperation agreement signed with the foreign investors.

"Besides providing a top-notch risk management scheme and a customer credit rating system, Deutsche Bank will be particularly helpful in developing the credit card business because of its rich experience in this area," said Song.

Although Huaxia Bank already has several debit cards, it has not yet ventured into credit cards.

"Tapping into the credit card market is part of our effort to improve our retail banking business," said Song.

The Beijing-based lender has decided to strengthen its personal banking business to improve profitability.

"In the long run, a banker will play the role of service provider. It will make profits from this business rather than the interest rate gap between loans and deposits," said Song.

Credit cards, one of the fastest-growing sectors in China's retail banking business, is attracting growing attention from lenders.

According to a report from consultants McKinsey, China's credit card business has been buoyant over the past two years; the number of credit cards in China has risen to 12 million, up from 3 million at the end of 2003.

"The credit card business will account for around 14 percent of profits in China's banking industry by 2013," predicted Zhang Lemeng, a member of the board of McKinsey.

She forecast that by 2013, credit cards will have become the second largest retail banking service, second only to mortgages, with an annual profit of US$1.6 billion, or 22 percent of combined profits for all retail banking services.

Compared with its counterparts, Huaxia Bank has lagged behind in the credit cards business, but "timing" is not the most critical thing, Song Xiaobo said. "What matters is the feature and profitability of the credit card."

Huaxia will target business people and newly-graduated students "as they have a strong desire for consumption and are more likely to spend," Song explained.

He stressed that target customers for debit cards and credit cards were different.

"A business person with a loan of 500,000 yuan (US$61,728) at Huaxia Bank may be an ideal target for our debit cards, but not for a credit card as they are not as likely to run short of money," Song said.

According to McKinsey's research findings, 90 percent of credit card holders on the Chinese mainland had an annual household income of US$4,000 or more.

Approximately 35 percent live in four big cities; Shanghai, Beijing, Guangzhou and Shenzhen.

Four leading State-owned commercial banks, including the Industrial and Commercial Bank of China, China Construction Bank and Bank of China, claim a 50 percent share of the mainland's credit card market.

(China Daily November 30, 2005)