There is more than one way for the Industrial and Commercial Bank of China (ICBC), the country's largest state-run lender, to stay atop the industry.

In addition to thinking about approving more loan applications, the bank is pondering off-balance-sheet businesses, the so-called "intermediary" services, which bank officials believe will help the bank dominate the sector.

"We will strive to boost intermediary businesses this year," Jiang Jianqing, head of ICBC, told China Business Weekly.

"We hope the country's fledgling banking card market will become a new source of growth within a decade."

ICBC has more than 100 million individual customers and 8.1 million corporate clients. The bank has about 20,000 branches and 390,000 employees across the country.

Last year, ICBC realized consumer loans worth 407.5 billion yuan (US$49.21 billion). As a result, the bank holds the largest share of China's residential mortgage market.

ICBC teamed last week with American Express Co, the fourth-largest US credit card issuer, to launch a new joint-name card. The product will be aimed at China's outbound travellers.

Although Jiang acknowledged the market for dual-currency cards -- which enable holders to make their payments in renminbi after making foreign currency-denominated purchases -- is small, he was optimistic about the future.

"This partnership will give us the opportunity to cultivate the tremendous potential of the banking card market," Jiang said.

ICBC will issue at least 4 million credit cards bearing the American Express logo over the next 10 years, Jiang said.

American Express, which has established card-issuing partnerships in 90 countries, said it is upbeat about China's market potential.

"China's credit card market is evolving rapidly," said David House, president of American Express Co.

"I am confident about the 4 million number, and I hope we exceed that."

ICBC's extensive network, coupled with American Express's risk management expertise, will guarantee cardholders quick transactions, House said.

China's bank card market has grown briskly over the past five years. The number of cardholders last year almost tripled to 500 million.

China's banking card market, given the nation's population of 1.3 billion, remains small, but will undergo explosive growth within the decade, indicates a recent report by McKinsey & Company, the world's leading management consulting firm.

The industry will generate US$3 billion in annual revenues by 2010, Mckinsey said in its report.

"Currently, our revenues from the banking card business are small, as we have sunk a lot of money into system maintenance, and Chinese customers use their cards infrequently," an ICBC official said.

One-third of the bank-issued cards in China are used for purchases, while two-thirds are used for debit or ATM transactions, the bank said.

The inactive cards, also referred to as "hibernating cards," have cost Chinese banks a lot of money, but have contributed little to banks' revenues.

Chinese banks, in their latest efforts to sweep off unused cards and generate revenues, will soon charge annual fees for the cards.

"We are considering charging a minimum of 10 yuan (US$1.21)," the ICBC official said.

That is the average cost Chinese banks have absorbed per card issued, indicates the Bank Card Department of the People's Bank of China (PBOC), the nation's central bank.

PBOC and the China Banking Regulatory Commission (CBRC), the industry's watchdog, decided early last year that Chinese banks should be allowed to impose such fees, as the practice is common in other countries.

Banking authorities have also allowed banks to collect account maintenance fees from depositors.

ICBC expects its revenues this year from intermediary businesses will exceed 10 billion yuan (US$1.21 billion), 33 percent of which will come from the bank's card issuing business, Jiang said.

The bank last year posted 63.5 billion yuan (US$7.65 billion) in revenues, 7 billion yuan (US$845 million) of which came from intermediary businesses, he said.

Chinese banks, eager to reduce their non-performing loan (NPL) ratios by 3 percent a year, will do everything possible to boost their capital bases, said Ba Shusong, a financial expert with the State Council's Development and Research Center.

"There are only two ways to do that," he said. "One way is to borrow from the public or the government, the other is to generate profits by themselves."

Chinese banks have long been encouraged to focus on issuing loans rather than off-sheet businesses -- which include credit guarantees, financial adversary services and securities underwriting.

"This has constrained Chinese banks' ability to generate profits," Ba said.

(China Business Weekly April 6, 2004)