FOREIGN banks expect to benefit from China’s expansion of financial freedoms even as regulatory challenges persist, according to Ernst & Young.

    “With gradual and successive financial reforms taking place in China, foreign banks are optimistic about their future in China,” Ernst & Young said in a statement in Shanghai yesterday after surveying 38 overseas lenders. Respondents expect a “modest improvement” in their performance over the next three years, the New York-based accounting firm said.

    Foreign lenders are struggling to expand their market share of less than 2 percent in the world’s second-largest economy, where banking assets more than doubled since 2008 to 147 trillion yuan (US$24 trillion) as of Sept. 30.

    Moves last year to increase global use of the yuan, liberalize interest rates and set up a free trade zone in Shanghai may be beneficial to overseas banks, depending on their scope and timing of implementation, Ernst & Young said.

    Foreign lenders see a loosening of controls on interest rates as the key to rebalancing China’s economy, even as the move may have a short-term effect on their profitability.

    Challenges for foreign banks in China include complex regulation, capital and liquidity constraints, skill shortages and tight interest rate margins, the report said. (SD-Agencies)