Tuesday, 29 March 2011

Santander moves into rural China

Santander has announced a joint venture with China Construction Bank to establish a rural bank in China. This is subject to Chinese regulatory approval. It follows similar announcements by HSBC, Standard Chartered and Temansek.

The rural market in China has largely been neglected in terms of banking as the focus has been on urban areas and the more sophisticated and up and coming Chinese consumer. The income gap between rural and urban China has become an increasingly difficult politic issue for the government, so investments that are focussed on rural areas will be looked upon positively. Historically in China uprisings have always begun from the rural areas and the Chinese government is more than aware of this.

Santander with significant experience of providing banking services, including microfinance, in Latin America is very well positioned to be successful in rural China, a less competitive arena than urban China. The traditional Santander branch-based model will play well in this unsophisticated market. Santander has traditionally grown by saturating an area with branches, working on the premise that proximity is the primary reason that customers choose a bank.

For Santander this is a low-risk toe in the Chinese water with plans to open 100 branches over the next three years and taking only a 20% share in the joint venture. Certainly worth watching as Santander rarely makes a bad strategic move.

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