Banks in Shanghai have been racing to diversify their income sources by providing new products and services, shows the first bank regulator's report on innovation.

Both domestic and foreign banks in the financial hub made tremendous progress in product innovation, corporate administration, risk control and process improvement in 2007, the local banking regulator said yesterday in the report.

Rather than being satisfied with the profitable lending business alone, financial institutions in the city are working hard on innovative products to fend off competition for high-income, technology-savvy customers and position themselves for the development of the financial derivatives market, the report said.

On their overall performance, the watchdog said banks in Shanghai maintained the growth momentum in the first three months of this year, with their total assets rising to 4.86 trillion yuan at the end of March, up 3.12 percent from the beginning of 2008.

The outstanding value and ratio of non-performing loans continued to see "double-digit declines" in the first quarter, with the underperforming loan ratio dropping 0.16 percentage point to 1.97 percent on March 31.

Banks in Shanghai are taking the lead in the country on innovation, and their experience and expertise are being copied by banks in other cities.

For a long time, domestic banks in the city were satisfied with meeting the basic needs of customers and were not actively pursuing innovation. But they were spurred into action in 2007, when overseas financial giants began to get local entity status.

The situation changed dramatically as banks, both mainland and overseas, are churning out new products and services on wealth management, e-banking, debit and credit cards, personal consumption loans, derivatives transactions and intermediary businesses.

The outstanding value of personal wealth management products at 31 banks surveyed stood at nearly 90 billion yuan at the end of last year, a surge of 54.4 percent on the previous year.

The lenders' e-banking services attracted about a third of their customers in the past year, with 20.6 million clients as of Dec 31. The transaction volume surged over 90 percent year-on-year to 2.58 trillion yuan.

At the end of 2007, there were 26 trust, finance, car finance, financial leasing and currency brokerage companies in Shanghai, which were all set up as local incorporations.

(China Daily April 29, 2008)