Playing field altered for foreign banks: Survey

Domestic banks have been focusing on this area for some time and will have to adapt to risk-based pricing. This may create competitive advantages for foreign banks with the right skills and focus, according to Yung.

Meanwhile, a number of foreign banks are looking afresh at regional and provincial SOEs.

"This may well create opportunities for banks to work with them in the restructuring of their businesses," Yung added.

China's new leadership has unveiled plans to accelerate financial liberalization measures that offer significant challenges, as well as opportunities, to domestic and foreign financial institutions.

According to an unnamed banker in PwC's survey, future policy and regulatory changes, such as renminbi internationalization and interest rate liberalization, will have a dramatic impact on the strategies of foreign banks.

Interest rate liberalization will increase banks' funding costs and force them to look for new high-margin revenue streams. Many are looking to better-quality SME borrowers, as well as previously overlooked customers from areas like the service sector.

In fact, foreign banks stand to benefit from interest rate liberalization as it plays to their strengths in terms of pricing risks and managing liquidity risk, and it enables them to deploy interest rate risk management products, according to the report.

Foreign banks also see renminbi internationalization as a growth opportunity, as foreign companies increasingly use renmibi for trade settlement and invest the renminbi they receive.

While foreign bank CEOs are broadly optimistic that forthcoming reforms will create opportunities, they remain circumspect about how these policies and regulations will be applied to their banks and whether they will face constraints similar to those that have challenged them in the past, such as lengthy branch and product approval processes.

"Foreign banks with the commitment to make bold decisions and investments - as well as a board and management with the stomach to endure what will likely be a fair level of uncertainty and volatility - will be well-positioned for China's opening economy and financial markets," said Jimmy Leung, PwC China's banking and capital markets leader.