City lenders explore new ground

Smaller mainland players want approval to go into lease financing and funds management

PUBLISHED : Monday, 05 November, 2012, 12:00am
UPDATED : Monday, 05 November, 2012, 3:25am

Some local mainland banks are trying to get an edge over the country's Big Four state lenders by expanding into non-banking businesses that are relatively new to the domestic players.

At least eight city commercial banks were working together to draft plans to lobby the mainland's banking regulator to allow them to set up lease financing companies, state media reported.

Industry watchers say the banks are ambitious but face obvious challenges.

The eight banks named in a recent report by the Shanghai-based newspaper China Business News included Bank of Hebei, Longjiang Bank and Hangzhou City Commercial Bank.

Meanwhile, Bank of Beijing and Bank of Shanghai, the two leading players among more than 100 city commercial banks on the mainland, were also planning to set up fund management companies before the end of the year, the newspaper said, citing unnamed sources.

The Big Four banks, all headquartered in Beijing, include Industrial and Commercial Bank of China, the world's biggest bank by market value.

They have all been expanding into non-banking businesses such as funds management and insurance, often through joint ventures with foreign partners.

The four lenders jointly control more than half the mainland's banking business, lending in particular.

For non-banking businesses like funds management, it's a different story - there the Big Four banks don't play leading roles, because they face competition from fund houses that have a much longer history in the investment management business.

"The homogenisation of China's banking industry is severe, so every bank is seeking to expand so as to sustain their business," Zhang Taowei, an associate professor at Tsinghua University's school of economics and management, said.

A spokesman for the Bank of Beijing confirmed that the bank planned to set up a fund management company but he declined to say when the new company would be open for business.

Some analysts said city commercial banks were facing increasing pressure to diversify their revenue mix, as the government's plan to gradually liberalise interest rates would lead to fiercer competition.

Like large mainland banks, smaller banks would likely see a slowdown in the growth of their interest income and profit.

However, as the products of mainland banks become undifferentiated commodities and their services become homogenised, it is not easy for the city commercial banks, the smaller players in the banking industry, to grab a bigger piece of the market pie.

When asked if city commercial banks would be able to compete with their larger counterparts, such as the Big Four banks, Zhang was doubtful.

"City commercial banks don't have any advantages in the lease financing and fund management businesses," he said.