Private banks in queue for screening

First batch of privately owned lenders may be revealed this month after list of candidates submitted toregulatoras part of reforms

PUBLISHED : Wednesday, 11 December, 2013, 5:05am
UPDATED : Wednesday, 11 December, 2013, 8:56am

A list of privately owned banks has been submitted to the mainland's banking regulator for approval, with the first batch likely to emerge as early as the end of this month.

Local banking regulators have submitted the list to the China Banking Regulatory Commission and are awaiting approval to set up the first lenders under a pilot scheme initiated by Premier Li Keqiang to open the highly concentrated sector wider to private investors, sources said.

"We will see one or two privately owned banks established at the end of this year or early next year," said Professor Guo Tianyong, the head of the banking research centre at the Central University of Finance and Economics.

The CBRC declined to comment on whether it had received a list of banks.

In the middle of this year, the top leadership committed to the wider opening of sectors controlled by state and local governments in a bid to revitalise and rebalance the economy. However, bankers said, the CBRC was reluctant to bring in new players from the private sector.

About 90 per cent of bank assets are controlled by central and local governments. In the 1980s, Beijing allowed private firms to form urban co-operatives, which ended up saddled with bad loans before they were restructured into city commercial banks.

Undeterred by a possible threshold of between 500 million yuan (HK$638 million) and 1 billion yuan in registered capital and a restriction to the province in which they register, about 35 companies across the mainland are applying for bank licences.

Ten were expected to get the nod in the next couple of months, a source close to the banking regulator said.

While the mainland is liberalising in one area to encourage new lenders with private sector-style credit and risk analysis, it is tightening controls in the state-dominated sector, where credit policy has been extremely loose and risk analysis problematic.

The banking regulator began soliciting public opinion yesterday on a new rule governing banks' factoring business, which includes finance secured against a company's outstanding sales invoices or sales ledger.

The rule was aimed to "prevent and contain risks" as banks' factoring business had been developing rapidly, the regulator said, noting that "some banks loosen scrutiny for financing under the guise of factoring finance".

The mainland has been the world's largest exporter since 2009 and revenues from its factoring business topped US$450 billion last year.

"The annual growth of China's factoring business has been an amazing 90 per cent since 2000," China Banking Association vice-chairman Yang Zaiping said.

"It helps exporters and financially supports Chinese companies looking to expand overseas, but has been restrained by the lack of a unified scientific credit rating system upon which banks could evaluate their corporate clients."

Banks should conduct effective due diligence investigations to avoid financing fraud in which companies forge contracts, logistics flows or payments, according to the draft rule. They should also set "reasonable" financing percentages based on firms' track records and industry characteristics.

Mainland regulators at the weekend allowed the trading of negotiable certificates of deposit in a move to free up interest rates.

The biggest banks would begin sales of these instruments this week, Reuters reported.