City commercial banks stand before new frontiers
Reform of the rigid mainland banking sector poses a challenge for state-owned lenders and an opportunity for technology-savvy entrants
Premier Li Keqiang has put a stamp of approval on speeding up reforms of state-dominated financial institutions, interest rate liberalisation, and the free conversion of the mainland's currency - all of which are part of the government's top economic reforms identified for the next few years until 2015.
Given that green light, Huishang Bank, based in eastern Anhui province, aims to raise more than US$1 billion from a listing in Hong Kong this year. The offer will provide a test of whether city commercial banks can differentiate their strategies and present executable merger and acquisitions agendas to take advantage of industry consolidation.
Today's problems in the mainland banking industry are not confined to concerns over capital, liquidity and funding. State-owned banks, which are in favourable positions due to their strong ties with other state-owned enterprises, will need to rethink their strategies in the coming years as the mainland's burgeoning internet sector offers new ways to lure customers and depositors from putting money in the often troublesome and inefficient large banks.
That could prove alarming to smaller players as many rely heavily on external funding.
Household names such as Alibaba and Tencent have started to invade the financial services industry by offering more customer-focused services. Alipay offers an online payment service that is similar to the United States' PayPal, and recent market speculation is that the China Banking Regulatory Commission has approved Tencent's application for a banking licence in Guangdong.
Hangzhou-based Alibaba and Tencent, the Shenzhen-based internet giant which has started commercialising its popular messaging application WeChat in China, have both leveraged their online strengths and sophisticated databases to break into the mainland's antiquated financial services.