China Minsheng Bank is urging Beijing to reduce its shareholdings in mid-sized banks to allow them to be able to lend more to the often-ignored small and medium-sized enterprises (SMEs).
Liu Yonghao, the vice-chairman of Minsheng, the mainland's biggest non-state lender by assets, said in Beijing: "Privately owned lenders offer prompt and commercial-driven funding services, which target the less resourceful SMEs."
Liu, also the chairman of New Hope, the country's biggest private animal-feed firm, said: "Our share price almost doubled in a year, reflecting strong earnings improvement from the niche SME loan market."
The China Banking Regulatory Commission announced last year that private investors would be allowed to acquire stakes in mainland banks through placements, new share subscriptions, equity transfers and mergers and acquisitions after Premier Wen Jiabao pledged to crack down on the "monopoly" of the large state-owned banks, which profit from ample spreads between the interest they pay on the cheap credit they enjoy and the interest they charge borrowers.
Liu, who helped found Minsheng, the only bank to be established on the mainland since 1949 without direct state ownership, said private investors should get bigger rights and holdings in the mid-sized banking market, which would prompt an increase in efficiency and lending to the private sector.
"A government holding in a mid-sized lender of less than 50 per cent would be ideal," he said.
SMEs are the major drivers of mainland employment, accounting for about 70 per cent of the workforce. These companies, scattered over a range of industries, take up about one-third of overall loans and generate 60 per cent of gross domestic product, according to official data.
"A lot of the private firms are under-serviced," Liu said. "Unlike the large state-owned lenders, we have industry-focused bankers to cater to the demand of specific clients and industries, which helps in arranging overseas financing solutions."
Loans to SMEs represent a significant portion of Minsheng's overall loan book. As a result, it could face more earnings fluctuations because small firms are the first ones to topple when economic conditions turn sour.
Liu admitted that mid-sized lenders faced mounting pressures after Beijing began to liberalise its government-set interest rates, but he maintained that there was growth potential for privately held lenders that could compete with state-run lenders through differentiated services.
Since the central government launched a massive credit stimulus in 2008, cheap capital has triggered over-investment, resulting in an overcapacity in many capital-intensive industries such as steel making and railways.
The low returns from these projects have drawn criticism from the public, who blame the government for the proliferation of low-yielding white elephants.
Andrew Batson, an economist at Dragonomics, an independent research consultancy in Beijing, said low government-controlled deposit rates had moved savers into wealth management products, which often offered rates of above 7 per cent.
Minsheng has about 300 billion yuan (HK$374 billion) of outstanding SME loans. The bank manages to maintain a relatively low non-performing loan ratio, thanks to its "one-stop" service, which it says enables it to get to know its clients well.