The rise of privately owned mainland banks may increase risks in the sector unless international standards of regulation and enforcement are in place, warns a specialist in bank investing and restructuring.
The alarm bells were sounded by Shan Weijian, managing director of United States investment firm Newbridge Capital, which recently bought 20 per cent of medium-sized lender Shenzhen Development Bank. Newbridge will have management control of the bank despite its relatively small stake.
Regulators on the mainland have raised concerns about private ownership of banks. This has impeded the development of private banks as an alternative to the state-owned lenders.
In September, Beijing reversed its policy and allowed banks to be established with private capital.
That opened the floodgates to private investors in Chongqing and Wenzhou cities, which are vying for the title of the country's first exclusively private bank. The mainland has several partly private banks, including China Minsheng Bank.
Mr Shan told the South China Morning Post the key worry about allowing ownership by private entrepreneurs and businesses was the lack of regulation and enforcement against potential conflicts of interest between major shareholders and their banks.