China's newest lender has few revenue streams and may find investors scarce
China's newest bank will boast 20 per cent of the country's deposits and 36,000 branches nationwide. And like any self-respecting state-owned bank, it wants a stock market listing. But a closer look may give prospective investors pause. Few of its branches have ever made a loan and it has few profitable lines of business.
Cai Ersheng, vice-chairman of the China Banking Regulatory Commission (CBRC), said on Monday the State Council had approved creating the China Postal Savings Bank (CPSB), seven years after the central bank set off an acrimonious debate by first proposing the idea.
The decision to proceed is part politics and part economics. Financial services in many rural areas are deteriorating as regular lenders shed their largely unprofitable operations. At the same time, China's fast-growing cities have been using rural savings as capital for more profitable urban development. The postal system, which took deposits but made no loans, was a key player in that process.
Ever wary of fomenting rural unrest, the government has been moving to spur development in the countryside, and liberalisation of the postal savings system is a key element in that strategy. In its Number One Document issued on January 21, the Communist Party's central committee called on the postal system to return to the countryside the money it collects and does not use in the cities.
The government also hopes to end its vast subsidies to the postal system. On February 13 this year, it issued rules requiring China Post become an independent, financially self-supporting entity, split into three parts - a regulatory body, the CPSB and a postal service firm.
The bank's immediate challenge will be finding profitable lines of business. From what little has been said so far, it is not clear what they might be. Mr Cai said only that it would offer retail and intermediate services to country- and city-dwellers, complement services offered by other commercial banks and 'support new socialist village construction'. Officials at China Post and CPSB declined comment.