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. Zeng Gang, an economist at the finance research centre of the China Academy of Social Sciences, said the CBRC wanted the new lender to be like a community bank in the United States, offering loans to individual farmers and not firms. 'But a commercial institution seeks the highest profit. It costs less to lend 100,000 yuan to a company than 10,000 yuan to 10 farmers,' Mr Cai said. 'It is not profitable to operate in remote and thinly populated areas.' So far, only a handful of branches in Xiangyang in Hubei province have been allowed to make loans to individuals, and then only on an experimental basis. Only depositors are eligible for loans, which can amount to up to 90 per cent of their deposits and a maximum of 100,000 yuan. Its other sources of revenue are interest earned on government bonds, the interbank market and lending to large companies. The bank has also made money from funds it has on deposit at the central bank - but that will stop at the end of 2009. The current scheme, though hardly lucrative, is at least a reliable source of income; under a deal struck last year, the central bank pays interest of 1.89 per cent on money deposited with it until August 2003, when it stood at 829 billion yuan. But the interest is being steadily reduced each year. The bank's challenge of becoming viable is made tougher by the fact most of its potential borrowers are among China's poorest people. It is negotiating with China Telecom and China Unicom to sell stakes, though China Post intends to retain at least 51 per cent of the bank's equity. The two firms may want to use the bank's branch network as a sales venue. CBRC regulations published in February say that newly established shareholder-owned banks ought to have foreign strategic investors. But bankers say CPSB is unlikely to draw much foreign interest, at least until it has been up and running for several years.