Citibank heeds Beijing call for foreign lenders to set up rural arms
Citibank is planning to set up a loan company in rural China as foreign lenders heed Beijing's call to provide better financial services for the country's estimated 800 million rural residents.
The United States bank is taking advantage of a pilot scheme designed to bring a fresh stream of credit to rural communities, said Zang Jingfan, director of co-operative finance at the China Banking Regulatory Commission, at a press conference in Beijing yesterday.
Mr Zang also said Grameen Trust, a Bangladeshi microcredit company, would lend technical support to new rural banks.
'Citi supports China's commitment to accelerate the development of financial services in its rural economy, and confirms it is in discussions with the CBRC in regard to establishing a presence in China's rural market,' a Citigroup spokesman said, without giving further details.
The banking regulator relaxed banking rules in rural areas last December, encouraging investors to set up locally based banks, loan companies and credit co-operatives in six pilot provinces.
Announcing an expansion of the scheme to all 31 provinces earlier this month, the regulator said the reforms were designed to 'solve the lack of banking coverage, shortage of financial provision and insufficient competition in rural areas'.
Citibank is the second major foreign lender to open a rural arm after HSBC Holdings which launched HSBC Rural Bank in Hubei province's Suizhou city in August.
'The rural areas in China are very underbanked. Although there are credit risks involved, it's really a matter of selecting the right place and the right products,' said Charlene Chu, a banking analyst at Fitch Ratings.
Foreign lenders remain under strict government control and some analysts have suggested that political motivations may help explain why they are jumping into the risky rural market. Improving the lives of the rural poor has been a recurrent theme throughout Hu Jintao's presidency. '[However], foreign banks will have done their due diligence carefully and wouldn't make investments if they didn't see a viable business opportunity,' Ms Chu said.
Rural communities have traditionally been served by the Agricultural Bank of China which is undergoing a drawn-out restructuring process and rural credit co-operatives, many of which are insolvent.
So far 23 new rural financial institutions have been established, three have won regulatory approval and five are awaiting the regulator's nod.
