Private Chinese banks to get green light by year-end
Entrepreneurs rush to exploit the business opportunities arising from economic reform
The mainland's first privately owned banks under the tenure of Premier Li Keqiang are expected to emerge as early as the end of this year as private entrepreneurs rush to embrace the opportunities arising from economic restructuring.
Undeterred by a possible threshold of between 500 million yuan (HK$632.52 million) and 1 billion yuan in registered capital and the fact that their business operations will be restricted to the province in which they register, nearly 30 firms across the mainland are applying for bank licences. That is even before detailed rules governing privately owned banks are released by the regulator.
Among them, about 10 companies were expected to get the nod in the next couple of months, said a source close to the banking regulator.
Shares of the applicants have been advancing after the State Council issued a circular encouraging private investment in banks in July. Since August, Nanjing-based Suning Commerce has soared 126 per cent; Beijing Centergate Technologies surged 51 per cent; and Lifan Industry, a Chongqing-based car and motorcycle maker, rallied 33 per cent.
"The enthusiasm is understandable because of banks' hefty profits," said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences. "Such motivations are hazardous as they may lead them to assume higher risk while operating the bank."
While the 16 listed mainland banks contributed half of the profits made by China's more than 2,400 listed companies in the first half, about 95 per cent of bank assets are controlled by the central and local governments. Funding has long been directed towards government-backed companies, with small and medium-sized enterprises (SMEs) badly underfinanced despite their key job creation role in the economy.
In a bid to support China's economic transformation and unleash the potential of SMEs, the government is opening up the banking sector to private companies for the first time since the collapse of the financial empire controlled by Xinjiang Delong Industry in 2004.