Private banks in the works

The entrance to the headquarters of the China Banking Regulatory Commission in Beijing. [Photo / Provided to China Daily]

Regulatory official says 'major measures needed' to allow private capital into sector

Major measures needed to allow private investors to enter the banking sector, including issuing restricted licenses and requiring contingency plans, were highlighted by a senior official at a forum on Monday.

"Shareholders should cover the risks and receive supervision from authorities, while licenses with restrictions should be issued and a contingency plan will be essential to avoid problems," Yan Qingmin, assistant chairman of the China Banking Regulatory Commission, said at a forum organized by Sina.com.

Yan added that the proportion of private capital in the country's joint-stock banks has jumped from 11 percent in 2002 to the current 42 percent, while the percentage in urban commercial banks has surged from 19 percent in 2002 to 54 percent currently.

Yan said that privately owned banks would be required to have contingency plans and a will to handle crisis situations quickly and effectively to lessen any possible threats to economic stability and to avoid calling on taxpayers to foot the bill if anything goes wrong.

The CBRC hasn't released any further details on the requirements for investors planning to set up private banks.

"We're still working on a detailed document on how to allow private capital into the financial industry," said Zhang Bocheng, an officer at the publicity department of the CBRC.

Zhang added that the requirements that Yan mentioned at the forum are existing principles for the launch of financial institutions, which need to control risks while offering services under certain restrictions.

Meanwhile, experts said that it would be essential to issue restricted licenses for private banks and require them to launch trial projects to lower risks.

"It will be impossible to issue full-bank licenses for privately owned banks," said Sun Lijian, deputy director of the School of Economics at Fudan University.

Sun added that the first privately owned banks in the country will be considered trial projects to see whether private investors are able to directly run financial institutions.

Allowing private investors to launch financial institutions has recently been a focus of the central government after the State Council, China's cabinet, held an executive meeting in the middle of June to discuss trial runs of privately owned banks and of financial agencies totally owned by private investors, the first time that the concept of privately owned banks was mentioned by the central government.

On July 5, an advisory document issued by the State Council also mentioned a trial plan to encourage private investors to launch banks.

"Opening up the financial industry to private capital will solve the financial problems of small and medium-sized enterprises and will eventually boost the national economy," said Sun.

An increasing number of large private companies are rushing to the financial sector, encouraged by the documents released by the central government in recent meetings.

Suning Commerce Group Co Ltd, a major home appliance retailer, said recently it plans to launch Suning Bank.

The establishment of private banks is also seen as positive for small and medium-sized enterprises.