By research team of Research Department of Social Development, DRC

2017-03-13

The establishment and development of private banks on a trial basis have received wide concern from the society. On the basis of field survey results conducted on relevant private banks and local banking regulatory bureaus, this paper puts forward some policy options on how to propel the sustainable development of private banks.

The major regulatory indicators of five private banks’ capital adequacy ratio and provision coverage ratio have all reached the standard. Among them, Minshang Bank in Wenzhou city, Zhejiang province, has achieved profitability. Based on special operation mode, the private banks give play to comparative advantages and utilize Internet technology, data-based information and financial channels expansion to actively explore differentiated business modes. By now, all kinds of business operations have basically following the principles set at the time of their establishment. Corporate governance structure relating to check-and-balance-based ownership structure and affiliated transaction management is in place and supervision and regulation framework has taken initial shape.

Private banks are facing some challenges. 1. With regard to market access, there are restrictions on mobile and online account opening, the number of outlets is limited, channels of debt sources are few and business qualifications are strict. 2. The ongoing regulations are to be fleshed out, targeted risk prevention measures need to be formulated to address issues relating to private banks’ fragmented distribution of clients, 24-hours operation and a high ratio of investment assets, establish an assessment mechanism in light of different development modes and specify the increased supervision measures on major shareholders. 3. Market exit mechanism is incomplete due to the absence of an adequate legal basis. 4. Internal governance including the fulfillment of duties and obligations by independent directors and risk-sharing mechanism relating to major shareholders should be enhanced.

This paper has raised the following policy options. 1. Risk-sharing mechanism should be incorporated into financial legal framework. 2. Market access should be further eased and unnecessary restrictions should be removed. 3. Ongoing supervision system should be consummated. 4. Market exit mechanism should be improved with law enforcement in a fair and equal manner.