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Banking & Finance

China to allow fully private banks

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  © Reuters

BEIJING -- Private businesses will be allowed to own Chinese banks in their entirety after a regulatory commission repeals restrictions on investing in new institutions.

     "State-run enterprises, private-sector companies and foreign businesses looking to establish new banks will be considered equally and fairly" after all regulations limiting private-sector funding are repealed, commission head Shang Fulin announced Friday.

     The commission aims to build up lending to small and midsize businesses and the agricultural sector, which have had trouble finding funding in the past. It will also give the green light to Internet-based transactions, consumer loans and other financial services. Loosening restrictions in the financial sector will prop up the slowing economy, the government hopes.

     Five pilot banks established with private investment have been approved since July 2014. Most previous recipients of private capital were small to midsize local banks and credit associations linked to village agricultural cooperatives. All got additional capital from state-run banks and regional governments. Other restrictions also bound them, with the central and regional governments holding essentially all authority over personnel-related matters.

     State-owned megabanks dominate the banking sphere in China, supplying the bulk of its lending from their ample coffers. And the banks tend to lend to such low-risk borrowers as their compatriot state-owned enterprises. Interest rates and loan conditions among major banks are nearly indistinguishable, and the oligopoly is dragging on the economy.

     Getting rid of existing restrictions will promote the proliferation of privately funded banks and is expected to enable the sector to better respond to customer needs and demands.

     Shang set two conditions for private enterprises looking to become shareholders in new, completely private banks: three prior years of profits, and a 30%-plus ratio of net worth to total assets. The commission intends to complete application reviews within four months of submission, down from the current six. "More than 40 companies have already applied and are currently under consideration," Shang said.

     Shang stressed equal treatment of all applicants but also said that "foreign capital will be considered according to a specific set of policies." It is not yet clear what degree of freedom will be allowed for foreign investment or management.

     The first privately funded pilot bank is WeBank, opened this January in the southern Chinese city of Shenzhen, Guangdong Province. It is 30%-owned by Tencent Holdings, the company behind the WeChat messaging app, and specializes in online business. The bank aims to work with Tencent to broaden lending to consumers in order to reap synergies.

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