Private banks get go-ahead

Landmark move will see lenders in Shenzhen, Wenzhou, Tianjin

China has approved the establishment of three private banks, a landmark effort for the government to open up the State-controlled financial market to private investors.

The banks will be based in Shenzhen in Guangdong province, Wenzhou in Zhejiang province and Tianjin.

Once established, they will be subject to the same regulatory rules as their State-owned peers, Yang Liping, director of the banking supervision department II at the China Banking Regulatory Commission, said at a news briefing on Friday.

The lenders will begin drafting corporate strategies and selecting senior managers and board directors before opening officially. They have a maximum of six months from now to prepare for the launch and can apply for a three-month extension of the preparation work before the commission's approval expires, Yang said.

Shao Ke, a researcher at Bank of China's Institute of International Finance, said: "With the approval, the government is sending a signal that the financial market will open further to private capital. If the three lenders run smoothly, they will dismiss the regulator's doubts, increase market competition and reduce high financing costs of domestic companies."

Founders of the private banks pledged that if the lenders go bankrupt, they will repay deposits in full or partially with net assets of their company or the company's controller.

Yang added: "The banking regulator did not mandate founders of the private banks to take unlimited joint liability. They made such a promise voluntarily, which complies with the law. It will help boost public confidence in the private lenders."

The three private banks will differentiate themselves on marketing positioning and development strategy by taking into consideration the advantages of their shareholders and the characteristics of their regions.

The Shenzhen bank will focus on serving individual consumers as well as micro and small enterprises. The Wenzhou lender will target small companies, individually-owned businesses and community residents, while the Tianjin bank will prioritize local corporate banking.

Weng Yifeng, deputy manager of Huafeng Group, one of the founders of the Wenzhou bank, said: "We want to address the capital access problem for private companies. We will start by solving financial problems among micro, small and medium-sized enterprises in Wenzhou."

Internet giant Tencent Holdings is among the founders of the private bank in Shenzhen. The bank has a registered capital of 3 billion yuan ($484 million), with Tencent holding 30 percent of its shares.

Alibaba Group, Tencent's major competitor, has also prepared for the launch of a private lender after both were named on March 11 as pioneers for a trial program to set up five private banks in China. But Alibaba was not on the approval list on Friday.

Yang said the commission is doing research on expanding the trial program to more areas, especially central and western regions.

It is working on a regulatory guideline for private banks and will also specify a special institution to supervise private lenders with a focus on strengthening regulation on related-party transactions, Yang said.