China encourages privately-owned banks, allows more foreign participation

China's banking regulator said on Friday that it will permit the establishment of more privately-owned banks and allow foreign investors to participate in the reform process to help shore up the state-dominated financial sector. The government has taken a series of steps to increase the participation of private capital in the financial sector with the aim of improving services to non-state companies and lessening government liabilities in the banking sector.
"Promoting the development of private banks helps deepen financial system reforms, stimulate the vitality of financial markets and shore up financial institutions," the China Banking Regulatory Commission (CBRC) said in a guidance note for setting up private banks.
"We should treat domestic capital, state-owned capital and overseas capital fairly and equally, and actively encourage qualified private firms to launch private banks," it said. Private investors will also be allowed to buy stakes in the existing banks as the authorities encourage such banks to conduct ownership reforms, it said. CBRC Chairman Shang Fulin said foreign shareholding restrictions in China's domestic banks, however, will not be impacted by the private bank measures. Overseas participation is constrained by existing foreign investment regulations, Shang said at a press conference on Friday. China restricts overseas investment in a domestic lender to no more than 20 percent for a single investor, and to 25 percent for all foreign investment.
China's top banking regulator also said that more than 40 institutions have submitted applications to establish private banks. In its guidance, the CBRC said it will control the pace of setting up new private banks to help ward off potential risks. China's banking regulator last year approved five private banks to launch operations as part of a pilot scheme to channel more loans to small businesses, which continue to struggle to obtain loans.
On Thursday, Alibaba Group-linked Ant Financial Services Group launched MYbank, an Internet lender targeting "affordable" loans of up to 5 million yuan ($805,450) for small and micro enterprises. Tencent Holdings Ltd, the Hong Kong-listed social media group, also was chosen to open an Internet-based bank aimed at serving credit-hungry "little guys". Last week, Bank of Communications Co, the country's fifth-biggest lender, said it would move to introduce more commercially-oriented private shareholding, as part of an ownership reform scheme, the first to be introduced by a state-owned bank during the current round of reforms. CBRC will decide on applications within four months of submission, the guidance said, and private banks should open for business within six months of obtaining a business license.