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BEIJING, Dec. 30 (Xinhua) -- Historically, China's banking sector has been dominated by a few colossal state entities, but the tone has changed and market-oriented private banks are springing up in response to needs that state-owned dinosaurs are simply unable to meet.
Private banks are becoming less of a novelty in China since the first five were approved in 2014. In December this year, the China Banking Regulatory Commission (CBRC) issued licenses to five new private banks. That brings the number of private banks in China to 16, with eight of them having gone into operation.
The CBRC believes that private banks will bring a dash of the diversity and efficiency that China's multitudinous new businesses require and give private capital a bigger say in financial comings and goings. These banks are backed by a wide variety of private companies from a heavy machinery manufacturer to a supermarket chain.
The combined assets of those five pioneers reached 132.9 billion yuan (about 19 billion U.S. dollars) at the end of September. Non-performing loan ratio was kept at 0.54 percent, about one third that of state banks.
The regulator's official Ling Gan believes private banks can be more flexible and offer products unlike those of any state bank.
For example, MYbank, backed by Alibaba, has no branches and exists exclusively online. One of the ways it grants loans is by reviewing Alibaba's big data.
"We use the data in calculating some parameters of our risk-control model and make adjustments accordingly," said Yu Shengfa, president of MYbank.
Many of the 16 offer other kinds of expertise, thanks to the diverse backgrounds of the major shareholders. Zhongguancun Bank, taking its name from Beijing's electronic heartland, one of the new approvals, is 40 percent owned by Yonyou Network Technology and widely expected to focus on tech startups.
SMEs account for around 60 percent of China's GDP and some 80 percent of new jobs, but some are struggling in a more competitive global market. The government has high hopes that private banks can rejuvenate the real economy by pumping badly-needed money into these small businesses. At least one new bank will be set up in China's northeast rustbelt by the end of next June to cater to new businesses taking the place of the old heavy industrial staples.
Regulators will need to control the different kinds of risk associated with these banks: money cannot, for example, be syphoned off to meet shareholders' debts, and confidence in the newcomers needs to be sustained.
Ling said the CBRC will be careful in whom it issues licenses to and will draw up detailed regulations to govern operations. "Only after the current crop of bank are well established will we start approving more," he added.
