China launched a trial programme for private firms to set up banks

For the first time, the China Banking Regulatory Commission (CBRC) approved a trial program to establish five privately owned banks as the government seeks to ease restrictions on the state-controlled banking industry and also move to liberalize deposit rates in the next two years, as regulators grapple with the rising pressure on the banking sector from a newly booming online finance industry.

• The first batch of the five banks will be opened in the cities of Tianjin, Shanghai, Zhejiang Province and Guangdong Province as a pilot project.
• Ten private companies’ viz. Internet giants Alibaba and Tencent have been selected to take part in the preparation work for setting up the banks.
• Each of the banks will be co-sponsored by at least two private capital providers
• The banks will operate “independently” and will assume responsibility for risks and losses as well as profits.
• The private banks will need to have adequate net capital, a specific business strategy and a mechanism to prevent risks from spreading and to protect depositors’ interests.
• Financial services of private banks will be oriented towards small and micro businesses as well as residential communities.
• No timetable has been given for when they need to be operationally ready.

Note: Alibaba Group is one of the biggest e-commerce companies and Tencent Holdings Ltd is China’s most popular online games provider.

Month: Current Affairs - March, 2014