Private banks to start on trial basis

Shares surge

By late September, 27 listed companies or their major shareholders had submitted applications to establish private banks, or had revealed plans to do so, and the number of applications continues to rise. Since the start of the year, the State Administration for Industry and Commerce has approved at least nine names for prospective private banks, including Suning Bank, according to China National Radio.

In a statement released on Aug 23, the home appliance retailer Suning Commerce Group said it had submitted an initial plan to establish a private bank, but is still awaiting operational details and government approval. The market obviously sees potential in the idea - shares in the Shenzhen-listed company have surged 81.9 percent in less than three months, from 7.53 yuan on the day before the announcement to 13.7 yuan on Oct 14.

Banking-related shares have also risen sharply during the last two months and are expected to continue advancing over the short term. Shares of Guangzhou KingTeller Technology Co, which manufactures ATMs, surged by the daily 10 percent limit on Oct 8, as investors reacted to news that the company plans to establish a private bank in collaboration with other Guangzhou-based enterprises.

The media and social networking sites have been inundated with speculation that a number of well-known companies, including the e-commerce giant Alibaba Group, and Tencent Holdings Ltd, one of China's biggest Internet companies, had joined the competition to establish their own private banks.

Tencent confirmed that, as a minority shareholder in a financial group seeking a banking license, it will use its online platform and user interface to supplement the group's financial services. However, the company denied that it is planning to apply directly for a banking license, for the time being at least. Alibaba insiders refuted rumors that the group has submitted an application to run a private bank.

"Many companies are interested in setting up banks, mainly because they want to make loans to themselves and their suppliers. The move has a similar effect to getting listed. The only difference is that the companies will raise money by taking deposits rather than issuing shares," said Jin Gang, a former account manager at a joint-stock bank in Guangdong province.

And, of course, the high profits in the banking industry are another major attraction for companies. The four biggest State-owned banks occupied the first four positions in a list of China's 40 most profitable companies in 2013, according to a list released by Fortune China. Industrial and Commercial Bank of China was ranked first with profits of 238.53 billion yuan.

In 2012, the nation's banks realized combined post-tax profits of 1.51 trillion yuan, an increase of 20.7 percent year-on-year. Nearly 65 percent of the Chinese banking industry's income came from net interest, according to the China Banking Regulatory Commission.

The net interest margin - the difference between the interest rates for savings and loans - of Chinese banks is 3 to 3.5 percent for State-owned enterprises and local governments, approximately 10 times higher than the international rate. The margin is even wider for private enterprises, more than 7 percent, according to Larry H.P. Lang, emeritus professor of finance at the Chinese University of Hong Kong.