Banking News
- Tough transformation for postal bank
Date: 7-Feb-2007 Sources: (Xinhua Online)
WITH virtually no experience in lending money, China's huge postal savings system faces a steep learning curve as it transforms itself into the nation's fifth-largest bank, analysts say.
China Postal Savings Bank has been given approval by the nation's regulator to start operations, primarily in the countryside, home to 800 million people.
'The bank will prioritize services in rural areas and make it its development strategy,'said Cai Ersheng, vice chairman of the China Banking Regulatory Commission, the industry watchdog.
'This is in order to meet the need of rural development and fill financial service vacuums in the rural areas,'he said.
Analysts believe that it will take up to five years to become a full-fledged commercial bank. But given its size, speculation is already rife it will become a major player in the financial system.
However, transforming itself into a bank means the US$206 billion postal savings service must bid farewell to a cozy arrangement that has kept it virtually insulated from risk.
This arrangement, in effect a State subsidy, allowed the service to transfer all its deposits to the central bank and in return get an interest rate higher than the one paid to the depositors, analysts say.
Post offices in China started postal savings services in 1986 but they could only accept deposits from the public and not offer loans.
Such a lack of business experience may explain why the new bank, with 36,000 outlets mostly in China's vast countryside, has been restricted in its functions, analysts say.
It has so far only been granted a 'limited operation?license, meaning it can only extend small, collateralized loans.
'It is starting from ground zero in terms of building up a credit culture and experience of lending to rural economic activities,'said Nicholas Lardy, a Washington-based senior fellow at the Institute for International Economics.
The bank has been setting up trial points in thirteen provinces, but much remains to be done, said Hong Kong-based analyst May Yan.
'Operating risks linger as substantive staff training is needed ... and the technical system has to be updated as well,'said Yan of rating agency Moody's.
By October 2006, the trial outlets had given out only 550 million yuan (US$70.69 million) in total loans, a small scale operation compared to those of average commercial banks, according to domestic media.
The bank's focus on the countryside has also triggered suspicion in the industry that it might end up competing with Agricultural Bank of China, the nation's No. 4 lender.
But banking watchdog official Cai denied this was the case.
'Currently, I can't see there is such an issue as competition between the postal savings bank and other major commercial banks,'Cai said.
Agricultural Bank of China is shifting its focus towards relatively lucrative areas, while China Postal Savings Bank is keeping a national postal savings network which would not necessarily be lucrative, analysts said.
'The two banks' businesses are quite divergent,'Yan from Moody's said.
'Only 20 percent of loans by Agricultural Bank of China are directly related to agriculture, while China Postal Savings Bank will more or less have to shoulder some policy tasks.'
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