Suning Plans to Create Private Bank

Suning Commerce Group Co Ltd, a leading home appliance retailer, is planning to apply for permission to launch a private bank to create a financial business, the company said on Wednesday.

No further details have been released by the group about the application for Suning Bank because the company is still preparing more detailed proposals.

"It will be another move by a privately owned enterprise to apply to enter the sector in an attempt to upgrade its company structure after several businessmen in Wenzhou, Zhejiang Province, submitted such a proposal in 2011," said She Minhua, a senior banking analyst at Zhongde Securities Co.

She added that the emergence of privately owned banks wouldn't have a huge effect on the current financial system but would create higher challenges regarding the monitoring and inspection of the fund-raising activities of such institutions.

In 2010, the State Council, China's cabinet, issued an advisory document to encourage and guide the healthy development of private investments by introducing private capital into the world of Chinese finance.

The same year, the China Banking Regulatory Commission also released a document to support private capital entering the banking industry on equal terms with other capital to create an improved environment.

"Certain insiders speculate the first privately owned bank would be approved by the central government by the end of the year, which seems to be quite believable because the financial system is under reform with some expected changes," said She.

On June 19, the State Council held an executive meeting to hold a discussion on how to trial-launch privately run banks and financial agencies totally founded on private capital.

In July 5, another advisory document from the State Council also mentioned the trial plan to encourage private capital to launch privately owned banks.

It seems to be a trend that certain large privately owned Internet companies are trying to enter the financial field by applying for private bank status or setting up small-loan companies, encouraged by the related documents announced by the central government in recent finance-related meetings.

For instance, JD.com, China's leading home appliance online vendor, launched a financial service platform to help suppliers get loans from participating banks.

Alibaba Group Holding Ltd, the leading e-commerce company, is also entering the financial industry with new services by launching Alibaba Small and Micro Financial Services Group to consolidate its online payment and micro-loan businesses.

"No detailed document has been released by the central government on how a privately owned bank will work and with what kind of financial services so it is quite hard to tell how big changes the new category will bring to the current system," said Jin Lin, a senior banking analyst with Shanghai-based Oriental Securities.

Jin added that companies such as Suning, JD.com and Alibaba had noticed that combining financial services with their online platform would provide certain win-win benefits for their businesses and clients from a long-term perspective.

However, no detailed measures have been established to allow private capital into the financial sector in the past two years so it still seems to be very difficult for private capital to make any further moves.

"We submitted our first draft plan in June 2012 in order to help more small and medium-sized enterprises with financial problems and a second plan in June 2013 but we still haven't received any feedback," said Lyu Weiguo, the general manager of the Wenzhou merchants joint investment center, who is also in charge of the application for the privately owned bank proposed by 12 Wenzhou Chambers of Commerce.

Lyu added that it likely would be more possible for larger privately owned companies such as Suning to obtain a license from the central government to launch a private bank because they have more reliable capital to provide regular loans.