O2O ven­ture re­veals change sweep­ing banks

China Daily (Hong Kong) - - BUSINESS - By WU YIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

Jiangsu Sun­ing Co Ltd, launched in mid-June, is China’s first pri­vate­sec­tor on­line-to-off­line or O2O bank. It sig­ni­fies one more business model in the boom­ing pri­vate-sec­tor bank­ing seg­ment.

Backed by Chi­nese re­tailer Sun­ing Com­merce Group Co Ltd, Jiangsu Sun­ing goes a step fur­ther than China’s pri­vate banks that were es­tab­lished over the past two years.

More than half of them fo­cus on busi­nesses driven by in­ter­net-based tech­nolo­gies like e-bank­ing. They in­clude Ten­cent-backed WeBank, Alibaba-backed MyBank, Xiaomibacked XW Bank, and Jilin Yil­ian Bank, which is af­fil­i­ated to Chi­nese on-de­mand local ser­vices gi­ant Meituan Dian­ping.

But it is Jiangsu Sun­ing alone that mar­ries tra­di­tional brick-and-mor­tar bank­ing with the dig­i­tal di­men­sion.

By June, more than 17 pri­vate banks were ap­proved by the au­thor­i­ties con­cerned. And 14 of them have started op­er­a­tions al­ready. More pri­vate banks are await­ing ap­provals, ac­cord­ing to the China Bank­ing Reg­u­la­tory Com­mis­sion.

“Many en­trepreneurs are in­spired by the launch of pri­vate banks, and are pre­par­ing to ap­ply to set up more pri­vate banks. In Shang­hai, a pri­vate bank will be set up in Zhang jiang, a high-tech in­dus­trial park. There will be another new bank in 2018,” said Zheng Yang, di­rec­tor of the Shang­hai Municipal Fi­nan­cial Ser­vice Of­fice.

“It is a great and im­por­tant de­ci­sion for the reg­u­la­tors con­cerned to open up the bank­ing sec­tor to pri­vate cap­i­tal. These banks are backed by pri­vate en­ter­prises that un­der­stand the needs of bor­row­ers. They un­der­stand that on­line bank­ing ser­vices will im­prove ef­fi­ciency, usher in in­clu­sive fi­nanc­ing. And in­ter­net-based tech­nolo­gies will also help smaller banks in risk man­age­ment,” said Li.

Xie Qiang, deputy head of Shang­hai Huarui Bank, the first pri­vate bank in the metro, said the bank has

Many en­trepreneurs are ... pre­par­ing to ap­ply to set up more pri­vate banks.” Zheng Yang, di­rec­tor of the Shang­hai Municipal Fi­nan­cial Ser­vice Of­fice

been ap­ply­ing in­ter­net-based tech­nolo­gies to its risk man­age­ment func­tions, which speeds up lend­ing to high-tech star­tups.

The bank launched an on­line fi­nanc­ing sys­tem for high-tech star­tups in Septem­ber last year, en­abling bor­row­ers to ap­ply for loans on­line. The lender is able to ver­ify prospec­tive bor­row­ers’ cre­den­tials, needs and other as­pects like fi­nan­cial ca­pac­ity and growth po­ten­tial, and then de­cide if it is pru­dent to ex­tend a loan.

By the end of last year, the bank had no non-per­form­ing loans at all, said Xie.

Smaller banks in China need to di­ver­sify their busi­nesses and find suit­able niches to spe­cial­ize in, said an­a­lysts.

Over­all, the bank­ing sec­tor’s prof­itabil­ity is un­der pres­sure as the mar­ket is ex­pe­ri­enc­ing a se­ries of delever­ag­ing re­forms for a long-term, healthy and sta­ble de­vel­op­ment.

Liq­uid­ity has also weak­ened among smaller banks and their busi­nesses are im­pacted by shrink­ing mar­gins as fi­nanc­ing costs rise, ac­cord­ing to a re­search note by Moody’s In­vestors Ser­vice.

“For pri­vate banks, it is im­por­tant to grow in dif­fer­en­ti­ated mod­els. The banks can take ad­van­tage of their back­ers’ own re­sources, and can fo­cus on a theme, be it a sup­ply chain fi­nanc­ing for a spe­cific sec­tor, or serv­ing in­dus­tries in a clus­ter within a spe­cific re­gion, or serv­ing a par­tic­u­lar group of clients, such as startup en­trepreneurs,” China Galaxy Se­cu­ri­ties said in a re­search note.

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