China regulator halts approving city lenders' rural banking proposals

Some analysts believe city lenders are adept at dealing with small clients while others doubt on city lenders’ capacity to provide enough human talent and capital for growth.

China may have to abandon its previously announced three-year plan to improve rural financing as the banking regulator has stopped approving city commercial lenders’ plans for setting up rural banks, the 21st Century Business Herald has learned.

Officials from several local bureaus of the China Banking Regulatory Commission (CBRC) told the 21st Century Business Herald that the move is designed to prevent city commercial banks from expanding outside their provinces of registration in a disguised form after the regulator reportedly forbade interregional expansion by those lenders.

The CBRC has also scrapped its current target of having 1,027 rural banks by the end of 2011 that it said it was planning to sanction under a three-year plan, the officials said.

Last April, the CBRC granted permission to financial companies that own 30 rural financial institutions (rural banks, finance companies or rural credit cooperatives) to set up rural financial holding companies. Prior to those changes, banks were forced to oversee rural business units through locally incorporated entities with separate teams for each unit.

“It [allowing the establishment of a rural financial holding company] is like granting a nationwide banking license with dozens of individual rural banks expanding to nearby villages and towns,” a senior executive from a city lender remarked on Monday. “For a certain time, the business could even be spun off for a separate listing.”

The regulator paved the way for a mini-boom in city lenders’ expansion in March 2010, when it urged its local bureaus not to set any obstacles for city lenders, rural commercial banks and other smaller financial institutions that were planning to set up rural banking networks.

View the full story in Business China.