BIZCHINA> Review & Analysis
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BIZCHINA> Review & Analysis
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Hopes and concerns for new postal bank
By Shi Weigan (China Daily)
Updated: 2007-01-24 10:24 Judging from the business model in the blueprint for the Postal Savings Bank, there are at least three major problems to be addressed for smooth development. Because of its lack of experience in commercial banking, the bank may not have strong enough capability in risk control. Ever since its establishment, the postal savings system was only allowed to take deposits from individual customers and put them into the central bank. Its one source of profit has been the difference in the interest it receives from the central bank and what it pays its customers. The new bank will have 900 billion yuan ($112.5 billion) at its disposal. To earn profits, it can put this money into the central bank, pump it into the inter bank market or make loans. With the mounting excessive liquidity in the domestic financial market, the first two choices may not be lucrative enough to support the bank. This leaves the new bank with only one option: seeking profit from loans and intermediary business. With CBRC consent, the postal savings system began making loans to individuals and businesses in December 2005 and October 2006 on a pilot basis. The commercial banks did not forge their risk control capability overnight. It will also take quite some time for the Postal Savings Bank to build expertise. As new financial derivatives pop up one after another, the bank does not seem to offer competition to its rivals on this front. The Postal Savings Bank is going to have a business structure similar to commercial banks: four layers from the headquarters to the sub-branches. It is quite a cumbersome structure for a bank with nearly 40,000retailoutlets. This may add extra difficulty to the information management and business operation for a bank specializing in retail and intermediary business. As a fully-owned subsidiary of the China Postal Group, the Postal Savings Bank has a registered capital of 20 billion yuan ($2.5 billion), which is a modest sum for a bank and may pose limits to its future development. Of course, the bank will definitely pose some threats to the business of the Agricultural Bank of China, the Agricultural Development Bank of China and the rural credit cooperatives with its extensive reach into rural areas. The Postal Savings Bank has a long way to go before it can gain a solid foothold in the financial market. The author received his PhD from the Institute of WorldEconomicsand Politics at the Chinese Academy of Social Sciences (China Daily 01/24/2007 page10) (For more biz stories, please visit Industries)
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