BEIJING - With the last of the five pilot private banks approved to start operation, the market is hoping these newcomers fulfill the role of channeling more loans to small cash-starved businesses.

The Hangzhou-based MYbank was given the nod on Wednesday to open for business, following four others based in affluent cities Shenzhen, Shanghai, Tianjin and Wenzhou.

Focusing on serving small and medium-sized enterprises (SMEs), which are often denied access to bank loans, the first batch of five private banks are pioneering China's pilot scheme to gradually open its closely guarded banking sector. Currently, the sector is dominated by state giants.

Experts believe these private banks have the makings for success, given their low service charges, customer friendliness and integration with the Internet. However, challenges such as a lack of cash and immature industry oversight should not be overlooked.

Niche market

China's first private-run bank, China Minsheng Bank, was founded in 1996 in Beijing. The bank soon made its name and flourished through tailored lending to SMEs. However, the number of private banks failed to grow in China due to concern over systemic risks raised during the Asian financial crisis in 1997.

The demand for more private lenders increased a decade later when years of double-digit growth made China rich enough to withstand risks and carry out necessary financial reforms, while the state banking giants' arrogance towards the SMEs became intolerable.

Better service for SMEs is also justified given their growing importance - they now account for around 60 percent of China's gross domestic product (GDP) and provided 80 percent of of urban jobs.

The government set out to establish more private banks during a key policy meeting in 2013. A pilot scheme to set up more private banks was launched by the China Banking Regulatory Commission early last year.

A batch of five banks were planned, each with at least two private capital providers. More private banks will come into existence following the trial of these five banks.

Shanghai-based conglomerate Fosun Group was behind Huarui Bank while Internet behemoths Alibaba and Tencent had stakes in MYbank and Webank respectively.  

"We'd rather be considered an Internet platform with a banking license (than a traditional bank as such)," said Gu Min, president of Webank.

The approval of a 20,000 yuan ($3,268) to 200,000 yuan loan in his bank only takes a few minutes.