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Banks need competition
2006-04-11
China Daily
Prudence is a virtue for China's banking regulators.
To see through the market-oriented transformation of China's major State banks into ingenious commercial ones, they must be careful enough to promote supervision and competition while avoiding serious fluctuation in the domestic banking market.
However, being cautious should not be an excuse to drag out the introduction of private banks.
Besides high potential business risk and a lack of professional and managerial talents, a vice-chairman of the China Banking Regulatory Commission said on Sunday that the wisdom in granting market access to private banks was done out of concern that there are already enough institutions in the banking sector.
In terms of protecting the interests of depositors and warding off financial risk, such caution and gate-keeping should be deemed necessary. If the market is flooded with too many banks that have to fight for market share at any cost, the country's financial stability will be put at risk.
Yet, the introduction of private banks does not necessarily invite chaos or trouble into the banking sector.
If policy-makers are convinced by the reasoning that foreign competition is good for State banks, they should show more faith in domestic competition.
According to the agreements made upon its entry into the World Trade Organization, China will fully open its banking sector to foreign banks by the end of this year.
By doing so, the country is firmly pressing ahead with its reform of State banks. It is believed that co-operation with foreign banking giants will improve the technology and management of domestic banks, and competition with foreign rivals can force major State banks to learn to stand on their feet.
But the fight for high-end clients against foreign banks is not the only focus of State banks. To secure their leadership in the Chinese market, which is increasingly open and integrated with the international market, State banks must display unique competence in serving all Chinese clients.
Given the lamentable record of State banks as financial service providers, the establishment of more private banks will only help foster a client-first culture among all Chinese banks.
It is reported that some small local private banks have already demonstrated incredible flexibility and competitiveness in meeting local financing demand.
Size does matter in the banking sector. But top global banks are not born as giants, they grow by competing.
Allowing in more private banks, which might be small today, could be crucial to the development of future Chinese banking giants who are competitive even in the international arena.
The banking regulators should concentrate more on ensuring everyone in the market plays by the set rules, but not fix a number on how many of them are entitled to play.
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