Tencent’s ship came in last Friday. That was the day China gave the go-ahead for three private banks, including tech giant Tencent’s Webank.
Banking on Tencent’s edge, Webank will focus on internet-based services for individuals and small businesses.
The country’s big lenders now give the bulk of their attention to large state-owned corporates, making it very difficult for small and micro-enterprises to get loans. With this in mind, regulators decided to open up the field for private investors.
As Tsinghua University economist Li Daokui explains, private banks should provide loans to entities like hairdressers, restaurants and fruit stores, in the same way that community banks do in the United States.
It’s worth noting that Tencent will have a 30 percent stake in Webank, above the 20 percent maximum that any one investor can now hold in a commercial bank. The breakthrough means that Tencent could have larger say in running Webank, but with that will come greater responsibility, especially to protect depositors’ interests in the case of insolvency.
With the bigger stake, Tencent can easily integrate its instant messenger Weixin and third-party payment platform Tenpay, or other ecommerce services into Webank’s future operations. But if things go wrong, Tencent will be expected to pick up the tab and repay all or some of the funds owed to depositors.
China still does not have a deposit insurance system and so guarantees from major bank stakeholders will be crucial in boosting depositors’ confidence.
“Although it is not a statutory requirement, these controlling private investors all promise to pay depositors back out of their own capital before a proper deposit insurance system is set up,” an official from the China Banking Regulatory Commission told the China Securities Journal.
The other two major owners, Shenzhen Baiyeyuan Investment Co. and Shenzhen Liye Group, will have a 20 percent stake each in the lender.
Tencent said it will spearhead preparation for the new bank in Shenzhen over the next six to 12 months before it officially opens its doors.
Two other banks were also granted banking licenses — Chint Group and Huafon Group will set up their private lending shop in the eastern city of Wenzhou and while Huabei Group and Maigou Group will open their new operation in the northern municipality of Tianjin.
Previously, China had just two privately owned banks: Minsheng Bank and Ping An Bank.
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