With virtually no experience in lending money, China's huge postal savings system faces a steep learning curve as it transforms into the nation's fifth largest bank, analysts say.
The China Postal Savings Bank (
"The bank will prioritize services in rural areas and make it its development strategy," said Cai Ersheng (蔡顎生), vice chairman of the China Banking Regulatory Commission.
"This is in order to meet the need of rural development and fill financial service vacuums in the rural areas," he said in an interview.
Analysts believe it will take up to five years to become a full-fledged commercial bank, but, given its size, speculation is already rife it will become a major player in the Chinese financial system.
However, transforming into a bank means the US$206 billion-postal savings service must bid farewell to a cozy arrangement that has kept it virtually insulated from risk.
This arrangement, in effect a state subsidy, allowed the service to transfer all its deposits to the central bank and in return get an interest rate higher than the one paid to the depositors, analysts said.
Post offices in China started postal savings services in 1986 but could only accept deposits from the public and not offer loans.
Such a lack of business experience may explain why the new bank, with 36,000 outlets mostly in China's vast countryside, has been restricted in its functions, analysts said.
It has so far only been granted a "limited operation license," meaning it can only extend small, collateralized loans.
"It is starting from ground zero in terms of building up a credit culture and experience of lending to rural economic activities," said Nicholas Lardy, a Washington-based senior fellow at the Institute for International Economics.
The bank has been setting up trial points in 13 provinces, but much remains to be done, said Hong Kong-based Moody's rating agency analyst May Yan.
"Operating risks linger as substantive staff training is needed ... and the technical system has to be updated as well," Yan said.
By last October, the trial outlets had given out only 550 million yuan (US$70.9 million) in total loans, a small scale operation compared to those of average commercial banks, the state-run Caijing magazine said last month.
The bank's focus on the countryside has also triggered suspicion in the industry that it might end up competing with the Agricultural Bank of China (中國農業銀行), the nation's No. 4 lender.
But banking watchdog official Cai denied this was the case.
"Currently I can't see there is such an issue as competition between the postal savings bank and other major commercial banks," Cai said.
The Agricultural Bank of China is shifting its focus toward relatively lucrative areas, while the Postal Savings Bank is keeping a national postal savings network which would not necessarily be lucrative, analysts said.
"The two banks' businesses are quite divergent. Only 20 percent of loans by the Agricultural Bank is directly related to agriculture, while the Postal Savings Bank will more or less have to shoulder some policy tasks," Yan said.
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