Private banks in China seek state capital amid economic pressures

Lenders grappling with effects of property crisis and low interest rates

- Joyce ZK Lim

SHENZHEN - Some private banks in China have turned to state investors for funds as an economic slowdown weighs on profitability in the sector.

In late November, Anhui Xin'an Bank, in the central Chinese province, made headlines when it became the country's first private bank to be majority-owned by local state-funded entities.

Three months earlier, in another first, a firm backed by the local government in China's south-east became the largest shareholder of a private lender, with a 30 per cent stake in Jiangxi Yumin Bank.

The moves come as banks in China grapple not just with the effects of a property crisis that has reverberated through the economy but also with low interest rates - part of the country's monetary stimulus - that are squeezing lenders' profit margins.

Mr Gary Ng, a senior economist at investment bank Natixis in Hong Kong, said: "It is increasingly difficult for private banks to survive without access to state resources and connections."

China first opened the door to private banks in 2014 when it allowed domestic lenders fully capitalised by private funds to operate in the state-dominated financial sector.

The move was part of efforts to boost banks' productivity and increase lending to underserved small and medium-sized enterprises.