More banks cleared to open fund units

China's financial regulators will allow more commercial banks to establish their own fund management units under an extended pilot program, the China Securities Journal (CSJ) reported Thursday, a move meant to diversify the business models of local banks and encourage more institutional investors to participate in the country's capital market, experts told the Global Times.

Smaller commercial banks and city commercial banks will be the primary targets of the extended program, which was coordinated in conjunction with the People's Bank of China, the China Securities Regulatory Commission (CSRC) and the China Banking Regulatory Commission, the CSJ reported, citing insiders from the CSRC.

Since 2005, when the program was launched, China has approved plans from eight banks to found, or become shareholders in, fund companies. These banks include Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, Bank of China, Agricultural Bank of China (ABC), China Merchants Bank, China Minsheng Bank and Shanghai Pudong Development Bank, according to information from the CSRC's website.

These latest efforts from top financial authorities are intended to channel more funds into China's capital market, particularly the stock market, Yu Fenghui, a senior official from ABC, told the Global Times.

Commercial banks are highly motivated to run their own fund companies, as they can offer such institutions a new profit stream now that the margin between lending and savings rates has tightened, Yu said.

Fund firms operating under China's commercial lenders have grown quickly in recent years as banks have long been the primary distribution platforms for fund products, Shi Hongshen, a senior associate from Z-Ben Advisors, told the Global Times.

Although regulators have made it clear that commercial banks should treat fund products equally, in practice however, products from their own fund companies are favored when it comes to making recommendations to clients, Shi added.

Shi also explained that the widened program is not expected to exert too much influence on the fund industry as a whole. "Smaller banks and city commercial banks hold a tiny share of the market, so it will not make a big impact on other fund companies if they establish their own rival firms or not," Shi said.