Central bank urged to help less rich regions

China's central bank is encouraging the establishment of private banks in less developed areas to drive an inclusive business finance drive, the bank's chief said on Monday.

Zhou Xiaochuan, governor of the People's Bank of China, cited a series of measures to quench small businesses' thirst for capital as part of the inclusive business finance endeavor, in an article published in Qiushi Journal, a political periodical run by the Central Committee of the Communist Party of China.

The establishment of private banks is an important step to support small businesses overlooked by State-owned banks, said Zhou, thereby diversifying the financing channels for small players.

The inclusive business finance initiative refers to capital that supports the creation, growth, and sustainability of entrepreneurs and small companies, which were previously excluded from the financial markets.

The United Nations put forth the concept in 2005 with an aim to provide reasonably priced and convenient financial services to underdeveloped regions and low-income people.

The PBOC has made great efforts to extend loans to small businesses, said Zhou. Loans to small companies stood at 11.12 trillion yuan ($1.80 trillion) at the end of June, accounting for 26 percent of total business loans.

Small companies received 907.3 billion yuan in new loans in the first half of the year, taking up 37.4 percent of total fresh credit, 19.8 percentage points higher than loans extended to large companies.

Authorities should speed up the establishment of private banks by giving more power to the market, said Zhou Mingjian, an analyst at Golden Sun Securities Co Ltd.

"The market is able to regulate the development of these private entities by itself, such as their size, business scope, interest and loan rates etc," said Zhou, "The government, on the other hand, takes on the role of a supervisor that punishes those who disrupt fair competition."

Many businesses across the country have filed for permission to set up independent private banks after the State Council - China's cabinet - issued a document encouraging private capital to enter the banking sector in July.

As of Sept 11, Guangdong province had submitted an application for the establishment of three private banks to the China Banking Regulatory Commission.

An application for the first private bank in Yunnan province is also being reviewed, according to a report.

Leading private companies, such as Tencent Holdings Ltd, a technology giant, and Suning Appliance Co Ltd, a major electrical appliance retailer, are also trying to get permission to set up their own banks.

The industry is more concerned about what will happen after the private banks are put in place, said Hu Yuexiao, an analyst with Shanghai Securities Co Ltd.

"The ultimate goal should be to lift the control over deposit interest rates so that private banks can truly have an edge over their State-owned counterparts," said Hu. "This way, borrowers could find lenders with equivalent sizes, meaning that small businesses would be able to borrow from equally small banks flexible enough to provide customized services to local customers."