Traditional banking sector in China faces downturn

Traditional banking sector in China faces downturn

Staff Reporter

2013-11-26

The website of Alibaba Group’s Yuebao fund. Yuebao is a subsidiary company under the Chinese internet giant Alibaba Group and is co-hosted by Tian Hong Asset Management. (Photo/CFP)

The banking industry in China has faced a downtrend due to the rise in popularity of online payment systems as well as interest rates being controlled by the market rather than the government or central bank, reports Shanghai’s First Financial Daily.A fund issued by the Shanghai Pudong Development Bank dropped by 2% on Nov. 19, which was considered rare as the fluctuation of bond funds was relatively small, indicating that the bond market is facing a critical stage.

Online payment services are one of the factors that have led to the downtrend in the bond market. The redemption of bond funds exceeded 16 billion yuan (US$2.6 billion) in the third quarter of this year alone, and it suffered the largest decline compared to other fund products, the paper said. Online banking platforms, on the other hand, have grown by more than 100 billion yuan (US$16.4 billion) within a few months.

In addition to the growth of the online payment sector, the challenge that has impacted the banking sector the most is the market’s determination of interest rates. At present, the Chinese banking industry uses this system of determining interest rates for loans, which is unlikely to cause a major problem when the economy is prosperous.

But as it has become increasingly difficult for domestic banks to make a profit during the economic downturn, banks have to lower their interest rates for loans in order to encourage firms to borrow money from them.

The birth of several private banks, such as Suning Bank, has also intensified competition in the banking sector because these private banks have an edge in the industrial supply chain, while some also receive support from their associated businesses.

In order to survive, traditional banks must either expand their online payment business or work with internet companies, the paper said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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