Traditional banking sector in China faces downturn
November 30, 2013 Leave a comment
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.
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