Bank reform poses several questions, analysts say

Media reports on the deepening of mixed-ownership reform for certain State-owned banks have intensified recently, but analysts said the results of the reform remain to be seen and its pace will be slower than expected.

National Business Daily, a nationwide Chinese financial and economic newspaper, reported on Thursday that Shang Fulin, chairman of the China Banking Regulatory Commission, said at a recent meeting on the current economic situation that China will push forward the mixed-ownership reform of the banking sector.

An unidentified person who is close to the banking regulator said substantive actions will be taken in the second half of this year or the first half of 2015. At present, which bank will become the first to explore the reform is not yet decided, the paper reported.

The CBRC refused to comment on the meeting or the reform.

In a public statement issued on July 28, Bank of Communications Co Ltd announced that it pays great attention to the central government's requirements on the reform of the mixed-ownership economy and financial system.

"We are actively studying a feasible plan to deepen the reform of our company's mixed-ownership structure and improve the internal administration system to strengthen the risk control and responsibility systems, as well as stimulate the corporate operating vitality," the bank said.

Prior to the announcement, Reuters reported that the bank had submitted an application for a pilot program to sell stakes to private investors and is awaiting approval from the government.

Ni Jun, a financial analyst at Shanghai-based Greenwoods Asset Management Ltd, said: "A State-owned bank will benefit from the introduction of private shareholders, who will supervise management or give suggestions. Ownership reform will stimulate changes in the financial market, but it takes time to achieve that goal. We have not seen a fundamental change so far."

It is still difficult to say whether private capital, once it enters the financial sector, will be treated the same as State-owned capital, Ni said.

"No one knows what will happen. Will private capitalists encounter an improved management environment in the financial sector than in other sectors? Will they be forced to withdraw their money to make way for State-owned enterprises just like private investors for small coal mines in Shanxi province? The government must implement comprehensive reform if it is sincere about welcoming private capital into the financial sector," he said.

For a large State-owned lender such as the Bank of Communications, whose total assets reached 5.96 trillion yuan ($967 billion) by the end of 2013, it is difficult for a private investor to have real influence on the bank's management unless the investor acquired bank stakes worth more than 100 billion yuan, he said.

Mu Hua, banking analyst of GF Securities Co Ltd, said: "Whether the ownership reform will go smoothly depends on whether the government wants to do it and whether the relevant banks are willing to be changed by others."

Ownership reform will not have a noticeable effect on the banks in the short term. It may take three to five years before people see improvement in the banks' operating efficiency, changes in their management strategy and a rise in their share prices, she said.