By Guo Tianyong
The country's long-awaited fifth largest bank, China Postal
Savings Bank (CPSB), formally opened on March 20.
Once part of the postal service, the CPSB's roots go back to
early 20th century when the Kuomintang government set up an
institution to manage the money sent through the post office.
After several ups and downs over the decades, the postal saving
system was legally approved in 1986 and became an important part of
China's postal services.
Despite filling a real need, the postal savings service had a
major structural problem: It pumped money from rural areas into the
financial sector by taking deposits from farmers and migrant
workers. But the capital could not find its way back to rural areas
because the postal savings system was not allowed to make loans in
any form.
A full-function financial institution was suggested by the
central bank in the 1990s as an attempt to check the outflow of
money from rural areas and serve the financial needs of the rural
population.
The suggestion was finally endorsed by the country's financial
watchdog, China Banking Regulatory Commission, in June 2006. The
relevant parties were authorized to prepare to launch the CPSB.
The bank is positioned as a supplier of financial services in
both urban and rural areas with a focus on retail customers and
intermediate-sized businesses. It is committed to delivering basic
financial services to urban and rural communities.
This strategy will obviously assist the CPSB in becoming a major
player in the rural financial market. The emphasis on supplying
financial services to the countryside fits well with the
competitive advantages of CPSB and the development of the banking
sector.
After evolving over the past two decades, CPSB has 36,000
branches attached to the post offices, 60 percent of which are
located in rural areas. Covering cities and villages, the CPSB
branches are knitted into the most extensive network furnishing
financial services to individuals across the country.
Individual postal savings bank books numbered 140 million when
CPSB was inaugurated, making them one of the most widely used
financial services.
With its current penetration, CPSB would have a natural
advantage over its competitors in basic financial services like
granting microcredit and transferring money between branches,
especially for the rural population.
Most commercial banks in China regard cities as their major
market and concentrate their resources on attracting big clients.
The competition among financial institutions in cities, especially
in major ones, has become white hot.
CPSB has to occupy a different market to survive with a
registered capital of 20 billion yuan ($2.56 billion). With this
modest sum for a commercial bank operating across the country, CPSB
would experience many limitations in financing big clients.
It is, therefore, an obvious strategy for CPSB to explore the
market of individual financing.
More importantly, rural areas are poorly covered by financial
outlets. Within the limited options, the financial services offered
to rural customers are far from adequate or diversified enough to
satisfy their needs. CPSB will find a big market with eager clients
here.
Of course, CPSB should also try to tap the financial market in
cities after it has accumulated extensive experience in the
countryside.
As China's commercial banks began their restructuring for
listing on the stock market, most cut their branches to brush up
their balance sheets. Some transferred their retail outlets in
counties and townships to the Rural Credit Cooperative.
As a result, the Rural Credit Cooperative became the only
financial institution in many areas. The monopoly in local markets
brings fat rewards to these outlets but prevents rural residents
from enjoying better financial services.
The authorities have made numerous efforts to reduce the
monopoly of the Rural Credit Cooperative, such as relaxing the
requirements for initiating rural financial institutions and
approving the establishment of village banks. But these
arrangements were only carried out as pilot projects and are not
yet ready to be promoted across the country.
CPSB's network of branches is similar to the Rural Credit
Cooperative's, and their business modes are also parallel.
Fierce competition can be expected after CPSB opens branches in
towns and villages. The competition will definitely inject dynamism
into the rural financial market, improve services and raise the
efficiency of financial institutions.
Admittedly, CPSB may face huge pressures in the early stages of
business. The financial services in rural areas involve risks of
different degrees, posing huge business uncertainties.
The CPSB decision-makers should try to consolidate its
resources, improve its risk control procedures and internal
supervision, and find a business mode appropriate to rural areas.
These strategies will enhance its comparative advantages in rural
areas, enhancing its competitiveness as a newcomer in the financial
market.
Note: the author is director of the Banking Research Center
under the Central University of Finance and Economics
(China Daily March 29, 2007)