A panel of experts is expected to review five proposals today on the establishment of private banks, and its findings are expected to strongly influence regulatory decisions on the future of private financial institutions.

China's first private bank - China Minsheng Banking Corporation - was established in 1996 with a special regulatory authorization. But no further approvals have been made or relevant regulations promulgated since then, despite calls for such moves from economists.

The review today by the special panel, which is reported to include influential economists and a senior central banker, is expected to shed more light on a long-standing debate among government officials and economists over whether there should be more private banks allowed in China.

Xu Dianqing, a key advocate of private banks, said the five proposals vary in the way the bank is created. Some of the proposed banks will be started from scratch, others will be restructured from city commercial banks, urban credit co-operatives or guarantee firms.

Xu is director of the Great Wall Financial Research Institute, the major designers of the proposals being reviewed.

Supporters have long been calling to allow private capital into the banking sector, insisting that market entry should be determined by law, and not influenced by discrimination against private capital.

Sceptics are concerned about the possible bad loan risks, citing the massive non-performing loans at China's State-owned commercial banks. Private ownership, they say, does not necessarily bring greater management efficiency but may give rise to such problems like moral hazards, internal control in equity allocation and operational risks as a result of their small size.

Sources said the proposals also contain risk control recommendations, such as closures in the event that non-performing loans have grown to levels equivalent to 70 or 80 per cent of the bank's capital.

(China Daily July 22, 2003)