Webank, an online bank created by Chinese internet giant Tencent Holdings and its local partners, will open for business on April 18 after receiving a banking licence in December. Market players believe that this new type of bank will gradually expand the service range and distribution channels available in China.

“Privately owned banks will have more flexibility as they start from zero, and the internet will be their distinct advantage,” said Claire Huang, China analyst at Societe Generale. “I think privately owned banks will definitely launch wealth management product via internet platforms.”

China’s structured products market recorded sales volumes of CNY194,770 ($23,963) in 2014, with interest rates the most popular asset class, followed by single index-linked products (principally due to the popularity of CSI 300-linked products). The major issuers were state-owned banks, including Ping An Bank, China Merchants Bank and Agricultural Bank of China.

State-owned financial institutions have long dominated banking in China, according to Qingming Zhao, chief analyst of the Beijing-based CFFEX Institute for Financial Derivatives. “It is time to introduce some newcomers to stimulate healthy competition and provide better financial service to investors,” he said.

The introduction of private banks will also promote interest rate liberalisation, especially with support from the regulator, but Zhao admitted that it will take time for these newly-established banks to grow, said Zhao. “We are all wondering about the quality of risk management of privately owned banks,” said Zhao. “Shareholders may want to use these banks for their own financing needs, which may create inconsistency with the bank’s management.”

As the state-owned banks are more experienced and have already carved up investors, privately owned banks will need to find their own target audience, said Zhao. “Small and micro financing should be a way out,” he said.

Besides Webank, there are four other private banks that have received banking licences from the regulator and will open for business in 2015.

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