Tencent's new private bank is expected to bring in a host of reforms for China's financial system, but several challenges could soon derail optimism, experts say.
On Monday, the internet behemoth launched Webank, China's first-ever online private bank, which is expected to provide loans to small and micro-sized enterprises (SMEs), a market long underserved by commercial lenders due to higher perceived risk compared to larger companies. Tencent has a 30 percent stake in the business, while investment firms Baiyeyuan and Liye Group own 20 percent each. The remainder belongs to seven shareholders, according to media reports.
During the launch ceremony in Shenzhen, Premier Li Keqiang urged the firm to "reduce costs to let small clients have tangible benefits, this can also help compel traditional finance to speed up reforms...this is a small step for Webank, but it's a big step for financial reforms."
Li then issued the company's first loan: $5,600 to a truck driver. If Webank goes down the path of lending money to individuals, instead of strictly to companies, it could lead to trouble, according to Jim Antos, bank analyst at Mizuho Securities Asia.
"Those amounts are too small to be dealing with. Lending to individuals tiny amounts of money looks like a blueprint for problems. Once somebody is out the door, how can Webank ensure that it will be collected?" he told CNBC.
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Intensifying competition among domestic companies will also be a major headwind, warned Henry Guo, senior research analyst of China internet and media at JG Capital.
Alibaba received approval for a private bank license in December, alongside Tencent, with the official launch anticipated sometime this year. Meanwhile, Baidu applied for a private banking license last March. In total, the China Banking Regulatory Commission (CBRC) has granted five private bank licenses under a new pilot program.