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Tencent launches China’s first private online bank

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Tencent Holdings Limited, a Chinese investment holding company, today launched the China’s very first online private bank named as WeBank to finance small scale borrowers. (via Techcrunch)

Tencent Holdings Limited is a Chinese Internet company whose subsidiaries provide mass media, entertainment, Internet and mobile phone value-added services, and operate online advertising services in China.

It is the fifth-largest Internet company in the world after Google, Amazon, Alibaba, and Ebay as of October 2014. It is also the parent of the widely popular messaging app WeChat, yes, that’s where WeBank inherited its name from.

Chinese banking regulator last year granted licenses to ten such institutions. The initiative aims to finance credits to in-need smaller borrowers who fails to pass a loan from state-owned banks.

China premier Li Keqiang at WeBank’s launch ceremony said-

We will lower costs for and deliver practical benefits to small clients, while forcing traditional financial instituions to accelerate reforms. It’s one small step for WeBank, one giant step for financial reform.

Tencent owns 30 percent of WeBank, while investment firms Baiyeyuan Investment and Liye Group each own 20 percent. Seven other shareholders make up the remaining 30 percent, and the entity as a whole has a registered capital of RMB 3 billion (US$482 million).

As per the statistics, small and medium-sized companies provide about 60 per cent of China’s gross domestic product and about 75 per cent of new jobs. Providing them loan, in this case, becomes a major part for substantial growth of the companies as well as for the country. Difficult for the state-owned bank to satisfy the needs of every man, the country has promoted the initiative of online private banks that would aid the condition to some extent.

China’s banking regulator recently loosened enforcement of the maximum 75 per cent loan-to-deposit ratio, allowing placements by non-bank financial institutions to count as deposits under the calculation.

WeBank and other such lenders will have to find a scheme to attract depositors though. It has no physical branch and no bank, whether online or physical, can work without deposits. It is highly important for WeBank to devise a strategy to lure depositors and stick them around for long term in order to make this pilot program a successful one.

Senior Writer

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