Business / Markets

Internet finance shaking up Chinese banks

By Emma Dai in Hong Kong (China Daily) Updated: 2014-04-03 09:02

Internet finance is in, but is banking out?

Chinese banks' resilience to the growing popularity of Internet finance has been "so far, so good" and sector change will come as the industry catches the trend, analysts in Hong Kong said.

By the end of March, at least 11 banks had posted annual results. They show continued net-profit growth, 13.9 percent on average in 2013, three percentage points lower than the year before. That's in the limelight of Internet finance.

"Because of rising funding costs, the banking sector saw slower profit growth this year. Margins are narrowing," said Grace Wu, Hong Kong-based analyst of Daiwa Securities Group Inc. "The pressure isn't severe. Chinese banks still enjoy a loan price advantage. We maintain a stable outlook on sector margins this year."

Last June, Yu'ebao, a money market fund distributed online by Alibaba Group Holding Ltd, raised the curtain on Internet finance's development. It featured flexible redemption and offered above-deposit returns. Investors arrived amid an inter-bank liquidity squeeze in the second half of 2013.

Other Internet companies followed - including Tencent Inc, Baidu Inc and Sina Corp - with similar products, drawing capital away from bank accounts and causing banks' funding costs to rise. By the end of February, China's money market fund had grown to 1.4 trillion yuan ($226.81 billion), 2.5 times bigger than it was in last May.

"People claim Internet finance is a huge challenge to commercial banks," Victor Wang, China banking analyst at Credit Suisse AG, told a forum in Hong Kong. "But in the short term, its impact will be rather limited."

"Number-wise, the total AUM (asset under management) of money market bonds is around 1 trillion yuan, which is less than 1 percent compared with Chinese banks' deposit base. Online financing activities, including peer-to-peer lending, are at the infant stage. They are small ticket relative to banks' lending size," he said.

Traditional banking perceived as more secure

Banking on brighter prospects