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The good news and the bad news about the rise of internet banks in China

Yu'E Bao - a very large pile of 'leftover treasure'

Yu'E Bao - a very large pile of 'leftover treasure'

Evolve or perish, is the stark warning that has been issued to China’s mainstream banks, many of whom are losing customers in droves to a new generation of internet upstarts that are hoovering deposits away from their bricks and mortar rivals at an alarming rate. And there are implications for bank jobs in this rapidly changing environment.

Chinese state media Xinhua reported on Tuesday that three key banks have raised their interest rates to the maximum ceiling to stem the haemorrhaging of client funds to new money market funds introduced by internet operators, the most prominent of which is Yu’E Bao,

According to Tian Hong Asset Management Co, the company that manages Yu’E Bao, the fund has attracted RMB 250 billion yuan from over 49 million users since it was launched in mid-2013. This would make it the 14th-largest money market fund in the world, according to Bloomberg data, and reported by Caixin Online.

Alongside Yu’E Bao (which means leftover treasure), are other investment products being offered or under development by internet companies such as Baidu and Tencent who are taking advantage of their huge footprint and ability to reach large numbers of consumers efficiently, says the Financial Times.

The FT last week reported that  clients are putting RMB 1 in the money market fund for ever RMB 12 deposited in Chinese banks since June.

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Some traditional banks, such as China Construction Bank, the Agricultural Bank of China and the Bank of Communications, this week responded to this threat by pushing deposit interest rates to the maximum in a bid to bring defecting clients back by offering lucrative returns on their deposits.

But there are some concerns that it may be too little, too late for banks that have been used to profit growth of 30% to 40% annually, and are potentially facing sub-10% profit growth this year. Barclays Capital banks analyst May Yan also notes that reforms in the banking sector were likely to result in bankruptcies and slow credit growth in the second and third quarters.

The changing banking landscape in China is being reflected in hiring patterns too. Jack Liu, specialist consultant in financial services, Morgan McKinley Shanghai, says there is significant demand for financial professionals with internet or mobile experience.

“(But) there is still a huge gap in the candidate market for experienced risk and compliance professionals. The war for talent is still on despite a notable reduction on bank profit growth.”

And the days that mainstream banks had their choice of candidates are coming to an end. Liu says while they still have some advantages due to their retail networks and interest rate spreads, internet banking is eroding this dominance. 

Some traditional banks are responding to this new threat, he says, by expanding or developing new revenue streams, such as investment banking or forex and commodity trading. “They want to reduce their dependence on interest rate spreads. And they have acknowledged the important of internet and mobile platforms.”

Liu says that while mainland banking remains relatively closed to foreign banking professionals due to the focus on client relationships, he believes the liberalisation of the sector and growth of internet players “will have a positive impact on the hiring of international finance professionals”. 

 

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