Exclusive: China Plans to Grant Securities Licenses to Commercial Banks
China is moving to provide securities licenses to commercial banks in a renewed effort to expand banks’ business reach and empower domestic players to compete with global rivals, Caixin has learned.
China’s top securities watchdog will begin granting securities licenses to commercial banks, regulatory sources with knowledge of the matter said, in a move to create “aircraft carrier-size” investment banks amid the opening-up of China’s financial market to foreign firms.
At least two major commercial banks are likely to be granted securities licenses initially to pilot the policy, starting with investment banking business rather than a full range of securities services, which include brokerage, proprietary, underwriting and sponsorship, and margin-financing and securities-lending services, the sources said.
This could mark a significant change in China Securities Regulatory Commission (CSRC) policy, which currently locks almost all domestic commercial banks out of offering securities services on the Chinese mainland. Presently, many Chinese banks provide these services overseas via Hong Kong-based subsidiaries.
In 2015, Chinese regulators discussed allowing commercial banks to run securities businesses, but the plan was shelved after the stock market meltdown that year.
State-owned Industrial and Commercial Bank of China Ltd. (ICBC) submitted a proposal to the CSRC in 2018 regarding a pilot program in which it would establish a wholly-owned securities subsidiary offering a full range of securities services with registered capital of 100 billion yuan ($14.1 billion), Caixin learned from people close to the matter.
ICBC, the world’s largest lender by assets, estimated that this subsidiary would rake in about 15 billion yuan of net profit on around 40 billion yuan of revenue in its first fiscal year of operation, which would have dwarfed all existing local securities companies in 2018. The plan was reviewed by several ministries and received positive feedback from top regulators, though they urged caution, Caixin learned.
The CSRC’s shift in policy comes as domestic securities companies are facing fierce competition from foreign investment banks, which an industry insider said could be the motivation for the extension of securities licenses to commercial banks.
Since late 2018, global investment banking giants UBS Group AG, Goldman Sachs Group Inc., Morgan Stanley and Credit Suisse AG have received the green light from the CSRC to raise their stakes in their Chinese mainland securities joint ventures to 51%. Last year, JPMorgan Chase & Co. and Nomura Holdings Inc. separately received approval from the regulator to set up new securities joint ventures on the mainland with majority foreign ownership.
While China is opening up its financial market, domestic securities companies are facing hurdles in entering overseas markets, particularly the U.S. market, CSRC Chairman Yi Huiman told Caixin in an interview earlier this month. In addition, a senior analyst at a financial company said that these companies are much less competitive than their major foreign counterparts due to lack of “sophisticated management” when doing business abroad.
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