China’s Private Banks Flout Ban on Doing Business Beyond Home Jurisdictions Due to Internet Dependence


The majority of non-digital private banks in China are still conducting operations beyond their home jurisdictions despite the launch of a ban on doing so by Chinese regulators.

In February 2021 the China Banking and Insurance Regulatory Commission (CBIRC) issued the “Notice on Further Standardising Commercial Bank Internet Loan Operations” (关于进一步规范商业银行互联网贷款业务的通知), which prohibited regional legal person banks from conducting online banking operations beyond their their registered locations.

The provisions means that 15 of China’s 19 private banks (excluding digital online lenders WeBank, MYbank, Yillion Bank and XW Bank) must confine their business operations to their registered locations.

While the Notice came into effect at the start of 2022, a report from 21st Century Business Herald found that only one third of these 15 banks have executed the provisions of the Notice, while over half continue to issue loans on a nationwide basis, some of them via supply chain finance channels.

One private bank based in northern China recently released data indicating that it had made over 200 million yuan in online loans in more southern locations including Jiangsu and Anhui, and announced that in future it plans to step up its capabilities in this area in response to Beijing’s call to provide greater support to manufacturing enterprises.

Other private banks are using supply chain financing operations to flout restrictions on cross-regional operation, including one lender in southern China who works closely with core enterprises on industrial supply chains to provide loans to dealers in other regions.

Domestic observers point out that private banks in China are still constrained by the lack of an extensive network of physical outlets, given that they have only been in existence since 2015 and are highly driven by fintech and Internet channels.

By contrast other smaller lenders in China – such as municipal commercial banks and rural commercial banks, usually have a large number of physical premises in their home jurisdictions due to the traditional nature of their business operations.

“Private banks and municipal commercial banks are different,” said one source from a Chinese private bank to 21st Century Business Herald.

“Because of a lack of business outlets, if [private banks] are confined to their home locations, they fundamentally cannot compete.

“Regulators have divided the 19 private banks into Internet and non-Internet banks…Internet private banks can operate nationally, and their growth will be quite rapid. Non-internet private banks can only establish a foothold at home, and for them to undertake operations via only a single physical outlet will be extremely difficult.”

Data from CBIRC indicates that in the first three quarters of 2021 China’s private banks posted net profits of 10.7 billion yuan, for year-on-year (YoY) growth of 61.61%.