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Banks, Securities Houses Enhance Co-operation
China's leading bank and securities house, the Industry and Commerce Bank of China (ICBC) and the Guotai Jun'an Securities Co. have recently agreed to work together to form a new brokerage service.
The service, popularly known as "Yinzhengtong," allows banks to use their massive networks as agents of securities houses, so investors will be able to trade through banks, with their bills settled through their savings or special accounts in the banks.
According to media reports, the ICBC has signed similar agreements with Minfa and Guoxin securities houses, while other major commercial banks, the Construction Bank of China, the Bank of China, the Agricultural Bank of China and a few smaller banks have all entered similar agreements with securities houses.
China's banks and securities houses are currently strictly forbidden from entering each other's sector. But since late last year, the central bank has approved securities houses entering the interbank markets and the banks to hand out stock mortgage loans to securities houses, hence breaking the barrier for capital flow between the two sectors.
The banks and securities houses have long forged co-operative ties of one kind or another, but the opening of the "Yinzhengtong" service has raised these kinds of ties to an unprecedented level.
Analysts say the new service is a winning strategy for three sides. It is convenient for investors and allows securities houses to expand at lower costs, and lastly, creates a new profit source for Banks.
The analysts pointed out Chinese banks have been facing declining profits from their traditional services, due to weak interest rates and flight of capital from bank deposits to the stock market.
The securities houses have been reporting bull profits over recent years, but worsening competition are forcing them to keep innovating new products and services.
Zhou Yi, an analyst from the Beijing-based brokerage house, Shouchuang Securities, warned that with China's imminent World Trade Organization membership, the opening of the financial service market to greater foreign competition is inevitable.
He urged the banks and securities houses to forge closer strategic ties in preparation for the birth of China's own financial service giants, so that they can compete with their international counterparts.
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