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Alibaba Online Bank Affiliate Gets OK from Chinese Regulators

| May 28, 2015 07:35 AM EDT

Details of the deal involving Alibaba, Hunan TV and DMG have already been released.

China’s banking regulatory body has given the go signal for MYbank, an online bank affiliated with Chinese e-commerce firm Alibaba Group Holding Ltd., to begin operations.

The bank was approved to open with a registered capital of 4 billion yuan ($645 million), the China Banking Regulatory Commission said in a statement on Wednesday.

The bank, owned partly by Ant Financial, Alibaba's finance arm, is expected to launch next month. Unlike traditional banks, it will not have physical branches, but will instead provide online services to individual customers and small businesses, including taking deposits of up to 200,000 yuan ($32,000) and offering loans of up to 5 million yuan ($800,000).

"MYbank is an important milestone for Ant Financial's development to provide financial services for small and micro enterprises and individuals," Yu Shengfa, head of MYbank, said in an email to Reuters on Wednesday.

Ant Financial has made 400 billion yuan ($64.5 billion) worth of microloans to over 1.6 million small businesses by the end of April this year, with a bad debt ration of just around 1 percent, the company said in a statement.

According to Reuters, Ant Financial will hold a 30-percent stake in MYbank, while subsidiaries of Fosun International Ltd., China's largest private conglomerate, and automotive components maker Wanxiang Group, will hold 25 percent and 18 percent stakes of the company, respectively.

Ant Financial is itself controlled by Alibaba founder and chairman Jack Ma and other senior Alibaba executives.

The approval of MYbank follows the registration of a batch of five new private banks, which were given preliminary approval in 2014, in what industry observers say could be the beginning of reforms in China's banking industry.

China previously only had one private bank--the Hong Kong- and Shanghai-listed Minsheng Banking Corporation, founded in the mid-1990s--and remains dominated by state-owned banks, which are widely seen as being cautious in lending and having poor interest rates and customer service.

MYBank's registration also further stokes Alibaba's rivalry with Tencent, operator of China's largest social media platform WeChat, which owns a 30-percent stake in China's first online bank, WeBank, which started operations in January and offered its first loans this month.

And while China's traditional banks also now offer online services and electronic transfers, analysts say that the growing encroachment of Internet companies to online banking could signal a significant shake-up in the banking sector.

"I think this will have a significant effect--the [traditional] banks will be under enormous pressure from these institutions, even though they'll be relatively small to begin with," Nicholas Lardy, an expert on China's financial sector at the Peterson Institute for International Economics, said in a meeting with journalists in Shanghai.

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