Foreigners allowed to own bigger share of banks ( 2003-08-27 14:07) (Agencies)
China's new banking regulator Liu Mingkang has confirmed the government plans
to lift the ceiling on foreign bank ownership of local banks to 25% from 15% at
present in a bid to bolster the performance of mid-sized institutions.
In comments published Tuesday in the International Financial News, Liu said
China should encourage foreign banks to become strategic investors in the
country's mid-ranked banks.
"A single shareholder can increase the holding to 20%, but total foreign
investment shouldn't exceed 25%," Liu told a recent meeting of foreign bankers
in Shanghai, the report said.
"Acquiring stakes in a local bank brings many benefits to foreign banks as
they won't necessarily have to wait for a year to receive a branch license and
they also won't have to wait until the end of 2006 to begin yuan and other
business."
No timetable was given.
Citigroup's Citibank is expected to be the first bank to benefit from the
relaxed investment rules, with the banking regulator tipped to approve a gradual
increase in its stake in Shanghai Pudong Development Bank Co. to 24.9% by 2008
from the current 4.6% at present.
Canada's Bank of Nova Scotia and the World Bank's investment arm,
International Finance Corp., are waiting for central bank approval to take a
stake in Xian City Commercial Bank with an option to increase their combined
holding to 25% once the investment cap is lifted.
Big Four Still Dominate
However, China's banking system is still dominated by the four major
state-run banks, Industrial & Commercial Bank of China, Bank of China
(Q.BCH), China Construction Bank (Q.CCB) and Agricultural Bank of China (Q.AGB).
There are a further 112 commercial banks operating in urban areas across the
country.
While China's regulators have approved 37 foreign bank branches to offer
limited local-currency services to corporate clients since the country's entry
into the World Trade Organization, retail business in local currency remains off
limits until the end of 2006.
To skirt these restrictions, as well as onerous regulations on expanding
their branch networks, foreign banks have looked to mid-sized local banks, many
controlled by municipalities and provinces, for strategic partnerships.
Currently, foreign banks are allowed to offer yuan services only in the
cities of Shanghai, Shenzhen, Tianjin, Dalian, Guangzhou and Qingdao.
Liu said by December China will add the cities of Jinan, Fuzhou, Chengdu and
Chongqing to the list of areas open to foreign banks.
As of the end of July, foreign banks had collectively opened 151 branches in
China, he said. A further 211 representative offices, which aren't allowed to
directly conduct business, have also been approved, Liu said in the speech,
which was posted on the commission's Web site.
Without a license to conduct business in yuan, foreign banks in China are
restricted to the much smaller market for foreign-currency financial services.
Separately, Liu said most city commercial banks have poor asset quality,
imperfect internal control systems and deficiencies in their risk management.
Liu's statements about underline the challenge that the bank regulator faces
as the financial system struggles to make a transition to the realities of an
emerging market economy.
The success of that transition is vital ahead of China's World Trade
Organization-agreement mandated opening of its bank sector to foreign
competition in 2006.
Liu's comments suggest that the regulator is preparing to expand its emphasis
on improving governance and tackling bad debt ratios in China's first tier,
large state-owned commercial banks to the third tier city commercial bank
sector.
China's second tier banks consist of shareholding banks.
China's city commercial banks at the end of June had total assets of 1.3
trillion yuan (US$1=CNY8.28). Total deposits were valued at CNY985 billion,
while outstanding loan portfolios totaled CNY652.4 billion.
The banks recorded an average nonperforming loan ratio of 16.53% at the end
of June, he said.
He said the China Banking Regulatory Commission will continue to support city
commercial banks to improve their risk control measures, attract domestic and
foreign investors and prepare for possible public listings.
