China's banking regulator is likely to complete a revised administrative rule soon that would allow foreign banks to deal with renminbi retail business across the country.

The draft rule would need further approval from the State Council, a source, who declined to be named, said yesterday.

Foreign banks would be encouraged to register corporations in China instead of setting up branches to deal with renminbi business in order to protect the interests of domestic depositors, according to the revised rule. The minimum registered capital of a foreign banking corporation is said to be around US$125 million.

"The new rule will allow foreign banks to choose a diversified presence in the country, and a foreign banking corporation registered with local administration will enjoy much more favourable treatment than a foreign bank branch," the source said.

The rule is likely to restrict US$125,000 as a minimum amount for foreign bank branches wanting to collect deposits from local residents' accounts, while a foreign banking corporation is not likely to face restrictions and would be able to deal in all types of renminbi business under the new rule.

Since foreign banks will be able to deal in renminbi with local residents by the end of 2006, it is important foreign banks are registered locally to protect the interests of domestic depositors and maintain the security of the country's financial system, said an analyst, who declined to be named. This practice is more in line with the global norm and more accessible for local supervision, he added.

Foreign banks, which currently deal with renminbi business in 25 cities, will be allowed to expand across the country and extend their clients from enterprises to local residents at the end of 2006 under the revised draft rule.

The revision is part of China's push to realize its World Trade Organization commitment in banking, which is scheduled to open up completely to foreign capital at the end of this year.

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