Top Biz News

Regulators may relax rules for foreign banks

By Zhang Ran (China Daily)
Updated: 2006-09-21 08:34

"The two sides have been in continuous discussion and working closely in the past few days, which may finally lead to a lower threshold than the earlier proposal in order to get in line with the WTO principle for a wider open market," he said.

Foreign banks would be more willing to accept the new rule if it allowed them to collect a lower minimum amount for a single local deposit, he said.

"But this might be the only major change in the final version. The requirement written in the earlier draft saying that a foreign company cannot provide loans of more than 10 per cent of its registered capital to a single client is not likely to be changed," the source said.

And the banking regulator is not ready to change the criteria demanding all banks keep overall lending no higher than 75 per cent of overall deposits.

"Those criteria could still be a tough request for foreign players," an industry insider said.

Due to limited access to the renminbi retail market, foreign banks are facing a general shortage of yuan deposits, which could lead to high loan/deposit ratios.

CBRC statistics show that foreign financial institutions in China had collected 114 billion yuan (US$14.3 billion) in deposits by the end of August, while 161 billion yuan (US$20 billion) were paid out in loans during the same period.

The CBRC emphasized in its draft rule that its purpose was to encourage foreign lenders to register local corporations within China instead of setting up branches to deal with renminbi business. It said the draft rule favoured local corporations registered by foreign lenders.

"The purpose is to protect the interests of domestic depositors, and a local corporation is easier to supervise than a branch," it said.

A total of 103 foreign bank branches and seven foreign banking corporations were allowed to deal in renminbi business in 25 cities in China at the end of June. They 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.