Foreign banks in China scramble to meet new deposit rule

Fri Oct 21, 2011 1:21am EDT
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By Kazunori Takada

SHANGHAI (Reuters) - The race for cash among foreign banks in China is heating up as some struggle to rake in enough yuan deposits to meet a regulatory requirement that kicks in at the end of the year.

Many of the larger commercial banks operating in China, such as HSBC Holdings PLC (HSBA.L: Quote) and Citigroup Inc (C.N: Quote), say they have already met the new loan-to-deposit ratios (LDR) but some of the smaller players are at risk of failing to meet the requirement, bankers say.

The Chinese Banking Regulatory Commission (CBRC) is requiring all domestic and foreign banks in China to have an LDR of 75 percent or less -- meaning loans they have made should not exceed 75 percent of total deposits they have received -- as at December 31, as the grace period on a policy announced in 2006 comes to an end.

Some Chinese lenders are also scrambling to meet the requirement, but the fight for funds is particularly intense among some foreign banks that do not have retail operations, the bankers say.

"For a wholesale bank, the 75 percent LDR is a big headache," said a banker at a foreign bank who declined to be identified because of the sensitivity of the issue.

"It limits our ability to expand our lending business but I suppose we can't complain since it's a uniform rule across the sector and we are playing ball in their field."

Even the China head of Japan's biggest lender acknowledged that collecting deposits was not easy for many foreign banks in China.

"One would have to cut down on lending or increase deposits. But there is very strong demand for loans from companies and cutting back on them would mean a shrinkage in operation. So it's natural for competition (for deposits) to heat up," Bank of Tokyo-Mitsubishi UFJ (China) President Eichi Yoshikawa told Reuters in a recent interview, adding his bank has met the target.   Continued...

<p>A man walks past the HSBC headquarters building in Pudong financial district in Shanghai December 8, 2010. Picture taken December 8, 2010. REUTERS/Carlos Barria</p>