August 9, 2013 / 7:45 AM / 6 years ago

China to tighten requirements for foreign investment in banking

SHANGHAI (Reuters) - China is set to revise rules on the setting up of new banks in the country, aiming to tighten requirements for foreign firms while easing regulations for local entities, a draft of revised rules published by the banking regulator showed on Friday.

A businessman walks with an umbrella in the financial area of Pudong in Shanghai, May 30, 2013. REUTERS/Carlos Barria

Foreign financial institutions that want to establish new commercial banks in China or become strategic investors in Chinese banks must meet new requirements on capital adequacy.

Their regulatory capital level must meet the standards set by their home country governments and also not be below 10.5 percent, compared with the current requirement of 8.5 percent.

The maximum equity stake in a Chinese bank that foreign institutions may own is still capped at 20 percent for a single foreign investor and 25 percent for all foreign investors.

But the calculations of such stakes must now include indirect holdings by foreign institutions, according to the draft published by the China Banking Regulatory Commission (CBRC) on its website,

The draft rules will be open for public comment until September 9.

Chinese regulators typically issue final rules published within a month after the public comment period ends.

China attracted a wave of foreign investment in its banks from 2004 to 2008 when the country conducted a sweeping reform of its banking system, as it tried to convert its state-owned banks into commercial entities.

Foreign firms helped Chinese banks become more market-oriented in those years, but many Western investors have sold their stakes at huge profits in recent years.

That sparked criticism in some Chinese circles that state assets had been sold too cheaply, leading to calls to limit fresh foreign investment in the sector.

On the domestic front, the CBRC draft, which revises rules promulgated in 2006, plans a general relaxation of regulations on Chinese banks and companies, including:

— Removing a provision banning local governments from investing in banks or taking part in daily operations of banks;

— Removing a provision requiring that a financial institution wanting to establish a bank must also meet certain capital adequacy requirements itself;

— Removing a provision that says a Chinese bank may only apply for one new branch opening at a time in a single city;

— Removing a provision that restricts establishment of ATM branches.

Reporting by Lu Jianxin and Gabriel Wildua; Editing by Jacqueline Wong

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