Wait for banking regulations almost over

October 31, 2006 | BY

clpstaff

Foreign lending institutions will only have to wait a few more weeks for a rule allowing overseas banks to deal with renminbi business nationwide, the…

Foreign lending institutions will only have to wait a few more weeks for a rule allowing overseas banks to deal with renminbi business nationwide, the China Daily reported on October 11 2006. The rule is expected to be submitted to the State Council for further approval and will be released in November.

China is expected to open up its banking sector to foreign companies by December 11 2006, pursuant to its World Trade Organization membership commitments.

Compared to the draft version which the China Banking Regulatory Commission (CBRC) sent out to China's administrative bodies and foreign banks for comments, the banking rule will undergo very little change. Under the draft rule, foreign lenders are encouraged to register local companies within China rather than to establish branches to conduct renminbi business, as it will lower their investment threshold for entering the Chinese market.

Under the draft rule, banks registered abroad must have no less than US$125,000 in renminbi deposits, and foreign banks must maintain an overall lending amount of no higher than 75% of overall deposits. These requirements are unlikely to change in the final version of the rule. By comparison, domestic banks have no such restrictions on conducting renminbi business.

Foreign lenders such as HSBC, Citibank, Hang Seng Bank and DBS Group have already begun the process of transforming their branches into locally-registered corporations in anticipation of the new rules.

Although some foreign banks have expressed concerns and commented that the draft rule is too restrictive, an unnamed CBRC source told China Daily that it is unlikely that the rule will be further relaxed. Several foreign banks have also expressed concerns over the lengthy delays they may encounter during the transition process, because of the complex legal procedures involved. However, the CBRC has indicated that it will work with local government and foreign lenders to shorten the process.

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