Regulator to allow direct equity invesment by banks
March 17, 2009 | BY
clpstaff &clp articlesRule change may provide more support for public and private companies
Banks in China will soon be able to make direct equity investments, in a move set to provide further stimulus for the country's economy.
The China Banking Regulatory Commission (CBRC) is said to be drafting new regulations which will change the rules governing banks' investment practices, initially for a set of approved institutions. Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China will participate in a trial scheme during the first half of 2009.
Under present rules (Article 43 of the 1995 PRC Commercial Banking Law) banks are regarded strictly as vehicles for lending. They are explicitly banned from investing in “non-bank financial institutions or other enterprises”.
In a revision of the Law in 2003, new text was added to Article 43 allowing for exceptions under other State regulations. So far, relevant regulations have permitted banks to invest in fund management, insurance and financial leasing companies. But banks have not been permitted to hold equity in other types of companies, except in the case of non-performing loans.
The regulations reportedly being considered by the CBRC have been welcomed, although the details are not yet clear.
“We will not know what this means until after the regulations are issued and it becomes clear exactly what is the nature and scope of what the banks will be allowed to do,” said Melissa Thomas, a partner in the Shanghai office of Freshfields Bruckhaus Deringer.
Banks may be able to invest in listed shares, perhaps to support their large listed borrowers (as Japanese banks have historically done), or to help support the market more generally. They may also be allowed to invest in non-listed companies.
“Either way, it is a major change to the business of banks for which historically the options have been either to lend or to keep depositors' funds sitting in the form of cash or government bonds,” Thomas said.
This premium content is reserved for
China Law & Practice Subscribers.
A Premium Subscription Provides:
- A database of over 3,000 essential documents including key PRC legislation translated into English
- A choice of newsletters to alert you to changes affecting your business including sector specific updates
- Premium access to the mobile optimized site for timely analysis that guides you through China's ever-changing business environment
Already a subscriber? Log In Now