Refuting a spate of recent media reports, China's banking regulator said yesterday that rules on equity investment by foreign investors in local banks are unlikely to be revised by the end of next year.

 

"The current ratios fit with the development level of the market and the situation of banking institutions," an anonymous China Banking Regulatory Commission (CBRC) official said.

 

"We will consider the possibility of adjusting the ratios at the end of next year according to our analysis," he added.

 

Any single foreign bank is allowed to take no more than 20 percent of a Chinese bank while foreign banks are allowed to hold no more than a combined 25 percent.

 

Eager to usher in foreign capital and expertise, a number of Chinese banks are selling stakes to foreign strategic investors ahead of planned initial public offerings. Nineteen foreign financial institutions have so far invested a total of US$16.5 billion in 16 Chinese banks, including State-owned lenders and smaller banks, according to official figures.

 

Foreign banks, such as UBS and the Bank of America, have been enthusiastic about buying into their Chinese counterparts, hoping to benefit from a promising financial market.

 

Recent media reports said the CBRC is considering raising equity investment ceilings. According to Bloomberg News, the Netherlands' ABN Amro Holding NV and France's Société Générale SA are even teaming up with Chinese partners in bidding for a 51 percent stake in the Guangdong Development Bank, one of the nation's 12 national joint stock banks.

 

Yet a revision of the rules is unlikely in the near term, as the CBRC is planning a systematic review of the existing equity investments of foreign financial institutions in Chinese banks, the official said. "Whether there needs to be any adjustments should be decided only once we reach a conclusion after the review."

 

Regarding the Guangdong bank, he said: "As to the ratio in some individual banks, whether there is any change depends on the individual case."

 

In related news, Liu Chengxiang, CBRC spokesperson, said yesterday that Chinese banks' non-performing loans (NPLs) are unlikely to reverse a recent trend of decline, dismissing fears among some observers that they might rebound.

 

"Overall, the non-performing loans of Chinese banks will not show any uptrend," he said. "And with the management [of banks] improving, they are expected to continue their downward trend."

 

Chinese banks have been working to reduce their NPLs in recent years as part of efforts to improve competitiveness before the sector is fully opened to foreign players at the end of next year, as required by the nation's WTO commitments.

 

The NPL ratio of major commercial banks (the Big Four State-owned banks and 12 national joint-stock banks that hold 69 percent of all financial assets) dropped 5.7 percentage points in 2003 and a further 4.5 percentage points last year, said Liu.

 

It shrank by 4.4 percentage points in the first half of this year, with a total of 554 billion yuan (US$68 billion) of bad loans cut from the banks' balance sheets.

 

But concerns emerged in recent months that, as the authorities tighten controls in a few sectors that may be overheating, a huge amount of new bad loans may be created.

 

Data from some joint-stock banks have shown signs of a rebound in NPLs this year, but Liu said these fluctuations were unlikely to reverse the overall trend.

 

(China Daily October 26, 2005)