Shanghai Pudong Development Bank, in which US financial service giant Citigroup holds a stake, plans to buy into a rural bank in Sichuan province and a city commercial lender in Shandong.

In a statement to the Shanghai Stock Exchange yesterday, the bank said it would take the initiative in setting up Mianzhu Puyin Township Bank Co Ltd in Sichuan province, with a registered capital of 50 million yuan.

In the plan pending the regulatory approval, the Pudong bank proposed to inject no more than 37.5 million yuan for a 51 to 75 percent stake in the bank to be formed in Mianzhu, one of the hardest hit areas by May 12 earthquake.

The move comes amid increasing calls from authorities in providing farmers and small businesses in rural areas with easier access to loans.

Shareholders also gave a green light for Pudong bank's target of buying into Laishang Bank in Laiwu, without elaborating on its potential investment. The pair signed a memorandum of understanding for their strategic partnership on May 8, under which teamwork on stake holding, corporate administration and bank services will be carried out.

Laishang Bank, founded in July 2005, had 12.9 billion yuan in total assets and made 307 million yuan in net profit at the end of last year.

Analysts said the step allows the Pudong bank to strengthen its presence in the province.

The transformation of major State banks into ingenious commercial banks in recent years has reduced financial support for rural residents and small businesses. Presently the main financial institutions serving the vast rural areas are policy-oriented Agricultural Development Bank of China, Agricultural Bank of China and more than 30,000 rural credit cooperatives.

Realizing the urgency of building a system of rural finance that can stimulate growth, the government is taking steps to introduce new types of rural financial institutions and reform rural finance.

But as State institutions cut their dominance in rural areas, foreign banks, small and medium-sized Chinese banks and even private firms have shown interest in the nation's underdeveloped regions, given the tremendous promise of economic development in the rural areas.

The great potential in China's rural regions attracted these institutions to set up branches, said Du Xiaoshan, an economist with Chinese Academy of Social Sciences.

(China Daily July 17, 2008)