The State Council, China's cabinet, has approved the establishment of the Bohai Bank, the first time a national joint-stock commercial bank has been given the go ahead since 1996.

Tianjin TEDA Investment Holdings Co Ltd, a state-owned conglomerate, will be the new lender's largest shareholder, while Standard Chartered, with a 19.99 percent stake, will be the sole foreign shareholder, sources said Tuesday.

Twenty percent remains the upper limit for single foreign investors in Chinese banks.

The selection of shareholders has been completed, but their qualifications have yet to be examined by the China Banking Regulatory Commission (CBRC), the banking watchdog, the municipal government of Tianjin, where the bank will be headquartered, said in a statement.

The bank still requires regulatory approval to become operational after preparations are completed, but municipal government officials did not give any further details.

"By ushering in a foreign investor as famous as Standard Chartered, the bank has a relatively good starting point," said Zhao Xijin, vice-director of the Finance and Securities Institute at Renmin University of China.

Keen on reforming the nation's bad-loan-ridden banks, China's banking authorities have adopted a prudent approach in terms of approving the establishment of new banks. Apart from Bohai, only one other joint-stock bank is reportedly being prepared.

And regulators attach great expectations on foreign expertise in ensuring the quality of new banks. Having a qualified overseas strategic investor is among the six requirements the CBRC has announced for the establishment of new banks.

"The expertise and experience of the foreign shareholder will certainly benefit the new banks," said Zhao.

"But there will a process for the two sides to get accustomed to each other's culture and operational methods, and they need to be prepared for this," he added.

Senior CBRC officials have enthusiastically welcomed foreign investors, underlining the improvements Chinese banks have made since they welcomed foreign investment.

The Bohai Bank, named after the Bohai Bay which embraces Tianjin, is also expected to help reinvigorate the local economy with stronger financial support.

The city is also reportedly aiming to become northern China's financial hub, with the establishment of Bohai Bank seen as a major step towards reaching this goal.

But analysts say the new lender should refrain from getting too deeply involved in supporting the local economy.

"Commercial banks should provide services to the local community, but they need to face all potential customers," Zhao said.

Some of China's national joint-stock commercial banks with regional names are finding it difficult to shed the image of being "local banks," he said.

The Pudong Development Bank, Shenzhen Development Bank and Guangdong Development Bank, all named after their places of incorporation, are all national banks.

Even the Beijing City Commercial Bank, which is restricted to the Beijing municipality, recently renamed itself as the Bank of Beijing.

Bohai Bank's 11 fellow national joint-stock lenders held 3.8 trillion yuan (US$458 billion) at the end of 2003, and had an average capital adequacy ratio of 7.35 percent.

TEDA Holdings has total assets of 40 billion yuan (US$4.8 billion), and its investments span from infrastructure construction and energy supply to insurance.

(China Daily January 19, 2005)