The Asian Development Bank (ADB) is in the process of acquiring a stake in Hangzhou City Commercial Bank, sources have revealed.

ADB, headquartered in Manila, has almost reached the final stages of negotiations, two sources told China Daily.

But both declined to disclose the financial terms involved in the deal, which, they said, was expected to be completed by early July.

The deal, which still needs the approval of the China Banking Regulatory Commission (CBRC), the country's banking regulator, would make ADB the second foreign investor to buy into Hangzhou City Commercial Bank, located in the capital of east China's Zhejiang Province.

Australia's second largest bank, the Commonwealth Bank of Australia, last April bought a 19.9 percent stake in the bank at a cost of 625 million yuan (US$78 million).

The equity investment would also be ADB's latest investment in China's financial sector.

ADB last year invested US$75 million in Bank of China, China's largest foreign exchange bank, which raised US$11.2 billion in the world's largest initial public offering in six years earlier this month.

It has also invested in China Everbright Bank and Xiamen International Bank.

Hangzhou City Commercial Bank, with a registered capital of 600 million yuan (US$75 million), is a leading bank among China's 113 city commercial banks.

It is ranked third among the country's city commercial banks, according to a listing published by The Banker, a British magazine.

The ratio of non-performing loans to total loans at the bank stood at 2.03 percent by the end of last year, one of the lowest in the country.

Required by the CBRC to increase their capital adequacy ratio to 8 percent by the end of 2006, China's city commercial banks have stepped up restructuring efforts in recent years.

Attracting foreign strategic investors is a major part of that strategy.

The number of city commercial banks that have teamed up with foreign strategic investors came to nine by the end of last year, according to the CBRC figures.

And about a dozen city commercial banks are currently eager to sell stakes to foreign investors.

Some of them have already reached preliminary agreements with foreign partners, according to Xinhua News Agency, citing Liu Minkang, chairman of the CBRC.

They include banks in Dalian, Chongqing, Changsha, Wuhan, Nanchang and Shenyang.

In addition to attracting foreign strategic investors, some city commercial banks are also seeking consolidation through mergers.

(China Daily June 20, 2006)