Five Chinese banks are expected to soon begin dealing in financial leasing, becoming the first batch of banks to pilot the emerging industry.

 

The Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, China Merchants Bank, and China Minsheng Banking Corp have submitted applications to the Chinese government to deal in financial leasing, a source close to the five banks said yesterday.

 

According to the source, who refused to be named, the government is expected to start processing their applications in March since a rule that allows banks to deal in financial leasing took effect on March 1.

 

The rule, issued in January by the China Banking Regulatory Commission (CBRC), allows both locally and overseas-incorporated commercial banks to directly set up financial leasing companies.

 

This is the first time the country has permitted commercial banks to deal in financial leasing since 1997, when they were required to withdraw from the business after the Asian financial crisis.

 

Dong Wenbiao, president of Minsheng, said on Monday that the bank is actively cooperating with the State Grid Corp of China and a Tianjin-based Airbus China assembly plant to set up a financial leasing joint venture in which the bank will hold 51 percent stake.

 

If approved, the five banks including Minsheng are expected to begin financial leasing soon after.

 

"The Chinese government wants to select those banks that have large asset scales and solid financial status to experiment on such a new business in order to reduce risks," an industry insider said on condition of anonymity.

 

Bank of China (BOC), however, will not join the first batch of banks to develop the business on the mainland, a source close to the bank said. The bank is considering developing financial leasing overseas, instead. BOC had acquired a 100 percent stake in Singapore Aircraft Leasing Enterprise, the largest aircraft leasing company in Asia, in December.

 

To date, there are 12 financial leasing companies under CBRC's regulation, all of which were approved before 1995. The new rule is likely to make commercial banks the most common investors in the industry.

 

With banks entering the financial leasing business, the industry is expected to undergo a rapid expansion period after years of stagnancy caused by a limited capital supply since it was introduced into China 26 years ago.

 

"There will be a great reshuffling among financial leasing companies, and by acquiring existing financial leasing firms or setting up new ones, commercial banks will diversify their financial services, develop non-interest income and boost competitiveness," She Minhua, banking analyst with CITIC China Securities, said.

 

Financial leasing is an intersection of financing and leasing. Unlike renting, in which the owner remains the same after the deal is completed, financial leasing eventually leads to a transfer of ownership.

 

(China Daily March 7, 2007)