Citigroup Inc has won approval from the Chinese government to go ahead with its equity investment in Shanghai Pudong Development Bank Co, the first mainland lender that the US banking giant agreed to buy into.

Shanghai-listed Pudong Bank said in a statement yesterday that the State-Owned Assets Supervision and Administration Commission under the State Council, China's cabinet, gave the nod for the 600-million yuan (US$72.29 million) deal on Thursday.

Citigroup will become the fourth largest shareholder of Pudong Bank by taking a 4.62 percent stake, or 180.75 million shares, the statement said. Citigroup bought the non-tradable shares in Pudong Bank from the Shanghai State Asset Management Co and Jiushi Co, said the local lender.

Citigroup had in April already secured the right to buy almost a quarter of Pudong Bank by the end of April 2008, an unprecedented equity investment by any overseas investor in a domestic bank. The agreement will allow the US bank to pick up stakes every April from 2006 to 2008 up to the ceiling limit of 24.9 percent.

"The deal will facilitate our expansion into the global market, which means we have to bring in modern expertise in retail banking, human resources management and risk control," said Pudong Bank earlier.

Meanwhile, Citigroup said that it wants to take advantage of Pudong Bank's extensive nationwide banking network to develop the credit card business, which is just taking off in the world's most populous country.

The net profits of Pudong Bank reached 656.84 million yuan in the first half, a year-on-year rise of 21.31 percent.

China has pledged to fully open its banking market to overseas investors by 2007, honoring its pledge to the World Trade Organization.

Industry sources said the Chinese government is considering allowing a single overseas investor to hold up to 25 percent stake in domes-tic banks, compared to the current 15-percent limit.

Hongkong and Shanghai Banking Corp and International Finance Corp became shareholders of Bank of Shanghai around the end of 2001.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said last month that the government is encouraging foreign banks to invest in home-grown lenders so that they can be more involved in the reform of the banking sector.

(Shanghai Daily September 20, 2003)