Around 45 billion yuan (US$5.7 billion) in insurance capital
could flood into China's banking sector after the nation's top
insurance watchdog unveiled a package of investment rules
yesterday.
According to detailed rules issued by the China Insurance
Regulatory Commission (CIRC) for insurers' equity investment in
banks, insurance institutions could invest no more than 3 percent
of their total assets in state-owned commercial banks, joint-stock
commercial banks and city commercial banks.
By the end of last year, the total assets of China's insurance
sector had reached 1.5 trillion yuan (US$190 billion), implying
that 45 billion yuan (US$5.7 billion) in insurance capital could be
poured into China's banking sector this year.
"Equity investment in banks is just the first step, and we are
considering regulations on investment in fixed-assets projects and
State-owned enterprises," a CIRC official told reporters
yesterday.
In guidelines published in late June, the regulator expressed
its support for insurers' investment in banks, part of its efforts
to boost insurers' investment returns.
"We support insurance companies buying into, or even taking
controlling stakes in, well-managed, profitable banks that have a
strong customer base," CIRC Chairman Wu Dingfu said earlier.
The regulation stipulated that insurers could use their
registered capital and provisions over 10 years for the
investment.
In terms of purpose and scale, insurers' investment in banks is
divided into two types general and grand investment.
Those accounting for less than a 5 percent stake in a bank are
classified as general investment, while those greater than 5
percent are regarded as grand investment. There are no upper
ceilings for the investment.
If an insurer plans to make a grand investment, its total assets
by the end of last year should be no less than 100 billion yuan
(US$12.7 billion).
For any investment taking a 10 percent stake or above, the
insurer should have total assets in excess of 150 billion yuan
(US$19 billion) by the end of last year.
Meanwhile, those target banks for general investment shall meet
the following requirements a capital adequacy ratio of up to 8
percent, a non-performing loans ratio lower than 5 percent and a
return on net assets of up to 12 percent.
In fact, China's largest life insurers have been quite investors
in banks.
In late July, Ping An Insurance (Group) Company became the
controlling shareholder in Shenzhen City Commercial Bank after it
bought an 89.24 percent stake in the lender for 4.9 billion yuan
(US$620 million).
According to Ping An Chief Operating Officer Louis Cheung,
banking services will become one of the company's key businesses in
the future, and the group is "open to any other opportunities."
Apart from the Shenzhen lender, Ping An has also been in talks
with Beijing-based China Everbright Bank. Sources said the
discussions are at a very early stage and it is uncertain whether
they will result in an agreement.
Meanwhile, Ping An also joined a consortium led by French bank
Societe Generale to bid for an 85 percent stake in Guangdong
Development Bank.
China Life, the country's largest life insurer, obtained a 1.75
percent share in Fujian-based Industrial Bank through an auction in
mid-August.
China's insurance premiums hit 493 billion yuan (US$62.4
billion) in 2005, ranking 11th in the world. The industry witnessed
a 25 percent annual increase from 2000 to 2005, the CIRC said.
(China Daily October 17, 2006)