Chinese banking regulators have amended the nation's banking
rules to give foreign lenders a five-year grace period before they
are required to reduce their renminbi loan-to-deposit ratio to less
than 75 percent.
According to the draft amendment to the recently released rules
on foreign-funded banks, a locally incorporated foreign bank has to
keep its total lending at no higher than 75 percent of all deposits
by December 1, 2011.
The draft amendment, which has been sent to foreign lenders for
comments, is likely to be released by the end of November, a source
close to foreign banks told China Daily yesterday.
Although they've been successful in expanding their renminbi
lending business, especially with multinational clients, their
restricted branch network has limited foreign banks in terms of
collecting deposits.
For that reason, many foreign banks indicated that although
they've been successful in expanding their renminbi lending
business, especially with multinational clients, meeting the new
loan-to-deposit requirement could greatly disrupt their
business.
Statistics show that foreign financial institutions in China
collected 114 billion yuan (US$14.3 billion) in deposits by the end
of August while 161 billion yuan (US$20 billion) was paid out in
loans during the same period.
"The criteria could be a tough request for foreign lenders if
the regulator doesn't give them a five-year grace period," said an
industry insider.
From December 11 foreign banks are expected to have five years
to attract enough renminbi deposits to improve their financial
status to compete with local rivals under the same standards. The
rule also gave a three-year grace period before foreign banks are
prevented from lending over 10 percent of their capital to a single
client.
"The money a locally incorporated foreign bank lends to a single
client cannot exceed 10 percent of its overall capital after
December 1, 2009 and before that, foreign banks cannot lend over 25
percent of their capital to a single client," it said.
According to the rule a foreign bank that doesn't incorporate
locally need not acquire a specific license from the banking
regulator to accept deposits over 1 million yuan (US$126,582) after
December 11. "They only need to change their business licence to
deal with this," it said.
Those foreign banks are expected to appoint one of their
branches to manage their business in China and to submit a
financial report to the regulator.
To implement China's banking commitment to the World Trade
Organization, the Chinese Government has been working on rules to
allow foreign-funded banks to deal with renminbi retail business
after December 11.
Wang Zhaoxing, assistant chairman of the China Banking
Regulatory Commission, said last week that foreign banks could
enjoy "national treatment" in the banking business after the two
rules become effective on December 11.
In order to better protect the interests of domestic depositors
the Chinese Government is encouraging foreign banks to incorporate
locally when dealing in renminbi retail business.
(China Daily November 23, 2006)