China: Gov gives nod to wholly owned foreign banks

Draft rules from the China Banking and Insurance Regulatory Commission (CBIRC) show that the regulator will relax at least some ownership rules for foreign banks.

Reuters reported last week that with the new rules, these financial firms located outside China will be able to establish banks and branches that are wholly owned and funded. There will also be opportunity to establish joint ventures with Chinese-owned banks.

According to the newswire, the CBIRC said these foreign branches will be required to keep more than 8% of yuan risk assets as operational funds and reserves denominated in that currency.

In addition, with a nod toward access to these foreign banks, Chinese citizens are allowed to set up time deposits of more than 500,000 yuan (US$71,816) at these foreign-owned branches, a level that had been lowered from one million yuan (US$143,642).

The move comes a little less than a year after the Chinese government said it would relax limits on foreign ownership of banks and other financial firms. At the time, it was reported that China would let foreign investors own as much as 51% of Chinese securities entities, futures companies, and fund managers, with an eye on 100% percent stakes with a timeframe stretching to 2020. At the time, the cap on ownership had been 25% percent for large, publicly traded securities firms and 49% of other financial enterprises. The ownership stake had also been limited to 25% percent at the time of the November 2017 announcement.

In a statement by the China Banking Regulatory Commission (CBRC), the regulator announced at the end of last year that it was gearing up to release measures to “standardize market access” for foreign lenders. The order would reduce the red tape involved in banking services, creating a fair arena for bank branch openings, debt fundraising, and the examination of senior executives. As reported in these pages, the drafted measures would also “provide a clear legal basis” for foreign-backed banks to make equity investments in local Chinese financial companies.

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