Banking regulators may further loosen rules on foreign lenders
dealing with renminbi business in response to claims by overseas
players that the draft rule is too restrictive.
The China Banking Regulatory Commission (CBRC) and the Ministry
of Commerce are likely to lower the minimum amount a foreign bank
branch can accept for a single local renminbi deposit originally
set at 1 million yuan (US$125,000) said a source from the
regulatory body, adding that the two sides had yet to decide the
specific amount.
The CBRC sent a draft version of the administrative rule on
foreign banks to regulatory bodies and a group of foreign and
domestic lenders for review in June.
The rule, which aims to regulate foreign players, will allow
foreign lenders to deal with renminbi business at the end of the
year in accordance with China's World Trade Organization (WTO)
commitment.
But foreign banks claimed the draft rule has too high a
threshold and is not conducive to overseas players expanding their
renminbi business.
"The demand of foreign banks to draw a single renminbi deposit
with a minimum amount of US$125,000 will hamper most local
residents' ability to deposit their money in those banks," said a
foreign banker who declined to be named.
A source said the banking regulator could not reach agreement on
certain aspects of the rule with the Ministry of Commerce, which
has a major role in ensuring China's WTO compliance.
"The two sides have been in continuous discussion and working
closely in the past few days, which may finally lead to a lower
threshold than the earlier proposal in order to get in line with
the WTO principle for a wider open market," he said.
Foreign banks would be more willing to accept the new rule if it
allowed them to collect a lower minimum amount for a single local
deposit, he said.
"But this might be the only major change in the final version.
The requirement written in the earlier draft saying that a foreign
company cannot provide loans of more than 10 percent of its
registered capital to a single client is not likely to be changed,"
the source said.
And the banking regulator is not ready to change the criteria
demanding all banks keep overall lending no higher than 75 percent
of overall deposits.
"Those criteria could still be a tough request for foreign
players," an industry insider said.
Due to limited access to the renminbi retail market, foreign
banks are facing a general shortage of yuan deposits, which could
lead to high loan/deposit ratios.
CBRC statistics show that foreign financial institutions in
China had collected 114 billion yuan (US$14.3 billion) in deposits
by the end of August, while 161 billion yuan (US$20 billion) were
paid out in loans during the same period.
The CBRC emphasized in its draft rule that its purpose was to
encourage foreign lenders to register local corporations within
China instead of setting up branches to deal with renminbi
business. It said the draft rule favoured local corporations
registered by foreign lenders.
"The purpose is to protect the interests of domestic depositors,
and a local corporation is easier to supervise than a branch," it
said.
A total of 103 foreign bank branches and seven foreign banking
corporations were allowed to deal in renminbi business in 25 cities
in China at the end of June. They will be allowed to expand across
the country and extend their clients from enterprises to local
residents at the end of 2006 under the revised draft rule.
(China Daily September 21, 2006)