Refuting a spate of recent media reports, China's banking regulator says the nation is unlikely to revise rules on equity investment by foreign investors in local banks by the end of next year.

"The current ratios fit with the development level of the market and the situation of banking institutions," a CBRC (China Banking Regulatory Commission) official said yesterday.

"We will consider the possibility of adjusting the ratios at the end of next year according to our analysis," he added, declining to be named.

Any single foreign bank is allowed to take no more than 20 percent of a Chinese bank while foreign banks are allowed to hold no more than a combined 25 percent.

Eager to usher in foreign capital and expertise, a number of Chinese banks are selling stakes to foreign strategic investors ahead of planned initial public offerings. Nineteen foreign financial institutions have so far invested a total of US$16.5 billion in 16 Chinese banks, including State-owned lenders and smaller banks, official statistics indicate.

Foreign banks, such as UBS and the Bank of America, have been enthusiastic about buying into their Chinese counterparts, hoping to benefit from China's promising financial market.

Recent media reports said the CBRC is considering raising equity investment ceilings. According to Bloomberg News, Dutch's ABN Amro Holding NV and France's Societe Generale SA are even teaming up with Chinese partners in bidding for a 51 percent stake in the Guangdong Development Bank, one of the nation's 12 national joint stock banks.

Yet a revision of the rules is unlikely in the near term, as the CBRC is planning a systematic review of the existing equity investments of foreign financial institutions in Chinese banks.

"Whether there needs to be any adjustments should be decided only after we reach a conclusion after the review," the official said.

Regarding the case of the Guangdong bank, he said: "As to the ratio in some individual bank, whether there is any change is a matter for the individual case."

On a related front, Liu Chengxiang, spokesman for the CBRC, said yesterday that non-performing loans (NPLs) of Chinese banks are unlikely to reverse a recent trend of decline, dismissing fears among some observers that NPLs might rebound.

"Overall, the non-performing loans of Chinese banks will not show any uptrend," he said. "And with the management (of banks) improving, they are expected to continue on the downward trend."

Chinese banks have been working hard to reduce their NPLs in recent years as part of efforts to improve competitiveness before the sector is fully opened to foreign players at the end of next year, as required by the nation's World Trade Organization commitments.

The NPL ratio of China's major commercial banks (the Big Four State-owned banks and 12 national joint-stock banks that hold 69 percent of all financial assets) dropped by 5.7 percentage points in 2003 and a further 4.5 percentage points last year, Liu said.

The ratio shrank by 4.4 percentage points in the first half of this year, with a total of 554 billion yuan (US$68 billion) of bad loans being cut from the banks' balance sheets.

But concerns emerged in recent months that, as the authorities tighten controls in a few sectors that may be overheating, a huge amount of new bad loans may be created. This would disrupt the authorities' plans to reduce both the outstanding amount and ratio of NPLs in the coming years.

Data from some joint-stock banks are showing signs of a rebound in NPLs this year.

But these fluctuations are unlikely to reverse the overall trend, said Liu.

(China Daily October 26, 2005)