China Merchants Bank (CMB) is expected to take part in the capital market by buying its own fund management companies.

 

CMB announced that the China Banking Regulatory Commission (CBRC) approved the bank's application to invest in fund management companies and is waiting for the China Securities Regulatory Commission (CSRC) on further confirmation.

 

If the application goes through, CMB will likely enter into the capital market by buying 30.1 percent shares of the existing fund company China Merchants Funds, becoming its biggest shareholders.

 

Of the shares, 10 percent will be bought from China Merchants Securities and the rest from three local finance companies. With the change of shareholders, CMB, China Merchants Securities and ING Group will become the top three big shareholders of the fund.

 

However, if CMB plans to hold the shares of China Merchants Funds, it will no longer be eligible to be the fund's custodian caring for the fund's 10 billion yuan (US$1.2 billion) in assets. This may result in the bank's loss of profit in the fund custody business.

 

CMB's entrance into the capital market follows pioneer commercial banks including Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of Communications (BOCOM), which have shaken up China's long-practised segregated regulatory scheme in the banking, securities and insurance sectors.

 

Previously, Chinese banks were not allowed to take part in securities investments or insurance, focusing mainly on the traditional lending and deposit services.

 

Allowing banks to invest in fund management enables them to expand their business spheres and improvise profit models, meanwhile offering the savings fund wider investment channels.

 

If banks can initiate mutual funds and take part in the core investment business, it may divert part of the country's 13 trillion yuan (US$1.6 trillion) savings pool into the capital market.

 

(China Daily January 4, 2006)