The detailed version of a new regulation for insurers' investment in banks has been fundamentally finished, an official from the industry regulator said.

The new measure which comes as Ping An, China's second biggest insurer, bought a controlling stake in the Shenzhen City Commercial Bank is designed to improve insurers' management and boost investment returns.

"The focus of the detailed regulation will be the purpose and means of investment, requirements for the investment target and risk management," said Cao Deyun, an official in the capital management department of the China Insurance Regulatory Commission (CIRC).

Insiders disclosed that an insurer investing in unlisted banks, for instance, would have to choose one with a capital adequacy ratio exceeding 8 percent, total assets above 50 billion yuan (US$6.25 billion) and whose non-performing loan ratio is below 5 percent.

In a guideline document published in late June, the insurance regulator expressed its support for insurers' investment in banks.

"We support insurance companies buying into, or even taking controlling stakes in, well-managed, profitable banks that have a strong customer base," Wu Dingfu, chairman of the CIRC said earlier.

On Friday Ping An Insurance (Group) Company bought an 89.24 percent stake in the Shenzhen City Commercial Bank for 4.9 billion yuan (US$612.5million).

Ping An shares closed at HK$26.40 yesterday, an increase of 1.93 percent on the day before. The company's shares have been up 85 percent so far this year, exceeding the 29 percent rise of the Hong Kong bourse benchmark.

The bid, which is still subject to approval from the China Banking Regulatory Commission, is a strategic investment for Ping An, said the group's spokesman Sheng Ruisheng, adding the group will still consider investing in other banks.

The move is also part of Ping An's efforts to strengthen its relatively weak financial services foothold.

Ping An, together with Hong Kong and Shanghai Banking Corporation (HSBC), took over Fujian Asia Bank in 2003 and renamed it Ping An Bank. This made Ping An a comprehensive financial giant with roots in insurance, trust, brokerage services and banking businesses.

Now Ping An is China's third- largest financial holding group after CITIC Group and Everbright Group.

However, as Ping An Bank is a joint venture, the company's business scope and network are subject to more constraints.

To strengthen its position in the financial sector, Ping An is striving to enhance its banking business, at the moment a comparatively weak arm.

According to Louis Cheung, chief operating officer of Ping An, banking services will become one of the company's key businesses in the future, and the group is "open to any other opportunities."

Besides bidding for Shenzhen City Commercial Bank, Ping An has also been in talks with Beijing-based China Everbright Bank. Sources said the discussions are at a very early stage and it is not certain they will produce an agreement.

Meanwhile, Ping An also joined a consortium led by French bank Societe Generale to bid for an 85 percent stake in Guangdong Development Bank (GDB).

Ping An aimed to acquire as much as 20 percent of the GDB, the Beijing-based Economic Observer cited unnamed sources as saying.

Societe Generale and its other Chinese partners, Shanghai Baosteel Group and China Petrochemical, will each bid for about 20 percent in the lender, while Canadian pension fund manager Caisse de Depot et Placement du Quebec, will take up the remaining 5 percent, the newspaper said.

China Life, the country's biggest life insurer, also joined the bid for the GDB but in a Citibank-led group which includes China National Petroleum, China National Cereals, Oils and Foodstuffs and United States private equity group Carlyle.

Citibank is competing with Societe Generale for control of the Guangdong-based lender.

(China Daily August 1, 2006)