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Chinese banking regulators have amended the nation's banking rules to give foreign lenders a five-year grace period before they are required to reduce their renminbi loan-to-deposit ratio to less than 75 percent.

 

According to the draft amendment to the recently released rules on foreign-funded banks, a locally incorporated foreign bank has to keep its total lending at no higher than 75 percent of all deposits by December 1, 2011.

 

The draft amendment, which has been sent to foreign lenders for comments, is likely to be released by the end of November, a source close to foreign banks told China Daily yesterday.

 

Although they've been successful in expanding their renminbi lending business, especially with multinational clients, their restricted branch network has limited foreign banks in terms of collecting deposits.

 

For that reason, many foreign banks indicated that although they've been successful in expanding their renminbi lending business, especially with multinational clients, meeting the new loan-to-deposit requirement could greatly disrupt their business.

 

Statistics show that foreign financial institutions in China collected 114 billion yuan (US$14.3 billion) in deposits by the end of August while 161 billion yuan (US$20 billion) was paid out in loans during the same period.

 

"The criteria could be a tough request for foreign lenders if the regulator doesn't give them a five-year grace period," said an industry insider.

 

From December 11 foreign banks are expected to have five years to attract enough renminbi deposits to improve their financial status to compete with local rivals under the same standards. The rule also gave a three-year grace period before foreign banks are prevented from lending over 10 percent of their capital to a single client.

 

"The money a locally incorporated foreign bank lends to a single client cannot exceed 10 percent of its overall capital after December 1, 2009 and before that, foreign banks cannot lend over 25 percent of their capital to a single client," it said.

 

According to the rule a foreign bank that doesn't incorporate locally need not acquire a specific license from the banking regulator to accept deposits over 1 million yuan (US$126,582) after December 11. "They only need to change their business licence to deal with this," it said.

 

Those foreign banks are expected to appoint one of their branches to manage their business in China and to submit a financial report to the regulator.

 

To implement China's banking commitment to the World Trade Organization, the Chinese Government has been working on rules to allow foreign-funded banks to deal with renminbi retail business after December 11.

 

Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission, said last week that foreign banks could enjoy "national treatment" in the banking business after the two rules become effective on December 11.

 

In order to better protect the interests of domestic depositors the Chinese Government is encouraging foreign banks to incorporate locally when dealing in renminbi retail business.

 

(China Daily November 23, 2006)