Regulator clears banks for financial leasing after 10-year ban

PUBLISHED : Friday, 15 June, 2007, 12:00am
UPDATED : Friday, 15 June, 2007, 12:00am

The mainland banking regulator has lifted a decade-old ban and approved the setting up of finance leasing units for five lenders, offering another revenue channel for the country's fast-growing banking industry.

The China Banking Regulatory Commission did not name the lenders but it has been widely reported that they are Industrial and Commercial Bank of China, China Construction Bank Corp, Bank of Communications, China Merchants Bank and China Minsheng Banking Corp.

'We will allow more qualified banks to participate after the operations of those pilot banks,' CBRC vice-chairman Cai Esheng said in a statement yesterday.

The mainland allowed local and foreign banks to provide financial leasing in the 1980s but a ban was imposed in 1997 because of business risks and the region's financial crisis.

After the ban, six of the 12 financial leasing companies under the CBRC's supervision failed due to a liquidity crunch and the market never took off.

There are 70 other leasing companies supervised by the Ministry of Commerce, all with investments by foreign firms such as Siemens.

Revenue at all leasing companies was US$4.3 billion last year, accounting for 0.16 per cent of the country's economy, and their assets amounted to 44.2 billion yuan, Mr Cai said.

In a financial leasing deal, a lender buys the equipment and earns income by leasing it out. It is the second most-popular financing method after bank loans in many countries. The vehicle, aircraft and office sectors typically account for 15 to 30 per cent of total equipment investment.

As mainland banks grow and seek to expand their lending and demand for the service increases amid the rising global economy, a few have shown particular interest in the aircraft industry.

Minsheng Bank in March agreed to set up a leasing firm with European aircraft maker Airbus while Bank of China last year bought Singapore Aircraft Leasing Enterprise.

CBRC in that month also revised the rules to allow commercial banks to establish such companies.

Banks can control more than 50 per cent of a leasing company after meeting requirements such as a capital adequacy ratio of more than 8 per cent, minimum assets of 80 billion yuan and profits for two consecutive years.

'The springtime for leasing business has come with the participation of the banks,' said Guo Shuyan, a vice-chairman of the Financial and Economic Committee of the National People's Congress, at a conference this week.

Financing for small and medium-sized enterprises was one avenue of future earnings, said Hu Jiliang, the chief executive of Zhejiang Financial Leasing. About 60 per cent of his company's business last year came from providing funds to such firms.

However, the sector is still largely unregulated, as China has yet to launch any general rules. Development of the business could also be hampered by a lack of centralised supervision as most matters are handled by the CBRC and Ministry of Commerce.