China eases licensing requirements for foreign banks
Measures a clear signal the regulator is granting more breathing room to foreign banks, as they compete in a market dominated by domestic lenders
China’s banking regulator has eased licensing rules for foreign-owned banks on investment banking services in the country, and their investment into domestic banking institutions, in an continued effort to further open up the nation’s financial sector and allow more Chinese firms to do business overseas.
The new measures were a clear signal that the regulator is granting more breathing room to foreign banks in the mainland, as they compete in a marketplace dominated by domestic lenders, market watchers said.
China Banking Regulatory Commission(CBRC) said that wholly-owned foreign bank operations, joint ventures and their branches can cooperate with their parent groups overseas to assist Chinese companies expand globally through overseas bond sales, IPOs, mergers and acquisitions, and other financing activities.
They can also invest in some domestic financial institutions, said a notice posted on its official website.
Commentators said the moves mean that effectively for the first time officials were giving regulatory support to overseas banks operating in the mainland China to cash in on overseas activities of businesses in the country.
Without administrative pre-approval, foreign banks can now underwrite treasury bonds, and offer custodian and financial advisory services. Previously, they had to report to the regulator in advance when carrying out such business.
The new rules mean they can now speed up their business operations with a post-reporting mechanism that allows them to report to the regulator five days after transactions are completed.
“It will give foreign banks more levers in generating revenue in fighting against the dominance of domestic players,” said Ren Zhiyi, a partner at law firm Fangda Partners.
“It’s a signal of support for their development, and could act as a concrete accelerator for them.”
However, it remains unclear exactly what effect the new measures will have on foreign banks’ new investments in Chinese banking institutions, as many appear more focusing on generating cash from existing business, rather than expanding into new sectors, he said.
JP Morgan Chase China said it welcomed the new rules, and that it would further “strengthen communications with the regulator” on how they could have a “long-lasting’ impact on the bank’s business”.
The US bank set up a locally incorporated bank in the mainland in 2007.
By the end of last year, foreign banks had set up 39 locally-incorporated entities in China, 121 local subsidiaries and 166 China representatives, the CBRC said.
Yang Yue, a banking analyst at China Zheshang Bank, said the new rules could certainly help give foreign banks an edge in differentiating themselves in a highly competitive market.
“Foreign banks as a whole have shown a lukewarm performance in China, whether in terms of asset scale, client base, profitability or market influence, despite decades of development,” said Yang.
“Yet they still enjoy a competitive edge in certain businesses and regions, such as cross-border financial services, private banking and risk control.”