The International Bank of Paris and Shanghai is a unique breed of foreign financial institution for the mainland, with a yuan currency licence and flexibility to do business. The six-year-old bank, a 50-50 joint venture between Banque Nationale de Paris and Industrial and Commercial Bank of China, began its local-currency business last December, despite receiving its licence 11 months earlier. Director and executive general manager Betty Nah said the joint-venture bank sought to offer the best services of the nine foreign banks with yuan licences. Ms Nah said the competition with the other eight institutions would not take place on pricing and volume fronts, areas which were tightly restricted by ground rules established by the People's Bank of China (PBOC). The restrictions stipulate foreign banks can build yuan deposits at interest rates determined only by the PBOC and extend credits at rates at a premium or discount of no more than 10 per cent based on the central bank's reference rates. Foreign banks holding local-currency licences also are not allowed to write yuan loans amounting to an aggregate of more than 35 per cent of their foreign currency assets equivalent. However, the major obstacle for these bank comes on the liability side of their balance sheets. Foreign banks conducting yuan business in the mainland are allowed to absorb deposits only from foreign-invested enterprises and non-Chinese nationals - customers short of local currency rather than having a surplus chest to deposit. 'We well understand our restrictions and we are not coming here with false hopes,' said Ms Nah, who added the bank always regarded its yuan capability as a tool to complement its other lines of business. She believed IBPS's support from its mainland shareholder Industrial and Commercial Bank of China, which sits on a large pool of cheap yuan deposits from local residents, should enable the joint-venture bank to offer better service to its customers than the competition. Ms Nah acknowledged expansion for IBPS would be limited by its own yuan assets and other restrictions but believed the bank could act as a conduit enabling BNP's vast clientele of multinationals to access ICBC's yuan funding. Describing the manner in which IBPS operated as 'taking full advantage of the hybrid structure', Ms Nah said ICBC also would introduce mainland clients who were in need of international services to its joint venture partner BNP. The real mechanism supporting such a conduit function is a guarantee the bank provides to its customers on their yuan borrowing from ICBC. That takes the form of a standby letter of credit. The yuan licence IBPS owns does not specify a ceiling amount for this guarantee service. Other foreign banks also provided this kind of guarantee service through their own relationships with domestic banks, yet Ms Nah believed the hybrid structure of IBPS allowed it to deliver such guarantees with greater flexibility that better satisfied the needs of its customers. The only limits for this line of business are the joint-venture bank's own internal exposure ceiling to a particular client endorsed by the PBOC. Ms Nah said that in a case where the bank felt compelling reasons for extending credits to a particular customer at an amount above that ceiling, the bank would apply to the PBOC for a restriction waiver, with approval usually provided. However, the executive general manager emphasised the bank would not sacrifice flexibility at the expense of legality. 'Flexibility should fall 100 per cent within the law. We don't get into grey areas,' she said. Despite its short history conducting local-currency business - and foreign-currency business as well - Ms Nah believed the joint venture bank would emerge as the best foreign-invested bank to offer yuan services. 'Our mission here is to help China develop,' she said. 'So we invest heavily in our people and equip them with better skills in foreign and local currency business.' Ms Nah pointed out there was a big niche for foreign-invested banks such as IBPS to provide bridging finance for multinational companies. She believed foreign bank portfolios were concentrated too heavily in working capital loans, which generally were of shorter maturity and more liquid. With the right level of understanding of customers and risks, bridging finance represented a promising growth area for the bank, Ms Nah said. At the bank's newly furnished offices in the Shanghai Exchange Tower in Pudong New Area, IBPS also boasts foreign currency trading systems fully modelled on those of BNP's Paris headquarters. The bank's Pudong premises are only the third location outside of France and Australia that BNP owns outright. That, Ms Nah claimed, was an indication of the shareholders' high level of commitment to Shanghai. Established in 1992, the joint-venture bank has registered capital of US$60 million, which was invested equally by the two shareholders. IBPS also has established its first representative office outside Shanghai in the nearby city of Suzhou, as part of the bank's strategy to assist the growth of economies in the Yangtze River Basin and attract investments from multinational corporations in the surrounding region.