Five lenders will become the first to enter the mainland under the auspices of the new agreement Five Hong Kong banks will be the first lenders to take advantage of the closer economic partnership arrangement (Cepa) when it comes into effect next year. Two of the banks are expected to enter by way of acquisitions of mainland financial institutions. Wing Lung Bank and Shanghai Commercial Bank - which have representative offices in Guangzhou and Shenzhen, respectively - had applied to upgrade to full branch offices in Shenzhen to take advantage of the US$6 billion lower-asset entry hurdle under Cepa, sources in Shenzhen said. Dah Sing Bank has applied to set up a representative office in Shenzhen. Mainland-backed Citic Ka Wah Bank and ICBC (Asia) used slightly different tacks. Options being floated by the two banks included the possible acquisition or restructuring of mainland financial institutions, the sources said. An ICBC (Asia) spokeswoman told the South China Morning Post yesterday that the bank was 'considering setting up institutions in Shenzhen' for banking business. She said the bank was also looking for business partners. Potential candidates are understood to be Shenzhen-based financial institutions not under its parent, Industrial and Commercial Bank of China, the mainland's largest bank. A spokeswoman for Citic International Financial Holdings - the locally listed holding company of Citic Ka Wah - would not confirm any such plan - saying only it was looking to expand in China. Citic Ka Wah has made clear its eagerness to co-operate with Citic Industrial Bank - its mainland sibling under state-controlled China International Trust & Investment Corp (Citic) - to leverage Citic Industrial's mainland network. In the first half of the year, eight large syndication loans and club deals were jointly arranged by Citic Ka Wah and Citic Industrial. The two banks are on track to issue various types of yuan and dual-currency credit cards towards the end of the year. In May, reports surfaced that an attempt to fold Citic Ka Wah into Citic Industrial - part of Citic's effort to consolidate its mainland and Hong Kong financial assets - was thwarted by the Hong Kong Monetary Authority. The bank maintained that there was no formal agenda for any such plans but its strategy was to acquire assets in the mainland, including some from its parent. According to the sources, the China Banking Regulatory Commission attaches great importance to Cepa and regulatory approval for the Hong Kong banks should proceed quickly. The mainland move by mid-tier local lenders comes as they increasingly face flattening interest-rate margins and low loan demand in the crowded banking market. Consolidation is also taking hold. In the past three months, Wing Hang Bank, Taiwan's Fubon Financial Holding, ICBC (Asia) and Standard Chartered have either bought control of local lenders, signed letters of intent or expressed an intention to buy bank stakes. Under Cepa rules, qualifying Hong Kong banks are allowed to conduct yuan transactions after two years of business, instead of the three-year requirement for standard foreign banks. They can also pool the profits of all mainland branches while foreign banks must break up individual branch profits before getting yuan business clearance.