After an 18-month courtship, analysts expressed relief that the deal was finally concluded but some worried that the smaller than expected stake might signal a scaled-down commitment to the modernisation and reform of China's second-largest bank.

'It does raise questions about RBS's commitment and how big a role it can and is willing to play [to improve BOC's operations],' an analyst at a western brokerage said yesterday.

The agreement guaranteed Edinburgh-based RBS 'exclusive strategic partnership' with BOC in areas such as credit cards, wealth management, corporate banking and insurance, group chief executive Sir Fred Goodwin, said yesterday.

'From our point of view, it doesn't make a lot of difference whether it's 5 or 10,' he said. 'The investment aspect is just alongside our principal interest which is a strategic partnership with BOC.'

Li Ka-shing Foundation would pay US$750 million for a stake of just more than 2 per cent, Victor Li Tzar-kuoi, Li Ka-shing's eldest son, said yesterday.

Merrill Lynch, which advised RBS on the transaction and is a contender to underwrite BOC's initial public offering next year, will hold a nominal stake of more than 2 per cent.

The transaction values the Beijing-based lender at about US$30 billion, or 1.22 times its book value of 205.35 billion yuan at the end of last year.

Analysts believe the sale entails the transfer of equal portions of new and existing BOC shares. Shares held by the consortium will be subject to a lock-up period of three years.

The sale, which must be vetted by mainland regulators, is expected to be completed by the end of the year.

'The co-operation with RBS is a key step in our joint-stock reform and is crucial to transforming operational structure, enhancing internal management, improving competitiveness and promoting profitability,' BOC chairman Xiao Gang said in the statement issued by RBS yesterday.

The transaction will give the British bank, which opened a Shanghai branch last year, access to BOC's more than 11,000 branches across a country with 27 trillion yuan in private and corporate deposits.

BOC controls 14 per cent of the country's deposit base and 12 per cent of its loan market.

'We have had business activities in China for about 10 years on a modest scale in corporate banking and wealth management,' Sir Fred said. 'Having a partner of this quality and scale gives us access to China which would be just unconceivable without the partnership.'

Sources previously told the South China Morning Post that RBS was intent on acquiring a 10 to 15 per cent stake in BOC. More recent reports suggested it would buy 9.9 per cent of the mainland bank for US$2.5 billion.

Since news broke about RBS's interest in BOC in April, its London shares have come under pressure as investors feared the bank might leap headlong into a banking sector notorious for an opaque corporate culture, a punishing legacy of bad loans and endemic corruption.

Last Friday, a Chinese court handed Liu Jinbao, a former BOC vice-chairman and chief executive of its Hong Kong unit, a suspended death sentence for embezzling more than 14 million yuan.

After the announcement of a more modest exposure to BOC, RBS shares closed up 1.68 per cent at #16.34 ($229) in London.

RBS took pains to point out that it does not plan to increase its investment and hence will see its interest diluted when BOC issues shares to the public next year.

'BOC wants to get a good, strong investor to be strategic partner so that they may get a better valuation when they do their IPO,' said Arthur Lau Chu-ming, an analyst at Barclays Capital.

'Whether the RBS consortium will really be a powerful enough strategic investor will be open to debate.'

Although the British bank said it would work closely with BOC to improve corporate governance, management, human resources and technology, investors would be waiting to see what physical presence the British bank would put at BOC's operational level to effect such changes, Mr Lau said.