China will not relax the caps on foreign investment in its banks in the near term, a senior regulator said yesterday. Yan Qingmin, a department director-general at the China Banking Regulatory Commission (CBRC), yesterday dashed hopes of an imminent rule revision ahead of the full opening of the mainland banking sector to foreign competition at the end of next year. Foreign investors' combined equity holdings in any mainland bank are capped at 25 per cent, with ownership by any single foreign investor subject to an upper limit of 20 per cent. International bankers have intensified lobbying to have the caps raised or even removed altogether. CBRC officials raised their hopes last month when they were quoted as saying that a relaxation was being considered. Some media reports even suggested the changes could be in place by December. Proposals have been made to allow foreign investors putting up capital and expertise to rescue troubled mainland banks to breach the ownership limits. Singapore's DBS is said to have asked for management control of Guangdong Development Bank, which is trying to sell a controlling stake to regain financial health. Speaking on the sidelines of a financial forum in Beijing yesterday, Mr Yan, who has been put in charge of major state banks, said relaxation would take time as such a significant change would require the State Council's approval. Clarifying a more recent restriction limiting any single foreign investor to holding stakes in no more than two mainland banks, he said the unwritten rule applied only to strategic investments in the sector. 'Non-financial foreign institutions may be allowed to make more financial investments in more mainland banks,' he said. Banking sources yesterday conceded regulators had given no detailed guidelines on how to define strategic investment, leaving policy open to differing interpretations. Some foreign investors bound by the restriction appealed to the government for exemptions during the hotly contested bids for minority stakes in Bank of China (BOC) and China Construction Bank (CCB), two of the Big Four state lenders, a senior official recently told a conference in Beijing. Singapore's Temasek Holdings and International Finance Corp, the World Bank's private sector investment arm, have each acquired or agreed to buy stakes in more than two mainland banks. Temasek now owns 5.1 per cent of CCB and 4.5 per cent of China Minsheng Banking Corp. It has also agreed to buy 10 per cent of BOC. HSBC Holdings owns 19.9 per cent of Bank of Communications and has an 8 per cent stake in Bank of Shanghai. The Commonwealth Bank of Australia has also reached the limit. Since 2003, the government has pumped US$60 billion of capital into CCB, BOC and the Industrial and Commercial Bank of China but Mr Yan said no restructuring plan had been worked on for the remaining state commercial bank, the Agricultural Bank of China. With state aid that has helped remove 2.5 trillion yuan of non-performing loans from the big banks since 1998, market-oriented measures such as securitisation should be used to address domestic banks' sour loan problems, he said. Mr Yan also warned of banks' growing exposure to the securities market after regulators earlier this year allowed them to start up mutual fund firms. Ten Chinese banks are expected to install an internal rating system consistent with the new Basel II international capital accord by 2009, he added.