China tightens bank shareholding rules after lifting cap on foreign stakes
CBRC imposes stricter shareholding rules on Chinese commercial banks, one week after scrapping investment cap for foreign players
All investors – individuals, or those acting in concert to skirt the rules – seeking a more than 5 per cent stake in a Chinese commercial bank will need the approval of China’s banking regulator before a deal could be struck, according to a series of draft rules issued by the China Banking Regulatory Commission (CBRC) on Thursday.
The draft rules came just one week after China announced that it will scrap the cap on foreign investments in mainland commercial banks. They were posted on the CBRC’s website to solicit public opinions till December 15.
The rules highlighted that an investor must not circumvent the required approval for the 5 per cent cap by using related parties, or financial products it controls to take up a stake, as the CBRC moves to close up regulatory loopholes.
“The new rules tighten regulatory over major shareholders and their related parties; it is also worth noting that they came out just one week after China announced the historic opening up in banking investment. Beijing could be using these technical rules to shut out foreign investors they do not like,” said Iris Pang, ING’s China economist.
China announced the opening up of its financial services industry last week, following US president Donald Trump’s visit to the country.
Caps on foreign banks’ stakes in Chinese banks and asset managers would be removed, while foreign firms will be allowed to hold a majority stake in joint ventures with mainland Chinese securities companies and life insurers, vice finance minister Zhu Guangyao said last Friday.
“CBRC’s tightened shareholding regulation should be put into the big picture of the overall financial system de-leveraging and intensified attention on financial risks from the 19th Party Congress,” said Daiwa analyst Leon Qi.
“We view it positively, for CBRC’s move is likely [to bring] more transparency ... An increasingly globalised financial industry for the world’s second largest economy calls for higher standards of regulatory enforcement and transparency in corporate governance,” Qi said.
A number of investors and financiers in the past have shrewdly used financial products, like wealth management products, to take up major stakes in some commercial banks without breaching the 5-per cent single shareholder rule, and avoiding the need to obtain regulatory approval.
Earlier this year, the CBRC ordered Chinese banks to conduct “self-inspections” of their use of wealth management products and in other areas where there were loopholes that could have been abused.
This week, the banking regulator also issued guidelines on risk controls for lenders, focusing on loans that are overdue for 90 days or more, and strengthening liquidity risk management.