The China Banking Regulatory Commission (CBRC) would raise the foreign ownership limit in domestic banks, Li Fuan, vice director of the CBRC's policy and regulation division, was quoted as saying by the China Securities Journal.

"The commission will attract even more international banks, and gradually expand the limit on their share ownership in local banks," said Li.

Currently the upper limit is 20 percent for a single foreign investor in one Chinese bank and combined foreign shareholding is not allowed to exceed 25 percent.

Standard & Poor's analyst Ryan Tsang said an increase in the current cap would be a "positive development" for both foreign investors and their domestic partners. He would not speculate on when or by how much the limit could be raised.

"It will allow foreign (investors) to be more involved in the management of Chinese banks and, on the positive side, these banks may be able to speed up their reforms in terms of their corporate governance, risk management and internal controls," he said.

Several of China's State-owned commercial banks are currently seeking foreign strategic partners to improve their credibility, governance and capital adequacy ratios ahead of public listings.

Last week, Bank of America said it would buy a 9 percent stake in China Construction Bank for US$3 billion, with the right to expand its ownership in the bank as high as 19.9 percent over time.

Tsang said increasing the upper limit for foreign stakes in Chinese banks would give international investors more flexibility and a greater opportunity to familiarize themselves with the Chinese banking market through domestic partners.

HSBC, Citigroup, and Commonwealth Bank of Australia are among the foreign institutions that currently have minority stakes in local Chinese banks.

Earlier this month, the China Securities Journal cited CBRC chairman Liu Mingkang as saying the regulator would consider raising the current cap at the end of next year.

China is obliged to open its banking market to foreign banks by that date in line with its membership commitments to the World Trade Organization.

Li said the government wanted to see local joint stock banks to undertake more mergers and acquisitions, with foreign companies welcome to invest in all kinds of financial institutions.

He said Chinese banks were being encouraged to develop competitive products in the bank card, mortgage, and syndicated loan segments, and expand growing businesses such as notes services, personal wealth management, corporate cash management, fund management and trustee services.

The average nonperforming loan ratio for Chinese banks had fallen to 12 percent from over 30 percent, Li said. However, credit risk was still a major issue, accounting for 70 to 80 percent of the total risk, he added.

Source: Shenzhen Daily