Chinese banking regulators have amended the nation's banking regulations to give foreign lenders a five-year grace period before they are required to reduce their Renminbi loan-to-deposit ratio to less than 75 per cent. According to the draft amendment to the recently released rules on foreign-funded banks, a locally incorporated foreign bank has to keep its total lending at no higher than 75 per cent of all deposits by December 1, 2011.

Although they have been successful in expanding their Renminbi lending business, especially with multinational clients, their restricted branch network has limited foreign banks in terms of collecting deposits.

For that reason, many foreign banks indicated that although they have been successful in expanding their Renminbi lending business, especially with multinational clients, meeting the new loan-to-deposit requirement could greatly disrupt their business.

Statistics show that foreign financial institutions in China collected 114 billion yuan (US$14.3 billion) in deposits by the end of August, while 161 billion yuan (US$20 billion) was paid out in loans during the same period.

Starting from December 11, foreign banks are expected to have five years to attract enough Renminbi deposits to improve their financial status to compete with local rivals under the same standards. The rule also gave a three-year grace period before foreign banks are prevented from lending over 10 per cent of their capital to a single client.

"The money a locally incorporated foreign bank lends to a single client cannot exceed 10 per cent of its overall capital after December 1, 2009, and before that, foreign banks cannot lend over 25 per cent of their capital to a single client," it said.

According to the rule, a foreign bank that does not incorporate locally need not acquire a specific license from the banking regulator to accept deposits over 1 million yuan (US$126,582) after December 11.

"They only need to change their business licence to deal with this," it said. Those foreign banks are expected to appoint one of their branches to manage their business in China and to submit a consoled financial report to the regulator.

In order to better protect the interests of domestic depositors, the Chinese Government is encouraging foreign banks to incorporate locally when dealing in Renminbi retail business.

Source:佚名