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Overseas banks granted respite on loans ratio
29/11/2006 16:15

Shanghai Daily news

China has granted overseas banks a five-year grace period to comply with a loan-to-deposit requirement ratio of less than 75 percent in a new implementation rule released yesterday.
Foreign banks that incorporate locally have to meet the requirement by December 31, 2011, the China Banking Regulatory Commission said yesterday on its Website.
The watchdog made the new implementation rules on foreign banks in line with a rule released on November 16, stipulating that overseas banks that want access to a full array of retail yuan business have to incorporate locally with a registered capital of no less than one billion yuan (US$127 million).
If not, they can hold a single deposit of more than one million yuan, shutting the door on many small-capital clients.
The new implementation rules take effect on December 11, when China's US$5.2 trillion banking sector is opened under the country's World Trade Organization commitment.
The loan-to-deposit ratio issue triggered debate among overseas banks when the authority released a draft to hear foreign players' views.
Overseas banks complained it was hard for them to comply with the requirement - which domestic banks also have to obey - as soon as they enter the market.
Overseas banks' deposits lag far behind their loans as they are banned from the retail yuan business until December 11. Their loan-to-deposit ratios are estimated to sit at 200 percent to 300 percent.
A break has been expected in the industry.
The Hang Seng Bank said earlier it would not take it long to meet the requirement as its deposits would grow dramatically once the retail yuan business was opened.
Yesterday's rule also gave overseas players a three-year break before they are prevented from lending more than 10 percent of their capital to a single client.
The capital a locally incorporated foreign bank lends to a single client cannot exceed 10 percent from December 31, 2009. Before that the cap is loosened to 25 percent for a single client or related parties.