Three overseas banks, the Hongkong and Shanghai Banking Corp., Citibank and Standard Chartered Bank, announced at the weekend they have received government approval to offer custodian banking services to qualified foreign institutional investors to tap China's A-share market.

The first batch of overseas lenders that got license are able to handle applications on behalf of overseas investors for QFII status to the Chinese regulatory bodies and can offer services including taking custody of foreign investors' entire asset portfolio, renminbi clearing, securities and cash settlement.

"We have worked with clients in preparing QFII documentation and are now submitting QFII applications to China Securities Regulatory Commission on behalf of our clients," said Richard Ernesti, region head of Citibank Global Securities Services Asia.

However, overseas bankers are taking their time in entering the local currency-denominated A-share market.

Approval by CSRC and the State Administration of Foreign Exchange came on the heels of that by the People's Bank of China on January 14.

Based on QFII guidelines announced by CSRC, overseas institutional investors have to wait a maximum of 15 working days before CSRC decides whether they are qualified to trade A shares. SAFE will examine and approve their investment quotas in another 15 working days.

However, some industry analysts said that overseas investors are unlikely to immediately rush to include Chinese stocks in their global equities portfolios due to unfamiliarity as well as a perception that local stocks are too expensive, according to an official with UBS Warburg.

The 1,000-plus companies that list Class-A shares on the Shanghai and Shenzhen bourses trade at nearly 35 times the average earnings, compared with the price-to-earnings ratio of 15 to 20 that is preferred by overseas fund managers.

The top-five local commercial lenders were granted licenses to conduct QFII custodian services at the beginning of the year.