China to open banking sector wider

China aims to open up its banking sector further by raising the cap on foreign banks' stakes and making it easier for them to set up branches, a senior bank regulator said on Monday.
Foreign investors, eager to boost their market presence, have lobbied hard for China to drop its 25 percent ceiling on foreign ownership of a local bank. A single overseas owner is limited to a 20 percent stake.
Li Fuan, deputy chief of policy and regulation at the China Banking Regulatory Commission (CBRC), said the government would set varied ceilings on foreign ownership in domestic banks, allowing smaller lenders to sell a bigger chunk of shares.
"The 25 percent cap is transitional and it will be changed shortly," Li told Reuters in an interview.
He did not give a timeframe. Beijing, worried that domestic banks are unprepared for greater competition, is trying to entice foreign capital and expertise into a sector saddled with $200 billion in bad loans.
If foreigners owned more than 25 percent, a bank would no longer be regarded as a local institution but as a joint venture, meaning it would face a plethora of restrictions such as higher capital requirements and difficulties in setting up branches.
Li said the authorities were also considering relaxing an unwritten rule that foreign banks must operate a representative office for two years before it could be upgraded to a branch.
"This could be changed very shortly - maybe by the end of this year," he said. "It's unnecessary for foreign banks to take two years to understand the market."
Foreign bankers have expected China to make it easier for them to set up branches in a bid to attract more overseas investment into the creaking industry.
Beijing especially encourages foreign banks to set up branches in the country's underdeveloped west, hoping to divert more foreign capital there in line with the country's "go west" economic policy.
The China Securities Journal on Monday quoted CBRC vice chief Tang Shuangning as saying foreign banks now commanded a 19 percent share of foreign currency lending in China, following rapid expansion in recent years.
But Li said foreign banks took an overall market share of just 2 percent if their yuan business was included and it might take time for them to pose a real challenge to domestic banks.