Easier Bank Access

By+Wang+Jun

Foreign banks will soon have a much easier time setting up outlets in China. According to regulations recently amended by the State Council， as of January 1， foreign banks will no longer be required to transfer a specific amount of operating funds from the parent banks to their newly established Chinese branches. Moreover， a previous requirement that foreign banks or Sino-foreign joint venture banks must first establish a China representative office before establishing branches in China will be cancelled. The new regulations also relax requirements on foreign banks bids to carry out yuan business.

According to a press release from the China Banking Regulatory Commission （CBRC） on December 20， 2014， the amendment aims to relax foreign banks access as well as their requirements for operating yuan business so as to create a more conducive environment for foreign banks.

“The amendment is to implement the countrys policy of streamlining administration， reducing administrative examination and further expanding opening up of the financial sector， and to give national treatment to foreign banks，” said Guo Tianyong， Director of Center for Chinese Banking Studies of Central University of Finance and Economics， adding that China used to implement excessively strict supervision on foreign banks， restricting their development in China.

Operating funds unnecessary

Under the previous Regulations on the Administration of Foreign-Funded Banks promulgated in 2006， when a wholly foreignfunded bank or a Sino-foreign joint venture bank establishes a branch in China， the parent bank shall unconditionally allocate an operating capital of 100 million yuan （$16.34 million） or an equivalent value in convertible currencies. However， the requirement still maintains that the aggregate amount of the operating capital allocated by a wholly foreign-funded bank or by a Sino-foreign joint venture bank to its branches shall not exceed 60 percent of the total capital of the parent bank.

Zeng Gang， Director of Research Department of Banking Industry of the Institute of Finance and Banking of the Chinese Academy of Social Sciences （CASS）， said removal of the requirement on operational capital frees foreign banks from unnecessary restrictions on capital. According to him， foreign bank branches in China used to have narrow channels available to replenish their capitals， mainly relying on retained profits or capital injection by their parent banks. Regarded as foreign direct investment， capital injection has to be subject to approval of the CBRC， the State Administration of Foreign Exchange and the Ministry of Commerce. These complicated procedures have restricted development of foreign banks in China.

A manager of a Shenzhen branch of a foreign bank， who declined to identify himself or his bank， said removal of the requirement on operating capital is conducive for foreign banks to save operating capital.

When asked whether foreign banks will be stimulated to establish more outlets in China， he told Securities Times that the amendment will not have significant influence on foreign banks that already have extensive networks in China， such as HSBC， Bank of East Asia and Standard Chartered. He added， however， that smaller banks with inadequate outlets will find it quite appealing to set up more branches.

No pre-establishments

The previous regulations require that the unique or controlling shareholder of a foreign-funded bank must establish a representative office in China for at least two years. This requirement has been removed by the amendment.

The CBRC press release states that after this requirement is abolished， foreign banks or financial institutions can freely choose whether to set up representative offices in China before they decide to establish branches.

Since 2007， some branches and representative offices of foreign banks have been changed into foreign-funded banks in China， and the number of outlets of foreign banks in China， such as HSBC and Citibank， has grown continually. However， more foreign banks still wish to enter China.

In 2014， the CBRC approved the establishment of representative offices for the Bank of the Argentine Nation and Nigerias Access Bank in Shanghai and Beijing respectively.

According to the CBRC， by the end of 2013， banks from 51 countries and regions had established 42 foreign-funded banks， 92 foreign bank branches and 187 representative offices in China.

The above-mentioned anonymous Shenzhen branch manager of a foreign bank said that after the requirement is scrapped， foreign banks will be able to set up outlets in China much quicker， which may attract more foreign banks to operate business in China. This will be beneficial for boosting the innovation and development of Chinas banking sector.

Yuan business opened

The revised regulations also loosen requirements on foreign banks to conduct yuan business. Foreign banks will be able to apply for yuan business if they have operated in China for at least one year， instead of the mandatory three years stipulated in the previous regulations. The banks applying for such business will be subject to no profitability requirement， a change from being profitable for two successive years. If a foreign bank has one branch already allowed to operate yuan business， its other branches will no longer face restrictions on the time of operation in China when applying for the same business.

The CBRC press release says foreign bank institutions can apply for operating yuan business more conveniently in a short time， so that they can better service Chinese and foreign companies in China.

Foreign banks or joint venture banks that have newly entered China will benefit from this change. SPD Silicon valley Bank， a joint venture between Shanghai Pudong Development Bank and U.S. Silicon valley Bank， is devoted to providing unique financial products and services to the technology and innovation industry.

When interviewed by Securities Times in 2013， Ken Wilcox， the then president of SPD Silicon valley Bank， said that as it was unqualified for operating yuan business， this joint venture bank could hardly make full use of the experience and competitiveness brought by Silicon valley Bank when serving Chinas technology and innovation companies.

Opening for business in August 2012， SPD Silicon valley Bank was only allowed to operate onshore dollar business at that time because it was established for less than three years. Local Chinese companies， however， naturally had a much greater need for yuan loans than U.S. dollars.

“Development of foreign-funded banks in China has slowed down in recent years. This is somewhat because of the strict restrictions on them，” said Guo. “Relaxed regulation will help create a better business environment .