CHINA BANKING AND FINANCE NEWSLETTER
Vol. 3, No.1 - January 2, 2002
TOPICS THIS ISSUE:
- Bank of China Enters Insurance Market
- Banking Stirs Up Investment Frenzy
- Renminbi Business for Overseas Banks Allowed in Shanghai and Shenzhen
- Brokerages Win B-share Access Following WTO Entry
- Loan-Rating System To Be Enforced Next Year
Bank of China Enters Insurance Market
In China, rigid barriers were set up some time ago between banking, insurance and securities broking. Banks are prohibited from providing financial services other than banking ones. In spite of the restrictions, however, the Bank of China has become the first mainland bank to enter the country's insurance sector.
The Bank of China utilized a unique procedure to enter the insurance market in compliance with all applicable laws. The procedure it used was to have its Hong Kong-incorporated vehicle, Bank of China Group Insurance, open its first mainland branch in Shenzhen after obtaining "special approval" from the regulatory authorities. The Shenzhen branch will be restricted to selling non-life policies to foreign-invested enterprises in the city.
The Shenzhen branch has HK$100 million working capital and aims to net 40 million yuan (about HK$37.4 million) in gross premiums next year.
Other mainland banks are expected to follow the model of Bank of China. They can firstly set up an insurance corporation in Hong Kong and re-enter the domestic market as overseas insurers.
(Source: www.scmp.com)
Banking Stirs Up Investment Frenzy
Attracted by the vast market potential following China's entry to the World Trade Organization, over a dozen banks based in Europe, the United States and Japan have submitted applications to upgrade their agencies in China to business organizations in the past month.
Meanwhile, a number of foreign banks and non-banking financial institutions have voiced their desire to initiate businesses in China or upgrade their existing agencies to business organizations.
Shanghai remains a top choice for most foreign financial institutions seeking to enter the China market. Statistics show that by the end of November this year, foreign financial institutions had set up 53 business organizations in Shanghai, most of which reported good performance.
Although it will take months before their applications for engaging in foreign exchange business for local residents are approved, these 53 foreign financial business institutions in Shanghai are making preparations.
Furthermore, 10 more foreign financial institutions have applied to upgrade their representative offices into profit-making institutions.
(Source: Business Weekly)
Renminbi Business for Overseas Banks Allowed in Shanghai and Shenzhen
The People's Bank of China (PBOC), the country's central bank, announced several days ago that China will allow overseas financial institutions in Shanghai and Shenzhen to engage in Chinese Renminbi business as of December 11, the day when China formally became a member of the World Trade Organization (WTO).
Meanwhile, overseas financial institutions in Tianjin and Dalian have also been allowed to apply to engage in Renminbi business starting the same day, according to PBOC sources.
China will allow overseas financial institutions to provide foreign exchange services to all units and individuals within Chinese territory, on condition that the institutions accordingly increase their operating capital or minimum capital requirements, and change their operation licenses.
Starting December 11, overseas non-banking financial institutions could apply to establish companies in China specializing in car credit purchase services in accordance with regulations soon to be publicized by the PBOC.
Overseas investors will also be allowed to apply to establish companies providing financial leasing services in China, PBOC sources said.
(Source: Xinhua News Agency)
Brokerages Win B-share Access Following WTO Entry
China will allow all foreign brokerages to trade hard-currency B shares directly without using a Chinese entity as intermediary since the country is a member of the WTO, according to State media.
China has promised a series of market openings for its entry into the WTO, which include allowing foreign brokerages to set up joint-venture securities firms three years after WTO entry and joint-venture fund-management firms immediately upon accession. Foreign brokerages can now apply to the Shanghai and Shenzhen stock exchanges to trade B shares directly.
Before China became a WTO member, most overseas brokerages were required to trade B shares, open to foreign investors, through Chinese securities houses or trust firms. Only a few foreign brokerages owned "special seats" on the two exchanges that allowed them to trade B shares directly, brokers said.
All foreign brokerages in China can now hold special seats on domestic securities exchanges, the CSRC spokesman said.
(Source: www.scmp.com)
Loan-Rating System To Be Enforced Next Year
China will formally introduce an internationally accepted loan rating system on January 1 next year, the central bank announced.
The system, which will require all banks to categorize their loans according to the repayment ability of the borrowers, will enhance the banks' risk management and help present a clearer picture of the banks' asset quality.
A spokesman for the People's Bank of China, the central bank, said it is working on a regulation for the banks' disclosure of loan ratings.
"The new rating system will enable banks to improve the monitoring of the repayment ability of the borrowers, recognize potential risks so they can take timely measures to curb losses and improve asset quality," the spokesman said.
The introduction of the new system also represents the country's efforts to accept international norms following its accession to the WTO earlier this month.
US bank regulators first applied the new rating system. It was accepted by most countries and international financial organizations in the world.
Chinese banks have been using a different loan rating system since the 1980s, when the commercial bank system was restored to meet the needs of an emerging market economy.
The old system, which based the ratings on whether loans became overdue or how long they had been overdue, cannot scientifically indicate the potential risks.
Therefore, the central bank began to experiment with the new system in 1994 and gradually spread the experiments to an increasing number of banks.
(Source: China Daily)
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