China to get tougher on foreign banks

But will go easier on local lenders.

The China Banking Regulatory Commission is revising rules on establishing new banks that will see stricter requirements for foreign banks while easing regulations for local lenders.

A draft of the revised rules provide that foreign financial institutions that want to establish new commercial banks or become strategic investors in Chinese banks must meet new requirements on capital adequacy. The draft rules will be open for public comment until September 9.

The regulatory capital level of foreign banks must meet the standards set by their home country governments and must not be below 10.5% compared to the current requirement of 8.5%.

The maximum equity stake a foreign institutions may own in a Chinese bank remains capped at 20% for a single foreign investor and 25% for all foreign investors. Calculating these stakes, however, must now include indirect holdings by foreign institutions.

The CBRC draft plans a general relaxation of regulations on Chinese banks and companies. It will remove a provision banning local governments from investing in banks or taking part in daily operations of banks

It will also remove a provision requiring that a financial institution wanting to establish a bank must also meet certain capital adequacy requirements itself.