21 February 2019

Higher entry barrier in China may be a mixed bag for BEA

China’s banking watchdog plans to raise hurdles for foreign-funded lenders seeking to enter the mainland market in a bid to reduce their appetite for risk taking. The proposed rules may prove to be a mixed bag for Bank of East Asia (00023.HK), one of the largest foreign players in the country.

The China Banking Regulatory Commission has begun soliciting public views on draft amendments to regulations for foreign bank licensing application, the Shanghai Securities News reported. These include raising the paid-in registered capital to 1 billion yuan (US$163 million) or its equivalent in convertible currencies from 300 million yuan at present.

It also proposed to remove the unified mandatory requirement for foreign lenders to set aside at least 8 percent of their asset portfolio as provision against market risks. Instead, the capital adequacy ratio of foreign-funded players should be in line with the regulatory requirements in their own domiciles or the CBRC’s stipulation.

If the modifications are adopted, BEA will unavoidably come under increasing pressure to replenish its capital for mainland operations over the next few years since China’s minimum CAR will eventually increase to 10.5 percent in the next four years.

But higher capital threshold is not necessarily bad news for the Hong Kong-based lender. While the proposed amendment will bar most of the financially weak foreign banks from entering China, it will also leave the current players in good stead to capture the growing demand for cross-border renminbi business and offshore wealth management services.

– Contact the writer at [email protected]



EJI Weekly Newsletter

Please click here to unsubscribe