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Sunday, December 10, 2006

Administration of Foreign-invested Banks

Announcement of China Banking Regulatory Commission on the Relevant Matters after the Promulgation of the Detailed Rules for the Implementation of the Regulations of the People's Republic of China on the Administration of Foreign-invested Banks

Yin Jian Fa [2006] No. 82
The State Council has promulgated the Regulations of the People's Republic of China on the Administration of Foreign-invested Banks (hereinafter referred to as the Regulations) on November 11, 2006, which shall enter into force as of December 11, 2006. In order to help the smooth implementation of the Regulations, China Banking Regulatory Commission promulgated the Detailed Rules for the Implementation of the Regulations of the People's Republic of China on the Administration of Foreign-invested Banks (hereinafter referred to as the Detailed Rules) on November 24, 2006. The relevant matters concerning the implementation of the Regulations and the Detailed Rules are hereby announced as follows:
1. As of December 11, 2006, the restrictions of region and client object on foreign-invested banks engaging in Renminbi businesses shall be canceled. Foreign-invested banks may, under the relevant provisions of the Regulations, expand their service objects to the citizens within the territory of China. No region restrictions shall be imposed on foreign-invested banks engaging in Renminbi businesses within the territory of China.
2. A branch of foreign-invested bank which has been approved to engage in RMB business for non-foreign-invested enterprises may, without approval and after changing its business license, expand its business scope to absorbing fixed deposits not less than 1 million RMB Yuan per sum from citizens within the territory of China. The specific procedures shall be as follows: a foreign bank report the letter signed by its board chairman or president (CEO or general manager) to the president of China Banking Regulatory Commission, and then the branch of the foreign bank herein handle the procedures of changing the business license upon the strength of the confirmation letter issued by China Banking Regulatory Commission. Any other branch of a foreign bank may, under the provisions of the Regulations and the Detailed Rules, apply for the operation of Renminbi businesses as provided for in Article 31 of the Regulations. Any solely foreign-invested bank or Chinese-foreign joint venture bank may, under the provisions of the Regulations and the Detailed Rules, apply for the operation of Renminbi businesses as provided for in Article 29 of the Regulations.
3. Where the registered capital or working capital of a solely foreign-invested bank, Chinese-foreign joint venture bank or branch of a foreign bank established before the implementation of the Regulations fails to meet the provisions of the Regulations and the Detailed Rules, the present registered capital or working capital thereof may, under the condition of its client object and business scope not unchanging, remain unchanged. In case such circumstances occur as altering shareholders, expanding the client object or business scope or enlarging the branch network, the solely foreign-invested bank, Chinese-foreign joint venture bank or branch of a foreign-invested bank shall, under the provisions of the Regulations and the Detailed Rules on registered capital or working capital, increase the capital.
4. Where a solely foreign-invested bank is restructured from a branch of a foreign bank and solely funded by the head office thereof, or if a solely foreign-invested bank or Chinese-foreign joint venture bank is established before the implementation of the Regulations, it shall meet the provision of Item 2, Article 39 of the Law of the People's Republic of China on Commercial Banks - "The proportion of the balance of loan to the balance of deposit may not exceed 75%".
5. Where a solely foreign-invested bank is restructured from a branch of a foreign bank and solely funded by the head office thereof, or if a solely foreign-invested bank or Chinese-foreign joint venture bank is established before the implementation of the Regulations, it shall meet the provision of Item 4, Article 39 of the Law of the People's Republic of China on Commercial Banks - "The ratio of the balance of loans to the same borrower and the balance of capital of the commercial bank may not exceed 10%". The balance of credit granting to an enterprise or its associated enterprise(s) by a solely foreign-invested banks or a Chinese-foreign joint venture bank may not exceed 25% of its capital within the grace period. If a loan has been signed by a former branch of a foreign bank and transferred to the solely foreign-invested bank, it will, within the contractual term, not be governed by the said provision.
6. Where a solely foreign-invested bank is restructured from a branch of a solely foreign-invested bank solely funded by the head office thereof, it shall, under the provisions of China Banking Regulatory Commission, set up an independent and complete management information system (MIS). If it fails to do so, it shall, within 2 years after opening up upon approval, meet the requirement as provided for by law.
7. A representative office of a foreign bank shall, after the implementation of the Regulations and the Detailed Rules, be governed by the Regulations and the Detailed Rules. The Regulations of the People's Republic of China on the Administration of Foreign-Funded Financial Institutions as promulgated by the People's Bank of China on June 13, 2002 will not be applicable thereto. A solely foreign-invested bank or Chinese-foreign joint venture bank may not set up any representative office. The supervision over and administration on the representative offices established by solely foreign-invested banks and Chinese-foreign joint venture banks before the implementation of the Regulations shall be carried out by referring to the Regulations and the Detailed Rules. Where a foreign bank restructured a branch bank thereof within the territory of China into a solely foreign-invested bank, the representative office(s) it has established within the territory of China, may be retained; if it has established a general representative office, it shall, upon the opening-up of the restructured solely foreign-invested bank, finish the closing-down procedures. Any other general representative office of a foreign bank shall be closed down prior to June 1, 2007, the function of which shall be transferred to the branch of the foreign bank which has been designated as a manager within the territory of China.
8. Where a solely-invested finance company or equity joint finance company serving for the society inside a non-enterprise group is established before the implementation of the Regulations, it shall finish the procedures of restructuring or closing down as soon as possible. China Banking Regulatory Commission shall exercise the administration thereon under the provisions of the Regulations and the Detailed Rules in respect of solely foreign-invested banks and Chinese-foreign joint venture banks during the existence thereof.
9. China Banking Regulatory Commission shall, under the relevant provisions of the Regulations and the Detailed Rules, accept the applications of foreign banks. The applications filed by a foreign bank before the implementation of the Regulations, shall remain valid, but the foreign bank shall, under the relevant provisions of the Regulations and the Detailed Rules, supplement relevant materials.
10. Where a foreign bank has established a solely foreign-invested bank and branch bank simultaneously or it has established a Chinese-foreign joint venture bank and branch bank simultaneously before the implementation of the Regulations, it shall adjust the form of business agencies thereof within the territory of China with reference to the relevant provisions of the Regulations and the Detailed Rules and the requirements of China Banking Regulatory Commission.
11. Where a foreign bank has not met the other provisions of supervision and administration as newly revised by the Regulations and the Detailed Rules, it shall meet them prior to August 1, 2007.

China Banking Regulatory Commission
November 24, 2006

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