Last Wednesday, China announced that it would impose measures that would regulate the administration of foreign-invested banks into the country. The imposition was issued by the China Banking and Insurance Regulatory Commission (CBIRC) earlier this month and was said to be effective immediately.
The CBIRC initially solicited public opinions to draft its implementation measures on foreign-invested banks earlier this year. It also lifted the restriction on limiting the scope of business of foreign banks within the country and allowed the operations of wholesale banking.
It was explained that the imposition on wholesale banking included the provision of bank services to cater to a larger customer base and accommodate organizations that have corporate and institutional clients. The same would be applied whenever these institutions would establish branches and subsidiaries into China simultaneously.
Since then, the PBIRC created regulatory measures that allowed foreign bank branches to modify and establish their business plans based on a clear functional positioning. According to a Chinese regulator, the suggestions made by banking institutions that foreign-invested banks should clarify their prerequisites for their subsidiaries and branches into the Chinese system should be followed. Moreover, it was announced that the method of clarifying the standards and procedures of these foreign-invested banks may waive the requirements on the renminbi working capital adequacy ratio. Thus, the PBIRC wanted them to comply in proper forms after the implemented measures take effect.
The said imposition included the establishment of prerequisites for foreign banks and added regulatory requirements whenever these institutions wished to branch out within the country. It was also declared that there would be a removal of the total asset requirement for foreign banks to set up their branches in China and must secure regulatory approval for conducting businesses concerning the Chinese yuan.
According to the regulator, this would allow China to better assess the interest-earning assets ratio of these banks. He also claimed that the renminbi working capital adequacy ratio and the liquidity ratio of the foreign institutions taken together would be more feasible for the country. It was said that China wishes to impose a singular foreign bank branch instead.
The imposition also requires these foreign bank branches to hold interest-earning assets as per the direction of the CBIRC. The regulation would be at least five percent of the foreign institutions' public debt. However, they would not be required to increase their interest-earning assets if the volume of such would reach beyond 30 percent of their working capital.
