Commonwealth Bank of Australia (CBA) said yesterday it was in talks with the Jinan City Commercial Bank (JNCCB) about buying a stake in the regional lender.

CBA, which has total assets of 305 billion Australian dollars (US$213 billion) and shareholders equity of 24.9 billion Australian dollars (US$17.4 billion), said it was discussing purchasing a 11 per cent stake in the Chinese bank, with the possibility of acquiring up to 20 per cent, reported China Daily.

A single overseas bank can currently own a maximum of 20 per cent in a Chinese bank, while total foreign ownership cannot exceed 25 per cent.

"Agreements to formalize this arrangement have not been signed, and would be subject to approval by the China Banking Regulatory Commission," CBA said in a statement posted on the website of the Australian Stock Exchange.

"The Commonwealth Bank of Australia already has investments in banking, life insurance and fund management in China, including Hong Kong, and an investment in JNCCB would be a complementary investment to its existing operations," it said.

A reliable source told China Daily yesterday that the transaction is likely to receive regulatory approval soon from the China Banking Regulatory Commission (CBRC), which has expressed its support of Chinese joint-stock commercial banks ushering in strategic foreign investors to aid their reform efforts.

"The local bureau of the commission has yet to submit application documents (to the CBRC head office), but the commission is supportive of the deal in principle," the source said.

JNCCB, located in Jinan, capital city of East China's Shandong Province, has less than 200 million Australian dollars (US$140 million) in shareholders capital and about 4 billion Australian dollars (US$2.8 billion) in total assets, the CBA said.

The CBRC is promoting restructuring of the nation's 112 city commercial banks, trying to resolve their financial risks and enhancing their role in supporting local economies and the millions of small and medium-sized enterprises.

China started to approve the establishment of joint-stock commercial banks in 1986 in a bid to enhance competition in the banking industry and improve financial services.

So far, 112 city commercial banks, which are restricted to the cities of registration, as well as 11 bigger lenders that operate on a nationwide basis, have been set up. But the four State-owned commercial banks still hold the majority of the nation's banking assets.

Though relatively healthier than the State-owned lenders, the city commercial banks are also hampered with the burdens of high, bad loan ratios and low capital adequacy, largely due to their blind business expansion in earlier years and administrative interference by the government.

The 112 banks had an average capital adequacy ratio of 6.13 per cent at the end of last year, below an 8 per cent minimum requirement. Their bad loan ratios averaged 12.85 per cent, measured by the Chinese classification standard.

The CBRC said earlier this year it would encourage private Chinese investors and foreign investors to buy into the nation's joint-stock commercial banks, including the city commercial banks, to help them grow stronger.

The commission said it would select relatively healthier city commercial banks to help them resolve historic burdens through recapitalization and asset swaps, before private and foreign strategic investors are ushered in to further the reform.

It was unclear how the JNCCB's reform had proceeded.

Source: China Daily