Jinan City Commercial Bank (JNCCB) signed a strategic co-operation agreement yesterday with the Commonwealth Bank of Australia (CBA) to sell an 11 per cent stake to the Australian lender, reported China Daily.

Under the agreement, the CBA will purchase the 11 per cent stake in JNCCB "for the first stage," while the Chinese bank will receive the transfer of six business technologies from the Australian bank, JNCCB said in a press release yesterday.

The two banks will also co-operate in the area of mortgage financing, JNCCB said.

The CBA, the fourth largest listed company in Australia, said on Monday it was in advanced talks with JNCCB about buying an 11 per cent stake with options of going to 20 per cent, the regulatory ceiling of ownership by a single foreign financial institution in a Chinese bank.

The transaction is still pending approval from the China Banking Regulatory Commission (CBRC), the banks said.

JNCCB, based in Jinan, East China's Shandong Province, ranks eighth in terms of shareholder equity among the 112 Chinese city commercial banks, which are joint-stock banks operating on a regional basis.

Its total assets have expanded more than five fold since its establishment in 1996, while share capital rose to 1 billion yuan (US$120 million) from 250 million yuan (US$30 million).

JNCCB has about 23 billion yuan (US$2.8 billion) in total assets, while the CBA has total assets of 305 billion Australian dollars (US$213 billion) and shareholders equity of 24.9 billion Australian dollars (US$17.4 billion), according to the Australian lender.

JNCCB said it made the decision to select a foreign strategic investor in 2002 as it formulated a three-year blueprint to accelerate its integration with the rest of the world.

CBA has banking, life insurance and fund management operations in 12 countries and regions. It "already has operations in China including comprehensive banking business in Hong Kong, has considerable financial strength and enjoys a fairly high level of international recognition," the JNCCB said.

"Through the co-operation, the Jinan City Commercial Bank will be able to learn the advanced management expertise, skills and products found in the foreign banking community. This will have an active and profound influence in improving the bank's comprehensive competitiveness...," it said.

Though relatively healthier than the State-owned banks, China's city commercial banks are also hampered by the burden 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 14.08 per cent at the end of June, measured by the Chinese classification standard, up from 12.85 per cent six months earlier.

The CBRC has repeatedly expressed support for foreign financial institutions buying into Chinese banks to help improve their competitiveness.

Earlier this year, the commission said it would select healthier city commercial banks to help them resolve historical burdens through recapitalization and asset swaps, before private and foreign strategic investors are introduced to further the reform.

(China Daily)