The Royal Bank of Scotland (RBOS) is "almost certain" to become a strategic investor in the Bank of China (BOC), a bellwether leading China's aggressive banking reform, the Economic Information Daily reported Monday.

The Xinhua-run newspaper quoted unidentified BOC sources as saying that the two have not made an official announcement because differences remain on "concrete prices".

China is overhauling its state banks, including the BOC, ahead of the World Trade Organization-mandated opening of the financial market to more sophisticated overseas rivals by the end of 2006.

Financial regulators have required domestic banks to join hands with foreign institutions in the process of shareholding reform and stock market debuts, citing that cooperation with overseas firms are expected to bring about the state-of-the-art management that domestic banks badly need.

The BOC hopes to ride on the RBOS's retail business advantages, the paper said.

As the second biggest bank in Europe, RBOS has an extensive network of outlets serving individual clients and typically does well in the housing and auto lending business. Its expertise would be a big boost to the BOC, which hopes to raise the proportion of its retail business to 50 percent from present one-third.

The BOC's core competitiveness lies in its foreign exchange business by serving more than 50 percent of the domestic foreign-funded enterprise borrowers. Retail business, however, has long been its "soft rib".

Zhu Min, a BOC assistant president responsible for restructuring and listing, said the bank's strategic investor should be "complementary in business, with no direct competition with the BOC."

"The investor should be an international financial consortium that boasts a sharpened competitive edge in a certain area -- which is exactly the BOC's development trend," Zhu said.

The Economic Information Daily reported that the UBS, Singapore-based Temasek Holdings (Private) Limited and an investment bureau under Kuwait's ministry of finance are also talking with the BOC for possible stakes.

But they cannot be called "strategic investors" even if they succeed in buying into the BOC -- after all, their stakes might be much smaller than that of RBOS.

Under Chinese law, foreign investors may own up to 25 percent of a Chinese bank, but any single investor may not hold more than 20 percent.

The UBS said last June that it planned to invest roughly 500 million US dollars in the BOC, but the newspaper revealed that it may increase its investment to 1.266 billion dollars for a 5 percent stake.

The investment hike will be a helping hand for the UBS to obtain the underwriting rights for the BOC's initial public offering, the paper said.

Temasek said earlier it will invest 1 billion US dollars in the China Construction Bank (CCB), another of China's "Big Four," which also include the Industrial and Commercial Bank of China and Agricultural Bank of China. The CCB is also scheduled to go public.

Source: Xinhua