Switzerland's biggest bank, UBS, will buy a stake worth 500 million US dollars in Bank of China (BOC) -- but is forbidden to sell that stake in the coming three years, the two said in a joint statement Tuesday in Beijing.

The move came on the heels of Temasek Holdings Ptd Ltd., the investment arm of the Singaporean government, and the Royal Bank of Scotland, which each have paid about 3.1 billion dollars for 10 percent stakes in BOC.

Foreign banks have been staking out strategic alliances in China, in a hope to be well-positioned for the eventual full opening of the banking industry to foreign competition in late 2006.

Chinese banks are being encouraged to seek such partnerships to help build up capital and improve management.

Pending approval from relevant government departments, the deal between UBS and BOC said the two plan to work in cooperation in the field of investment banking and securities.

UBS will share with BOC "technology, experience and expertise" in the management of operation risks and assets and debts, the statement said.

UBS investment and strategic ties between the two banks will push forward mutually beneficial cooperation, a BOC spokesman claimed.

Chinese law limits foreign shareholders to a total of no more than 25 percent equity share in its state-owned banks. Individual foreign banks can only hold up to 20 percent shares.

All of China's major commercial banks are planning to sell shares overseas. The bellwether is China Construction Bank (CCB), which some Hong Kong newspapers say might go public in Hong Kong before long.

Last month, Goldman Sachs, American Express Co. and Allianz AG of Germany reportedly signed a deal to buy a 10 percent stake in China's biggest bank, Industrial and Commercial Bank of China (ICBC).

Decades of government-ordered lending have piled up bad loans at the Chinese banks, analysts say. In sharp contrast with their Chinese peers, famous foreign lenders usually report a non-performing loan level of 1-2 percent.

China set up the AMCs, namely Huarong, Cinda, Orient and Great Wall, in 1999 to manage a total of 1.4 trillion yuan (172.63 billion dollars) in non-performing loans transferred from the state banks.

The Chinese government has also poured 22.5 billion dollars each into BOC and CCB and another 15 billion dollars into ICBC to help boost their capital bases.

Source: Xinhua