China allows commercial banks to invest in financial leasing companies

China's banking regulators are to lift the ban on domestic and foreign commercial banks investing in financial leasing companies, according to a rule issued by the China Banking Regulatory Commission (CBRC).

The regulation, which will take effect on March 1, allows China-registered lenders, leasing companies and large manufacturers to hold financial leasing company shares.

The previous regulation on the management of financial leasing companies was promulgated in 2000, but was no longer in line with the opening banking industry, a CBRC statement said.

The minimum registered capital fund of a financial leasing company has been lowered from 500 million yuan to 100 million yuan, with a minimum eight-percent capital adequacy ratio requirement, according to the revised version.

Financial leasing provides enterprises with access to equipment when they are short of capital.

Under financial leasing contracts, leasing companies use bank loans to buy equipment required by enterprises, who can then use the equipment for an agreed period in return for paying a rental.

The move shows the government's determination to facilitate financing by promoting integrated operations of financial business - a departure from previous approaches, according to the report.

The government ordered all commercial banks to withdraw investment from financial leasing companies in 1997, deeming it necessary to separate different types of financial business for easier supervision.

In developed countries, financial leasing is mostly conducted by companies with a banking background.

The absence of bank investors has hampered China's development of financial leasing, experts said.

Financial leasing accounts for only two percent of the nation's total investment in industrial equipment, much lower than the world average of 17 percent and the United States' 33 percent.

The new regulation will let both Chinese and foreign-funded banks enjoy equal treatment in conducting financial leasing services, according to the CBRC.

Source: Xinhua