The European Chamber is pleased to invite you to a Banking Working Group Meeting on Thursday, 24th August 2006 at 8:30 a.m. The meeting will be held at EU Delegation.

To confirm your attendance, please contact Mr. Carl-Johan Skold at cjskold@euccc.com.cn.

Kindly note, that the meeting is open for members only. For further information about the Working Group or how to become a member, please contact business manager Mr. Gregory Van Bellinghen at gbellinghen@euccc.com.cn.

Event review

Banking and Securities Working Group Meeting
Thursday, 24th August 2006, 8.30am

European Delegation, Beijing                      

 

Participants
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Agenda

 

1.       General Update

2.       Discussion on draft foreign banking regulation

 

Discussion Points

 

1.       General update

 

Potential lobbying activities

The draft foreign banking regulation will be a key priority for the Working Group in the coming months. General Chamber Position Papers presentations and potential lobbying activities include:

 

Beijing Position Paper launch

·          6th September, Peter Schmidt representing BSWG

 

Shanghai Position Paper launch

·          Details to be confirmed

 

Brussels Position Paper Presentation

·          14th and 15th September, Serge Janssens representing BSWG

 

DRC Position Paper presentation

·          BSWG will participate in the general Chamber high level presentation

 

Meeting with CBRC on new draft foreign banking law

·          Either at upcoming WG meeting or dinner

 

High Level meeting with CBRC, Liu Mingkang

·          Presentation of2006 Position Paper

 

High level meeting with SAFE

·          Presentation of relevant Position Paper sections

 

CSRC

·          Presentation of Securities section of Position Paper

 

PBOC

·          Presentation of relevant sections of Position Paper and role of foreign banks in China.

 

2.       Discussion on draft foreign banking regulation

Meeting participants discussed the draft foreign banking regulation. The draft regulation will present banks with two options: incorporating in China or maintaining the current branch system. Key points and questions that need further clarification are summarised below:

 

Summary of draft foreign banking regulation

·          Banks can maintain current branch system or incorporate their China operations (also referred to as holding company, wholly owned subsidiary bank etc.)

·          Key features of incorporation include:

–         The capital requirement of 1 billion RMB plus 100 million per branch

–         Can conduct all full RMB business

–         Each branch will be granted the highest licences of the head office

–         The HQ of the incorporated company can be at any of the current branches (Note: this is not completely clear in the regulation)

–         Banks will be allowed to transform rep offices into branches immediately upon incorporation

–         RMB licence waiting period waived for branches at time of incorporation

–         Incorporated banks will have to comply with the China commercial banking law (higher reporting requirements and banks will be treated the same as domestic Chinese banks).

–         Most likely only one chance to transform at favourable conditions

–         70/30 rule will be removed

–         Capital adequacy ratio calculated at a consolidated basis (for all branches, including foreign and domestic currency)

–         Local 60-40 rule will apply (banks can only allocate 60% of equity to branches)

–         It will be possible to establish/keep one booking branch for banks already established in China. (The business scope of the booking branch will be foreign currency lending and related business. The booking office needs to be clearly separated from the activities of the incorporated bank). Note: the draft regulation states that all branches should be integrated into the newly incorporated bank.

–         Local subsidiary will be able to raise money domestically in China (issue bonds etc.)

·          Subsidiary drawbacks:

–         Banks no longer have parent guarantee (however China is looking into an insurance system)

–         Lack of rating

–         Single client limit of 25% of equity

 

·          Changes for banks maintaining the branch system

–         Capital requirements reduced (300 million RMB for full range FX and RMB business)

–         Will be allowed to do RMB retail business, but only for individual deposits above RMB 1 million

–         Lack of rating

               

Questions that need further clarification

·          How many branches can an incorporated bank open per year?

·          Can the capital of the HO be invested in branches or will additional capital have to be injected for each new branch? What is the relation between “registered capital” and “working/operational capital”?

·          What is the time frame for incorporation? Will there be limited period for banks to incorporate at favourable terms?

·          Will there be any profitability (or other) requirements for banks to be eligible to incorporate and obtain an RMB licence? (Note: Issue 1.2. says that the RMB waiting period will remain for legal entity banks and that HO should meet the requirement of 3 year establishment and 2 year profitability before being eligible to apply for an initial RMB license).

·          Will banks obtain an RMB licence automatically upon incorporation?

·          Uncertainties relating to booking branches:

–         Can an existing branch be transformed in to a booking branch or will a new branch need to be established?

–         Will it be possible to keep the global market operations in the booking branch

–         What type of relation will the booking branch and the incorporated bank be allowed to have

·          Uncertainties surrounding how the transition from branch to incorporation will work

–         Costs and taxes?

–         Timeframe?

·          In which ways will the incorporated bank be able to raise money?

·          Intergroup funding, how much money can HQ send?

·          Will incorporated banks be required to have IT and other services often onshore (in China)?

·          The extent to which the 60-40 and the 25% client limits will apply to incorporated banks is unclear. Will they be applied in the same way to incorporated foreign banks as they currently are for Chinese banks?

 

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