Citigroup seeks retail status

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Citigroup on Wednesday became the latest foreign bank to reveal plans to incorporate its China operations locally, a move that will allow it to expand its product range and branch network in the fast-growing economy.

The US bank follows HSBC and Standard Chartered, which this month said they would apply to incorporate locally, to meet a government requirement for doing local-currency retail banking.

Citigroup’s announcement follows this week’s publication of detailed implementation guidelines by mainland authorities, which form part of liberalisation measures agreed as part of China’s entry to the World Trade Organisation.

The measures are aimed at giving foreign banks more access to potentially millions of retail customers, and greater freedom over where to open branches.

Another eight banks, including ABN Amro and Deutsche Bank, are expected to incorporate locally, according to Chinese authorities.

Foreign commercial banks have barely penetrated China’s financial system. More than 70 overseas banks have set up 238 operating branches in China but by the end of 2005 they accounted for only 0.55 per cent of local currency loans.

As part of local incorporation, which China says aims to protect local depositors, foreign banks have to commit at least Rmb1bn ($127.6m) in registered capital to their Chinese units and to capitalise each branch with Rmb100m. Foreign banks’ China branches are now owned by their overseas headquarters.

To ease the burden on foreign banks of complying with the new rules, the regulator said it would grant them grace periods to meet some of the requirements.

For example, foreign banks would have up to five years to ensure their loans are limited to 75 per cent of deposits.

Citigroup said the new rules were a positive step in the development of China’s banking sector. It has 13 branches on the mainland, half the number HSBC has.

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