Foreign investors in Chinese banks will in future be forced to accept a lock-up period of at least five years

TO BE NOTED: From the FT:

"China extends banks lock-up

By Jamil Anderlini in Beijing

Published: April 1 2009 18:40 | Last updated: April 1 2009 18:40

Foreign investors in Chinese banks will in future be forced to accept a lock-up period of at least five years, China’s top banking regulator said, after a series of share sales by US and European financial institutions.

In recent months, companies such as Bank of America, UBS and Royal Bank of Scotland have sold down all or part of their stakes in China’s largest state-owned banks immediately after lock-up periods of three years expired.

The new five-year minimum lock-up was necessary to “ensure the safety of China’s banking system”, Liu Mingkang, chairman of the China Banking Regulatory Commission, told a seminar in Beijing, according to people familiar with the matter and also state media reports.

Mr Liu also said Beijing would not reconsider current ownership limits for Chinese banks, which restrict single foreign investors to a 20 per cent holding and all foreign investors to no more than a combined 25 per cent stake in any Chinese bank.

The Chinese regulator decided last year not to allow a higher level of foreign involvement in domestic institutions.

That decision had not been publicly acknowledged until now and could affect the strategy of the few foreign banks that still have the ability and appetite to expand their presence in China.

HSBC, for example, bought 19.9 per cent of China’s Bank of Communications in 2004 in an agreement that would allow it to raise its stake to 40 per cent if and when the government was to raise foreign investment limits.

BofA, RBS, Goldman Sachs, Germany’s Allianz, Singapore’s Temasek and others bought shares in China Construction Bank, Bank of China and Industrial and Commercial Bank of China with promises they would help to improve the Chinese banks’ risk management and managerial capabilities.

But apart from a few minor initiatives, the partnerships largely failed to produce tangible results and when three-year lock-up periods started to expire in recent months most of these “strategic” investors sold all or part of their holdings at a profit at a time when most global banking institutions were in dire need of fresh capital.

Only Goldman has made a public commitment to hold the majority of its stake in ICBC for at least another year.

Temasek, Singapore’s state investment agency that has stakes in both BoC and CCB, has made private commitments not to dump its shares in the market, according to Chinese banking executives."