BEIJING, Oct 10: China aims to open up its banking sector further by raising the cap on foreign banks’ stakes and making it easier for them to set up branches, a senior bank regulator said on Monday.

Foreign investors, eager to boost their market presence, have lobbied hard for China to drop its 25 per cent ceiling on foreign ownership of a local bank. A single overseas owner is limited to a 20 per cent stake.

Li Fuan, deputy chief of policy and regulation at the China Banking Regulatory Commission (CBRC), said the government would set varied ceilings on foreign ownership in domestic banks, allowing smaller lenders to sell a bigger chunk of shares.

“The 25 per cent cap is transitional and it will be changed shortly,” Mr Li told Reuters in an interview. He did not give a timeframe.

Beijing, worried that domestic banks are unprepared for greater competition, is trying to entice foreign capital and expertise into a sector saddled with $200 billion in bad loans.

If foreigners owned more than 25 per cent, a bank would no longer be regarded as a local institution but as a joint venture, meaning it would face a plethora of restrictions such as higher capital requirements and difficulties in setting up branches.

Mr Li said the authorities were also considering relaxing an unwritten rule that foreign banks must operate a representative office for two years before it could be upgraded to a branch.

“This could be changed very shortly — maybe by the end of this year,” he said. “It’s unnecessary for foreign banks to take two years to understand the market.”—Reuters