Foreign banks in China licensed to do local currency business are protesting at a new rule by the central bank that will set limits on their borrowing of local currency, the Financial Times said. The People's Bank of China has told the banks that funds raised in bilateral loans from Chinese financial institutions would be capped at 40 per cent of total liabilities. The new rule would be introduced in phases, taking full force in 2005.
Banking sources said that the rule would effectively limit the banks' scope to engage in local currency business, by cutting them off from their principal source of local currency and leaving them dependent on deposits by their customer base of foreigninvested companies. HSBC commented that bilateral loans made up more than 40 per cent of its liabilities, while industry sources said that the proportion at other banks could be as high as 70 per cent.