China will allow domestic and foreign commercial banks to set up financial leasing companies in the country, under a rule released by the regulator yesterday.

The China Banking Regulatory Commission (CBRC) rule will permit locally as well as overseas-incorporated commercial banks to directly set up financial leasing companies in China from March 1.

This is the first time the regulator has permitted commercial banks to deal in financial leasing since 1997, when they were required to withdraw from the business.

The revised rule stipulates that a bank can invest in financial leasing companies if it has a capital adequacy ratio of no less than 8 percent, total assets of no less than 80 billion yuan in the last year, and if it has turned a profit for two consecutive fiscal years.

The rule also allows large-scale leasing companies, manufacturing enterprises and other financial institutions to invest in the business with approval from the CBRC.

The minimum registered capital for a financial leasing company is reduced to no less than 100 million yuan from an earlier 500 million yuan.

"The CBRC rule is aimed at rectifying the 12 financial leasing companies and canceling the franchise rights of financing and inter-bank borrowing and lending to make them return to the main business and financing and leasing sector," said an anonymous analyst with the Financial Leasing Professional Committee at the Society of Finance.

There are currently 12 licensed financial leasing companies in China. The new rule is likely to see commercial banks become the preferred choice as investors in the industry.

"There will be a big reshuffle among the financial leasing companies, and commercial banks will become almost the main investors in the industry," the analyst said.

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