Around 45 billion yuan (US$5.7 billion) in insurance capital could flood into
China's banking sector after the nation's top insurance watchdog unveiled a
package of investment rules Monday.
According to detailed rules issued by the China Insurance Regulatory
Commission (CIRC) for insurers' equity investment in banks, insurance
institutions could invest no more than 3 per cent of their total assets in
State-owned commercial banks, joint-stock commercial banks and city commercial
banks.
By the end of last year, the total assets of China's insurance sector had
reached 1.5 trillion yuan (US$190 billion), implying that 45 billion yuan
(US$5.7 billion) in insurance capital could be poured into China's banking
sector this year.
"Equity investment in banks is just the first step, and we are considering
regulations on investment in fixed-assets projects and State-owned enterprises,"
a CIRC official told reporters yesterday.
In guidelines published in late June, the regulator expressed its support for
insurers' investment in banks, part of its efforts to boost insurers' investment
returns.
"We support insurance companies buying into, or even taking controlling
stakes in, well-managed, profitable banks that have a strong customer base,"
CIRC Chairman Wu Dingfu said earlier.
The regulation stipulated that insurers could use their registered capital
and provisions over 10 years for the investment.
In terms of purpose and scale, insurers' investment in banks is divided into
two types general and grand investment.
Those accounting for less than a 5 per cent stake in a bank are classified as
general investment, while those greater than 5 per cent are regarded as grand
investment. There are no upper ceilings for the investment.
If an insurer plans to make a grand investment, its total assets by the end
of last year should be no less than 100 billion yuan (US$12.7 billion).
For any investment taking a 10 per cent stake or above, the insurer should
have total assets in excess of 150 billion yuan (US$19 billion) by the end of
last year.
Meanwhile, those target banks for general investment shall meet the following
requirements a capital adequacy ratio of up to 8 per cent, a non-performing
loans ratio lower than 5 per cent and a return on net assets of up to 12 per
cent.
In fact, China's largest life insurers have been quite investors in banks.
In late July, Ping An Insurance (Group) Company became the controlling
shareholder in Shenzhen City Commercial Bank after it bought an 89.24 per cent
stake in the lender for 4.9 billion yuan (US$620 million).
According to Ping An Chief Operating Officer Louis Cheung, banking services
will become one of the company's key businesses in the future, and the group is
"open to any other opportunities."
Apart from the Shenzhen lender, Ping An has also been in talks with
Beijing-based China Everbright Bank. Sources said the discussions are at a very
early stage and it is uncertain whether they will result in an agreement.
Meanwhile, Ping An also joined a consortium led by French bank Societe
Generale to bid for an 85 per cent stake in Guangdong Development Bank.
China Life, the country's largest life insurer, obtained a 1.75 per cent
share in Fujian-based Industrial Bank through an auction in mid-August.
China's insurance premiums hit 493 billion yuan (US$62.4 billion) in 2005,
ranking 11th in the world. The industry witnessed a 25 per cent annual increase
from 2000 to 2005, the CIRC said.
