updated 4/25/2006 9:05:55 AM ET 2006-04-25T13:05:55

A delay in a government decision on a bid by Citigroup Inc. for Guangdong Development Bank suggest authorities are wary of relaxing limits that prevent foreign lenders from taking majority stakes in local banks, reports said Tuesday.

Citigroup executives have refused comment on reports that a consortium led by the U.S. banking giant has bid nearly $3 billion for a majority stake in the struggling bank based in the southern province of Guangdong.

A government decision on the deal originally had been expected before the Chinese New Year holidays in February, and then later possibly during Chinese President Hu Jintao's visit to the United States last week.

The state-run newspaper China Daily reported Tuesday that China was unlikely to loosen controls that restrict foreigners to a maximum of 25 percent equity in Chinese banks, with investments by any one bank capped at 20 percent.

"The case of Guangdong Development Bank has been looked into many times by the China Banking Regulatory Commission and other related administrations, and it is hard to break the present restrictions on foreign strategic investor issues," the report cited a letter from the banking watchdog to the Guangdong city government, as saying.

Chinese regulators have been encouraging foreign banks to take strategic stakes in the industry, both as a source of funding and to upgrade local bank services with foreign managerial and technical expertise as the industry prepares for the opening of local financial markets to full foreign competition late this year.

Chinese leaders have stressed their insistence that the government retain controlling stakes in major state-run banks. Sales of billions of dollars in bank equity have also prompted a debate over whether foreign investors are paying enough.

"We are studying the issue," Jiang Dingzhi, vice chairman of China Banking Regulatory Commission, or CBRC, said last week when asked about the Citigroup bid.

However, Jiang said there was no timetable for China to ease its limits on foreign investments. Any such changes are unlikely in the near term, he said.

Citigroup's bid for Guangdong Development Bank had fueled speculation that the authorities might relax that requirement for smaller banks.

State media reports said the Guangzhou-based bank might be allowed to sell off a larger share of its equity than usual because of its urgent need for capital and its large burden of bad loans.

Earlier reports said Citigroup was seeking a stake of between 40 percent to 45 percent in Guangdong Development Bank, with U.S. private equity Carlyle Group taking a 10 percent stake.

The Citigroup consortium's bid also reportedly faces competition from other contenders.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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