New rules eyed

New regulations may include requiring banks to incorporate locally, pay higher taxes and put up an additional 1 billion yuan in capital. Foreign banks would then be allowed to offer yuan services to mainland customers for the first time.

"Hang Seng will need to focus on deposit products initially," said Or, noting that deposit ratio limits put a cap on the size of banks' loan books.

"The main importance for Hang Seng or any foreign bank is to build your deposit base," he said.

Foreign banks are keen to start selling local currency mortgages and wealth management products to mainland customers, which have roughly US$2 trillion in personal savings.

The mainland's banking market, which is dominated by State lenders such as the Industrial and Commercial Bank of China, is still developing and its credit culture is only beginning to emerge.

Hang Seng owns nearly 16 per cent of a mid-sized Fujian based-lender, Industrial Bank, and Or said Hang Seng would convert its co-branded credit card business with Industrial Bank into a joint venture whenever local rules allowed.

"I don't think we have the scale yet to issue our own card," he said. "For credit cards, if you don't have the scale there's no meaning to issue your own card."

Industrial Bank has applied to the mainland securities regulator for a domestic initial public offering, although no timeframe on the possible IPO in Shanghai has been given.

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