(Bloomberg)
Updated: 2007-08-10 09:17

HSBC Holdings Plc became the first overseas bank to win regulatory approval to set up a rural bank in China, a nation of 800 million farmers.

The new HSBC Rural Bank will be based in Cengdu County in central China's Hubei Province, the London-based bank said in an e-mailed statement. The 6,900 square kilometer area has a population of 2 million people.

"We very much support China's policy priority to develop its rural economy and intend to play a full part in these ambitions," HSBC Group Chairman Stephen Green said in the statement. The bank has gained experience serving rural areas in Brazil, India, Indonesia, the Philippines and Mexico.

Chinese President Hu Jintao has made the welfare of China's farmers the mainstay of his policies, seeking more loans and spending more on public works to boost rural incomes. Chinese farmers earned an average 2,760 yuan ($365) in the first nine months of 2006, less than one-third what city dwellers made.

The China Banking Regulatory Commission in January eased rules on forming banks and financial services companies in rural areas, seeking to spread the benefits of the nation's economic growth. Rural dwellers have less access to financing than urban residents, receiving 5,000 yuan of loans on average at the end of 2005, less than 10 percent of the average in cities.

HSBC, the foreign bank with the largest network in China, opened seven outlets and recruited more than 800 additional employees in the country in the first half. The bank had 2,700 people and 35 outlets in China at the end of last year, all based in cities.

HSBC's China Growth

HSBC will continue to focus expansion on China and India, which contributed more than half of its pretax profit in the Asia-Pacific region in the first half, Vincent Cheng, chairman of its Asian unit, said in an interview last month.

Its new rural bank will initially have as many as 25 employees and be established by the end of the year, the statement said. It will operate in a geographic area that belongs to a pilot program the banking regulator set up. Foreign banks are allowed to set up operations in these places where "there is inadequate or no financial services."

Rural banks have more freedom than urban ones, including the ability to act as agents for insurance and securities companies. They are also encouraged to issue ATM cards to farmers.

Seven Chinese banks including China Minsheng Banking Corp. Ltd. have applied to set up new banking entities in the pilot areas that lie within six provinces, while three foreign banks including HSBC say they intend to do so, Tang Shuangning, former vice chairman of the banking regulator, said in January.

China currently has 12 rural commercial banks, 76 rural cooperative banks and more than 20,000 rural cooperatives.