What to watch when taking equity stakes in urban commercial banks

In recent times, with the intensifying demand for a “full complement of financial licences”, another wave of acquiring equity stakes in commercial banks – especially in urban commercial banks (UCBs) – has rolled in. This is due, on the one hand, to UCBs being smaller in size and easier to control compared to joint stock limited banks, and approval being easier to secure; and on the other hand, to the quality of the assets of UCBs being better than that of rural commercial banks and rural credit co-operatives.

Commercial banks have always been a focus of regulation. The qualifications of bank shareholders, the investing and taking of equity stakes in banks and the qualifications of senior officers are all subject to the examination and approval of the China Banking Regulatory Commission or its agencies.

Accordingly, the role that lawyers play in the course of investment in UCBs is more crucial than investment in ordinary enterprises. Below, the authors outline the methods for investing and taking an equity stake in a UCB, and the things to look out for in doing so.

Cai Qixiao is a partner and Liu Yuzhou is an associate at East & Concord Partners