China has given the go-ahead for five commercial banks to branch into leasing to energise the sector and create new profit streams for lenders, the banking regulator said on Thursday.

The five have won approval from the State Council, and the China Banking Regulatory Commission (CBRC) is now conducting further checks, CBRC Vice Chairman Cai Esheng said.

He did not name the banks, but China Construction Bank and China Minsheng Bank Corp have said they have applied for a leasing licence.

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ABN AMRO said last November it was also entering the sector to tap a growing need for asset-backed finance to fund spending on capital equipment.

China said in February that it would let foreign and domestic banks establish leasing companies, seven years after it stopped issuing financial leasing licences to clean up the industry.

In a statement posted on the agency's Web site, www.cbrc.gov.cn, Cai said his office would allow more banks to enter the sector as market demand grew.

Cai said the industry had huge potential, given the importance of investment for China's growth. Leasing volume in 2005 was just US$4.25 billion, tiny for a US$2.75 trillion economy. Ranked by market size, China came 23rd in the world in 2005, he said.

At the end of 2006, twelve largest financial leasing firms in China had combined assets of 14.2 billion yuan (US$1.86 billion). However, only six of the firms were operational. They made a profit last year of 130 million yuan, Cai said.

China also has 70 leasing firms not owned by financial institutions. Supervised by the Ministry of Commerce, they had assets of 30 billion yuan at the end of 2006, the CBRC said.

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