Switzerland's biggest bank, UBS, will buy a stake worth US$500 million in Bank of China (BOC), but the terms of the agreement forbid UBS to sell that stake within the next three years, according to a joint statement issued in Beijing on Tuesday.

The deals comes hot on the heels of two other agreements in which Temasek Holdings Ptd Ltd, the investment arm of the Singapore government, and the Royal Bank of Scotland, each bought 10 percent stakes in BOC for a total of about 3.1 billion dollars.

Foreign banks have been staking out strategic alliances with Chinese banks in a bid to gain a foothold in the Chinese banking sector before it is officially opened to foreign competition in 2006, in accordance with China's World Trade Organization (WTO) commitments.

Chinese banks have also been encouraged to enter into such alliances to help build capital and improve internal management mechanisms.

Pending approval from the relevant government departments, the deal between UBS and BOC involves their cooperation in the fields of investment banking and securities.

UBS will share with BOC "technology, experience and expertise" in the management of operation risks and assets and debts, the joint statement reads.

UBS investment and strategic ties between the two banks will push forward mutually beneficial cooperation, a BOC spokesman said.

Chinese law limits foreign shareholders to a total of no more than 25 percent equity share in its state-owned banks. Individual foreign banks can only hold up to 20 percent of shares.

All of China's major commercial banks are planning to sell shares overseas. The bellwether is China Construction Bank (CCB), which some Hong Kong newspapers say might go public in Hong Kong soon.

Last month, Goldman Sachs, American Express Co. and Allianz AG of Germany reportedly signed a deal to buy a 10 percent stake in China's biggest bank, Industrial and Commercial Bank of China (ICBC).

Decades of government-ordered lending have piled up bad loans at Chinese banks, analysts say. In sharp contrast with their Chinese peers, famous foreign lenders usually report a non-performing loan level of 1 to 2 percent.

To address the problem, China set up asset management companies (AMCs) in 1999 - namely, Huarong, Cinda, Orient and Great Wall - to manage a total of 1.4 trillion yuan (US$172.63 billion) in non-performing loans transferred from the state banks.

The Chinese government has also injected US$22.5 billion into BOC and CCB respectively, and another US$15 billion into ICBC to help boost their capital bases.

(Xinhua News Agency September 28, 2005)