CHINA has circulated its first rules governing acquisitions by commercial banks of financial companies at home and abroad, a move that may make it easier for the nation's lenders to expand into industries such as insurance.

The China Banking Regulatory Commission has sent the draft rules to banks for consultation. The undated document, a copy of which was obtained by Bloomberg News, didn't say when the new regulations are expected to take effect.

China's three largest publicly traded banks, led by Industrial & Commercial Bank of China Ltd, have about US$419 billion of cash between them. A lack of regulatory transparency has hampered the ability of lenders to enter new businesses through takeovers, said lawyers and analysts.

"Now it's clearer and more predictable," said Roy Zhang, a Shanghai-based lawyer and partner who specializes in bank mergers at King&Wood, one of China's largest law firms. "We are going to see more deals going through."

The new rules ban banks from takeovers that would push their capital adequacy ratios to below 10 percent, the document said. Deals must not create monopolies or undermine "effective competition," it said.

China's banks are barred from investing in non-bank financial institutions unless "stipulated otherwise by the state," according to 2003 revisions to the nation's Commercial Bank Law.

While domestic acquisitions of non-bank financial firms would be covered by the new rules, they'll need approval from the State Council, the draft said. Overseas purchases only need approval by the CBRC.

"Chinese commercial banks are very enthusiastic about making cross-sector acquisitions," said Zhang Xi, an analyst at China Galaxy Securities Co. "This will provide a good opportunity for bigger banks."