[BEIJING] China's cabinet has allowed Bank of Communications (BoCom), the country's fifth-biggest lender, to introduce more private shareholding as part of Beijing's financial reforms to revitalise state-owned banks.

The proposal, approved by the State Council, is aimed at driving BoCom's growth by bringing on board commercially adept strategic investors and incentivizing employees through stock ownership plan.

While "optimising the shareholding structure," BoCom's reform won't weaken the central government's control over the bank, according to BoCom's filings late on Tuesday.

Although shares in the bank trade publicly, at present state-owned institutions remain the largest shareholders in BoCom.

The approval comes at a time when China's top banks are facing a painful year, as a cooling economy has squeezed lending margin and sharply pushed up bad loans, adding urgency to the reform process.

BoCom was the first of China's big five state-owned lenders to start reforms under Beijing's two-year-long overhaul of its hugely inefficient state-owned enterprises (SOEs), one of the country's thorniest problems.

A number of SOEs in non-financial sectors have embarked on their own reforms early on by diversifying ownership to include more non-state investors, seen as helping combat official corruption, as well as pushing mergers and restructuring.

"BoCom's reform is a start," said Ma Kunpeng, a Shanghai-based banking analyst at Sinolink Securities Co, "It unveiled the curtain of Chinese banks' mixed ownership reforms."

Bank of China Ltd and China Construction Bank Corp are expected to follow in the footsteps of BoCom with their own reforms, Mr Ma added.

Last month, state-owned investment company Central Huijin Investment Ltd sold off some of its mainland-listed A shares of Industrial & Commercial Bank of China Ltd and China Construction Bank Corp, which some analysts took as a signal that banks would soon start diversifying ownership.

BoCom's mainland-listed shares were up 5 percent by midday.

The State Council asked BoCom to be proactive in strengthening oversight in areas such as risk management, human resources and evaluation, the bank said in the filings without elaborating.

In an effort to promote good governance, the ruling Communist Party's anti-corruption watchdog has also stepped up its surveillance and has recently targeted top banking executives for graft.

In January, Mao Xiaofeng, head of China Minsheng Banking Corp , resigned after several Chinese media outlets reported he was being investigated by the graft buster.

BoCom's Tuesday filing didn't mention any loosening of restrictions on foreign ownership in the bank. HSBC, the biggest foreign shareholder in BoCom, has a 19 percent stake, below the 20 percent bank ownership limits which have been in place since China joined the World Trade Organization in 2001.

REUTERS