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China's top lender, Industrial and Commercial Bank of China (ICBC), is selling a 10 percent stake to investment bank Goldman Sachs and others, and is shedding US$17.3 billion in bad loans to prepare for an overseas listing.

ICBC had signed a nonbinding agreement to sell the stake to Goldman's private equity arm, European insurer Allianz and American Express for more than US$3 billion, a person familiar with the deal said Wednesday.

Chinese banks and insurers are compelling investments as most of them plan to go public in the near future, allowing investment firms to cash in quickly. The country's US$1.5 trillion personal savings and its undeveloped consumer lending market are drawing Western banks to the sector.

The Central Government, for its part, has pushed lenders to sell stakes to foreigners to gain expertise and capital as it restructures the country's banking sector ahead of full global competition by the end of next year.

“Depending on the structure of the partnership, the benefits can be different from bank to bank,” said Ryan Tsang, a financial services analyst for Standard & Poor’s in Hong Kong. “But it is certain that having outside investors, the bank’s transparency will improve further.”

China Construction Bank and Bank of China, two of ICBC’s smaller State-run rivals, have already signed up foreign investors and will launch multi-billion dollar initial public offerings (IPOs) by the middle of next year.

ICBC, which received a US$15 billion bailout in April, also has been selling bad loans to clean up its finances ahead of an IPO. It reported its bad debt ratio was 4.58 percent by the end of June, a decline of 14.42 percentage points since Dec. 31.

The latest bad loan sale consists of loans made to companies in Liaoning Province, the country’s rust belt with many State-owned factories that struggle to survive, according to a report in the China Securities Journal.

“We have completed our asset disposals. I don’t have any information on this sale,” said an ICBC spokesman.

China created four asset-management firms in 1999 to take over bad loans from State banks.

Two State-owned asset management companies — Great Wall Asset Management and Orient Asset Management — would be the major buyers for 123.2 billion yuan (US$15.19 billion) in bad loans made by ICBC’s Liaoning branch, the paper said.

Great Wall will buy 67.15 billion yuan in bad loans at a 30 percent discount to their face value.

Goldman’s ICBC share — invested through its private equity arm and including some other investors — could account for roughly US$1.7 billion of the stake, which would be the largest private equity investment ever in China’s financial services industry.

Allianz will put up about US$1 billion while American Express will put up between US$200 million to US$300 million.

Foreign banks are piling into China's financial sector ahead of upcoming relaxation of government restrictions.