China Mobile has agreed to buy 20 percent of Shanghai Pudong Development Bank for 39.8 billion yuan (US$5.8 billion) to become the second-biggest share holder of the joint stock bank.The deal quenches the bank's thirst for capital to support expansion.

China Mobile, the world's largest provider of mobile telecommunications, signed a deal to buy 2.2 billion yuan-backed A shares of the Shanghai-based bank, it said in a statement to the Hong Kong stock exchange yesterday.

Moody's Investors Service said in a report"Money from the state-controlled telecom operator will provide a sizable cushion to the Pudong Development Bank's capital adequacy ratio at a time when the Chinese government is encouraging the country's major banks to boost their capital in view of rapid loan growth," said .

Chinese banks are lining up to raise capital through new shares offers, bond sales or private placements to plug a capital shortage due to their lending in the past year.

Wu Yonggang, a Guotai Jun'an Securities Co analyst, estimated that the bank's capital adequacy ratio, the main gauge of banks' financial strength, will increase close to 14 percent after the deal to support the bank's stable expansion in three years.

Joint stock banks must meet a minimum 10 percent requirement this year.

Banks with tight capital may be banned from geographic expansion or introducing certain products, the China Banking Regulatory Commission has warned.The deal will help the bank diversify from a corporate banking-centered business by moving into China's burgeoning consumer market, Moody's said.

As a mid-sized joint stock bank in the second string of China's banking industry, the Pudong bank may hope that the tie-up with the mobile operator will provide access to China Mobile's close to 530 million subscribers.

It is China Mobile's first major transaction outside its core telecom business.In Asia, the rise of mobile-payment systems, together with the growth of remittances, has driven investment by telecom operators in banks and credit-card companies.

Similar transactions were found in Japan, South Korea and the Philippines.But the deal has possible side effects. "The transaction could distract China Mobile's management during the rollout of the home-grown TD-SCDMA, 3G mobile platform," the rating firm said.