The "big four" Chinese commercial banks are seeking to lower
their bad debt ratio among other reform measures to sharpen their
competitive edge against foreign counterparts exploring the
domestic market.
Starting from early this month, foreign banks are allowed by the
Chinese government to do RMB yuan business in four more cities,
Jinan, Fuzhou, Chengdu and Chongqing, bringing to 13 the total
number of Chinese cities open to them.
And beginning December 31, the China Banking Regulatory
Commission (CBRC) will put into effect a new regulation that
allows a single foreign financial institution to hold as much as a
20% stake in a Chinese bank.
Foreign banks can compete with domestic operations in all places
and business scopes in China in 2006 in accordance with China's
pledges when it joined the World Trade Organization.
The "big four" --?the Industrial and Commercial
Bank of China, the Bank of
China, the China Construction
Bank, and the Agricultural Bank of China -- were forced to take
active measures to enhance their competitiveness, focusing on
reducing their average non-performing loan (NPL) ratio to less than
15% by 2005.
The four banks now hold more than 65% of domestic market shares.
China has an additional 11 joint-stock commercial banks, more than
100 city commercial banks and thousands of rural credit
cooperatives.
Four financial asset management companies were established in
1999 to manage as much as 1.4 trillion yuan (US$168 billion) of bad
debts from the state-owned commercial banks by sales, regrouping
and debts-to-shares transfer. Of the figure, 415 billion yuan
(US$50 billion) had been disposed of by the end of September.
Outstanding NPLs of the "big four" still reached 2 trillion yuan
(US$240 billion) by the end of September, representing an average
NPL ratio of 21.38 % in line with an international loan
classification practice, dropping by 4.83% from at the year start.
The China Construction Bank reported the best asset quality with a
ratio of 11.84% at the end of October.
The CBRC demanded that state-owned banks take further action to
dispose of the NPLs, prevent the re-accumulation of NPLs, control
rigidly the quality of new loans, set special plans for bad debt
canceling in key industries and areas, and explore new ways to
dispose of NPLs.
A source said that the Industrial and Commercial Bank of China
(ICBC) is applying to issue bonds guaranteed by 3 billion yuan
(US$361 million) of bad debts to increase the liquidity of banking
assets.
CBRC Chairman Liu Mingkang said that to bring down the NPL ratio
is, however, just the first of a new round of three-step reform of
state-owned commercial banks.
The second step is to inject capital into the "big four" through
various channels and the third is to upgrade the banks, he said at
a press conference earlier this month.
Although a clear timetable is not yet available, the four banks
all hope to be listed in the stock market to collect funds and
deepen reform. The Bank of China is widely anticipated to take the
lead, since it is the only one where the capital adequacy ratio
reaches 8 percent, the international requirement for commercial
banks.
Central bank authorities and financial experts have emphasized
repeatedly the necessity of injecting capital into state-owned
banks. China used to do so by issuing treasury bonds.
"If we replenish the capital of state-owned commercial banks, we
should require them to manage in line with market principles and
strengthen their inner controls and risk mitigation," said a senior
official of the central bank.
Director Zhan Xiangyang of the ICBC Research Institute told
Xinhua that she believed the priority of state-owned bank reform is
to establish efficient corporate governance. "Otherwise, new bad
debts will occur after old ones are solved, and old problems will
reappear."
China's "big four" have already sacked a large number of
employees in an effort to streamline staff and raise efficiency in
recent years.
(China Daily December 19, 2003)