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Bank reform efforts gathering pace
By Xiao Zhang (China Daily)
Updated: 2004-07-02 08:34

Reforms at China's major banks are gathering pace as the full opening up of the local banking sector approaches.

The Bank of China (BOC), one of the four State-owned lenders, said yesterday it will wrap up talks with potential strategic investors no later than August and will complete its joint-stock reform in October.

Reform at the Agricultural Bank of China (ABC), the weakest of the four lenders, is also accelerating, with 19 branches collaborating recently to strengthen its presence in the wealthy Pearl River Delta. However ABC senior officials said the bank's initial public offering (IPO) is still one or two years away.

"We will make the decisions (on strategic investors) either this month or next," BOC spokesman Wang Zhaowen told China Daily.

The BOC may select as many as six strategic investors to secure a successful IPO, and will complete its joint-stock reform in October, assistant bank president Zhu Xinqiang said yesterday in Beijing.

The BOC and China Construction Bank (CCB) were chosen late last year by the State Council, the Chinese cabinet, for a trial joint-stock reform, and were given US$22.5 billion worth of capital each to help reduce bad loans and improve capital adequacy.

The staggering non-performing loans at the four State-owned lenders, totalling 1.89 trillion yuan (US$228 billion) at the end of March, are a major hurdle hindering reform efforts.

The reforms are needed to prepare the banks for fiercer foreign competition expected at the end of 2006, when the local market is fully opened under the nation's World Trade Organization commitments.

The BOC's bad loan ratio stood at 14.8 per cent at the end of March, down 1.4 percentage points from the end of last year, Zhu said.

The bank is also issuing 10 billion yuan (US$1.2 billion) in subordinated bonds in the interbank market starting next Wednesday, another attempt to raise more capital to enhance its financial strength.

The CCB and Industrial and Commercial Bank of China, the largest of the four State banks, also have plans to issue bonds to improve capital adequacy ratios.

The ABC, with the weakest balance sheet of the four, is also on the move although it has been out of the limelight after losing to the BOC and CCB in the recent round of State-sponsored recapitalizations.

The bank said yesterday 19 branches in the Pearl River Delta have signed agreements to strengthen co-operation in resources, technology and personnel in an attempt to boost its operations in the wealthy region.

The ABC, which is traditionally based in China's vast rural areas, is expected to be the last to sell shares.

ABC president Yang Mingsheng said yesterday one or two years are still needed to prepare for the bank's IPO.

Although the ABC has the heaviest burden among its peers - with the bad loan ratio currently standing at 27 per cent - Yang said his bank also has unique advantages.

The ABC has 36,000 outlets scattered in even the most far-flung areas of the country, far more than the other three State-owned lenders, Yang said. And 98 per cent of the outlets are electronically connected. It has 180 million clients and 510,000 employees, the largest among the four banks.

"Those advantages are what other banks cannot compete with, because we are not going to take the path of network expansion again," Yang said.

Beijing, where foreign banks will be allowed to conduct renminbi business by the end of this year, is one of the leading cities in the banking reform.

Lai Xiaomin, director of the China Banking Regulatory Commission's Beijing bureau, said the commission expects to bring the aggregate bad loan ratio of the city's banks to 3 per cent in the coming years from 7 per cent currently.

The official said his bureau is promoting "good bank" criteria among local banks by calibrating to international standards on key bank performance indicators such as the return on equity ratio and non-performing loan ratio.

"Beijing is one of the best cities in terms of bank asset quality," he said. "But we are still fairly far away from the good bank criteria."

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