China speeds up reform on state-owned commercial banks
( 2004-01-09 17:05) (Xinhua)
The central bank governor Zhou Xiaochuan Thursday said a series of new measures will follow the decision for acceleration of reform of debt-laden state-owned commercial banks (SOCBs), after the government decided to allocate US$45 billion of the nation's foreign exchange reserve to supplement the capital of two major banks.
Zhou made the remark in Beijing at a seminar on risk control of commercial banks. The next-stage reform will put special focus on internal reform and establishment of effective corporate governance mechanism of SOCBs, he said.
China's SOCBs, having made great contributions to the country's economic development, are facing severe managerial problems with a high ratio of bad assets and low capital sufficiency due to structural flaws and some historical factors.
China's big four SOCBs, namely, China Construction Bank, Industrial and Commercial Bank of China, Bank of China and Agricultural Bank of China, all have ambitious plans to list on the stock market, but for a long time, the heavy burdens of non- performing loans obstructed them from that goal.
The cash allocation to the two banks sent a strong signal that China will speed up SOCB reforms, Zhou said.
China Construction Bank and Bank of China were chosen by the government for pilot reform partly because they have already cut non-performing loans (NPL).
China Construction Bank reported the best asset quality with an NPL ratio of 11.84 percent at the end of last October, while the average NPL level of the big four stood at 21.4 percent, 13 percentage points more than the country's 11 joint-stock commercial banks.
China has promised to open its banking business -- in all places and all currencies -- to foreign banks by 2006. However, the SOCBs are still beleaguered by lack of corporate governance, high NPL ratios and low capital adequacy ratio.
"This has aroused great concern from China's leadership," said Qiu Zhaoxiang, director of the financial research institute of the University of International Business and Economics.
The Communist Party of China Central Committee has made it clear that China will choose eligible SOCBs to conduct joint-stock reform, replenish capital in cash and create conditions for listing.
The pilot reform would offer experience for other state-owned banks, said Wu Xiaoqiu, a financial research fellow of the People' s University of China, predicting that the two pilot banks would list soon.
Some experts argue the US$45 billion did not directly mean the success of the reform. The key point of this round of bank reform still lies on the improvement of internal supervision and managerial systems, said Wu.
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