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Supplement: BOC businesses remain on track

(chinadaily.com.cn)
Updated: 2009-03-13 15:08

BOC Chairman Xiao Gang: “BOC's fundamentals are positive”

Anchor： We have the honor to invite Mr. Xiao Gang, the former vice governor of the Central Bank and the present chairman of the Bank of China (BOC) to act as the observer of NPC & CPPCC Sessions for today's NPC & CPPCC Special Report. When it comes to the share price, the lowest level of BOC 's share price was a little more than 2 yuan, a new low. Today's price is 3.34 yuan, slightly higher than the issuance price of 3.08 yuan. What's your opinion on BOC's share price?

Xiao Gang： I'm concerned about our share price. But as the chairman of a listed company, I give more attention towards how to sustainably create value for the shareholders in the long run. Therefore, I focus my attention on the operation and try to improve our operation and management to enhance the return to the shareholders. Regarding the share price, the long-term share price of a company is influenced by its fundamentals. As long as the company has good fundamentals, the long-term stock performance will be good. Of course, the share price is also influenced by many temporary factors and there may be certain fluctuations in a short run. I would emphasize the positive fundamentals.

I think that our fundamentals are positive as China's bank system is very steady. Although we are influenced by the international financial crisis, China's banking industry still performs well, as does BOC. Our market value takes 3rd position across the globe. I hold that our fundamentals are positive as the fundamentals of the Chinese economy are positive.

BOC's housing loan balance is above 550 billion yuan

Anchor： The next topic is real estate. We mentioned the annual report of BOC a moment ago. According to the annual report 2008 released by Vanke, the leader in China’s real estate industry, its net profit decreased 17 percent. Mr. Xiao Gang, may I be informed on BOC's attitude towards housing loans?

Xiao Gang： We currently actively support ordinary residence projects for small and medium-sized house layouts. BOC has engaged many measures in this aspect. For example, we offer the most favorable rate for buyers of small and medium-sized house layouts – i.e we offer 30 percent off on the basis of the rate stipulated by the state. We only ask for a 20 percent down payment. In addition, we also provide a flexible floating interest rate mechanism to the house buyers and the rate can then be adjusted every three months, six months or twelve months, which is conducive in reducing the interest burden of the mortgage loan.

Meanwhile, BOC is also active in the second-hand house market. Besides supporting the people who are buying their first house and their second house, BOC also has many engagements in the second-hand house market. We have issued a large amount of loans for second-hand houses and also have cooperation programs with some brokers of second-hand houses. We work with the brokers in the same office in order to offer one-stop services to the people. And the people can transact relevant loan formalities with our bank staff directly in the broker's office after confirming the house price there. BOC has issued a large amount of mortgage loans. The accumulative sum has surpassed 1,000 billion yuan and the current balance is more than 550 billion yuan. Generally speaking, we hold that real estate is the pillar of the national economy, and we especially support the mortgage loans of small and medium-sized house layouts.

Xiao Gang： But the loans to developers are selective. As you know there are more than 4,000 developers nationwide and their capabilities vary greatly. We issue loans to those developers who have good credit and whose buildings are suitable to the masses. The loans to the developers have increased somewhat recently.

BOC can prevent the occurrence of large amounts of non-performing loans

Anchor： We also want to ask you a commonly-discussed topic in the industry, i.e. non-performing loans. As one of the main leaders in China’s banking circle, do you worry about an increase of non-performing loans with the increase of loans?

Xiao Gang：Such worry is reasonable. This is also a question considered by all of us and an important reminder to us. As a commercial bank, we must put risk control in a very important position. Therefore, we are also considering whether the loan increase will give rise to more non-performing loans. As this is an absolute possibility, we must heighten our vigilance and monitor the risk attentively. But I must say that the existing banking mechanism differs greatly from that in previous years. For example, tiered management and operation was adopted in the past and bodies ranging from the head office to provincial branches, to prefecture-level sub-branches and even county-level branches were all able to issue loans. However intensive operation and management is adopted currently and only the head office and the provincial branches have the power to issue loans. Such a system ensures the reduction of non-performing loans; especially loans to high-pollution, high energy consumption and low-level repeated construction projects. In addition, although the loan volume increases, the conditions for loans are now loosened. We implement a strict examination on a lender. We look at whether the project tallies with the industrial policy of the State; whether the project meets requirements on environmental protection; and whether it is an advanced production force. As we issue loans that concord with the industrial policy of the State, all the projects tend to be high-quality ones that have good prospects.

In addition, we have reformed our financial and accounting system. As the international accounting rules are adopted, depreciation reserves are accrued in case there are non-performing loans, providing for a sound and steady finance. Intensifying management and improving institution and policy can prevent an increase of non-performing loans with the increase of lending.

BOC came in first in terms of international settlement volume in 2008

Anchor：We often hear of many small and medium-sized enterprises, especially those engaged in foreign trade, complaining that when it comes to issuing loans, banks tilt in favor of large-sized enterprises. As China's foreign trade situation is especially tough this year, does BOC have any special considerations for small and medium-sized foreign trade enterprises?

Xiao Gang：As BOC originally was a bank that specialized in foreign trade, we have many services and products in this aspect. For example, we offer short-term trade financing to foreign trade enterprises to support their exports.

In addition, we launched the factoring business in view of the fact that some foreign trade enterprises can't get their goods payments after product export. Through the business, we can buy the account receivable from these export enterprises, which can accelerate their development and fund turnover. This service is really distinctive.

The international settlement volume of BOC was $1,700 billion, taking 1st position not only in China, but even in the whole world. International settlement is a feature of ours and we will continue to increase the support we provide to foreign trade enterprises.

The impact of the financial crisis on the Chinese economy will continue

Anchor：Although a piece of good news came over from Citibank, its share price is still a little more than one dollar and its market value has contracted by 95 percent. The share price of HSBC has also been swinging throughout. How do you interpret these figures and what are your feelings?

Xiao Gang： In my view, the international financial crisis has not yet to reach the bottom and the market will be having a certain turmoil in a period of time going forward. This crisis is really damaging and it has had a serious impact on the economies of the US and Europe. Of course, the Chinese economy has also been seriously damaged. Therefore, I think the market turmoil will continue for a period of time and market fluctuations are normal.

BOC has no plan to acquire Citibank

Anchor: There must be some people in audience who are wondering if you had planned to acquire Citibank, because the market value of Citibank is only about $5.8 billion, while the market value of BOC is over 1 trillion yuan.

Xiao Gang: We are very prudent towards overseas acquisition. Firstly, we need to consider the details of any acquisition in order to avoid blind acquisition. We must consider the consistency of the target acquisition company with our bank in terms of development strategy and the business synergistic effect after acquisition. Since our key concern is the long-term return and value that will be brought for our shareholders after acquisition, we won't simply buy something for its low price. That's why we are so prudent towards acquisition.

Secondly, we need to consider our control ability over these organizations. So as you can see, acquisition would be very complicated for us. Although the market value of Citibank is very low, we can't acquire it just for this reason.

The Chinese banking industry enjoys significant opportunity brought on by crisis

Anchor: Currently, the pattern of the world banking industry has dramatically changed and been reshuffled with the Industrial and Commercial Bank of China being the No 1 bank in the world in terms of size. China Construction Bank stands in second position while Bank of China is the third largest bank and HSBC is fourth. How long will this last? Will the three largest banks of China top in the world banking industry for quite a long time?

Xiao Gang: In the long run, the crisis will greatly change the pattern of international finance which actually began to change 10 years before the crisis. Therefore, after the crisis, I believe the pattern of banks will continue to change greatly. Like others, I firmly believe that developing countries and countries with emerging markets, especially China, will enjoy an elevated position in the finance industry, which is irreversible. I believe the crisis brings significant and hard-to-win opportunity for the Chinese banking industry. With this opportunity, we have to speed up development to catch up with international advanced banks. In other words, we have to build world-class banks.

BOC favors overseas M&A by Chinese enterprises

Anchor: From the beginning of the financial crisis up until now, BOC has never stopped its overseas development.

Xiao Gang: It's true. After the crisis began, our overseas business actually continued to increase with some acquisition activities. For example, we acquired Singapore Aircraft Leasing Enterprise and it has operated very well for the last two years with a net profit of circa $100 million last year. Obviously, we don't suspend acquisition during this period, instead, we continue to acquire. However, we won't blindly acquire and we have to accurately identify the target company. We need to consider the compatibility of their strategy with ours, business synergistic effects after acquisition and the value for shareholders.

Anchor: Some Chinese enterprises in other industries have also developed overseas markets during this period by acquiring some homogenous overseas enterprises with this opportunity, does BOC favor them?

Xiao Gang: Absolutely. The crisis of overseas banks greatly affects overseas enterprises who can't raise funds from overseas banks. As overseas banks have substantially lost their financing function, there have been many opportunities for Chinese enterprises. Therefore, we absolutely favor the "Going Global" strategy of Chinese enterprises who are our key clients in China and BOC will certainly follow them and develop our overseas market.

BOC won't change its internationalization strategy

Anchor: Many people think that the top three banks in the world, being Chinese banks, aren't so affected by the crisis because Chinese banks aren't so internationalized. Do you think that's true?

Xiao Gang: That's true to some extent. Indeed our internationalization level does not match that of large western banks, but I think the achievements of reform and opening-up over these years have laid the foundation for us. Five years ago, we began to reform shareholding systems. In recent years, we really got involved in many reforms including bad assets settlement, capital enrichment, internal management intensification and corporate governance mechanism completeness which ensures us the solid financial foundation for combating the crisis. Therefore, we have greatly increased risk control ability and that’s why we are so confident now.

Anchor： As our degree of internationalization is not as high as other banks, the exposure to risk is relatively small. Yet internationalization is still where we are heading and we will stick to this despite the risks.

Xiao Gang：I agree. We will stick with internationalization development. As a bank with the highest degree of internationalization in China, we will never change our development direction.