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China Construction Bank (CCB) said yesterday it had made major progress in disposing of its bad assets last year.

The bank, which plans to be the first of the nation's four largest State-owned commercial banks to go public, disposed of 120.1 billion yuan (US$14.5 billion) worth of bad assets in 2003, and recovered assets worth 49.4 billion yuan (US$6.0 billion), of which 42.4 billion yuan (US$5.1 billion) was in cash.

The bank did not disclose the rate of its non-performing loans (NPLs) at the end of last year.

But Yang Xiaoyang, head of the bank's asset preservation department, said earlier last year his bank had planned to reduce the NPL rate by at least 4 percentage points in 2003.

The bank, which handed 250 billion yuan (US$30.1 billion) worth of non-performing assets over to China Cinda Asset Management Corp in 1999, still had 267.8 billion yuan (US$32.3 billion) worth of non-performing assets at the end of 2002.

The bank's NPLs, by the international standard of five category classification, stood at 15.36 per cent then.

Niu Li, a senior economist with the State Information Centre, said that China's four largest State-owned banks, which also include the Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China will have to sharpen their competitive edge before foreign banks obtain unrestricted access to the Chinese market at the end of 2005.

"They will have to lower the NPL rate, get rid of historical financial burdens and raise their capital adequacy to international standards," Niu said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 per cent, the minimum required by the Basel Capital Accord reached by international banking managers.

This means China's commercial banks, especially the four State-owned banks, will have to achieve the goal before they get listed, he said.

"Reducing bad loans is the first step by the bank to go public," he said.

Chinese banks usually use bad loan reserves to write off non-performing loans.

Besides bad loan reserves, capital injection from the central finance is another way to write off NPLs, Niu said. Last year, the State injected US$22.5 billion to the bank to increase its capital adequacy.

"With an aim to become more competitive, Chinese commercial banks will have to step up business supervision and risk control measures," said Yiping Huang, a senior economist with Citigroup.

China Construction Bank President Zhang Enzhao said that last year, his bank, together with Wuhan University in Central China's Hubei Province, developed a new internal control system to minimize financial risks.

"We will speed up internal mechanism reform and beef up internal management," he said.

(China Daily 02/05/2004 page10)


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