New bank set to revitalize Northeast China By Wu Yong (China Daily) Updated: 2004-05-31 07:47
Northeast China's Liaoning Province will proceed with setting up the
Northeast Revitalization Bank (NRB), to be based on a city commercial bank, says
a senior official from the provincial government.
The new bank, to be built on the framework of Shenyang City Commercial Bank
(SCB), is expected to be operational on August 8.
The local government has taken measures to improve SCB's general performance
for the upcoming large-scale operation.
"This bank, with its unique position, will play an important role in the
nation's drive to revitalize its old industrial bases," said Yang Zimeng,
director of No. 1 division of the financial affairs office of Liaoning
provincial government, who is also responsible for structuring the new bank.
This new bank would work as a regional joint-stock commercial bank covering
the provinces of Liaoning, Jilin and Heilongjiang in northeastern China, says
Yang.
As the name suggests, the bank is to provide financial support for the
revitalization of northeastern China China's old heavy industrial hub, help
local small- and medium-sized enterprises with financing and prompt the
renovation and upgrading of regional financial resources.
The local government last month handed the planning to the State Council,
China's cabinet. And the China Banking Regulatory Commission (CBRC) will send
officials for examination shortly.
Competitors for NRB
Among the three provinces in Northeast China, Liaoning is not the only one
that has been planning to set up such a bank. Its neighbouring provinces of
Jilin and Heilongjiang have had similar thoughts since the end of 2003.
Even in Liaoning, there are two candidates for the location of new bank,
Shenyang and Dalian.
"I believe we have a great hope of winning regulatory approval, as Shenyang
has many unique advantages," Yang said.
Liaoning Province is the undisputed leader in northeastern China in terms of
the scale of its economy. Shenyang, the capital of Liaoning Province, is the
biggest city in this region.
Meanwhile, Shenyang itself is the regional financial centre, home to
thousands of financial institutions. The Shenyang branch of the People's Bank of
China, the nation's central bank, is responsible for the administration of
financial institutions in the three provinces of northeastern China.
Shenyang City Commercial Bank's performance is good compared with its
counterparts in Jilin and Heilongjiang provinces. It generated a profit of 51
million yuan (US$ 6 million) last year.
Earlier this year, Liu Mingkang, chairman of CBRC, had talks about the
establishment of the new bank with Chen Zhenggao, mayor of Shenyang.
Liu agreed that Shenyang City Commercial Bank could be developed into a
regional bank if it reached CBRC requirements, which include capital adequacy,
non-performing loan ratio and corporate governance.
Liu was supported by Zhang Guobao, vice-director of the National Development
and Reform Commission (NDRC), who is also the director of the Northeast
Revitalization Office of the State Council.
"NDRC supports CBRC's suggestions of retooling a local commercial bank and
setting up a regional bank when it meets the demands," Zhang said.
New wine in old bottle?
The establishment of a new regional joint stock commercial bank based on the
current city commercial bank involves three aspects.
The first and most important one is to improve the structure of shareholding.
Registered capital of the bank will be increased to 2.8 billion yuan (US$337
million) to 3 billion yuan (US$361 million) through issuing new shares. The
State-owned stake would increase to 250 million yuan (US$30 million). The
ceiling for a single shareholder is 300 million yuan (US$36 million). Private
and international institutional investors are all encouraged to take part.
"The method can not only diversify the shareholder structure, but can, by
referring to foreign experience, help improve the property rights system and
corporate governance," said Yang Zimeng.
Co-operation with an international strategic partner would help set up modern
corporate governance inside the new bank.
At least three overseas financial institutions have expressed the wish to
participate in the new bank.
The second problem is to deal with bad loans and non-performing debts.
Shenyang City Commercial Bank has to increase its capital adequacy ratio to 8
per cent and reduce its bad loans sharply before the operation. The bank has had
discussions with the Shenyang municipal government on dealing with this problem.
But the bank declined to provide any details about measures it was taking and
progress.
The last task is the integration of provincial and regional city commercial
bank resources.
The Shenyang municipal government has set ambitious plans to accomplish these
tasks by the end of July and inaugurating the new bank on August 8.
New bank rush
Since the end of last year, there have been reports of plans to establish
several regional joint stock commercial banks, including the Northeast
Revitalization Bank, the Bohai Bank and re-opening of the Hainan Development
Bank.
This is the first such wave since the central government froze the
establishment of new commercial banks to cool down overheated investment in the
middle of the 1990s.
The freeze was lifted and banks flocked to have a market presence.
CBRC also said in February it would take a prudent stance in approving new
joint-stock banks, but would encourage private and foreign capital to buy into
existing commercial banks.
The commission said that it has decided joint-stock commercial banks would be
the future direction of China's banking industry.
However, experts still entertain doubts about this new trend. Will it be a
role booster for the local economy or a bad move that would only bring out bad
loans?
It seems that the nation's rapid development always grows with the startup of
a new regional financial institution.
China set up the Shenzhen Development Bank in the 1980s when developing
Shenzhen in southern Guangdong. Later, the Shanghai Pudong Development Bank was
established in 1992 when the central government decided to develop it in
Shanghai.
There were also calls for establishment of a specialized western development
bank to suit the demand in the nation's western development drive initiated in
the late 1990s.
"Northeastern China needs a regional bank in revitalization. So it could
absorb the private capital and support local private enterprises," said Lin
Muxi, president of the economic department of Liaoning University.
There are over 3 million small- and medium-size companies around China.
They contribute 50 per cent of the nation's gross domestic product (GDP), but
have only 20 per cent of capital supply.
Financial institutions mainly serve State-owned enterprises (SOEs) while
private companies have very little access to funds from the four major State
banks, said Qu Wei, president of Chinese Academy of Social Sciences of
Heilongjiang Province.
This phenomenon is rather severe in northeastern China where the economy is
dominated by large-scale SOEs.
Private enterprises only got 1.27 billion yuan (US$153 million) in loan from
banks in 2000, accounting for 0.4 per cent of the total loans granted by banks
in Heilongjiang.
There are around 2.8 billion yuan (US$339 million) available for those
fund-thirsty private companies if Heilongjiang sets up such a regional
development bank.
The aim is clear and simple. But can those planning the regional bank
shoulder the role of financing local enterprises?
Regional dilemmas
A regional bank has to solve at least three problems before making profits
from the ballooning financial market, analysts say.
The first one is scale. The newly established local bank's scale and capacity
is far behind State-owned banks. And the large-scale enterprises usually have
good relationship with the big four State-owned banks. It is not an easy job to
take a share from the big four lions.
The second, small- and medium-sized enterprises have promising futures. But
their credibility is also rather low.
Most of the nation's small- and medium-sized enterprises' credit rating is
below BBB, while banks prefer customers of AAA or AA to avoid risks.
And statistics from the National Development and Reform Commission show that
more than 56 per cent of small- and medium-sized enterprises were rejected on
loan applications because they could not provide loan guarantees or mortgages.
"So many private enterprises could not get loans from banks. I think the main
reason behind is we have not made full use of the financial institutions but not
the shortage of financial institutions," said Wang Dayong.
The new financial institution could do nothing about local financial problems
if it was not well designed, Wang warned.
The third problem is the capacity of local economy.
A regional bank must base itself on the local economy. If a city's economy is
not good enough, the new financial institution would do nothing to avoid capital
outflow.
Heilongjiang Province's annual new added deposits are around 20 billion yuan
(US$2.4 billion). There is 14 billion yuan (US$1.7 billion) capital available
for enterprises but the local enterprises could only consume 5 billion yuan
(US$605 million). The rest goes to the economically prosperous coastal cities.
China's banking hierarchy consists of the four State-owned banks the
Industrial and Commercial Bank of China, China Construction Bank, Bank of China
and the Agricultural Bank of China.
Beneath them are three policy banks, the China Development Bank, the
Export-Import Bank of China and the Agriculture Development Bank of China, which
finance infrastructure and other long-term State-supported, non-profit making
projects.
Next on the ladder are 11 joint stock commercial banks, most of which were
set up in the 1990s. Four are listed on the domestic stock market, the Shanghai
Pudong Development Bank, the Shenzhen Development Bank, the China Merchants Bank
and the China Minsheng Bank.
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