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Bank auctions mortgaged assets
By Xu Dashan (China Daily)
Updated: 2004-05-31 22:04

The China Construction Bank (CCB) recovered 1.4 billion yuan (US$168 million) during last week's auction of mortgaged assets which had a book value of about 4 billion yuan (US$481 million), it revealed Monday.

"It is the first time that a Chinese commercial bank has disposed of its non-performing assets by using an international bulk-sale auction format," said Yang Xiaoyang, head of the bank's special assets resolution department.

The mortgaged assets, consisting of 153 real estate projects in the country's 18 provinces and municipalities, are divided into three areas by geographical location, he said.

A Morgan Stanley-led consortium was the successful bidder for two of the areas, while a Deutsche Bank-led consortium snared the remaining location, Yang said.

Jack Rodman, partner and managing director of Ernst & Young, the financial adviser of the transaction, said: "The successful result reflects the investors' perceptions of China, the assets, the seller, and the way the transaction was conducted."

Yang said it was an inevitable that the CCB would dispose of its non-performing assets via the market.

"The efforts will be continued," he said. "We plan to sell 46 billion yuan (US$5.5 billion) worth of debt-to-equity assets through the market."

Economists say the bank has to keep a cleaner balance sheet as it is aiming for an initial public offering later this year or next year, and plans to introduce strategic investors.

Wang Zhao, a researcher with the State Council's Development Research Centre, said China's four largest State-owned banks will have to sharpen their competitive edge before the end of 2005, when foreign banks will have unfettered market access under China's World Trade Organization commitments.

"The banks will have to lower their rates of non-performing loans, get rid of historical financial burdens and raise capital adequacies to international standards," he said.

The capital adequacy ratios of commercial banks have to reach 8 per cent, the minimum required by the Basel Capital Accord reached by international banking managers, according to the nation's commercial banking law.

"This goal will have to be achieved before China's commercial banks, especially the big four, get listed," Wang said.

The CCB, which was chosen by the central government as a pilot project to become a joint stock bank, has handed a US$22.5 billion bail-out from the government in late December.

CCB President Zhang Enzhao said the bank's goal was to become a modern share-holding commercial bank that could become a competitive heavyweight in the global financial market.

During the first quarter, the bank earned 15.97 billion yuan (US$1.9 billion) in operating profits, an increase of 32.4 per cent from a year ago.

By the end of March, the bank's non-performing loan ratio, by the international standard, was 8.77 per cent -- a drop of 0.35 per cent compared with the beginning of the year.

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