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Plans discussed to recapitalize banks
By Zhang Dingmin (China Daily)
Updated: 2004-12-02 21:34

The Chinese Government is planning to recapitalize two of its four State-owned commercial banks to prepare them for joint-stock restructuring, a top official said yesterday.

The move, for the Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China (ABC), follows a combined US$45 billion capital injection into the Bank of China and China Construction Bank near the end of last year.

"(We) have got to recapitalize (them), whatever the form," Lou Jiwei, China's deputy finance minister, said yesterday.

"(We) have got to strip off their non-performing loans, and establish corporate governance structures," he told The China Conference: Capital Markets and Corporate Governance, which was sponsored by the ICBC and HSBC.

"There is no doubt about that," Lou added. "We are studying those issues."

The official did not give other details about upcoming capital infusions. Sources said earlier the plans could win final approval by the end of the year.

Analysts widely estimate the move could cost the government far more than the US$45 billion spent on their peers.

The ICBC is the largest of the four State-owned lenders, and the ABC, the second largest in terms of assets, is seen as the weakest in financial strength. The BOC and CCB are believed to have relatively healthy balance sheets.

Lou also sent an invitation to overseas financial institutions to participate in the restructuring of the two banks as strategic investors, which the Chinese Government hope will help improve the banks' corporate governance and management.

"I hope international consortia, banks and my foreign counterparts will consider it from a strategic perspective," he said. "The Ministry of Finance looks forward to co-operating with potential investors."

Liu Mingkang, chairman of the China Banking Regulatory Commission, said more time is needed to study reform plans by the ICBC and ABC.

But the two banks have done tremendous preparatory work this year, including improving their internal control systems and loan approval mechanisms, Liu said.

Last year's capital injections, coupled with other reform moves such as stripping more bad loans off their balance sheets, have raised the capital adequacy ratios for the BOC and CCB above the 8 per cent minimal requirement.

All the four banks are targeting initial public offerings in the stock market, although the target could be two to three years away for the ABC, the weakest.

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