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Modern financial firms being established
( 2004-01-06 00:31) (China Daily)

Two major State-owned commercial banks -- the China Construction Bank and the Bank of China -- have vowed to speed up their shareholding reforms after the government injected an equal amount of US$22.5 billion into the banks.

Bank of China spokesman Wang Zhaowen said his bank will "seize this opportunity to actively push forward the shareholding reform."

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

Zhang Enzhao, president of the China Construction Bank, said his bank will speed up its work to establish a modern financial company, setting a good example for a comprehensive reform of the State-owned commercial banks.

The reform is a must since China's four largest State-owned banks, also include the Industrial and Commercial Bank of China and the Agricultural Bank of China, will have to sharpen their competitive edge before foreign banks are allowed to enter China without any restrictions at the end of 2005.

To this end, they will have to step up business supervision and risk control measures.

Also, they will have to speed up the establishment of corporate governance mechanisms.

More importantly, they will have to lower the rate of non-performing loans (NPLs), get rid of historical financial burdens and raise their capital adequacy to international standards.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio must 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.

The Bank of China has said it aims to get listed by 2005, while the China Construction Bank has already invited investment banks to bid for a mandate to help it go public, perhaps in 2004.

"Cutting bad loans is the first step by the two banks to go public," said Dong Chen, a senior analyst with China Securities.

Besides bad loan reserves, capital injection from the central finance is another way to write off non-performing loans (NPLs), Dong said.

The Bank of China and the China Construction Bank's accounts are the cleanest among the Big Four.

"The injection will undoubtedly make the balance sheets of the two banks more cleaner," said Yiping Huang, a senior economist with Citigroup.

"The listings will proceed quickly. The next step will be restructuring," Huang said.

China has ample resources to bail out the State banks, but the key question is how to improve management and corporate governance, he said.

"A bailout alone does nothing to resolve internal governance problems, and cannot guarantee that the non-performing loan cycle would not be repeated,'' he said.

The Bank of China is now the only State-owned bank with a capital adequate ratio of more than 8 per cent.

Wang said the assets restructuring is just part of the bank's overall restructuring plan, which is being implemented and is listed as the most important work for the bank in 2004.

"Restructuring is more important than going public," a bank official said.

The Bank of China has launched an unprecedent restructuring covering business, organizational structure, management procedure, IT, human resources, and even corporate culture.

"Focus of the business restructuring is to make our service more market-oriented and customer-centred," the official said.

Such restructuring not only includes big moves such as classifying the business into three departments -- the retail business, corporate business and financial institutions business, but also reaches detailed places such as the redesigning of bank deposit receipts to make them more customer-friendly and renovating outlets.

To simplify management procedure, the Bank of China will also centralize international settlement business. In the past, there were thousands of branches doing international settlement business, now the number has been reduced to some 50.

Meanwhile, more efforts will be poured into restructuring of its computer centres.

It also hopes to establish some specialized companies to handle certain businesses. For example, it wants to incorporate its bank card centre, but is still waiting for a right timing and more policy support.

The Bank of China spokesman said the bank will merge some low-efficient outlets.

"We will strictly control the total number of employees," Wang said.

The Bank of China has been regarded as one of the best profit-earners with the smallest team of 180,000 employees. But with total assets of 4 trillion yuan (US$482 billion), it is the second largest in terms of assets.

Earlier reports said the China Construction Bank is cutting its employees to improve its efficiency before going public.

The streamlining measure will cost the bank 2 billion yuan (US$240 million).

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