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State bank splits up in pilot reform
By Xu Dashan (China Daily)
Updated: 2004-06-09 23:38

One of the country's largest State-owned commercial banks, the China Construction Bank, will split into two companies under its name in pioneering financial system reform.

The establishment of China Construction Bank Corporation and China Construction Bank Group Inc was approved by the China Banking Regulatory Commission on Tuesday, a bank spokesman said Wednesday.

The move was aimed at pushing reform and turning the major State-run financial institution into a modern commercial bank with adequate capital, sound internal control, safe operation, better services and efficiency, according to the official who refused to be identified.

China Construction Bank Corporation, which will seek an initial public offering later, will continue to operate the institution's commercial banking business, including its domestic and foreign currency deposits, loans, banking cards and clearance, the spokesman said.

The business names, trademarks, Internet domain names and service call numbers of China Construction Bank and its branches will remain unchanged and will continue to be used by China Construction Bank Corporation, he said.

As a shareholder of China Construction Bank Corporation, China Construction Bank Group Inc will not directly operate the commercial banking business.

The spokesman said the two will be established 90 days later in accordance with relative procedures.

"The establishment of the two companies suggests China Construction Bank's share-holding reform has made an important stride forward," he said.

China Construction Bank, which won a US$22.5 billion bail-out from the central government in late December, was chosen by the State as a pilot project to turn it into a joint stock bank.

Previously, Bank President Zhang Enzhao was widely quoted as saying his bank plans to be listed on the stock markets in New York, Hong Kong and the mainland simultaneously this year or next.

But in a press conference in April, Zhang said the time and venue of the bank's planned listing had yet to be decided.

The stock listing would be "confirmed when internal and external conditions are ripe," he said.

Zhang also said his bank would usher in company investors to hold stakes in the listed company.

"An introduction of foreign companies as strategic investors is beneficial for increasing capital strength, optimizing capital structure and diversifying the ownership of our bank," he said.

More importantly, foreign company investors could bring in advanced management experiences and improve the bank's corporate governance, he said.

"Our goal is to establish a modern share-holding commercial bank that will make us a competitive heavyweight in the global financial market," he said.

Zhang said his bank has been studying a plan to issue sub-ordinate bonds, which the bank could use to increase capital adequacy.

"We would like to raise the capital adequacy ratio to an ideal level before the planned initial public offering," he said.

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, according to international standards, was 8.77 per cent, a drop of 0.35 of a percentage point compared with the beginning of the year.

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 the rate of non-performing loans, get rid of historical financial burdens and raise their capital adequacy to international standards," he said.

The capital adequacy ratios of commercial banks will 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 bank law.

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