Central bank discusses recapitalisation plan for big four banks
Wednesday, January 29, 2003
biz.scmp.com
BLOOMBERG and CHRISTINE CHAN
A senior central banking official has acknowledged for the first time that a controversial plan to recapitalise the technically insolvent big four state banks was discussed at a key meeting last week.
"There have been policy suggestions about injecting capital into commercial banks but no final decision has been made," Li Fu'an, deputy head of the bank management department at the People's Bank of China, told Bloomberg via telephone.
However, an official stance on the issue has not yet been openly revealed, despite mounting discussion among industry players.
This move would be the third time Beijing has bailed out the troubled banks, after a 1998 injection of 270 trillion yuan (about HK$253.5 trillion) and the transfer of 1.4 trillion yuan of bad loans to asset management companies in 1999.
Mr Li's comments came after the closing of the annual financial work conference last week. It is unclear yet whether they will pave the way for a multi-billion-dollar recapitalisation.
Banking analysts have put the likely size of any new bail-out in the range of 300 billion yuan and 600 billion yuan.
Others say the figure should be much higher. "We'd like the banks to have a big capital injection and then privatise next year," said Jonathan Anderson, head of Asia-Pacific economic research at Goldman Sachs and former China representative for the International Monetary Fund, in a Bloomberg report.
"If you want to go the whole hog, it could cost three trillion" yuan for banks to meet international standards.
There has been huge debate over whether it is appropriate to recapitalise the banks as they face serious governance problems.
Although they have come off alarming levels of more than 45 per cent before 1999, about 25 per cent of the big four's total loans of seven trillion yuan in 2001 were thought bad, a situation that left the system technically insolvent and vulnerable to a financial crisis if reform was not tackled soon.
Economists have said low governance standards at the big four state banks may mean "the government will never be able to stop injecting money" with cash sinking in a "bottom-line hole".
Salomon Smith Barney senior economist Huang Yiping and a Deutsche Bank senior economist Ma Jun also believed a full-scale recapitalisation exercise would work only if the governance issue had been resolved. Mr Ma said it could be done closer to the initial public offerings of the big four in the next few years.
On Sunday, Zhou Xiaochuan, who took over as People's Bank of China governor this month, told mainland media: "Dealing with this problem needs new thinking." His comments followed a separate central bank meeting last week, fuelling speculation of a push this year. |
