China's biggest bank eyes "thorough revolution": president
President of China's biggest bank, the Industrial and Commercial Bank of China (ICBC), said Monday reform of the bank would be a "thorough revolution" highlighted by the improvement of corporate governance.
President Jiang Jianqing of the ICBC told Xinhua his bank could not simply resort to money injection from the state and a stock market debut in order to become a real commercial bank.
Corporate governance is of "essential" significance for a bank, he emphasized.
His remarks confirmed widely-spread anticipation that the Chinese government would inject funds into the debt-loaded ICBC in another bailout package to reform the vital banking system.
Given the bank's huge size and its bad loan ratio of nearly 20 percent, the amount of capital infusion would be phenomenal. "I would expect the ICBC needs 300-400 billion yuan (36.1-48.2 billion dollars) in capital infusion based on the bank's 2003 annual report," said Zhong Wei, director of the International Finance Research Center at Beijing Normal University.
If it follows the example of the Bank of China (BOC) and China Construction Bank (CCB) who received 22.5 billion US dollars each at the end of 2003, the ICBC would treat the external money as its new capital, while using its own, accumulated capital to cover loan losses.
The government helping hand will bring the ICBC's capital adequacy ratio (CAR), being a measure of its available capital in proportion to its outstanding loans, closer to the 8 percent minimum level set under the Basel Accord for commercial banks that has been accepted in principle by China's banking regulators.
A high enough CAR, a low bad loan ratio and corporate governance combine to fill investors with increased confidence on the ICBC, especially when it is seeking a stock market debut in 2006, following the BOC and CCB whose initial public offerings (IPOs) are scheduled for this year.
Chinese banks hope to streamline their operation and upgrade their images by resorting to public listings. The country is midst of overhauling its banks, largely including the Big Four -- the ICBC, BOC, CCB and Agricultural Bank of China (ABC) -- ahead of the World Trade Organization-mandated opening of the financial market to overseas rivals by the end of 2006.
In the interview with Xinhua, Jiang Jianqing also noted that China's macro-economic control contributes greatly to the healthy and stable growth of the financial industry.
The Chinese economy could not run so well without central government measures taken to curb roaring investment in certain industries, he acknowledged.
In this process banks controlled effectively a credit boom, virtually avoiding possible operation risks, Jiang added.
For a bank, profit counts. Jiang revealed that his bank chalked up a roughly 20 percent year-on-year growth in operating profits in 2004, raking in 74.7 billion yuan (9 billion US dollars).
But only 3.16 billion yuan (381.6 million dollars) stayed on its book, with the big remaining part used to cover loan losses.
As a result, the bank's outstanding non-performing assets plummeted by 42.5 billion yuan (5.15 billion dollars) in the 12 months. By the year end its non-performing loan (NPL) ratio stood at 19.1 percent by the international standard.
The bad debt proportion is still alarmingly high, compared with 1-2 percent of world famous banking giants. A vast majority of the bank's existing bad loans, however, came still from lending extended before 1999, the year in which China set up four special asset management companies to handle a combined 1.4 trillion yuan (169.1 billion dollars) in NPLs transferred from state banks.
After then the bank's NPL ratio for newly-added loans was capped at just 1.6 percent, meaning that the bank either recovered or wrote off nearly 5 billion yuan (603.9 million dollars) in NPLs on a monthly average since 2000.
The bank said earlier its combined assets increased by 430 billion yuan (51.9 billion dollars) in 2004. The bank posted a 46 percent surge in income from intermediate business, such as bank card and bill business, to 11.5 billion yuan (1.4 billion dollars) in the year.
This is eye-catching as Chinese banks traditionally resort to differentials between loan and deposit rates to make earnings, but for the ICBC, its intermediate business income has climbed to 14 percent of that from rate gaps.
Source: Xinhua
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