CBRC Proposes Multi-Step Bank Reforms
The China Banking Regulatory Commission has proposed
multi-step bank reform plans for China's two leading banks,
the Bank of China and China Construction Bank.
The CBRC has laid out a six-phase plan to dispose of
billions of dollars in non-performing loans and to restructure
the institutions into self-financing joint stock banks,
the China Securities Journal quoted top banking regulator
Liu Mingkang as saying. To achieve this ambitious goal,
the commission will seek strategic investors and a public
listing, while at the same time establishing a new management
and employee incentive system, and the gradual withdrawal
of government handouts.
In addition,the CBRC has set a timetable for the two
banks to achieve several targets for their return on assets
and equity, capital adequacy ratio and risk exposure.
China last year initiated an aggressive campaign to whip
its troubled banking industry into shape ahead of full-opening
of the financial sector to foreign competition by the
end of 2006, as stipulated by the World Trade Organization.
Most Chinese do not think that the Chinese banks, in their
current condition, could compete against major international
groups, such as Citigroup,
which are interested in China, both for investment banking
and retail banking business.
As part of the package, the banks were each given
targets for turning themselves into profitable operations
that could compete against the army of international lenders
set to enter China under WTO agreements.
Bank of China and China Construction banks have been
ordered to achieve a 0.6 percent return on assets by 2005,
which should approach one percent in 2007. Meanwhile,
their return on equity should be at least 11 percent in
2005 and 13 percent in 2007.
Their non-performing loan (NPL) ratio should be kept
between three to five percent starting from 2004, while
capital adequacy ratios should exceed eight percent after
2004.
Neither bank should risk exposure to any single client
exceeding 10 percent of the net assets beginning from
next year, accroding to the CBRC regulations.
Provisions covering NPLs should be raised to 60 percent
for Bank of China and to 80 percent for China Construction
Bank by the end of 2004, according to the commission.
If all goes as planned, China Construction Bank is expected
to list overseas before year-end, with Bank of China to
follow suit in 2005.
The only problem with the CBRC policys are that they
do not tell who is going to implement these changes in
the two banks. So far, the Chinese government has not
identified the management teams who are empowered to make
these changes.
Everybody knows what needs to be done; nobody wants to
do it.
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