Banking Regulatory Commission to Begin Auditing
China's Four Majors
China's Banking Regulatory Commission will begin auditing
China's four major state-owned banks beginning on September
15. The four major banks are Bank of China, China Construction
Bank, China Agricultural Bank and Industrial and Commercial
Bank of China.
The four banks are under serious pressure because under
the terms of its acquisition to the World Trade Organization
(WTO), China is set to open its domestic market to foreign
competitors in 2006. Already, many foreign
and Taiwan banks are preparing to enter the China
market.
The problem for the four majors is that although they
dominate the market, with more than 70 percent market
share, they are saddled with an enormous amount of bad
debt from state-owned enterprises. Current estimates
put it at 22 percent of current loans. Western estimates
put the estimated amount at as high as US$500 billion.
The Chinese government has had some success cleaning up
the bad debt by setting up asset companies to move the
bad debt off the books.
The Banking Regulatory Commission was just set up in
March of this year. It is believed that the four majors
are lobbying the Chinese government for a possible last
bailout before they go for public listing ahead of the
foreign banks entering the Chinese market. The Chinese
government will use this audit as the basis for their
request.
The Banking Regulatory Commission has been drafting new
rules for the banking industry, which would make it more
transparent, and mandate severe punishment for violators
by bank officers, including jail time. Its recommendations
will be discussed and voted on by China's Peoples' Congress
in its fall session.
It is believed that the banks will try to create joint
stock firms which will hold their higher quality loans,
and list these companies.
In the past year, Chinese banks have been pushing consumer
lending for housing and cars. Generally speaking, these
are seen as safer loans than to state-owned enterprises,
but recently, there have been signs of some consumer loan
defaults.
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