The China Banking
Regulatory Commission (CBRC) said Monday it would take a
prudent stance in approving new joint-stock banks, but would
encourage private and foreign capital to buy into existing
commercial banks.
The commission said in a statement that it has decided
joint-stock commercial banks will be the direction of China's
banking industry.
But "because establishing new Chinese-funded banking
institutions will have a significant impact on China's existing
banking industry and market, and given the fairly protrusive
problem of banking industry risks and an exit mechanism for banking
institutions that needs further improvement, the banking regulatory
authority has been prudent in approving new joint-stock commercial
banks," it said.
The statement was the banking watchdog's first formal
clarification of its stance on the establishment of new joint-stock
banks after Chinese media lavished coverage last year on some
private companies' plans to set up the nation's first fully
privately owned commercial banks and, more recently, reports on
three new joint-stock commercial banks.
While keeping tight controls on setting up new shops, the CBRC
said it encourages private as well as foreign investors to buy
stakes in existing commercial banks.
"Generally, the China Banking Regulatory Commission encourages
private and foreign capital to enter existing commercial banks and
participate in the restructuring, reform and risk dissolution (of
the banks), helping small- and medium-sized commercial banks to
grow bigger and stronger," the statement said.
In China's banking system, small- and medium-sized commercial
banks typically largely refer to the 11 joint-stock commercial
banks, which operate on a nationwide basis, and the 112 regional
lenders known as city commercial banks.
CBRC Chairman Liu Mingkang said earlier this year that his
commission encourages foreign investors to also participate in the
reform of the four State-owned commercial banks, which hold more
than half of the nation's banking assets.
Qiu Zhaoxiang, dean of the School of Finance under the
University of International Business and Economics, lauded the
CBRC's stance in inviting both private and foreign capital in
reforming the bad-loan-ridden banking sector.
"It's no controversy that the industry should be opened to
private capital, but we also need to actively usher in foreign
investors, especially those with modern financial institution
management expertise as international strategic investors," he
said.
"The method can not only diversify the shareholder structure,
but can, by referring to foreign experience, help improve the
property rights system and corporate governance," Qiu added.
Qiu urged caution in allowing private capital into the banking
industry.
He said there are worries about the qualification of private
Chinese entrepreneurs as bankers, and their strong desire for
profits that may lead to greater risks.
Although private Chinese capital has a presence in the majority
of the 112 city commercial banks, its biggest share in a nationwide
commercial bank has long been only a little above 70 percent - in
the China Minsheng Banking Corporation.
There has been no official account as to whether any of the five
planned private banks, which prompted nationwide debate last year
on whether solely privately owned banks should be allowed in China,
has any hope of winning regulatory approval.
But the CBRC Monday listed six requirements for the Bohai Bank,
a new joint-stock bank that has reportedly won approval from the
State Council, the cabinet, and the Zhejiang Commercial Bank, which
will emerge from a restructuring of existing financial
institutions.
The new banks must have implemented corporate governance
structures, be able to prevent illegitimate affiliated
transactions, and have qualified foreign strategic investors among
their initial shareholders.
In reforming city commercial banks, the commission said it would
pick the bigger, better-performing ones for restructuring, and will
allow them to "digest" historical burdens by means of
re-capitalization and asset swaps, before they can usher in
domestic private capital and foreign capital.
At the end of last year, China's 11 joint-stock commercial banks
had an average capital adequacy ratio of 7.35 percent and a 6.5
percent non-performing loan ratio by the internationally accepted
five category classification, the CBRC said.
The two figures stood at 6.13 percent and 12.85 percent
respectively for all the city commercial banks.
(China Daily February 10, 2004)