At a press conference held in Beijing Thursday morning, China
Banking Regulatory Commission (CBRC) President Liu Mingkang said
that the CBRC will closely supervise the pilot joint-stock reform
of two major state-owned banks.
The Chinese government announced at the beginning of this year
that it had injected US$45 billion from its forex reserve into the
China
Construction Bank and Bank of China,
two of the Big Four state-owned banks, to bolster their capital
adequacy ratios.
“The capital injection is actually a kind of investment, and
2004 is a critical time for the joint stock reforms of the two
pilot banks,” Liu said.
“The CBRC will urge the two banks to strengthen their corporate
governance, formulate business goals and strategies in line with
the objective of reforms and proceed further with non-performing
loan (NPL) disposal and portfolio restructuring in a follow-up to
the capital injection.”
The goal of the pilot project is to transform the two
state-owned banks to modern joint-stock commercial banks with
adequate capital, sound management and international competitive
ability in the next three years.
According to China’s WTO commitment, the financial sector will
fully open to foreign investment in 2007, which will have an
enormous impact on the domestic banking industry. Chinese banks,
the Big Four in particular, are beset with such problems as low
efficiency, low capital adequacy ratios and high NPL ratios.
The CBRC was established last April in order to strengthen
supervision and regulation of financial institutions. Its basic
hardware framework is now in place, including 36 banking
supervision bureaus and 296 local offices.
Liu said that the banking authority has set 10 general corporate
governance and internal control goals for the two pilot banks.
These include improving governance, introducing foreign strategic
investors, adopting prudent accounting rules, establishing a sound
risk management system and implementing market-oriented
operations.
The banking authority also set seven economic indicators --
those used by the world’s top 100 banks -- as benchmark criteria
for assessing financial health. These include net return on assets
(ROA), net return on equity (ROE), cost/revenue ratio, NPL ratio,
capital adequacy ratio, largest exposure concentration and loss
provisioning coverage ratio.
NPL ratios have been a source of headaches for Chinese banks for
some time, but have improved overall since the CBRC was
established. The Big Four in particular have shown improvement, and
the NPL ratio for the two pilot banks has run at about 4 percent
since the government’s capital injection.
“Their NPL ratio should be kept between 3 and 5 percent before
2007,” Liu said.
He noted that the two banks must set up a strict responsibility
system and prevent possible moral hazards when disposing of
NPLs.
Liu stated that the other two major state-owned banks,
Industrial and Commercial Bank of China and Agricultural Bank of
China, should also improve their risk-resistance mechanisms,
strengthen management and form scientific development
strategies.
(China.org.cn by staff reporter Tang Fuchun, March 12, 2004)