The Bank of
China, the nation's largest foreign exchange bank, has
completed its reorganization and will officially become a joint
stock company on Thursday. The event is a major breakthrough in the
shareholding reforms of the country's major state-owned commercial
banks.
The creation of the Bank of China Co. Ltd., which will take
control of all of the former entity's assets, debts, employees and
business, was approved by the bank's board of directors on Monday,
according to the People's Bank of China, the nation's central
bank.
The company will have registered capital of 186.4 billion yuan
(US$22.5 billion), the central bank announced on Tuesday. The
Central Huijin Investment Co. Ltd. will hold 100 percent of the
company’s shares on behalf of the central government.
The Bank of China and China
Construction Bank (CCB), which won a US$45 billion government
bailout in late December, were chosen by the central government for
a pilot project to turn them into joint stock banks.
"Establishment of the Bank of China Co. Ltd. indicates a major
step by the foreign exchange bank toward an initial public
offering," said Niu Li, a senior economist with the State
Information Center.
CCB is expected to announce the establishment of a joint stock
company next month, following its division into two entities.
"Chinese commercial banks will have to sharpen their competitive
abilities before foreign banks have unrestricted access to the
Chinese market at the end of 2006," Niu said.
The banks will have to lower their rates of non-performing
loans, get rid of historical financial burdens and raise their
capital adequacy ratios to international standards, he said.
The country's commercial banking laws require the banks' capital
adequacy ratios to reach 8 percent, the minimum required by the
Basel Capital Accord of international banking managers.
"This means China's commercial banks, especially the four
state-owned banks, will have to achieve that goal before they can
be listed," Niu said.
Bank of China spokesman Zhu Min said earlier that his bank had
basically finished cleaning its balance sheet in the first half of
this year.
During the period between January and June, the bank wrote off
108.4 billion yuan (US$13.1 billion) worth of non-performing assets
in the loss category. It also sold 149.8 billion yuan (US$18.1
billion) worth of non-performing loans in the doubtful
category.
By the end of June, the bank's non-performing asset rate had
dropped to 5.5 percent, down from 16.3 percent at the beginning of
this year.
It raised its capital adequacy ratio to 8.3 percent by issuing
14.1 billion yuan (US$1.7 billion) worth of subordinated debt.
Zhu said that creating a clean balance sheet was just the first
step in the bank's shareholding reform efforts. More work is needed
to establish good corporate governance and reform human resource
management.
Fellow spokesman Wang Zhaowen said the bank would invite
corporate investors to hold stakes in its initial public
offering.
The introduction of foreign companies as strategic investors
would increase capital strength, optimize capital structure and
diversify the ownership of the bank, Wang noted. More importantly,
foreign company investors could bring in advanced management
experiences and improve the bank's corporate governance.
(China Daily August 25, 2004)