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)
