The Chinese government is planning to recapitalize two of its four state-owned commercial banks to prepare them for joint-stock restructuring, Lou Jiwei, China's deputy finance minister, said on Thursday.

Recapitalization and restructuring of the Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China (ABC) follow a combined US$45 billion capital injection into the Bank of China (BOC) and China Construction Bank (CCB) near the end of last year.

"(We) have got to strip off their non-performing loans and establish corporate governance structures," Lou told a conference on capital markets and corporate governance, which was sponsored by the ICBC and HSBC.

Lou said the issues were being studied and gave no other details about upcoming capital infusions. However, sources said earlier that such plans could win final approval by the end of the year.

Many analysts believe the move could cost the government far more than the US$45 billion spent on the banks' peers.

The ICBC is the largest of the four state-owned banks and the ABC -- the second largest in terms of assets -- is financially the weakest.

Lou said that overseas financial institutions had been invited to participate in the restructuring of the two banks as strategic investors, which the government hopes will improve the banks' corporate governance and management.

"I hope international consortia, banks and my foreign counterparts will consider it from a strategic perspective," said Lou. "The Ministry of Finance looks forward to cooperating with potential investors."

China Banking Regulatory Commission Chairman Liu Mingkang said at a press conference on Wednesday that more time is needed to study the ICBC and ABC reform plans.

However, both banks have done well in their preparations this year, he noted, including improving their internal control and loan approval systems.

Last year's capital injections, coupled with other reform moves such as stripping bad loans off their balance sheets, have raised the capital adequacy ratios for the BOC and CCB above the 8 percent minimum requirement.

All four banks are targeting initial public offerings in the stock market, although an IPO could be two to three years away for the ABC, the weakest.

(China Daily December 3, 2004)