The Agricultural Bank of China (ABC), one of the big four State-owned lenders, aims to slash its bad loan ratio by three percentage points this year.

According to the bank's president, Yang Mingsheng, the ABC is exploring new ways to dispose of non-performing loans (NPLs), improve risk control mechanisms and boost asset quality.

"Taking an active approach to getting rid of NPLs is the key task for us to control credit risks. Stronger efforts will be made to ensure a substantial drop in NPL ratio," he said.

As with the other three State banks, ABC is under great pressure to clean up their balance sheet and sharpen competitiveness in preparation for the opening up of China's domestic banking market.

The pressures within China's banking system as it converts from a planned economy to a market economy are forcing stronger NPL policies by banks burdened with heavy loads of NPLs, a hangover from previous lending policies.

However, because of the complexities and lack of a painless, clear-cut solution, there is no single path to follow.

Yang said the bank is mobilizing multiple, comprehensive measures to dispose of its bad assets. Strategies include the construction of an information platform covering the transaction of mortgaged assets, categorizing the risks of non-loan assets, promoting the separation of book-keeping for different types of NPLs, and strengthening the inspection of asset quality.

The president said the capital adequacy ratio of the ABC, the only bank among the big four which has not gained a government capital infusion, is still low, but the bank is determined to search for viable measures to lift the figure.

The central government first injected US$45 billion of capital into two of the big four - Bank of China and China Construction Bank - for a pilot joint-stock reform scheme, with IPOs planned in one or two years. The two then used their original capital to write off a proportion of their bad loans. Another capital infusion into the country's largest lender, Industrial and Commercial Bank of China, was also announced last month, aiming for the same goal.

Yang said that in addition to seeking adequate help from the government, the ABC also looks to the possibility of finding foreign strategic investors and issuing secondary bonds to supplement capital.

"We will be actively looking to foreign strategic investors for future joint-stock reform," he said.

Servicing the rural economy and rural residents has been a key job of the ABC. With the rapid development of the rural economy, a substantial change has taken place in the demand for financial services in rural regions, Yang added.

(China Daily May 18, 2005)