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| Time Is Ripe for Takeover of Smaller Banks: S&P |
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Ryan Tsang, a credit analyst with the agency, said smaller banks with weak financial profiles, or those that lack a niche market or a clear advantage enabling them to compete with larger institutions are likely to be snapped up by their stronger peers. "The central and local governments are likely to encourage consolidation of weaker and smaller banks to increase their chances of survival," Tsang said in a report studying Smaller banks with satisfactory market positions in major cities may attract the attention of foreign investors, which would provide capital and tools to enable them to compete with their larger competitors, he said. The country's 117 city commercial banks are less competitive, as they are short of capital and restricted geographically. The pace of consolidation is likely to speed up in the coming years, Tsang said. "This was mainly because of the capital injection from the government and domestic and foreign strategic investors, and reforms by the banks themselves," said Liao Qiang, another analyst with the agency. The government has injected US$60 billion of foreign reserves to recapitalize Bank of China, International financial institutions such as Bank of America Corp and Royal Bank of However, there is still one State-owned bank, some joint stock banks and a large number of smaller financial institutions which need substantial financial support to restore their financial health. Delays in bailing out the smaller players will give the big banks competitive advantages, Liao said. Meanwhile, the China Banking Regulatory Commission (CBRC) last December approved the merger of six city commercial banks and seven credit cooperatives in East China's Nine city commercial banks, including Bank of Beijing, Bank of Shanghai and Nanjing City Commercial Bank, have already sold stakes to foreign investors The Standard & Poor's report expressed confidence for the further improvement of Reform of the sector and the regulatory regime is continuing, although it is likely to be uneven, the report said. "Banks are reorganizing internal procedures, adopting new risk management techniques, closing branches and reducing their work forces." The report also said stricter capital adequacy rules are likely to instil greater degrees of credit control. Moreover, a rising number of cases involving corruption or misappropriation suggest tighter supervision and lower tolerance for abuse, according to the report. "The level of future bad loans is likely to fall as new loans are used increasingly productively," it said. The Standard & Poor's lowered its estimate of non-performing assets in the sector to 21-25 percent of total loans, while loan books look significantly leaner than they did in the late 1990s. "To ensure the full health of the banking system, more concerted efforts are required to improve the operating environment," the agency said. "They include clarification of the roles of the central government and local governments, and reform of the legal system and State-owned enterprises." "If the reforms become entrenched and future bad loans are reduced, then there are chances of the government's ratings being upgraded," said Ping Chew, the agency's director of (
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