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The top banking regulator in China said yesterday that it was very likely that the Agricultural Bank of China (ABC), the last of China's "big four" lenders yet to undergo a joint stock reform, will get a major government cash injection next year.

Liu Mingkang, chairman of the China Banking Regulatory Commission, told a financial forum that there will be "good news" next year in terms of the bank's restructuring but the specific reform plan still requires central government approval.

According to earlier media reports the bank submitted a revised reform plan to the State Council last month seeking the listing of the entire bank. Previous plans had called for the lender to be split up.

"After the restructuring, the bank should strengthen its market orientation in order to better serve the agricultural sector, rural areas and farmers," People's Bank of China Governor Zhou Xiaochuan said.

In a report to the National People's Congress Standing Committee the central bank chief told legislators that the ABC's joint-stock reform will be accelerated.

Based on the completion of external auditing, as well as asset and capital verification of the ABC, the government will steadily implement financial restructuring including spinning off losses and a capital injection from the government and follow up with moves to establish a joint stock company, Zhou said.

A final decision on the bank's reform plan is expected at the Central Financial Work Conference, expected to take place before next February's Spring Festival holiday.

Due to its huge bad loans caused by massive unprofitable lending within the agricultural sector, the bailout may cost US$100 billion much more than that of the other three major state-owned commercial banks, Xinhua News Agency reported earlier, citing an official from the Central Huijin Investment Co. Last year as much as 26.2 percent of the ABC's 2.8 trillion yuan (US$356 billion) loans were non-performing.

The Chinese government has encouraged the nation's biggest banks to restructure and sell shares so that adherence to international accounting, disclosure and capital adequacy standards can improve their competitiveness in order to cope with challenges brought by the full opening of the financial market.

Reforms of Bank of China, China Construction Bank and the Industrial and Commercial Bank of China have already resulted in some progress with their capital adequacy ratios reaching 12.4 percent, 13.15 percent and 10.74 percent respectively by the end of June.

Meanwhile their respective bad loan ratios dropped to 4.19 percent, 3.51 percent and 4.10 percent by that time, according to Zhou's report.

But Zhou told legislators that further reform is required by the three lenders stressing that they "should further improve corporate governance, deepen internal restructuring and speed up the reform of management mechanisms."

Meanwhile, in order to support the reform of financial institutions, the government will step up other related reforms including changes of the taxation system for commercial banks, the establishment of a deposit insurance scheme and the construction of a social credit system.

(China Daily December 27, 2006)