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China will push all city commercial banks to fulfill the mandated capital adequacy ratio of eight percent by the end of next year to improve their financial strength, the nation's banking regulator said.

 

Of China's more than 100 city commercial banks, 38 institutions still fall short of the nation's capital adequacy ratio requirement, said Tang Shuangning, vice chairman of the China Banking Regulatory Commission, Sunday.

 

"City commercial banks have slowly evolved from being the ugly ducklings of Chinese banks, but a huge amount of risk remains and risk management needs to be stepped up at these institutions," said Tang.

 

Bloomberg News reports that China's 113 city commercial banks are less competitive than the nation's bigger banks because they have lower capital and are confined geographically in operations.

 

The government is encouraging smaller banks to bring in foreign strategic investors or sell shares to boost their capital and fend off competition, after overseas rivals were given unfettered access to China's US$2 trillion in household savings in December.

 

Average capital adequacy ratio at China's city banks now stands at 8.5 percent, from negative territory five years ago, according to Tang. Still, this measure of financial strength varies widely among individual banks, he said.

 

Assets at China's city commercial banks total 2.6 trillion yuan (US$336.5 billion) to date, from 700 billion yuan in 2000, Tang said. The banks had profits of 18.1 billion yuan last year, compared with 1.3 billion yuan in 2000, he added.

 

Chinese city commercial banks wrote off 10.6 billion yuan in non-performing loans and received 4.2 billion yuan in capital injections from local governments last year, said Tang. Over the past five years, 59 Chinese city banks have written off 70 billion yuan in bad loans, he said.

 

Nine city commercial banks, including Bank of Shanghai, Beijing City Commercial Bank, and Nanjing City Commercial Bank, have sold about US$1.2 billion worth of stakes to foreign investors so far.

 

(Shanghai Daily April 2, 2007)