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Two of China's major State-owned commercial banks, the Bank of China (BOC) and the Industrial and Commercial Bank of China (ICBC), reported strong profit growth in 2002.
They also made significant progress in cutting the non-performing loans (NPLs).
Wang Zhaowen, spokesman for the BOC, said yesterday that his bank achieved a profit of 52.7 billion yuan (US$6.3 billion) before setting aside provisions for bad loans and a book profit of 11.2 billion yuan (US$1.3 billion) last year, an increase of 27.1 per cent and 2.39 per cent on the previous year.
By the end of last year, the bank's NPLs, by the international standard-of-five category classification, had fallen 5.14 percentage points to 22.37 percent, he said.
Also yesterday, an ICBC spokesman said in 2002, the profit made by the bank's domestic and overseas operations grew year-on-year 30.6 per cent to 44.3 billion yuan (US$5.3 billion) before setting aside provisions for bad loans.
The NPLs, by the international standard-of-five category classification, had fallen 4.26 percentage points to 25.52 per cent last year, he said.
Ding Maozhan, director of the policy research department of Beijing's Chongwen District government, said China's banking industry would have to lower the rate of NPLs, get rid of historical financial burdens and raise their capital adequacy to international standards, because more and more foreign financial institutions have begun to enter the Chinese market.
The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 per cent, the minimum required under the Basel agreement reached by international banking managers.
This means China's commercial banks, especially the four State-owned banks, will have to achieve the goal before they can be listed, said Ding.
The People's Bank of China, the central bank, said last year that in five years or so the big-four State-owned banks will be transformed into large, modern and strongly competitive commercial banks.
Some State-owned commercial banks will be restructured to become State-controlled shareholding commercial banks, the central bank reported.
"With an aim to raise capital adequacy, commercial banks will have to reduce the amount of risk assets," Ding said.
The central bank requires commercial banks to annually drop NPL ratio by 2 to 3 percentage points in the coming few years.
By the end of 2005, the NPL ratio should be about 15 percent.
The ICBC spokesman said this year his bank plans to earn 51 billion yuan (US$6.1 billion) of profits, before setting aside provisions for bad loans.
By the end of this year, the NPL ratio of the bank's domestic operation should drop 3.86 percentage points to 22.15 percent, he said.
All branches at the provincial level should make profits before setting aside provisions for bad loans, said the ICBC spokesman.
"We are trying to reduce the NPLs ratios at 10 of our provincial branches to less than 15 per cent by the end of this year," he said. "Five of them will have their NPL ratios below 10 per cent."
The bank had earlier said it wanted to be listed on the stock exchange within five years.
BOC's Wang Zhaowen said this year his bank would steadily push forward the system and mechanism reforms. "We are striving to be listed on the stock market before 2005."
According to BOC President Liu Mingkang, his bank has, since 2000, mapped out an ambitious plan to turn itself into a large international bank with competitive advantages and relatively good corporate governance within three to five years.
The bank would further grow into one of the top international banks through mergers and acquisitions within five to 10 years, said Liu.
The BOC took a lead in China to compile financial reports in accordance with international accounting standards, which are more revealing and include the ratio of bad loans, he added.
The bank also targeted training and management of human resources.
China's banking industry would become more involved in the globalization of the nation's economy and finance, now that China has become a member of the World Trade Organization, said Ding Maozhan.
The opening up of the country's financial sector would also enter a new stage, he said.
Both the BOC, the country's largest foreign exchange bank, and the ICBC, the largest commercial bank, should speed up establishment of corporate governance mechanisms to meet the challenges brought by accession to the WTO.
In the meantime, they should continue to step up business supervision and risk control measures.
(China Daily January 23, 2003)
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