China Construction Bank, one of the country's four largest state-owned commercial banks, aims to boost its profits by 18 percent this year before setting aside bad loan provisions.

The bank's president Zhang Enzhao said bigger profits and improved asset quality are crucial for the bank, which plans to go public before the end of this year.

The State Council last year gave the bank, together with Bank of China, the go-ahead to trial shareholding reforms.

"China Construction Bank will give top priority to improving corporate governance and to reforming the internal organization structure to achieve the profit growth goal," Zhang said.

The bank will also beef up risk management capability to further improve its asset quality, he said.

This year, the bank will give key loan support to energy, communication and raw material projects in line with the State policies.

It will also try to expand consumer demand, Zhang said.

The bank will use more science and technology to better manage its business and develop new products, he said.

It will also focus more on training its staff and improving their services.

"Through unremitting efforts, we will gradually turn the bank into a modern financial company with sufficient capital, a strict internal control system, good profits and services," Zhang said.

Last year, the bank earned 51.2 billion yuan (US$6.2 billion) in profit before setting aside provisions for bad loans.

By the end of last year, the bank's non-performing loans (NPLs) stood at 9.25 percent.

Niu Li, a senior economist with the State Information Center, said that China's four largest State-owned banks, which also include the Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China, will have to become more competitive before foreign banks enter an unrestricted Chinese market at the end of 2005.

"They will have to lower the NPL rate, get rid of historical financial burdens and raise their capital adequacy to international standards," Niu said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers.

This means China's commercial banks, especially the four State-owned banks, will have to achieve the goal before going public, he said.

"Reducing bad loans is the first step by the banks towards going public," he said.

Chinese banks usually use bad loan reserves taken from profits to write off non-performing loans.

Besides bad loan reserves, capital injection from central finances is another way to write off NPLs, Niu said.

Last year, the State injected US$22.5 billion into China Construction Bank to increase its capital adequacy.

"To become more competitive, Chinese commercial banks will also have to step up business supervision and risk control measures," said Yiping Huang, a senior economist with Citigroup.

They will have to establish a corporate governance system more quickly, he said.

Zhang Enzhao said last year that his bank, together with Wuhan University in central China's Hubei Province, had developed a new internal control system to minimize financial risks.

(China Daily February 13, 2004)