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The China Construction Bank (CCB) recovered 1.4 billion yuan (US$168 million) during last week's auction of mortgaged assets which had a book value of about 4 billion yuan (US$481 million).
"It is the first time that a Chinese commercial bank has disposed of its non-performing assets by using an international bulk-sale auction format," said Yang Xiaoyang, head of the bank's special assets resolution department, Monday.
The mortgaged assets, consisting of 153 real estate projects in the country's 18 provinces and municipalities, are divided into three areas by geographical location, he said.
A Morgan Stanley-led consortium was the successful bidder for two of the areas, while a Deutsche Bank-led consortium snared the remaining location, Yang said.
Jack Rodman, partner and managing director of Ernst & Young, the financial adviser of the transaction, said: "The successful result reflects the investors' perceptions of China, the assets, the seller, and the way the transaction was conducted."
Yang said it was inevitable that the CCB would dispose of its non-performing assets via the market.
"The efforts will be continued," he said. "We plan to sell 46 billion yuan (US$5.5 billion) worth of debt-to-equity assets through the market."
Economists say the bank has to keep a cleaner balance sheet as it is aiming for an initial public offering later this year or next year, and plans to introduce strategic investors home and overseas.
Wang Zhao, a researcher with the State Council's Development Research Center, said China's four largest State-owned banks will have to sharpen their competitive edge before the end of 2005, when foreign banks will have unfettered market access under China's World Trade Organization commitments.
The capital adequacy ratios of commercial banks have to reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers, according to the nation's commercial banking law.
"The goal will have to be achieved before China's commercial banks get listed," Wang said.
The bank, chosen by the central government as a pilot project to become a joint stock bank, has handed a US$22.5 billion bail-out from the government in late December.
CCB President Zhang Enzhao said the bank's goal was to become a modern shareholding commercial bank that could become a competitive heavyweight in the global financial market.
During the first quarter, the bank earned 15.97 billion yuan (US$1.9 billion) in operating profits, an increase of 32.4 percent from a year ago.
By the end of March, the bank's non-performing loan ratio, by the international standard, was 8.77 percent - a drop of 0.35 percent from the beginning of the year.
(China Daily June 1, 2004)
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