The newly appointed People's Bank of China Governor, Zhou Xiaochuan, yesterday said the government will soon make determined and effective moves to reduce its State-owned banks' non-performing loans (NPLs).
Zhou made the remark at the China Development Forum organized by the State Development and Research Center under the State Council.
When asked whether China would slice off the NPLs from its four major State-owned banks for a second time, Zhou did not give a straight answer but said "the government will soon adopt the measures as local banks do not have much time before the industry's full opening up."
According to China's agreement with the World Trade Organization, the banking industry will be fully opened to foreign players by 2006.
China shifted 1.4 trillion yuan (US$169 billion) in bad loans from the commercial banks to four assets management companies in 2000.
But the scale of NPLs still troubles the four State-owned commercial banks, whose ratio stands at 21.4 per cent by the four-category classification criteria, and as high as about 25 per cent by the five-grade classification criteria, the common international practice.
The bad loans were partly born out of the planned economy, which had the commercial banks to do policy-orientated business.
As a result, the governor stressed that Chinese banks should push reforms towards market orientation.
He said the central bank will continue to pay close attention to the banks' operation in case of a systemic risk, although a new banking panel is still to be established.
The 10th National People's Congress has approved the establishment of the China Banking Regulatory Commission, which will run banking supervisory functions carved out from the central bank.
The authorities have pinned high hopes on it for tighter supervision over China's banks that are laden with NPLs to speed up reform and reduce financial risks.
When asked about the definition of responsibilities of the new commission and the central bank, Zhou said the new problem still needed further study.
"It is not necessary to draw a line too early since we have no experience in the new field."
"What we should emphasize is the co-operation between the two sides, which is made to improve supervision of the banking industry," the governor said.
Although the main responsibility for the central bank is to keep a stable currency, the job can be accomplished only if the central bank is involved in the financial industry's continuing reform in the future, Zhou said.
On granting permission to set up private banks, Zhou said the government is cautiously studying their market entry because of the associated high cost and risk.
(Xinhua News Agency March 24, 2003)
