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Bank bailouts to end: Regulator
(Shenzhen Daily/Agencies)
Updated: 2005-12-27 09:15
The countryåK½ï¿½s State-owned banks will receive no more government cash bailouts
for business losses after they absorb new private investment, top banking
regulator told the 21st Century Business Herald, a Chinese-language newspaper.
Liu Mingkang, director of the China Banking Regulatory Commission, said
ChinaåK½ï¿½s large commercial banks can expect no more State rescue payouts as they
recruit outside strategic investors and issue stock.
åK½ï¿½After their investment and beneficiary entities have diversified, it will be
impossible for State finances to again bury debts from commercial banksåK½ï¿½
business losses; otherwise, that would fly in the face of principles of fair
market competition,åK½ï¿½ he said.
But Liu said ChinaåK½ï¿½s banks should be looking to outside investors for their
expertise, not their money.
åK½ï¿½The policy design and objectives for attracting strategic investors are
directed at attracting expertise, not capital. That means banks shouldnåK½ï¿½t rush
to attract investors to meet capital adequacy targets,åK½ï¿½ he added in an interview
with the paper.
LiuåK½ï¿½s comments come as another leading economic official warned Sunday of
excessive borrowing by some of ChinaåK½ï¿½s biggest State-owned companies, who are
still Chinese banksåK½ï¿½ dominant customers.
Li Rongrong, chairman of the State-owned Assets Supervision and
Administration Commission, said many of ChinaåK½ï¿½s 169 centrally-controlled State
enterprises recorded brisk sales growth in 2005.
These State-owned conglomerates include business flagships such as Baogang
Steel Group and China Petrochemical Corporation.
But Li said too many State-owned conglomerates are doing poorly even as China
booms, according to Xinhua.
Forty-five of the companies recorded falling profits in the second half of
the year, and 80 recorded costs rising faster than sales income, Li said. And
many of these companies are turning to loans from State banks, he added.
åK½ï¿½Some enterprises are relying on using new loans to pay off old ones in order
to maintain daily operations, and a few are facing crisis,åK½ï¿½ Li said.
He called for faster internal reform of these companies.
Since 1997 the Chinese Government has poured recapitalization funds of over
US$100 billion into the top four State-owned banks to help prepare them for
commercial competition. The government has taken off their hands nonperforming
assets with a book value worth even more.
Officially, these four banks åK½ï¿½ Bank of China, China Construction Bank,
Industrial and Commercial Bank of China and Agricultural Bank of China åK½ï¿½ have
nonperforming loans worth about 1,016 billion yuan (US$125 billion), or 10
percent of their total loans.
In October, China Construction Bank issued stock in Hong Kong, but investorsåK½ï¿½
reaction was tepid.
By late October, 19 foreign institutions had bought stakes totalling US$16.5
billion in 16 Chinese banks åK½ï¿½ about 15 percent of their total capital. They
include, Morgan Stanley, HSBC Holdings and Deutsche Bank.
Agricultural Bank of China, which carries many bad loans from unprofitable
agricultural and local government projects, is the only State-owned bank that
has not attracted outside partners.
Liu said Agricultural Bank of China needs major reorganization before it is
ready to offer equity to outside investors.
åK½ï¿½First, it must undergo financial reorganization and absorb its historic
burdens, and then it must undergo corporate governance reform,åK½ï¿½ he said.
åK½ï¿½Producing the specific plan may take some time,åK½ï¿½ Liu added.
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