China's top banking regulator revealed on February 19 that the
nation's Big Four commercial banks recorded the largest-ever drop
in their bad loans last year.
This beefs up their financial strength as the state-owned banks
implement joint-stock reforms in anticipation of initial public
offerings (IPOs).
The China Banking
Regulatory Commission (CBRC) said the ratio of nonperforming
loans (NPLs) at the Bank of
China, China
Construction Bank, the Industrial and Commercial
Bank of China and the Agricultural Bank of China was 20.4
percent at the close of 2003, down 5.9 percentage points from the
preceding year.
Their total outstanding NPLs, as measured by the internationally
accepted five-category loan classification, fell 171.3 billion yuan
(US$20.6 billion) to 1.9 trillion yuan (US$231.0 billion), it
said.
Stricter lending policies and increased efforts to recover bad
loans as well as improved risk management mechanisms were the major
factors behind the significant drop in bad loans, said the
CBRC.
The bad loans--amassed during the decades of China's planned
economy--and low capital adequacy ratios have been the biggest
obstacles to the reform of the state-owned lenders.
Regulators aim to bring the Big Four's NPL ratio down to below
15 percent by the end of 2006, when the domestic banking sector is
fully opened to foreign banks in accordance with China's World
Trade Organization commitments.
The State Council approved a reform package for the four
state-owned banks, which account for more than half of total
lending in the banking sector.
The central government later injected some US$45 billion of
capital into the Bank of China and China Construction Bank for a
pilot joint-stock reform, with IPOs penciled in for as early as
next year. The two then used their original capital to write off
part of their bad loans.
Despite the substantial declines in both the outstanding volume
and ratio of nonperforming loans, "existing problems are still too
apparent," according to a CBRC press release.
Blindly investing in some sectors has made it difficult to
prevent new bad loans, it said. The commission decided earlier this
month that commercial banks should inspect their lending to the
steel, cement and aluminum sectors, where over-investment has
mushroomed to serious levels.
High concentrations of bad loans in some industries,
insufficient bad loan provisions and low capital adequacy ratios
are the other problems which continue to plague the sector, said
the CBRC.
The nation's three policy banks--the China Development Bank, the
Export-Import Bank of China and the Agricultural Development
Bank--saw their NPLs dip 4.5 billion yuan (US$542.0 million) to
336.0 billion yuan (US$40.0 billion) at the end of last year. They
now account for 17.4 percent of total outstanding loans, down 2.4
percentage points from the end of 2002.
The 11 joint-stock commercial banks reported the healthiest NPL
ratio at 7.9 percent, down 4.01 percentage points from a year
earlier. Their outstanding volume of NPLs was 187.7 billion yuan
(US$22.6 billion) at the end of last year.
The aggregate NPL ratio of all the "major financial
institutions," which include the Big Four, the policy banks and
joint-stock banks, stood at 17.8 percent, a drop of 5.32 percentage
points from last year.
Big Four reform remains the top priority of the CBRC for this
year.
The CBRC also vowed to keep an eye their loans, non-loan assets
and off-the-balance-sheet assets, in which they found many
irregularities after they began examining them in mid-2003.
(China Daily February 20. 2004)