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The government may bail out the debt-laden Agricultural Bank of China (ABC) with a huge funding injection to shore up the state lender's balance sheets in preparation for market listing, an economic official said.

 

Vice-chairman Wang Jianxi, of the Central Huijin Investment Corporation, a major investment arm of the central government, said, "If the Agricultural Bank starts its transformation into a shareholding firm, there are great possibilities for Huijin to pour funds into it."

 

Quoted by a Xinhua-run economic newspaper, he said the bank's "historical burdens are too heavy," but he did not confirm how much would be required to relieve it.

 

Analysts agree that it would need up to US$70 billion to clear its non-performing loans before it could meet overseas listing standards.

 

Of China's "big four" lenders, only the ABC has yet to begin major reforms carried out by the others with bail-out packages totaling 60 billion from late 2003 till April 2005.

 

China Construction Bank (CCB) was the first to list in Hong Kong last month, while the Bank of China (BOC) is wrapping up final preparations for its shares trading on June 1. The Industrial and Commercial Bank of China (IBCB), the biggest in terms of assets, is expected to follow suit soon after.

 

The government must restructure its banks by the end of this year prior to the full opening of the country's financial markets to foreign rivals under a commitment to the World Trade Organization in 2001. Analysts and economic officials agree domestic banks have piled up a mountain of problem debts due to reckless lending to state-owned enterprises, sapping their competitiveness.

 

The ABC is widely believed to be the worst hit on massive lending to the rural sector, with a non-performing loan ratio of 24.75 percent reported at the end of March, compared with the one to two percent level reported by established overseas banks.

 

Wang said he could not rule out the possibility the ABC would receive a different bail-out package from the other state banks, indicating the planned capital inflow might not only come from Huijin.

 

He believed the reform process should not be too fast. "We should take into account its shock in state-owned enterprises, as the market retreat of state banks -- a large part of their loans flowed into state firms -- would create a block for the firms' restructuring."

 

Accelerated reforms would also hamper the role of banks in supporting the development of the "new socialist countryside", a policy of the central government to narrow the urban-rural development gap that has opened in the reform and opening-up drive of the past two decades.

 

The formerly state-owned banks might balk at lending to the rural sector and instead, enter the urban market with higher profits, he explained.

 

Li Zhicheng, the ABC's research office chief, said on Tuesday that the bank would go public as a whole, quashing rumors that it would sell its Beijing headquarters and become a group of provincial-level banks.

 

Li said transforming the entire bank into a shareholding company was in line with international trends and would help maintain its advantage of remote business outlets in the countryside.

 

The ABC employs approximately 477,000 people, a drop of 169,000since the end of 2000. It posted operating profits of 9.27 billion yuan (US$1.15 billion) in the first quarter.

 

On Tuesday, China Banking Regulatory Commission vice-chairman Cai Esheng cautioned at a finance forum in Beijing that commercial bank reform had still only achieved "preliminary" results, with many lenders suffering from weak risk controls, a lack of experienced managers and backward information technology systems.

 

"It is absolutely impossible to succeed at this in one go," he said. "We must take an objective view of the reforms' achievements and problems and prevent any bravado or over-estimation of the results."

 

(Xinhua News Agency May 27, 2006)