The top banking regulator in China said yesterday that it was
very likely that the Agricultural Bank of China (ABC), the last of
China's "big four" lenders yet to undergo a joint stock reform,
will get a major government cash injection next year.
Liu Mingkang, chairman of the China Banking Regulatory
Commission, told a financial forum that there will be "good news"
next year in terms of the bank's restructuring but the specific
reform plan still requires central government approval.
According to earlier media reports the bank submitted a revised
reform plan to the State Council last month seeking the listing of
the entire bank. Previous plans had called for the lender to be
split up.
"After the restructuring, the bank should strengthen its market
orientation in order to better serve the agricultural sector, rural
areas and farmers," People's Bank of China Governor Zhou Xiaochuan
said.
In a report to the National People's Congress Standing Committee
the central bank chief told legislators that the ABC's joint-stock
reform will be accelerated.
Based on the completion of external auditing, as well as asset
and capital verification of the ABC, the government will steadily
implement financial restructuring including spinning off losses and
a capital injection from the government and follow up with moves to
establish a joint stock company, Zhou said.
A final decision on the bank's reform plan is expected at the
Central Financial Work Conference, expected to take place before
next February's Spring Festival holiday.
Due to its huge bad loans caused by massive unprofitable lending
within the agricultural sector, the bailout may cost US$100 billion
much more than that of the other three major state-owned commercial
banks, Xinhua News Agency reported earlier, citing an official from
the Central Huijin Investment Co. Last year as much as 26.2 percent
of the ABC's 2.8 trillion yuan (US$356 billion) loans were
non-performing.
The Chinese government has encouraged the nation's biggest banks
to restructure and sell shares so that adherence to international
accounting, disclosure and capital adequacy standards can improve
their competitiveness in order to cope with challenges brought by
the full opening of the financial market.
Reforms of Bank of China, China Construction Bank and the
Industrial and Commercial Bank of China have already resulted in
some progress with their capital adequacy ratios reaching 12.4
percent, 13.15 percent and 10.74 percent respectively by the end of
June.
Meanwhile their respective bad loan ratios dropped to 4.19
percent, 3.51 percent and 4.10 percent by that time, according to
Zhou's report.
But Zhou told legislators that further reform is required by the
three lenders stressing that they "should further improve corporate
governance, deepen internal restructuring and speed up the reform
of management mechanisms."
Meanwhile, in order to support the reform of financial
institutions, the government will step up other related reforms
including changes of the taxation system for commercial banks, the
establishment of a deposit insurance scheme and the construction of
a social credit system.
(China Daily December 27, 2006)