CBRC: Bank reforms are key issue
By Sun Min (China Daily)
Updated: 2004-11-12 00:40

China will not risk the quality of the nation's banking reform by hastening the listing of its major State-owned banks, a top banking regulator said Thursday.

China Banking Regulatory Commission Vice-Chairman Tang Shuangning stressed that listing is not the aim of the banking reform but merely a means to restructure the banks' current operational system and equity structure.

"There is no timetable for the listing (of the two banks). It is meaningless to race for listing," Tang told the 2004 International Finance Forum held in Xianghe County of Hebei Province.

"Simply pursuing the speed will affect the quality of the listing."

Tang made the remarks as he introduced the progress of the restructuring of the Bank of China (BOC) and China Construction Bank (CCB), two pilots among the four major State banks to conduct the shareholding restructuring and go public.

BOC has completed the initial round of selecting strategic investors, while CCB has already found three domestic institutional investors, he said.

Both banks have basically completed their financial restructuring and drafted a strategic development plan for the following years.

They have drawn up relevant rules to practice standard corporate governance, including rules governing the operation of their boards, general shareholders' meetings and the top management groups.

They have also chosen relevant intermediaries to head towards the listing, but there is still much hard work ahead.

The banks are currently implementing new accounting standards, improving their budget system and upgrading their internal controls, with the preparation of special risk controls and monitoring committees.

BOC Assistant President Zhu Min said that "no timetable for listing" does not mean the bank would slow down the reform.

He told reporters on the sidelines of the forum that the bank is gradually promoting the restructuring. And the final choice of strategic investors has yet to be made.

Zhu also denied recent reports that the bank had given up the idea of listing in Hong Kong.

"We have not decided on the location of the listing yet," he said.

"It is nonsense to say that we will not get listed in Hong Kong."

As for the difficulty encountered in the banks' internal reforms, changing traditional management concepts and methods is the biggest obstacle, according to experts.

Changing the culture of a bank is difficult, said Jeffrey R. Shafer, vice-chairman of the Public Sector Client Group at US-based Citigroup.

But China has to do this to ensure it avoids huge non-performing loans (NPL) in the future, he said.

"It is pretty hard to ask all the employees to obey the existing rules at once," said Zhu Ming, "About 80 per cent of bad loans are the result of the misconduct of a handful of employees."

Inefficient mechanisms are always the bottleneck in China's banking industry, according to Zhu Dengshan, president of China Cinda Asset Management Corporation.

"China's banking industry is facing mounting pressure because of the huge gap in mechanisms and philosophies with international practices, and we don't have much time left as China implements its World Trade Organization commitments," he said.

Fortunately, cultural changes are already taking place, said Shafer with Citigroup, as seen from the progress in BOC.

"After the shareholding restructuring this August, we have made fundamental changes in corporate governance, business philosophy and employees' performance evaluation and incentives," said Zhu Min from BOC.

BOC's NPL ratio has fallen to 5.31 per cent and it earned in 49.7 billion yuan (US$5.99 billion) in gross profits in the first nine months of this year, a 23.4 per cent increase year-on-year, which Zhu described as "a quite satisfactory figure.

"Moreover, we are now paying more attention to capital adequacy and balance sheet management. The capital adequacy rate of BOC has topped 8.93 per cent, exceeding the required 8 per cent," Zhu said, "What we care about more in running the business now is the return on assets and shareholders rather than the expansion of scale."

In spite of the positive progress in the restructuring, a huge amount of NPLs still weigh heavily on the banking industry in China.

According to the latest statistics published by the China Banking Regulatory Commission, the country's major commercial banks had NPLs valued at 1.7 trillion yuan (US$204.7 billion) at the end of September, with an NPL ratio of 13.37 per cent, down 4.39 percentage points from the start of the year.

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