China's state commercial banks cut non-performing loans

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Last updated at: (Beijing Time) Friday, December 12, 2003

China's state commercial banks cut non-performing loans

China's four leading state-owned commercial banks all have plans to be listed on the stock market, but they first have to reduce the burdens of non-performing loans (NPL) to an acceptable amount.

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China's four leading state-owned commercial banks all have plans to be listed on the stock market, but they first have to reduce the burdens of non-performing loans (NPL) to an acceptable amount.

Compared with early this year, the "big four", namely, the China Construction Bank, the Industrial and Commercial Bank of China, the Bank of China and the Agricultural Bank of China, had lowered their ratio of NPLs by 4.8 percentage points by late September, with more than 88.8 billion yuan (10.7 billion US dollars) of NPL surplus reduced during the period, the latest figures showed.

However, as the four banks' NPL rate stood at 21.4 percent, their task to recover large-sum bad loans remained tough. With the gradual opening of China's banking industry to foreign banks, the People's Bank of China, the nation's central bank, has required that banks lower their NPL rates to less than 15 percent before 2005.

The four banks' NPLs valued more than 2,000.7 billion yuan (242billion US dollars) have accumulated for years due to varied factors, experts said, noting that the restructuring of state-owned firms and an unfavorable credit environment are among main causes for the severe problem.

The "big four", making up for about 60 percent of all banking assets in China, have sped up their effort to write off the marked amount of bad debt.

The Bank of China has adopted a range of measures in risk control and asset recovery, which helped to reduce the 12-billion-yuan NPLs in four months this year. The China Construction Bank last October hosted an autumn fair to auction off more of its mortgage debt assets. The Industrial and Commercial Bank of China in June signed an agreement with Goldman Sachs to jointly deal with its non-performing assets.

The Chinese government is providing a considerable policy backing to help banks reduce their NPL rates. Last April China established a new banking regulatory body, the China Banking Regulatory Commission (CBRC), to enhance supervision over banks and support all banks in their effort to recover their NPLs and to increase credit risk control.

Some experts argued that the most effective solution to this issue still lies in reforms of state-owned enterprises as well as state-owned banks, which used to consider little about costs and risks.

China welcomed foreign and domestic civil investors to pitch in the regrouping of Chinese state-owned firms and banks, according to senior officials on various occasions. CBRC recently announced that a single foreign investor can hold up to 20 percent of shares of a joint bank, as against the previous 15 percent.

Of all the favorable factors, the most critical is the sustained rapid growth of China's national economy and the augmentation of manufacturers' profits. Gross domestic product growth rate is expected to hit 8.5 percent in China this year, which will surely pave the way for borrowers to repay loans along with their interest.

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