Reducing NPLs risk

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Last updated at: (Beijing Time) Monday, February 23, 2004

Reducing NPLs risk

China Minsheng Banking Corp, one of the most healthy lenders on the Chinese mainland, has become the first domestic bank to employ chief loan officers to enhance transparency in loan issuing.

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China Minsheng Banking Corp, one of the most healthy lenders on the Chinese mainland, has become the first domestic bank to employ chief loan officers to enhance transparency in loan issuing.

Minsheng, the sole privately-funded bank on China's mainland, announced recently that it has established three regional lending assessment centers in eastern, northern and southern China, to lessen the risks of nonperforming loans caused by senior banking officials.

"Working for the three centers, they (chief loan officers) report directly to the board of our bank and have the right to turn down loans approved by general managers of branches," said an official of Minsheng's Shanghai branch.

Senior executives in domestic commercial banks used to have the last say in making final decisions on extending loans, but this power could increase the risks for the banks of more NPLs forming.

Bank of China announced on Friday that it sacked Liu Jinbao, former chief executive of its subsidiary in Hong Kong, due to illegal loans made to Shanghai tycoon Zhou Zhengyi who is in detention in China.

"For domestic lenders, it is more important to strengthen their corporate governance and risk control capabilities than just lowering their bad assets ratio by issuing more loans," said Han Zhenguo, a banking analyst of Haitong Securities.

"Domestic banks should operate in a more market-oriented mechanism to enhance their profitability and assets quality," he said.

Shanghai-listed Minsheng reported its NPL ratio stood at 1.74 percent at the end of June, down 0.3 percentage point from the end of 2002.

The average NPL ratio in national commercial banks and policy lenders on China's mainland stood at 17.8 percent at the end of 2003, said the China Banking Regulatory Commission.

Minsheng plans to float 25 percent of its enlarged share capital in Hong Kong this year, but the share issue might be postponed as it admitted its employees falsified documents about a shareholders meeting.

Source:Xinhua

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