China to transform urban credit coops into joint-stock banks

China's top banking watchdog has decided to eliminate the risk of urban credit cooperatives through restructuring or financial support, and transform them into joint-stock banks.

"Some cooperatives will be kept as entities within a single corporation. Those failing to reach relevant standard in due time should exit from the market through sale or merger," said Tang Shuangning, vice-chairman of the China Banking Regulatory Commission (CBRC).

"We encourage commercial banks to acquire urban credit cooperatives on the basis of market principles," he said at a national forum on finance.

There are 709 urban credit cooperatives in China with 412 in operation. Their assets totaled 151.769 billion yuan (18.4 billionUS dollars) and debts totaled 150.573 billion yuan, and their gross profit was 173 million yuan for the first half of 2004.

China began to improve the management of urban credit cooperatives in 1999, but most of them still face the problems of poor corporate governance, small scale, weak anti-risk capability,low profit and unitary business.

According to Tang, the CBRC will gradually develop those up-to-par urban credit cooperatives into city commercial banks, and change county-level credit cooperatives into community banks with local residents and small and medium-sized enterprises as their major customers.

For highly risky urban credit cooperatives, the CBRC will ask local governments to upgrade the quality of their assets by injecting capital, reducing bad loans and replacing managerial personnel, Tang said.

The CBRC will allow poorly managed urban credit cooperatives tofail if they are determined to be unsalvageable, he said.

Source: Xinhua