Capital funds to block China's banks development, think tank report

A report issued by the Chinese Academy of Social Sciences (CASS), China's top think tank, here Friday says that a lack of capital funds will block the development of China's banks.

According to the China Banking Regulatory Commission, the capital adequacy ratio of all the country's commercial banks must reach eight percent by 2007. This means the banks need to acquire more than 200 billion yuan per year.

Four state banks -- the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank -- may fill in the capital gap by national budget or foreign exchange reserves, according to the report, "China: Banking and Financial Market Development 2005."

Other commercial banks cannot rely on the state to solve this problem, it said.

Usually, banks can get capital funds through three channels, retaining profits, financing through capital markets and introducing strategic investment or acquiring more investment.

However, it is very difficult for China's commercial banks to get capital funds through the above channels, the report said.

Since the profit to asset ratio of China's listed commercial banks is only 0.35 percent, one third of that of the United States, the banks cannot increase their capital funds by self-made profits, the report said.

At the same time, China's financing ability is very limited, the report said. In the 14 years from 1991 to 2004, China's stock market only accumulated 1.16 trillion yuan. It would be difficult for the banks to make two hundred billion yuan in one year by listing in the market.

As to the original shareholders investing more to the banks, the report said, they lack motivation due to low economic returns. At the same time, old shareholders don't want to see the banks issue more shares in case that their shares would be diluted.

The report said international capital markets may be one of the channels that China's banks use to get capital funds, but cannot be a major one. So it is important for China's capital markets to improve themselves, it said.

The report is an annual publication that the CASS made to review China's financial events in the past year.

Source: Xinhua