China's banking watchdog confirmed Thursday that the Bank of China (BOC) and China Construction Bank (CCB), two leading state banks, will issue shares this year.

The reform of state banks is the centerpiece of banking reform, the China Banking Regulatory Commission (CBRC) said in a report. The report did not include information about where the shares will be listed.

"The BOC and CCB will make full preparations for listings in an active and prudent manner," it said.

Guo Shuqing, the CCB chairman, said that the bank finished its prospectus for listing and will speed up its talks with foreign strategic investors.

Earlier media reports said the bank picked Morgan Stanley, HSBC and a Swiss-based bank as its partners and would sell the three foreign investors a combined 10 percent stake.

Industrial insiders predict that the BOC and CCB would list in Hong Kong, New York or London, as a recent decision made by the government to liquidize large amounts of state-owned shares has cast shadow on the already sluggish stock markets domestically.

The CCB's former chairman Zhang Enzhao stepped down amid media reports of alleged corruption. Now, the central government named Guo, former head of the foreign exchange regulator, leads the bank.

The market has speculated that the resignation of the former chairman could hurt the bank's listing progress.

China has selected the BOC and CCB as pilot banks in sweeping reforms to overhaul the debt-ridden financial system. At the end of 2003, the two received a combined 45 billion US dollars in foreign exchange reserves from the central government in a bailout plan to help boost their capital bases.

The CBRC report said the BOC and CCB recorded 16 percent and 14 percent growth in operating profits in 2004. This has brought their capital adequacy ratios, or their own capital in proportion to total assets, to 8.62 percent and 11.95 percent. The international standard is only 8 percent.

The BOC's non-performing loan (NPL) ratio declined to 5.09 percent, while that of CCB dropped to 3.7 percent by the end of last year. This nears the one to two percent level of well-known international banks.

On Thursday, the regulator urged the two banks to further strengthen corporate governance, improve internal control and build a system that can help ensure the largest amount of profits and asset safety.

It said reform of the two other state banks, the Industrial and Commercial Bank of China and Agricultural Bank of China, would also be advanced.

Last month, China announced plans to inject 15 billion dollars into the ICBC, the country's biggest state-owned commercial bank. The plan is part of efforts to turn it into a profitable, independent competitor. The bank will use the money to replenish its financial reserves.

In the past decades, China's state banks were treated as a source of money to prop up failing government companies, leaving them with too little capital to meet regulator requirements, analysts say.

Bank reform has been more urgent as China prepares to meet commitments to the World Trade Organization, opening its financial markets to foreign competitors by 2006.

Source: Xinhua