The government may bail out the debt-laden Agricultural Bank of
China (ABC) with a huge funding injection to shore up the state
lender's balance sheets in preparation for market listing, an
economic official said.
Vice-chairman Wang Jianxi, of the Central Huijin Investment
Corporation, a major investment arm of the central government,
said, "If the Agricultural Bank starts its transformation into a
shareholding firm, there are great possibilities for Huijin to pour
funds into it."
Quoted by a Xinhua-run economic newspaper, he said the bank's
"historical burdens are too heavy," but he did not confirm how much
would be required to relieve it.
Analysts agree that it would need up to US$70 billion to clear
its non-performing loans before it could meet overseas listing
standards.
Of China's "big four" lenders, only the ABC has yet to begin
major reforms carried out by the others with bail-out packages
totaling 60 billion from late 2003 till April 2005.
China Construction Bank (CCB) was the first to list in Hong Kong
last month, while the Bank of China (BOC) is wrapping up final
preparations for its shares trading on June 1. The Industrial and
Commercial Bank of China (IBCB), the biggest in terms of assets, is
expected to follow suit soon after.
The government must restructure its banks by the end of this
year prior to the full opening of the country's financial markets
to foreign rivals under a commitment to the World Trade
Organization in 2001. Analysts and economic officials agree
domestic banks have piled up a mountain of problem debts due to
reckless lending to state-owned enterprises, sapping their
competitiveness.
The ABC is widely believed to be the worst hit on massive
lending to the rural sector, with a non-performing loan ratio of
24.75 percent reported at the end of March, compared with the one
to two percent level reported by established overseas banks.
Wang said he could not rule out the possibility the ABC would
receive a different bail-out package from the other state banks,
indicating the planned capital inflow might not only come from
Huijin.
He believed the reform process should not be too fast. "We
should take into account its shock in state-owned enterprises, as
the market retreat of state banks -- a large part of their loans
flowed into state firms -- would create a block for the firms'
restructuring."
Accelerated reforms would also hamper the role of banks in
supporting the development of the "new socialist countryside", a
policy of the central government to narrow the urban-rural
development gap that has opened in the reform and opening-up drive
of the past two decades.
The formerly state-owned banks might balk at lending to the
rural sector and instead, enter the urban market with higher
profits, he explained.
Li Zhicheng, the ABC's research office chief, said on Tuesday
that the bank would go public as a whole, quashing rumors that it
would sell its Beijing headquarters and become a group of
provincial-level banks.
Li said transforming the entire bank into a shareholding company
was in line with international trends and would help maintain its
advantage of remote business outlets in the countryside.
The ABC employs approximately 477,000 people, a drop of
169,000since the end of 2000. It posted operating profits of 9.27
billion yuan (US$1.15 billion) in the first quarter.
On Tuesday, China Banking Regulatory Commission vice-chairman
Cai Esheng cautioned at a finance forum in Beijing that commercial
bank reform had still only achieved "preliminary" results, with
many lenders suffering from weak risk controls, a lack of
experienced managers and backward information technology
systems.
"It is absolutely impossible to succeed at this in one go," he
said. "We must take an objective view of the reforms' achievements
and problems and prevent any bravado or over-estimation of the
results."
(Xinhua News Agency May 27, 2006)