Shareholding reforms, NPL controls

In 2003, China launched shareholding reforms for state-owned banks, a process intended to transform them from wholly state-owned entities into publicly traded companies with the government as controlling shareholder.

The country's top three lenders - ICBC, CCB and BOC - were listed in the domestic and Hong Kong stock markets. Shareholding reforms at the Agricultural Bank of China are under way.

"The shareholding reforms have put more competitive pressure on 'the big four' state-owned banks and helped domestic banks improve their asset quality, management and risk controls," Cao said.

Total assets of Chinese banks increased from 27.66 trillion yuan at the end of 2003 to 62.39 trillion yuan by the end of 2008,the CBRC said.

The experts interviewed by Xinhua said banks had also increased efforts to avoid NPLs since China adopted a moderately easy monetary policy and eased banks' loan curbs during the third quarter of 2008. Since September, China has reduced the banks' required reserve ratio four times.

The loan loss reserve adequacy ratio and provisioning coverage ratio of China's state-owned commercial banks reached 153 percent and 109.8 percent last year, 122.2 and 76.4 percentage points higher, respectively, than in 2007, according to CBRC figures.

The corresponding figures for China's publicly listed commercial banks rose to 198.5 percent and 169.6 percent in 2008, respectively, from 2007 levels of 170.2 pencent and 114.5 percent, CBRC figures showed.

These increases have left Chinese banks well-placed to cope with any increase in NPLs, the experts said.

And Chinese banks' NPLs have been been declining, they noted. The ratio fell to 2.45 percent at the end of December, down 3.71 percentage points from the end of 2007.

Positive changes in the sector were reflected in the banks' return on capital, which rose 0.4 percentage point in 2008 to 17.1percent, Liu said.

Stimulus spurs loan growth

Much of the recent surge in lending has represented financing for long-term infrastructure programs supported by the government, part of the stimulus package, as well as large and medium-sized state-owned companies, said Tang Jianwei, a senior analyst with Bank of Communications.

Tang noted that the 4 trillion yuan included 1.18 trillion yuan from the central government, with the rest coming from local governments and private investment, part of which would be channeled through the banking system and accounted for the lending increase.

"The new loans in January were mainly targeted at infrastructure and other projects to improve living standards. It will take time for us to see the benefits, but they will surely do a great deal of good for the Chinese in the long run," Cao said.

Weighing loan quality

When assessing the quality of the loans, a major factor was how much social benefit the projects being funded could create, Wu said.

"Loans for those projects and carefully chosen borrowers would not involve big risks. The 4 trillion yuan stimulus package would provide domestic banks with better earnings prospects this year," Tang added.

Tang forecast that the banking sector's net profits might grow more than 5 percent this year because of booming loan business.

Xiao Gang, BOC chairman, said over the weekend that banks had become stricter about lending than years ago, and the recent loan expansion was not a result of loose standards.

NPL management would also be subject to many types of supervision, from independent directors of the bank and independent accounting firms to government departments such as the CBRC and People's Bank of China (PBC), the central bank, Xiao added.

(Xinhua News Agency March 11, 2009)