Agricultural Development Bank of China (ADBC), one of the three policy banks in China, enhances its commercial lending businesses as part of its deepening reform this year.

According to information published on its website on February 7, the bank has received official approval from the China Banking Regulatory Commission of a commercial loan for the purchase and marketing of edible oil and seeds.

Founded in 1994, ADBC was established to promote development of agriculture and rural areas. It raises funds for agricultural businesses, undertakes the agricultural policy credit businesses specified by the central government, and serves as an agent of the state treasury when it allocates special funds to agriculture.

Its reform is a part of China's deepened financial restructuring program, in line with the post-WTO transitional period that ends this year.

The People's Bank of China, the country's central bank, proclaimed that it will push forward reform of the rural financial system and implement a reform scheme of policy banks step by step. However, the reform scheme will be different for each policy bank, it said.

Nevertheless, there is indeed one common ground. As central bank governor Zhou Xiaochuan pointed out at a high-level finance forum in Chongqing on November 15, 2005, it is a mainstream trend to turn policy banks into development-promoting financial institutions.

Gao Wei, a researcher of the State Council's Development Research Center, said that the expansion of functions and businesses is just part of ADBC's reform, which is already on the central bank's work schedule this year.

In June 2004, ADBC was allowed to provide loans to the country's flagship agricultural enterprises. Since then, it has gradually gained access to a series of "new" commercial lending businesses, including loans for grain processing enterprises, grain warehousing facilities, and special loans for national reserves of fertilizer, sugar, meat, tobacco and wool.

"Such traditional businesses like providing loans for the purchase of grain, cotton and edible oil are all part of the agricultural product cycle, but more support should be given to other aspects that come before and during production, involving commodities including fertilizer, seed and agricultural technologies," Gao said.

A report on reform of rural financial system recommends that "while maintaining the traditional loans for procurement, reserve and marketing of grain, edible oil and cotton, ADBC should moderately expand its business scope, develop policy financial businesses like providing loans for rural infrastructure construction, agricultural technology promotion and comprehensive agricultural development, conduct pilot programs on agricultural insurance, handle on-lending and entrusting businesses, and explore a way of establishing a financing system to promote rural development."

Zheng Hui, head of ADBC, already brought forward the target of "getting rights to provide loans for agricultural development" at a working conference in late January.

By the end of 2005, ADBC reported profits of 5.41 billion yuan (about US$672.2 million), 3.01 billion yuan (about US$374 million) more than the previous year and representing a year-on-year increase of 126 percent. Meanwhile, the value of its non-performing loans decreased 45.82 billion yuan (about US$5.69 billion), lowering its ratio to 10.2 percent of total loans.

As for the bank's future development, Zheng said that it would prudently and actively support flagship enterprises and processing enterprises engaged in grain, cotton and edible oil industries, effectively enlarge its ratio of lending as compared with other banks, and its market share.

With policy credit and commercial lending as new parallel businesses, ADBC has likewise adopted two parallel management systems with different account audit, management and appraisal procedures. Further, traditional business risks are hedged by the Ministry of Finance, while the bank shoulders its own risks attached to new businesses.

(China.org.cn by Tang Fuchun, February 14, 2006)