Shanghai-listed China Merchants Bank (CMB) has selected a foreign partner with which to launch a fund management company, according to bank president Ma Weihua.

"A certain foreign stake (in the to-be-launched company) has already been included in our application submitted to the relevant authorities," he told China Daily, but declined to name the foreign partner.

He said his bank is fully-prepared for the move and the application meets all government requirements.

Last month, the central government released a long-anticipated regulation that allows pilot commercial banks to launch fund management companies.

"Detailed implementation rules will be released very soon and we hope we can become a pilot," the bank's president said. He is currently in Beijing to participate in the third plenum of the 10th National People's Congress.

Allowing banks to step into the securities investment business marked a breakthrough for the sector, especially as commercial banks are eager to readjust their asset structure and garner more profits from intermediary businesses.

Ma said structure readjustment - an effort to squeeze the ratio of credit in total assets - is the tune his bank is dancing to, a flagship among China's joint-stock banks with a relatively high profit-earning ability and low bad-loan ratio.

In 2003, Ma's bank saw a 34 per cent rise in net profits which amounted to 3.445 billion yuan (US$415 million), while its bad-loan ratio declined by 2.84 percentage points to 3.15 per cent.

Performance of the bank in 2004 was "quite good," he said, citing the bank's Beijing branch as an example. The 1,000-staff branch generated 1 billion yuan (US$120 million) in revenue last year while its bad-debt ratio was a mere 0.3 per cent.

He declined to disclose further details, saying the annual report will be released later this month.

However, Ma admitted that CMB's future growth will not be as fast as it has been in previous years.

"All the commercial banks are scaling back their pace of growth due to capital restraints and readjustments in credit structure," he said.

"A slower growth rate is beneficial to ensuring stable growth and harmonious development in the future."

Like other commercial banks, CMB is also facing the urgent task of replenishing its capital. Last year, the bank issued 6.5 billion yuan (US$783 million) of convertible bonds and 3.5 billion yuan (US$421 million) of subordinate bonds to increase its capital adequacy ratio.

This year, more efforts will made to cut the ratio of credit, especially long-term credit, in its total assets to avoid blind expansion of its credit scale.

"When we evaluate a branch, we mainly check their capital efficiency, rather than scale of credit," Ma said. "Branches generating more profits from intermediary businesses will be encouraged."

Experts say intermediary banking will become a new focus of competition as the profit margins of loans and deposits shrink.

(China Daily March 8, 2005)