China's central government has approved a capital injection plan for the China Everbright Bank.

According to media reports, which cited unidentified industry and government sources, the State Council had given its backing to the plan last Friday and Central Huijin Investment Co Ltd, the central bank's investment arm, is now finalizing details with the bank, including the exact size of the injection.

However, China Everbright Bank was unavailable for comment yesterday.

Industry insiders believe the long-awaited bailout plan will be the first step in China Everbright Bank's restructuring, likely to be followed by introducing overseas strategic investors and a proposed listing next year.

The total cost of restructuring the bank would exceed 20 billion yuan (US$2.55 billion), including the capital injection, according to a Reuters report.

This would be the first time that the central government has injected State funds into a second-tier bank. Central Huijin has injected a total of US$60 billion into three of the four biggest banks in recent years.

The government has been pushing hard to strengthen the capital base of commercial banks as China further opens its financial market to foreign competition.

It is estimated that China Everbright Bank's current capital adequacy ratio is around 2 percent.

It has to reach a minimum of 8 percent in order to comply with international standards.

In 2004, the bank planned to issue 6 billion new shares to domestic and foreign institutions to enhance its capital strength.

But it scrapped the plan amid concerns that introducing more private capital would make it harder for it to proceed with any future public listings, sources said.

Shares in China Everbright Ltd, which owns more than 20 percent of the bank, closed 5.56 percent higher on the Hong Kong market yesterday.

(China Daily December 15, 2006)