No major stakes in banks for foreigners
(Shenzhen Daily/Agencies)
Updated: 2005-11-22 08:53

Foreign investors are unlikely to secure controlling stakes in major Chinese commercial banks for the foreseeable future, Guo Shuqing, chairman of China Construction Bank Corp., said.

He also said that floating shares isn’t obligatory when a Chinese bank reforms, but it does facilitate the process.

Guo made the comments in a question and answer interview published in the central bank-backed Financial News on Monday.

Even if Bank of America Corp. exercises its option to increase its holding in China Construction Bank to 19.9 percent, the Chinese Government will still control about 60 percent of the Chinese lender, he said.

China Construction Bank is 25.75 percent owned by overseas institutions and individuals, while more than 74 percent remains in State hands since its initial public offering in Hong Kong in October, Guo said.

“As I understand it...the guideline won’t change of the government maintaining certain control of key commercial banks,” Guo said.

Under the terms of the agreement China Construction Bank and Bank of America signed several months ago, the U.S. banking firm would invest US$3 billion in China Construction Bank, one of China’s four largest State commercial banks, and take a 9 percent stake.

Bank of America has the option to raise its full holding to 19.9 percent under the deal.

When asked if a share listing is a requirement in the reform of commercial banks in China, Guo said that exposure to market forces can make financial institutions more transparent, among other benefits.

“Without a modern enterprise system, a bank like ours would not have (a future),” he said.

As long as there are effective systems in place for managing a bank, going public isn’t a necessity, Guo said.

“But to only rely on a government department or several government departments to manage a bank certainly cannot be done,” he said.

China Construction Bank and its rival Bank of China are leading a government program to reform China’s major lenders. The program includes disposing of banks’ bad loans, recapitalizing them with funds from the nation’s foreign-exchange reserves, restructuring them into shareholding firms and seeking foreign investment in preparation for overseas listings.