Bank bailouts to end: Regulator
(Shenzhen Daily/Agencies)
Updated: 2005-12-27 09:15

The country錕斤拷s State-owned banks will receive no more government cash bailouts for business losses after they absorb new private investment, top banking regulator told the 21st Century Business Herald, a Chinese-language newspaper.

Liu Mingkang, director of the China Banking Regulatory Commission, said China錕斤拷s large commercial banks can expect no more State rescue payouts as they recruit outside strategic investors and issue stock.

錕斤拷After their investment and beneficiary entities have diversified, it will be impossible for State finances to again bury debts from commercial banks錕斤拷 business losses; otherwise, that would fly in the face of principles of fair market competition,錕斤拷 he said.

But Liu said China錕斤拷s banks should be looking to outside investors for their expertise, not their money.

錕斤拷The policy design and objectives for attracting strategic investors are directed at attracting expertise, not capital. That means banks shouldn錕斤拷t rush to attract investors to meet capital adequacy targets,錕斤拷 he added in an interview with the paper.

Liu錕斤拷s comments come as another leading economic official warned Sunday of excessive borrowing by some of China錕斤拷s biggest State-owned companies, who are still Chinese banks錕斤拷 dominant customers.

Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission, said many of China錕斤拷s 169 centrally-controlled State enterprises recorded brisk sales growth in 2005.

These State-owned conglomerates include business flagships such as Baogang Steel Group and China Petrochemical Corporation.

But Li said too many State-owned conglomerates are doing poorly even as China booms, according to Xinhua.

Forty-five of the companies recorded falling profits in the second half of the year, and 80 recorded costs rising faster than sales income, Li said. And many of these companies are turning to loans from State banks, he added.

錕斤拷Some enterprises are relying on using new loans to pay off old ones in order to maintain daily operations, and a few are facing crisis,錕斤拷 Li said.

He called for faster internal reform of these companies.

Since 1997 the Chinese Government has poured recapitalization funds of over US$100 billion into the top four State-owned banks to help prepare them for commercial competition. The government has taken off their hands nonperforming assets with a book value worth even more.

Officially, these four banks 錕斤拷 Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China 錕斤拷 have nonperforming loans worth about 1,016 billion yuan (US$125 billion), or 10 percent of their total loans.

In October, China Construction Bank issued stock in Hong Kong, but investors錕斤拷 reaction was tepid.

By late October, 19 foreign institutions had bought stakes totalling US$16.5 billion in 16 Chinese banks 錕斤拷 about 15 percent of their total capital. They include, Morgan Stanley, HSBC Holdings and Deutsche Bank.

Agricultural Bank of China, which carries many bad loans from unprofitable agricultural and local government projects, is the only State-owned bank that has not attracted outside partners.

Liu said Agricultural Bank of China needs major reorganization before it is ready to offer equity to outside investors.

錕斤拷First, it must undergo financial reorganization and absorb its historic burdens, and then it must undergo corporate governance reform,錕斤拷 he said.

錕斤拷Producing the specific plan may take some time,錕斤拷 Liu added.