BEIJING - China's banking
sector - including four lumbering state-owned banks - is
undergoing major reforms as China seeks to conform to
World Trade Organization (WTO) standards and prepares to
open up its banking industry to foreign competition.
Banks also have been ordered to help cool down the
overheated economy and curb credit in key sizzling
sectors - steel, cement, real estate and others.
China's major state banks, encumbered by bad
loans to inefficient state enterprises, have been
described as a ticking time bomb, and earlier this year
China used US$45 billion in foreign currency reserves to
help ailing banks deal with bad debts. The reform
continues.
Key
developments and statements by senior officials on
Thursday and earlier signal the changes:
The Bank of China, one of the big four state-owned
banks, has been reorganized into a share holding bank;
The head of China's major bank industry watchdog
agency said commercial banks must speed up reform and
investigate and punish those responsible for bad loans;
The governor of the central bank urged banks to
strictly control credit and to assist in the nation's
efforts to cool down its overheated economy by limiting
loans to red-hot sectors.
The
details: Bank of China reorganized into
share holding bank The Bank of China, one of China's
four state-owned commercial banks, has been reorganized
into a share holding bank under the name of Bank of
China Limited, a bank spokesman told a press conference
on Thursday.
After the reorganization, the new
company will inherit all assets, liabilities, credits,
debts and staff members of the former bank. Central
Huijin Investment Limited is the sole initiator of the
new bank.
The new bank has a registered capital
of 186.39 billion yuan (US$22.5 billion), fully held by
Central Huijin.
The transformation, approved by
the State Council, China's cabinet, is a considered
major step towards China's reform of the banking
industry. The bank is preparing for listing on stock
exchanges.
Responsibility system for
commercial banks China's commercial banks should
establish a rigid responsibility system to investigate
and punish those responsible for large non-performing
loans (NPLs), said Liu Mingkang, chairman of the China
Banking Regulatory Commission (CBRC).
He urged
the banking sector on Thursday to speed up financial
reform and establish an effective risk prevention
mechanism. Liu said that commercial banks should take
the initiative to prevent and spread risks, creating an
environment of fair competition.
They should
also speed up the pace of handling NPLs, actively
prevent and dissolve the risks for increasing NPLs, and
try to maximize the value of NPLs recovered, he said.
Banks must strictly control credit:
governor Zhou Xiaochuan, governor of the People's
Bank of China, the nation's the central bank, has urged
banks to continue to rationally control aggregate money
and credit supply, and to improve credit structure.
Zhou emphasized recently that banks should pay
attention to coordinating their credit policy with the
nation's industrial and other economic policies - a
reference to economic reform and slowing the
economy:
First, banks should prevent credits from flowing
into overheating industries and industries involving
redundant construction in order to prevent the rebound
of excessive capital investment.
Second, banks should give active support to
industries in accordance with the government's
industrial policies that meet market access requirements
and encourage job creation.
Third, banks need to
establish closer ties with grain departments to ensure
funds for grain purchases, while further standardizing
and expanding consumer credit.
Zhou also
outlined guidelines on the reform and on the opening up
of the financial sector:
Quickening the pace of stated-owned commercial
banks' reform and perfecting their risk-management
mechanism;
Reforming the operating mechanism of rural banks to
give more credit to more people and small enterprises;
Deepening the reform of the investment system and
enhancing the capacity of banks to independently examine
loans for worthiness;
Amending related policies and regulations to create
an environment of fair competition for both domestic and
foreign financial companies.
Cracking down on financial crimes to ensure the
steady operation of the financial system.
