China's central bank said on Friday the two State-owned commercial banks chosen late last year for a pilot joint-stock reform are expected to complete the establishment of the new companies in September this year.

    The People's Bank of China said in a statement that the State Council, China's cabinet, has set specific reform objectives for the Bank of China and China Construction Bank, which are reportedly targeting initial public offerings (IPOs) this or next year.

    The goal of the widely-watched reform, which was initiated late last year with a massive capital injection of US$45 billion into the two pilot banks, is to build them into competitive modern commercial banks, the PBOC said.

    China's four State-owned commercial banks -- the two pilot banks, the Industrial and Commercial Bank of China and the Agricultural Bank of China -- hold more than half of the nation's 17 trillion yuan (US$2 trillion) worth of loans.

    The two pilot banks, which for years have been managed by government-appointed officials, are required to establish shareholders' meetings, boards of directors and supervisory boards, it said.

    "The two pilot banks are working against time to formulate detailed plans and are trying to complete the institution of the joint-stock companies by legally required procedures," the PBOC said.

    The China Construction Bank, which is said to be targeting its IPO for as early as this year, will reportedly set up a joint-stock company to own the assets it plans to list.

    The PBOC said the two banks will, under the principles of fairness and openness, choose domestic and foreign strategic investors that "are strong and have first-class managerial expertise" to strengthen their capital base and optimize management.

    They are required to come up with core business strategies by the end of next month, and identify annual targets for the coming years, it said.

    The China Banking Regulatory Commission, the banking watchdog, unveiled measures last week to ensure the reform of two pilot State-owned banks proceeds as planned and pledged efforts to prevent corruption.

    The commission has set targets using seven benchmark indicators, such as the net return on equity (ROE) and capital adequacy ratio, for the pilot banks to meet before 2007. The criteria were formulated in accordance with the average level of the world's top 100 banks.

    The PBOC said it will allow the two pilot banks to issue subordinated bonds, which the CBRC allowed in a new regulation late last year to be calculated as non-core capital, to bring their capital adequacy ratios to above the 8 per cent minimum requirement. Enditem