China's Big Four state-owned banks, the bedrock of the country's financial system, are doing their utmost to clear away bad loans and streamline their operation.
The China Banking Regulatory Commission (CBRC) reported Thursday that the four either recovered or wrote off 349.9 billion yuan (US$42.3 billion) in non-performing loans (NPLs) in 2004, bringing down their NPL ratio to 15.6 percent on average.
Financial insiders also agree that the Industrial and Commercial Bank of China (ICBC), the Bank of China (BOC), the China Construction Bank (CCB) and the Agricultural Bank of China ( ABC), are now healthier -- more independent, transparent and profit-driven.
The proof lies in their enhanced earning power. In the first nine months of last year, the ICBC, BOC, CCB and ABC posted annualized growth of 21.5 percent, 23.7 percent, 21.5 percent and 81.6 percent, respectively, in their operating profits.
Last year the central government took a series of measures to cool down the economy, saying that investment in such sectors as steel, cement, aluminum and real estate are overheated, which could ignite inflation, problems in the banking system and other disasters.
And the Big Four took advantage of the initiative to optimize their loan structures, preventing reckless lending to rushed investments or copy-cat projects, while cementing support for agriculture, poor western areas and enterprises with market potentialities.
The health of state-owned banks is actually critical for China as it nears the 2006 deadline for opening its market to foreign banks under its World Trade Organization obligations.
At the end of 2003 China injected US$45 billion in foreign exchange reserve into the financially healthier BOC and CCB in a bailout move to bolster their balance sheets.
The recapitalization exercise has helped the BOC increase its capital adequacy ratio (CAR) to 8.56 percent by the end of last October. That of CCB has climbed to 9.39 percent by end-September - - above the 8 percent minimum level by the international standard.
The CAR jumps, however, were also contributed by billions of dollars in subordinated debts the banks issued. Subordinated bond holders rank low among creditors, which allows buyers to demand a relatively high coupon interest rate. Funds raised can be represented by a bank's CAR.
The BOC and CCB may go public later this year. They now have become joint-stock firms with comparatively standard corporate governance featured by a shareholders' meeting, board of directors, board of supervisors and senior management, which have all started operation. The BOC has abolished all government ranks of its staff, asking its 230,000-strong employees to vie for their new jobs in the bank.
A new company, the Central Huijin Investment Co, was inaugurated as major shareholders of the two banks. It is managed by the current department heads of the State Administration of Foreign Exchange (SAFE) and has a board comprising representatives from SAFE, the Ministry of Finance and the central bank. The investment company's major goal is to supervise the restructuring of the banks.
Both the BOC and CCB are negotiating with potential strategic investors, the presidents said, but declined to reveal the investors' names, citing "commercial secret concerns." The exchanges the banks would be listed on are also not known, or maybe not finalized.
Sources say that the ICBC may also receive hefty funds from the government to replenish its capital. The bank said earlier it would seek stock market listings in 2006.
The debt-laden ABC has been keeping a low tone at its future development plan. A large part of its loans has gone to the farming sector.