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China banks poised to go on sale
(AP)
Updated: 2005-10-20 07:15
The biggest of them all, the Industrial and Commercial Bank of China, or
ICBC, could follow. Agricultural Bank, said to be much weaker, would come last.
Like the others, CCB is a behemoth, with more than 14,000 branches, 4.2
trillion yuan ($522 billion) in total assets, 2.4 trillion yuan ($293 billion)
in total loans, and 3.8 billion yuan ($467 billion) in total deposits. The bank
has forecast a profit of 42 billion yuan ($5.2 billion) this year.
The allure of China's economy, which has been expanding at a sizzling 9
percent rate for almost three years, is one factor behind the IPO's apparent
success. More important, however, are massive, government-supported write-offs
of the banks' bad debts, and the $60 billion — $22.5 billion of which went to
the Construction Bank — in state funds used to replenish their capital.
"The government and the banks have done a lot to clean up the banks' balance
sheets," says Wei Yen, China banking analyst at Moody's Investors Service.
"Whether they can operate commercially and not generate massive nonperforming
loans is still to be determined, but the chance of that is much better than in
the past." .
China's top 13 banks reported a combined nonperforming loan ratio — the ratio
of nonperforming loans to total loans — of 12.8 percent in 2004, down from 16.7
percent at the end of 2003. By comparison, U.S. banking giant JPMorgan Chase
& Co. reported Wednesday that its allowance for loan losses to average loans
was 2.45 percent in the latest quarter.
China Construction Bank's IPO prospectus highlighted its 3.91 percent
nonperforming loan ratio, down sharply from a 16.98 percent ratio at the end of
2002.
In the past, bad loans resulted mainly from the banks' responsibility for
funding government enterprises and construction projects, regardless of
potential profitability. Added to that risk is the newly emerging potential for
defaults on mortgages and consumer loans.
A recent report by the China Banking Regulatory Commission in the China
Securities Journal forecast that bad loans would rebound in months to come amid
a slowing economy, weak bank management, a correction in the real-estate market
and lower corporate profits.
"It's almost inevitable that nonperforming loans will rise again. The big
question is no one knows by how much," says Stephen Green, senior economist for
Standard Chartered Bank in China.
In addition to the usual risks found in emerging markets, China presents
unique risks because most top bank executives are appointed by the
government and there is little separation of powers, Green says.
Each year there are dozens of cases of fraud and other abuses by bank
managers at all levels. The Construction Bank's former chairman, Zhang Enzhao,
resigned just seven months ago for what the bank called "personal reasons,"
though reports later said he was named in a lawsuit in California for allegedly
taking bribes.
The bank's current chairman, Guo Shuqing, told reporters last week, "there is
still lots of work to be done regarding reforms of our business model."
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