China Construction Bank will kick off a roadshow visiting New York and Tokyo this week to sell some of its non-performing assets to international investors.
The non-performing assets, with a book value of about 4.2 billion yuan (US$506 million), consist of 162 mortgaged real estate projects in the country’s 58 major cities.
Yang Xiaoyang, head of the bank’s asset preservation department, said that exclusive of the assets up for sale, the bank still has about 11 billion yuan (US$1.3 billion) in mortgaged assets, including items such as cars.
“The bank will explore a series of new ways to sell those assets,” Yang said.
The bank will continue to hold two important auction months in spring and autumn to sell those mortgaged assets, Yang said.
“We have to speed up disposal of these nonperforming assets, because we plan to take the lead in the country to go public,” Yang said.
Niu Li, a senior economist with the State Information Center, said China’s four largest state-owned banks (the Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China, in addition to China Construction Bank) will have to hone their competitive edges before foreign banks enter the Chinese market without restrictions at the end of 2005.
“They will have to lower the rate of non-performing loans (NPLs), eliminate historic financial burdens and raise their capital adequacy to international standards,” Niu said.
The country’s commercial bank law requires that capital adequacy ratios reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers.
This means China’s commercial banks, especially the Big Four, must reach this goal before they can get listed, he said.
“Reducing bad loans is the first step by the banks to go public,” he said.
To improve competitiveness, the commercial banks will also have to step up business supervision and risk control measures, said Yiping Huang, a senior economist with Citigroup.
Meanwhile, they will have to speed establishment of corporate governance mechanisms, he said.
Last year, the Construction Bank logged a profit of 51.2 billion yuan (US$6.2 billion) before setting aside provisions for bad loans.
By the end of the year, the bank’s NPLs stood at 9.3 percent, calculated by the international five-category standard.
Bank president Zhang Enzhao said more profits and improved asset quality are crucial for the bank, which plans to go public before the end of this year.
It will give emphasis to the development of non-interest business to increase its profits in the coming years, Zhang said.
“We will change our ideas, make essential adjustments to our business and profit structures, and actively push forward the non-interest business,” Zhang said.
The bank’s non-interest business has grown at an average annual rate of 22 percent since 1994, when it took the lead in the country to establish a specialized department overseeing the business.
Last year, the bank’s non-interest business earned 5.7 billion yuan (US$689.1 million), three times that of 1994.
Income earned from non-interest business accounted for 6.1 percent of the bank’s total. However, this was still much lower than the 30 percent average of the top 100 international banks.
The bank plans to reach that level within three years.
(China Daily March 23, 2004)