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New Guidance for City Banks

China's banking supervisory body has formulated its first-ever guidelines on regulating and developing the nation's 112 city commercial banks.

The new rules cover key issues such as creating favorable conditions, optimizing regulatory mechanisms and establishing an efficient mechanism to replenish capital bases.

They are expected to accelerate reform and development of the regional lenders, the China Banking Regulatory Commission (CBRC) said.

Such banks have made considerable progress in restructuring, along with reducing non-performing loans and ushering in overseas strategic investors in their nearly 10-year-old history.

That has allowed them to "demonstrate robust prospects and vitality," a CBRC spokesman said yesterday.

But such lenders still face widespread problems such as a lack of long-term planning and clear business orientation, as well as geographical disparities. Financial risk in some of them is still high.

"Such problems, to some extent, restrict the overall development of city commercial banks," the spokesman said.

The CBRC is promoting restructure of city commercial banks, and trying to resolve their financial risks and enhance their role in supporting local economies and millions of small and medium-sized enterprises.

China started to approve the establishment of joint-stock commercial banks in 1986 in a bid to enhance competition in the banking industry and improve financial services.

So far, 112 city commercial banks restricted to cities of registration and 11 bigger lenders that operate nationally have been set up.

But the four state-owned commercial banks still hold the majority of the nation's banking assets.

Though relatively healthier than state-owned lenders, city commercial banks are also hampered with the burdens of high bad loan ratios and low capital adequacy, largely due to their blind business expansion in earlier years and governmental administrative interference.

They had an average capital adequacy ratio of 6.13 percent at the end of last year, below the 8 percent minimum required. Their bad loan ratios averaged 14.08 percent at the end of June as measured by the Chinese classification standard, up from 12.85 percent six months earlier.

(China Daily November 17, 2004)

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