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World Bank: State Banks Reform Takes Time

China needs more time to deal with the complicated reform of state-owned commercial banks, said a World Bank official in Beijing Friday.

The World Bank is glad to see that China has realized the urgent need to reform commercial banks solely owned by the state when Chinese banks are facing intense competition after entry into the World Trade Organization (WTO), said Yukon Huang, China Country Director of the World Bank on Friday.

China is working on a package reform plan of state-owned commercial banks, possibly to adopt independent directors in bank governance, introduce strategic investors and list on stock exchanges, he added.

The World Bank is concerned not only about the recent action China has taken to push forward the restructuring of two state-owned commercial banks but also the long-term goal and measures of the reform, Huang said.

The Chinese government decided to inject US$45 billion from the state forex reserve into two state-owned banks, Bank of China (BOC) and China Construction Bank (CCB), on Jan. 6 to increase the adequacy of bank reserve while it plans to restructure the two banks into joint-stock banks.

"As far as we know, the action has had neither a negative impact on the international financial market nor the exchange rate between yuan and other currencies," Huang said. "We also don't seethe increase of loans in domestic market since the money isn't exchanged into yuan."

Standard & Poor's Rating Services raised the outlooks on its "BB+" long-term foreign currency counterparty credit ratings on the two banks to positive from stable one day after the government had injected the capital into the banks.

According to the State Administration of Foreign Exchange, the move has not affected the domestic financial market so far.

By the end of last year China reported a total foreign exchange reserve of 403.25 billion US dollars, 116.84 billion more than 2002.

The government said rigid supervision and checks have been imposed on the two banks to guarantee security and return of the government investment.

The recent government support will help BOC and CCB update their operation and cope with non-performing loans but further reform will be needed to underpin the longer-term solvency, Standard & Poor's said.

Most important for the state bank reform is to build corporate governance in the banks, Huang said.

Strategic investors will bring the latest ideas and international rules into state-owned banks while listing contributes to transparency, he said. "But it is not realistic to expect a great effect in a short time."

(Xinhua News Agency January 17, 2004)

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