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Bank of China Floating Huge Bond Offering

The Bank of China, the country's largest foreign exchange bank, said on February 16 it would issue up to 60 billion yuan (US$7.23 billion) in subordinated bonds to increase its capital base before its planned initial public offering next year.

"We have a plan to issue 50 billion (US$6.0 billion) to 60 billion yuan (US$7.23 billion) in bonds," spokeswoman Zhou Ning said. "We are preparing for the issuance and talking with relevant companies."

But the bank has yet to apply for approval to the China Banking Regulatory Commission -- the industry regulator, she said.

The state bank, which won a US$22.5 billion bail-out from the government in late December as a pilot project to turn it into a joint-stock bank, is also talking to foreign and domestic investors about a stake in the sale.

"We are in a position to talk about this issue with quite a few, not only foreign institutions, but domestic potential investors," spokesman Zhu Min said.

"We are in the process," he said, without giving further details.

Niu Li, a senior economist with the State Information Center, said China's four largest state-owned banks -- including the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China -- will each have to sharpen their competitive edge before foreign banks can enter the Chinese market without restrictions at the end of 2005.

"They will have to lower their rates of non-performing loans (NPLs), get rid of historical financial burdens and raise their capital adequacy to international standards," Niu said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers.

This means China's commercial banks, especially the four state-owned banks, will have to achieve that goal before they get listed, he said.

Chinese banks usually use bad loan reserves taken from the profits to write off bad loans.

Zhu Min said the Bank of China would also take the bank's original capital, which stood at more than 220 billion yuan (US$26.5 billion), as bad loan reserves to write off its non-performing loans.

The bank aims to trim its bad loan rate to 6 percent by the end of 2004, Zhu said.

"We aim to meet international standards for capital adequacy, bad loan provisions and bank liquidity by the end of the year," he said.

The assets restructuring is just part of the bank's overall restructuring plan, which is being implemented and is listed as the most important work for the bank this year, Zhu said.

The reshuffling plan also covers restructuring its business, organization structure, management procedures, information technology and human resources.

Focus of the business restructuring is to make the bank's service more market-oriented and customer-centerd, he said.

More efforts will also be placed on its computer center resources.

By the end of January, the bank's outstanding amounts of yuan and foreign exchange bad loans stood at 342.6 billion yuan (US$41.3 billion), or 15.6 percent of all credit.

The bank's operating profits reached 5.59 billion yuan (US$673.4 million) in January, a year-on-year increase of 8.52 percent.

Pre-tax profits were 3.56 billion yuan (US$428.9 million) in the month, a rise of 155.86 percent.

Last year, the bank earned 57 billion yuan (US$6.9 billion) in operating profit before the bank set aside provisions for bad assets. The profit represents an increase of 4.8 billion yuan (US$573.4 million) or 9.11 percent compared with the previous year.

(China Daily February 17, 2004)

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