More state help on the way for ICBC
Non-performing loans are next on the agenda for mainland's biggest commercial lender following initial bailout of US$15b
The US$15 billion injection into Industrial and Commercial Bank of China (ICBC) is only the first stage of a broader plan to recapitalise and restructure the mainland's largest commercial lender, senior officials said yesterday.
The bailout will be followed by further state-funded efforts to rid the bank of its non-performing loans (NPLs), which constituted 19 per cent of its lending portfolio at the end of last year, to prepare it for an international stock-market listing as soon as next year.
'There will be additional resources involved,' a senior mainland official said. 'Plans have been laid out to remove NPLs.'
An industry source said the government was considering a scheme that would transfer or auction many of the bank's problem loans to the country's official asset management companies.
'ICBC's overall target ... is to complete the restructuring into a shareholding bank within this year and then pursue domestic and international listings at an appropriate time,' ICBC said in a statement yesterday.
Despite its larger size and the gravity of its problems, ICBC is receiving less than the US$22.5 billion each injected into Bank of China (BOC) and China Construction Bank (CCB), the nation's No2 and No3 commercial banks.
Analysts speculate that the relatively limited initial capital input and the delays in ICBC's restructuring were in response to criticism that the 2003 bailout of BOC and CCB constituted wasteful use of government assets and would encourage moral hazard.
The US$15 billion in foreign reserves pledged this week will not be the first capital injection for ICBC. The Ministry of Finance has invested 124 billion yuan in the bank in recent years.
Those funds together will lift ICBC's core capital adequacy ratio to 6 per cent from 4.77 per cent at the end of 2003.
With the capital injection, ICBC could complete its restructuring by July and be transformed into a modern shareholding bank by the fourth quarter, a source close to the lender said.
But most analysts say US$15 billion is far from enough to reduce ICBC's bad-loan ratio to meet international standards, bolster loan-loss reserves and raise the bank's capital-adequacy ratio to the regulatory minimum of 8 per cent.
'It's definitely not enough,' said May Yan Meizhi, an analyst of financial institutions at ratings agency Moody's Investors Service.
ICBC said all of its pre-bailout core capital - except the 124 billion yuan from the ministry - would be used to increase its loan-loss reserves.
The non-ministry, pre-injection capital is estimated to be less than 128.4 billion yuan.
About 678 billion yuan of NPLs remained on ICBC's books by the end of last year, but only 20.98 billion yuan of reserves had been set aside for them at the end of 2003.
Before the US$15 billion bailout was announced, Barclays Capital analyst Arthur Lau Chu-ming estimated it would cost US$50 billion, including capital injections or resolution of NPLs, to raise the bank's capital adequacy to 8 per cent and cut its bad-loan ratio to 11 per cent - still high by Hong Kong standards.
To lift its loan-loss reserve coverage ratio to 50 per cent, a further US$20 billion would be needed, yielding a shortfall of US$70 billion.
ICBC plans to supplement the capital injection announced on Thursday with a subordinated bond issue to boost its overall ratio to 8 per cent.
The Basel I international capital accords limit such issues to 50 per cent of a bank's existing core capital. That would mean about US$15 billion worth of subordinated debt, bringing ICBC's new capital to US$30 billion, far short of Mr Lau's US$70 billion estimate.
