CCB given 65.4b yuan fund pledge
Subsidy aims to cushion the effects of bank's strict loan-loss reserve standard
The central government has pledged 65.49 billion yuan to boost China Construction Bank's capital base after the lender set aside more money for loan-loss reserves during its financial restructuring to prepare for public listing.
The hitherto little-known subsidy suggests the final cost of recapitalising the Big Four state-owned banks will be significantly higher than the well-publicised state cash injections and removal of non-performing loans (NPLs) aided by government finances.
Picked with the Bank of China (BOC) to pilot the corporate governance reforms and financial restructurings of the Big Four commercial banks, CCB received a US$22.5 billion capital injection in late 2003.
On top of that, a 64.45 billion yuan People's Bank of China (PBOC) loan financed China Cinda Asset Management's acquisition of CCB's NPLs with a face value of 128.9 billion yuan, allowing the problem loans to be moved off the bank's books immediately.
The additional pledge of 65.49 billion yuan of government money, which came to light in CCB's annual report released on Friday, was mainly to offset the effects of adopting stricter loan-loss allowance standards.
It represents 33 per cent of CCB's shareholders' equity of 194.74 billion yuan as of December 31 last year, giving the bank an 11.29 per cent capital adequacy ratio, 3.29 percentage points above the regulatory minimum. The amount showed up on the bank's 2003 shareholders' capital account.
However, CCB did not receive the amount as a cash injection from the Ministry of Finance (MOF). Instead, it obtained a promise of tax cuts, while dividends owed to China SAFE Investments, the state-owned financial holding company set up in 2003 that owns 85.2 per cent of CCB, were temporarily waived.
Last year, the bank effectively received 41.7 billion yuan of the pledge, including a 15.47 billion yuan corporate income tax cut, as reported by the South China Morning Post yesterday.
Although sources initially described the tax relief as a one-off, it is understood the government also exempted CCB from corporate income tax in the first half of this year.
The entire sum is likely to be accounted for by the end of this month before the bank submits its accounts in preparation for filing a multibillion-US-dollar Hong Kong initial public offering.
