Bocom mulls stock incentives for executives

Move to form part of a package and wouldbe a first for a listed bank on the mainland

PUBLISHED : Saturday, 23 August, 2014, 1:06am
UPDATED : Tuesday, 26 August, 2014, 3:00pm

Bank of Communications wants to be the nation's first listed lender to offer stock incentives for the management.

The move would be part of an "entire reform package" that the bank plans as the government urges a new round of financial restructuring, said Qian Wenhui, the bank's vice-president.

Any move to introduce the stock plans at listed banks would be a turnaround from a ban imposed in 2008 by the Ministry of Finance, which is Bocom's largest shareholder.

The government may need to balance prospects for more efficient financial firms against the risk of being seen to undermine President Xi Jinping's campaign for state frugality.

The move would be a big step for Chinese banks and it could meet a lot of resistance

"The move would be a big step for Chinese banks and it could meet a lot of resistance," said Francis Lun Sheung-nim, the chief executive of Geo Securities. "If Bank of Communications successfully changes the system, all the other banks will definitely follow."

In 2006, the Ministry of Finance and the State-owned Assets Supervision and Administration Commission released a trial plan to allow listed state-owned enterprises to issue stock incentives to employees. In 2008, the ministry banned listed financial state-owned firms from doing so.

The finance ministry holds 26.5 per cent of the shares of Bocom, the mainland's fifth-largest lender by assets and market value, while HSBC Holdings owns 19 per cent.

Beijing pledged in November last year to give market forces a bigger role in the world's second-largest economy, including reducing government ownership of state-owned enterprises and allowing employee stock-incentive plans at those businesses.

Allowing incentives would immediately boost banking stocks, said Wang Yichuan, an analyst at Changjiang Securities in Wuhan.

Executives appointed by the government at state-owned firms will be replaced by private-sector managers as reform of the companies gathers speed.

"The move would be groundbreaking for the banking industry," said Kenny Tang Sing-hing, a general manager at AMTD Financial Planning.

Allowing stock incentives would show the government's commitment to "marketise state-owned enterprises and to improve their efficiency", Tang said.

Bocom on Thursday reported a 5.6 per cent increase in first-half net profit from a year earlier as gains in fee and lending income outweighed provisions for bad loans.