THE discrepancies in the interest rates and settlement dates set by the central bank, compared with the specialised banks, cost the People's Construction Bank of China (PCBC) about 4.5 billion yuan (about HK$4.18 billion) in profit last year. PCBC president Wang Qishan said the situation had improved after the central authorities standardised the periods for interest payment on loans. Previously, specialised banks, including the PCBC, had to pay the central bank interests on loans quarterly while the banks' borrowers paid interests only once a year. The payment periods have now been standardised, with the specialised banks and their customers having to pay interests quarterly. Mr Wang said this method would improve bank profits. He said PCBC's loans from the central bank peaked at more than 170 billion yuan and the figure had now fallen to about 140 billion yuan. Mr Wang said the interest rate differential charged by the central bank and the specialised banks before the introduction of the Commercial Bank Law in May also affected profits. He said the bad debt situation had improved but he declined to elaborate. On the downgrading of credit ratings of mainland banks by Moody's Investors Service, Mr Wang said it had not greatly affected PCBC in places such as Hong Kong, Southeast Asia and Europe as shown in the success of its $1.2 billion H-bond issue in October. However, a greater impact was felt in the US, an important capital market, he said. Mr Wang was in Hong Kong for the opening of the bank's first overseas branch. The bank received approval from the Hong Kong Monetary Authority to upgrade its representative office to a branch in September. Although there had been calls for PCBC to do yuan business in Hong Kong, Mr Wang said it was not yet the right time to engage in such business. 'We haven't considered it yet,' he said, adding the first task was to protect and build up the reputation of the branch. 'It is our first branch abroad, we cannot afford to make any mistakes.' Mr Wang cited the risk in foreign exchange as the reason for caution. Asked when would be the right time, he said: 'When we feel 99 per cent sure it's going to be safe.' The risk would be reduced if the yuan was convertible, which Mr Wang believed would come by 1999. Mr Wang said the branch would concentrate on wholesale banking while its 40 per cent-owned Jian Sing Bank would concentrate on retail banking. He said there would be a long way before PCBC would pose any threat to other banking institutions in Hong Kong.