Beijing yesterday said it would form a banking watchdog to supervise quality of loans, asset management and personnel of the big four state banks, days before a financial and economic conference opens in the capital. The board of supervisors would monitor operations of the state-owned commercial banks approved by the State Council, Xinhua news agency reported yesterday. The big four - the Bank of China, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the China Construction Bank - dominate the state-owned commercial bank sector. Xinhua said the board was charged with reviewing the financial reports of those banks as well as supervising and evaluating the quality of credit assets and asset-to-liability ratios. The board, which will report to the central bank on a regular basis, will also examine the performance of the banks' governors. The watchdog will consist of officials from the People's Bank of China (PBOC), the Ministry of Finance, the State Economic and Trade Commission, the State Audit Administration, the State Property Administration and the banks themselves. Economists yesterday noted that the announcement of the new regulator came amid the financial crisis sweeping much of Asia. 'Beijing apparently wants to put up another defence line against the financial risks in the banking system, which is the source of the economic collapse in Thailand,' Tao Dong, a senior economist at Schroders Securities, said. Other analysts said the watchdog could also be intended to supervise the transformation of the big four banks into commercial banks. a The big four account for more than 80 per cent of outstanding loans of mainland banks. Many of these loans could turn into bad debts, as many state firms are unable to service debt payments on time. Analysts said measures aimed at enhancing the guard against financial risk and management of the bad debts of state banks would top the agenda at the forthcoming banking conference hosted by Vice-Premier Zhu Rongji. A PBOC spokesman said the November 16-20 meeting was being arranged by the State Council, with participation not only by the central bank but by other ministries and departments. The conference comes at the start of the three-year deadline Mr Zhu has given to state companies to transform themselves into profitable enterprises, which will involve liquidation of billions of yuan in bad debts. The meeting will set out rules that divide the assets of the state banks into five categories, an economist said. Banks will be able to lend in proportion of these assets, depending on their quality. These rules will be gradually implemented from next year. The PBOC has set aside 30 billion yuan (about HK$27.8 billion) as provision to cover the bad debts and will raise this to 40 billion yuan next year, the economist said. Mainland economists have put the total of bad debts held by the big four state banks as high as 800 billion yuan. The meeting will also discuss better laws and regulations for the stock and futures markets, improving management of non-bank financial institutions, better control of financial crime and the effect of the Southeast Asian currency crisis.