China's big four state-owned banks will be ready to meet capital adequacy guidelines administered by the Bank for International Settlements (BIS) by the time the new capital accord comes into force in 2004. The confident prediction came yesterday from the president of the US Federal Reserve Bank of New York, Bill McDonough, who chaired the BIS's Basel Committee responsible for reviewing the existing capital accord. The new accord, he said, aimed to align regulatory capital requirements more closely with underlying risks and would benefit emerging economies. Mr McDonough visited Beijing on his way to Hong Kong to brief central bankers on the proposed accord. In China he met both People's Bank of China (PBOC) governor Dai Xianglong and Premier Zhu Rongji. 'The big-four state-owned banks in China are very large institutions with a fair amount of non-performing loans,' he said. 'The PBOC is pushing hard for real progress to be made in the state-owned banks, and having met with the heads of some of them, I can assure you the message has been received very clearly.' Mr McDonough said cleaning up the bad loans in the banks was obviously a matter of great interest to Mr Zhu - a former chairman of the PBOC. China regarded improvements to its banking system as a key requirement for advancing its economic development and was making a massive effort to accomplish this. 'Given the fact that the Basle accord will be functioning in 2004 it is my belief that China wishes to be able to come under the accord or apply at that time - and I am quite optimistic that it will be able to do so,' he said. One of the major changes proposed to the new capital accord related to sovereign credit ratings. 'In the July 1999 document, we said no borrower could have a higher credit rating and therefore a lower capital requirement than the country in which it is incorporated,' he said. 'It has been brought to our attention - and I think it is very clear - that in some countries there are institutions which could be more creditworthy than the country in which they are incorporated. 'So we have removed the requirement that no company can be valued higher than the country in which it is incorporated - and that is quite a significant development because in this part of the world the export sector is enormously important.' Mr McDonough said the drafting of the new accord was also aimed at striking a trade-off between making provisions more risk-sensitive and at the same time avoiding an excessively complicated document.