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Mark O'Neill

SCMP Reporter

The new governor of China's central bank has ordered new measures to cut the level of bad debt in the four big state banks, but no decision has been taken on the establishment of a new bank regulator - a move that has been widely expected.

A national 'work conference' covering pressing policy reform issues in the banking, securities and insurance industries opened in Beijing on Saturday, the culmination of a week of intense consultation by the financial industry.

Zhou Xiaochuan, who took over as governor of the People's Bank of China (PBOC) at the start of this month, was quoted yesterday by the 21st Century Business Herald  as telling the meeting on Friday afternoon the level of non-performing loans (NPLs) of the four banks was too high and the process of cutting them too slow.

From January 18 to 20, the general managers of the Bank of China met in Beijing, followed by those of the Industrial and Commercial Bank on Wednesday, the China Construction Bank on Thursday and the Agricultural Bank of China on Saturday.

The People's Bank held a national meeting from Thursday to Saturday, when the national conference on the three sectors opened.

'Dealing with this problem needs new thinking,' he said.

At the end of last year, the levels of those loans were 25.52 per cent for ICB, 22.37 per cent for Bank of China and 15.36 per cent for Construction Bank, according to their own figures. The Agricultural Bank has not given a figure. Mr Zhou's comments fuelled speculation the government would take a major initiative this year. The most likely alternatives are transferring a large tranche of NPLs from the banks to asset management companies or a bond issue by the Ministry of Finance, which would give the proceeds to the banks.

Vice Premier Wen Jiabao was quoted by Xinhua as telling the conference that deeper reform of the moribund state banks focusing on reducing NPLs was the sector's top priority.

Some economists estimated up to half of all loans at China's state-run banks were bad, a predicament that left the system technically insolvent and vulnerable to a financial crisis if reform was not tackled soon.

Speaking on Friday, Mr Wen said local governmental departments should co-operate to tackle malpractices allowing firms to avoid loan repayment.

He also called for better credit management and financial supervision, and strict control over new non-performing loans.

The big four state banks want to make domestic listings, which would require an NPL ratio of at least less than 10 per cent.

Also raised at the PBOC meeting was the issue of idle capital, because more strict credit evaluation made bank officers less willing to lend.

This leaves the banks with money on which they are paying interest but receiving no income, while companies are not being given the capital they need.

The meeting made no recommendation on whether to split off the bank's division that supervised the banks into a separate regulator, similar to those that regulated the insurance and securities industries.

The most probable outcome is a compromise that would merge the supervisory bureaus of the four big banks into a new bank supervisory and management division within the PBOC that would have a status equal to that of the State Administration for Foreign Exchange Management.

A decision on this is now in the hands of the State Council.



Bank chief tackles bad debt