Plans to recapitalise China's technically insolvent big four state banks may be finalised by the central government soon, with analysts predicting massive injections to clean up the fragile sector. Sources close to the Ministry of Finance (MOF) said concrete solutions on a policy framework to tackle the banking mess probably were imminent. The bailout plan, China's third, would probably take place after a series of party and government meetings starting in the middle of next month. The move highlights China's determination to tackle its thorniest banking issue head-on, despite 10 years of trying in vain to turn the four banks - the Industrial and Commercial Bank of China, the Bank of China, China Construction Bank and the Agricultural Bank of China - into more commercially viable entities. While recapitalisation details are lacking, observers hope to see a broad framework that will lay the principles and foundation for action over the medium term. It is understood that the MOF tends to favour the issue of bonds - as in 1998 - over the transfer of bad loans to asset-management firms, favoured during 1999. Among the methods being considered, the ministry could directly inject capital into the banks through the issue of bonds or raise capital and inject the proceeds into the bank's coffers, another source said. The ministry and the People's Bank of China, understood to have drafted the latest recapitalisation proposal for State Council approval, hope the move will reduce the average non-performing loan (NPL) ratio of the four banks - which still form the bulk of China's banking system - to 15 per cent and increase their capital adequacy ratio (CAR) to reach the international best practice of 8 per cent, based on the Basle Accord. In June, the average of the big four's NPL ratio was 22.2 per cent while their average CAR was about 5 per cent. Analysts estimate about one trillion yuan (HK$937 billion) would be required to enable the big four to meet the twin targets. Critics said the banks badly needed a bailout, as they were unlikely to clean up their bad debts by themselves. Ratings agency Standard & Poor's predicted the nation's banking sector, acting alone, would need possibly up to 20 years to cut its NPL ratio to a more manageable level of 5 per cent. Even after accounting for the previous two bailouts, the big four are still laden with 1.8 trillion yuan of NPLs. In 1998, 270 billion yuan was directly injected by the MOF through the issue of a special bond, while in 1999, 1.4 trillion yuan worth of NPLs were transferred to asset-management companies. The alarming NPL ratio has impeded the banks' operations as they have had to divert huge effort and resources towards write-offs and making provisions for non-performing assets. Central bank chief Zhou Xiaochuan and banking regulator Liu Mingkang said they were moving towards coping with the problem. Meanwhile, Goldman Sachs executive director Fred Hu Zuliu said in Beijing recently that any resolution of the mainland's banking problem should be a one-off exercise that required no further bail-outs. He said present macro-economic conditions in China were favourable for any clean-up. The big four together account for 70 per cent of overall banking assets and, with the country's relatively under-utilised equity and debt markets, banks are still heavily relied upon as key funding sources. According to Deutsche Bank senior economist Ma Jun, recapitalisation forms part of a bigger bank restructuring exercise.