Doubtful debt of more than 450b yuan to be offered as state lender cleans books The Industrial and Commercial Bank of China (ICBC), allocated US$15 billion in government bailout funds last week, will soon invite the country's four state-owned asset management companies to bid for more than 450 billion yuan of non-performing loans it has on its books, industry sources say. It would be the bank's second major transfer of distressed assets since 1999 and a key step in its financial restructuring before a US$10 billion overseas stock-market listing, planned for as early as next year. ICBC would repackage the so-called 'doubtful loans' into more than 30 asset pools divided along geographic lines - one pool for each provincial-level branch - the sources said. The asset management firms may begin bidding for the assets by June, according to one source. 'Doubtful' is the second-worst category, behind 'total loss', in the new five-category loan classification system. Typically, this type makes up the bulk of outstanding non-performing loans at most mainland banks. ICBC had doubtful loans with a nominal value of 460.59 billion yuan at the end of 2003, accounting for 63.9 per cent of its non-performing load of 720.7 billion yuan, which in turn constituted 21.24 per cent of its outstanding loan portfolio. Non-performing loans had declined marginally to 705.7 billion yuan, or 19.1 per cent of its loan book, by the end of last year. The disposal of ICBC loans may differ somewhat from last year's 278.7 billion yuan sale of problem loans from Bank of China (BOC) and China Construction Bank (CCB) to China Cinda Asset Management, which were packaged into a single asset pool, the sources said. The People's Bank of China is likely to provide more generous financing - considerably in excess of 50 per cent of the nominal value of the loans - enabling the cash-strapped asset management firms to pay for an acquisition. This would reduce the final losses - or the difference between the nominal value of the doubtful assets and the central bank's loan value - that would have to be absorbed by ICBC. In last year's sale, Cinda's winning bid was assessed in accordance with its historical recovery record and the recovery rates it guaranteed for the problem loans under auction. PBOC granted Cinda a loan equal to 50 per cent of the nominal value of the BOC and CCB loans - precisely what Cinda paid for them. Meanwhile, the division of the doubtful loan portfolio into smaller asset pools might ensure that 'every asset management company will have something to do', a foreign analyst said. ICBC is the third of four state-owned commercial banks, following the wake of BOC and CCB, to receive a fast bailout, financial restructuring and corporate governance reform before a planned multibillion-dollar stock-market offering. The reforms are intended to strengthen the lenders before the end of next year, when the heavily shielded domestic banking sector opens to full foreign competition for the first time. The US$15 billion injection announced last week is seen as only the first instalment of a state assistance plan aimed at cleaning up the books at ICBC. Barclays Capital analyst Arthur Lau Chu-ming has estimated it will cost up to US$70 billion to fully recapitalise and restructure the lender.