Banking: Where now?
China's banks have come a long way in the past 10 years. Today, China Construction Bank (CCB) is on the cusp of an initial public offering that could raise as much as $60 billion. That is an astonishing achievement for a bank which just two years ago laboured under a non-performing loan ratio of 12 per cent and which lost its two most recent chairmen to corruption scandals.
Approaching its listing, CCB boasts a bad-loan level of just 3.9 per cent and a respected former senior central banker as its boss. It has cut costs by slashing branches and reducing bloated staffing levels. It claims a respectable return on equity and an adequate amount of capital.
To bolster confidence, the bank has recruited two high-profile foreign strategic investors - Bank of America and Singapore's Temasek Holdings - which have bought 15 per cent between them.
Bank of China, next up for flotation, has done even better - enlisting Royal Bank of Scotland, the Li Ka Shing Foundation and Switzerland's UBS as investors.
Yet, despite the good news, all is not well within the mainland's banks. The reduction in non-performing loans has been achieved largely by expanding the overall size of loan books. Lending grew more than 20 per cent in 2003 and has continued to swell at double-digit rates since. Because borrowers usually manage to service their loans for the first two or three years, the proportion of bad loans has fallen even as the absolute amount threatens to rise.