City commercial bank aims to raise US$500m from share offering Bank of Shanghai, which is 9.9 per cent owned by HSBC, plans to raise US$500 million from an initial public offering in Hong Kong next year, joining a string of small banks following larger state-owned lenders to get a listing in the city, according to sources. Bank of Beijing, partly owned by Dutch investment bank ING, is looking to raise US$500 million next year, when Citic Bank and China Everbright Banks plan to sell shares. 'International investors [are interested in] China-related investment and city commercial banks are in a better position to raise shares, compared with banks like Agriculture Bank of China and China Everbright,' said Core Pacific Yamaichi analyst Kent Yau. Bank of Shanghai could not be reached for comment. The country's 113 city commercial banks, which on average run between 40 and 60 branches, are thought to be easier to manage and more likely to be free of credit troubles than their larger counterparts. Some have also brought in foreign investors to strengthen their credit quality by introducing international best practices. Even so, the city lenders are not immune from problems. A Bank of Shanghai branch manager was sentenced last week to nine years in prison for embezzling 110 million yuan of the bank's capital. Concerns have also been raised about the influence of local governments, often a shareholder, on the operations of the smaller banks and their lending decisions. Bank of Shanghai, which opened a branch in Ningbo last year after becoming the first city commercial lender allowed to run a branch outside its home base, saw net income fall 13.5 per cent to 1.3 billion yuan in 2005 after doubling provisions for non-performing loans. The bank put aside 1.1 billion yuan for bad loans last year after provisioning 497 million yuan in 2004. Bad loans totalled 4.8 billion yuan last year, accounting for 3.92 per cent of the bank's loan book. That was down from 4.99 per cent in 2004. The bank expects its capital adequacy ratio, a measure of a lender's ability to cover outstanding loans, to rise to 12.5 per cent from 11.1 per cent in 2005. The government requires banks to maintain a capital adequacy ratio of 8 per cent or higher. Bank of Shanghai intends to increase its assets by 9 per cent to 260 billion yuan this year from 239 billion yuan last year, and has targeted profit of 1.6 billion yuan. Bank of Beijing this year became the second city lender permitted to open a branch outside its home city. It will open a branch in Tianjin by the end of the year, executives said, and also branches in the Yangtze and Pearl River deltas.