CCB plans roadshow to help sell bad assets
By Xu Dashan (China Daily)
Updated: 2004-03-23 11:18

China Construction Bank will kick off a roadshow visiting New York and Tokyo this week to sell some of its non-performing assets to international investors.

The non-performing assets, with a book value of about 4.2 billion yuan (US$506 million), consist of 162 mortgaged real estate projects in the country's 58 major cities.

Yang Xiaoyang, head of the bank's asset preservation department, said that exclusive of the 4.2 billion (US$506 million) worth of assets on sale, the bank still has about 11 billion yuan (US$1.3 billion) in mortgaged assets, including items such as cars.

"The bank will explore a series of new ways to sell those assets," Yang said.

The bank will continue to hold two important "auction months" in the spring and autumn periods to sell those mortgaged assets, Yang said.

"We have to speed up disposal of these non-performing assets, because we plan to take the lead in the country to go public," Yang said.

Niu Li, a senior economist with the State Information Centre, said China's four largest State-owned banks, which also include the Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China, will have to sharpen their competitive edge before foreign banks can enter the Chinese market without restrictions at the end of 2005.

"They will have to lower the rate of non-performing loans (NPLs), get rid of historic financial burdens and raise their capital adequacy to international standards," Niu said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratios will have to reach 8 per cent, the minimum required by the Basel Capital Accord reached by international banking managers.

This means China's commercial banks, especially the four State-owned banks, will have to achieve these goal before they can get listed, he said.

"Reducing bad loans is the first step by the banks to go public," he said.

With the aim of becoming more competitive, Chinese commercial banks will also have to step up business supervision and risk control measures, said Yiping Huang, a senior economist with Citigroup.

Meanwhile, they will have to speed up establishment of corporate governance mechanisms, he said.

Last year, the bank earned 51.2 billion yuan (US$6.2 billion) in profits before setting aside provisions for bad loans.

By the end of last year, the bank's NPLs, by the international standard of five category classification, stood at 9.25 per cent.

Bank President Zhang Enzhao said more profits and improved asset quality are crucial for his bank, which plans to go public before the end of this year.

The bank will give key emphasis to development of non-interest business to increase its profits in the coming years, Zhang said.

"We will change our business ideas, make essential adjustments to our business and profit structures, and actively push forward non-interest business," Zhang said.

The bank's non-interest business has grown at an average annual rate of 22 per cent since 1994, when it took the lead in the country to establish a specialized department overseeing the business.

Last year, the bank's non-interest business earned 5.72 billion yuan (US$689.1 million), three times that earned in 1994.

Income earned from non-interest business accounted for 6.13 per cent of the bank's total.

However, this was still much lower than the average rate of 30 per cent by the top 100 international banks.

The bank plans to reach that level within three years.