Cinda signs deal on bad loans
By Bing Lan (China Daily)
Updated: 2004-07-01 08:43

The Cinda Asset Management Co will buy 278.7 billion yuan (US$33.6 billion) in non-performing loans from the Bank of China (BOC) and the China Construction Bank (CCB), in a fresh move by the country's financial sector to improve the health of the State banks, the Economic Daily reported yesterday.

BOC, CCB and the central People's Bank of China, which is said to have co-ordinated the transactions, all declined to comment.

The deal, signed on Tuesday, will help the two banks clean their balance sheets. Both are racing for stock market listing. Listing schemes are seen as crucial in enhancing financial strength and efficiency of the State banks, which are busy preparing for competitions from foreign rivals. The country is scheduled to fully open its banking sector by the end of 2006 according to the country's commitments to join the World Trade Organization.

Of the total loans in the transaction inked on Tuesday, loans worth 149.8 billion yuan (US$18 billion) are from the BOC and the remaining are from CCB, according to the newspaper.

Cinda will buy the loans at 30 per cent of the loans' book value, a Cinda spokesperson said.

Cinda won the deal in a bidding also participated by three other asset management companies: Huarong, Orient and Great Wall. The four were created in 1999 to treat the bad loans of the four big State banks. The asset management companies acquired 1.4 trillion yuan (US$168 billion) of bad loans in 1999 from the Big Four to improve their asset quality.

Last year, BOC, the country's foreign exchange bank, and CCB, the main property lender, were picked by the government as forerunners in shareholding reform. As a result, the two banks received a US$45 billion government bail-out at the end of 2003.

In May, CCB sold US$483 million worth of bad debt to foreign investors such as Morgan Stanley and Deutsche Bank in the first deal of its type.