Rules Set for Information Disclosure of Commercial Banks

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Last updated at: (Beijing Time) Wednesday, May 22, 2002

Rules Set for Information Disclosure of Commercial Banks

Disclosure of key financial indicators reflecting the financial condition of commercial banks will be compulsory under a new set of rules for standardized information disclosure by commercial banks, according to rules promulgated by the central People's Bank of China (PBOC), the central bank, on Tuesday.

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From next year on, there should be no need to guess about the asset quality of China's major commercial banks.

Disclosure of key financial indicators reflecting the financial condition of commercial banks will be compulsory under a new set of rules for standardized information disclosure by commercial banks, according to rules promulgated by the People's Bank of China (PBOC), the central bank, on Tuesday.

Commercial banks' annual reports compiled according to the Provisional Rules on Commercial Bank Information Disclosure -- which will become effective upon promulgation -- should come out no later than April 1 each year.

The reports should give figures for such information as capital adequacy ratio, asset quality and profits or losses, according to the rules.

Analysts say the move shows financial authorities' determination to subject the commercial banks to public scrutiny, which is necessary to guarantee depositors' right to know the quality of the banks into which they put their money and will spur the banks to be more aggressive in improving their management.

The rules are in line with the Basel Capital Accord, the international standard for bank management and supervision, said Zong Liang, a senior analyst at the Institute of International Finance of the Bank of China (BOC).

"It (compulsory disclosure) will serve as a binding force pushing the banks towards more standardized and efficient management," he said.

Key information requested by new rules

Although China's commercial banks publish annual reports, so far most of their reports do not include the key information requested by the new rules.

For example, the large amounts of bad assets in the State-owned commercial banks inherited from the era of the planned economy are an open secret. But banks have not been required to make the actual figures public up until now.

The lack of transparency has led to observers' estimates, some of which are believed to be wild.

PBOC Governor Dai Xianglong said earlier this year that non-performing loans in the four State-owned banks accounted for about 25 per cent of their total assets. But some of the foreign estimates put the figure as high as 70 per cent.

"It is natural that estimates will be much worse than things really are when you don't tell people the actual figures," BOC's Zong said.

He said improved transparency is also a must for the banks that are preparing to go public.

Chinese commercial banks are under enormous pressure from foreign competitors, which will enjoy a fully opened Chinese banking sector by the end of 2006.

The commercial banks are keen to adapt themselves to international standards for bank management and to beef up their financial strength. Many banks, including the major State banks, have expressed their intention to go public.

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