BOC HK Takes Lead in Banking Reform: Shearman & Sterling

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Last updated at: (Beijing Time) Friday, January 24, 2003

BOC HK Takes Lead in Banking Reform: Shearman & Sterling

Bank of China Hong Kong's reform and its listing in the Hong Kong Stock Market last year have been of immense significance in strengthening itself to become a regional bank.

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Bank of China Hong Kong's reform and its listing in the Hong Kong Stock Market last year have been of immense significance in strengthening itself to become a regional bank.

Hsiao-chiung Li of Shearman & Sterling, which is counsel to theBank of China in Hong Kong, said so recently in an article published on the Financeasia.com website. The article examines thesignificance of the banks initial public offering (IPO) in July last year in the wider context of Chinese banking reform.

"In contrast to uneven corporate governance practices of the predecessors, the new bank is now overseen by a board of directorsthat includes four distinguished and experienced independent directors. An audit committee, a risk management committee and a remuneration committee operate at the board level," she said.

"This is consistent with international best practices, but is also an indication of the importance the bank attaches to these functions and an acknowledgment of the important role of independent directors in these matters," she stressed.

Bank of China Hong Kong has created a model and testing ground within its group for applying international best practices, Li said.

"This has not only put Bank of China Hong Kong on a launching pad to become a leading bank in the region, but it is also providing valuable experience for Bank of China at large in its drive to become a world-class financial institution," she said.

Apart from the various board committees, the bank is managed through several other executive committees, such as an asset and liability management committee and a credit committee, and the committees operate under their respective charters. Senior executives are evaluated by reference to their goals and responsibilities which are also clearly set out, she said.

"The IPO for Bank of China's Hong Kong operations on July 25 last year has been a showcase for many of the reforms being implemented at Bank of China at large, as well as a model and reference for the continuing reform at the parent bank," Li said.

Over the past two years, it has expanded the types of assets itmonitors for asset quality. It took aggressive provisions and write-offs in 2001 (22.89 billion Reminbi or 2.75 billion US dollars) and the first half of 2002 (11.88 billion Reminbi or 1.4 billion US dollars), in contrast to an average of 5 billion Reminbi (600 million US dollars) annually between 1995 and 2000, she said.

It has seen a decline in its non-performing asset ratio, Li said.

The bank has also consolidated its domestic operations, streamlined its branch network and centralizing information technology, and it is upgrading its retail banking business as well as its clearing and payment systems with advice of international consultants, she said.

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