'Window of Opportunity' for State Banks to Reduce NPLs

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Last updated at: (Beijing Time) Thursday, June 12, 2003

'Window of Opportunity' for State Banks to Reduce NPLs

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China's four state-owned commercial banks have announced plans to get listed on the stock market, however, they must first reduce their non-performing loan (NPL) rate to an acceptable level in order to qualify for entry to the capital market.

Chinese banking officials are optimistic about the NPL issue, and financial analysts are saying that the four banks currently have a "window of opportunity" for cutting NPLs to the required rate.

The People's Bank of China, the nation's central bank, has required that banks lower their NPL rates to less than 15 percent before 2005. The latest statistics show that, as of the end of last March, the four banks' average rate was 24.13 percent.

Over the past three years, their NPL rate has dropped an average of over three percentage points annually. In 2002, their outstanding NPLs fell by more than 70 billion yuan (about 8.46 billion US dollars), or about four percentage points.

Chairman of the newly-established China Banking Regulatory Commission (CBRC) Liu Mingkang said that the task of the banks this year is to cut another 70 to 80 billion yuan of their NPLs and lower the rate by three to four percentage points.

Analysts say that the favorable conditions supporting the banks' efforts in cutting NPLs include their improved profitability, the sustained growth of consumer loans, the rapidly-expanding base volume of loans and support from government policies.

In 2002, the Bank of China (BOC) and the Industrial and Commercial Bank of China (ICBC) both reported growth of some 30 percent in their operating profits, the China Construction Bank (CCB) saw growth of 16.3 percent and the Agricultural Bank of China (ABC) doubled its profits over the previous year. In the first quarter this year, the four banks continued their momentum in profit growth.

Increased profits have enabled the banks to write off a considerable amount of bad debt. In 2002, the four banks used some115.5 billion yuan to alleviate their respective financial burdens.

Growing numbers of residents in China are seeking credit to finance their homes, motor vehicles, education and even tourism. As of the end of 2002, the total volume of consumer loans exceeded one trillion yuan, compared with 700 billion yuan a year ago, and the good performance of consumer loans contributed to lowering the NPL rate.

In the first four months of this year, the ICBC granted up to nearly 10 billion yuan in personal consumer loans, with an NPL rate of only 0.5 percent.

Shortly after assuming the post of CSRC chairman, Liu Mingkang told a press conference that the government is providing considerable policy support to help banks lower their NPL rates. Currently, the CSRC is encouraging and supporting all banks in their efforts to recover their NPLs and to strengthen credit risk control.

To expedite the reduction in the NPL rate, the banks are seeking new ways of handling their NPLs. Earlier this month the ICBC signed an agreement with Goldman Sachs to jointly deal with its non-performing assets, and more such efforts are expected as the government relaxes restrictions on Sino-foreign cooperation inthe financial sector.

Of all the beneficial factors, the most critical is the sustained rapid growth of China's national economy. Statistics show that Chinese enterprises in various industries are bottoming out with clear profit growth, which will pave the way for them to repay loans along with their interest.

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