Experts: Banks Playing Risky Game with Figures

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Last updated at: (Beijing Time) Wednesday, July 23, 2003

Experts: Banks Playing Risky Game with Figures

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China's State-owned banks have more than doubled the amount of loans issued, but experts warn some of them may be playing a risky game with figures to make their non-performing loan (NPL) ratios look smaller.

The State banks granted 1.9 trillion yuan (US$229.4 billion) in loans in the first half of this year - more than double the same period a year ago.

But one game some banks may be playing is to expand the denominator, or the overall outstanding loans. By lending more, the banks would make the NPL account for a smaller ratio of the gross amount.

Growth of the lending volume by 14 percentage points could cause the NPL rate to drop by 10 percentage points, according to recent research by the Development and Research Centre of the State Council.

Outstanding renminbi loans reached 14.9 trillion yuan (US$1.8 trillion) by the end of June, up 23.1 per cent year-on-year, according to latest central bank statistics.

But some financial experts noted that a big part of the new loans were actually renewed from the old loans.

For example, a bank would lend more to the indebted enterprises to help them repay the old loans, which can make the account book look nice but brew more financial risks for the future.

Many branches of the State-owned banks have resorted to such a practice, a manager at one branch was quoted by the Business Post as saying.

A big temptation for the banks to do so is that a reduction in the NPL ratio would help them get earlier access to the stock market.

China aims to list the Big Four State-owned banks: the Bank of China, China Construction Bank, Agricultural Bank of China and Industrial and Commercial Bank of China (ICBC).

But a prerequisite is for them to sharply slice off NPLs and conduct massive restructuring to set up corporate governance.

Liu Mingkang, chairman of the China Banking Regulatory Commission, set the target for the Big Four to reduce their NPL ratio by 3 to 4 percentage points this year.

That speed, if maintained, will put these banks' NPL ratio below 10 per cent - which is close to international standards - in four to five years.

ICBC recently announced its NPL ratio had dipped by 3.5 percentage points to 22 per cent at the end of June, based on the internationally accepted five-category classification.

The Bank of China also had its NPL rate drop by 3.33 percentage points during the first half year, and the China Construction Bank 2.99 percentage points.

Insiders said the three banks are competing for an entrance ticket to the stock market, which requires the approval by the State Council for their overall restructuring plans. The NPL rate is a major criteria to judge their financial soundness.

But a financial expert in Beijing, who declined to be named, warned it is dangerous to focus on the calculation method and rush for a public listing before the systematic and structural problems in the banks are solved. (China Daily News)

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