Zhou Xiaochuan warns sweetheart loans fuel NPLs

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Last updated at: (Beijing Time) Friday, January 09, 2004

Zhou Xiaochuan warns sweetheart loans fuel NPLs

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People's Bank of China Governor Zhou Xiaochuan warned the bad debt loads of state-owned commercial banks in some regions have been fueled by loans based on family ties or personal "connections," state media said Friday.

Zhou warned that poor credit risk control measures had helped boost the nonperforming loan ratios of banks in certain areas to 10 times the ratios of banks in other areas, the official Xinhua News Agency said, citing Zhou's comments at a Thursday forum on commercial bank risk management and internal control.

The report didn't elaborate on the NPL ratios. China's four large state-owned commercial banks recorded an average bad debt ratio of 21.4% at the end of September.

For the reform of China's bank sector to be effective, attention must be paid to the "different commercial cultures" in various areas of China, the report said.

Zhou's comments underline the immense task facing the central bank and the China Banking Regulatory Commission in bringing the bank sector's risk control and governance levels up to international standards.

The government said this week it injected a total of US$45 billion from its foreign currency reserves into two of the country's big four state-owned banks at the end of last year. The amount was split evenly between China Construction Bank and Bank of China with the aim of jump-starting the restructuring of state-owned commercial banks.

The pilot program will help accelerate the long-planned public listings of China's four major commercial banks and pave the way for a similar reform of Industrial & Commercial Bank of China and Agricultural Bank of China.

The cash injection sends a strong signal that China will speed up state bank reforms, a separate Xinhua report said, citing Zhou.

The next stage of the reforms process will focus on the banks' internal reforms and the establishment of effective corporate governance mechanisms, the report said, without elaborating.

Source: agencies

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