Rural credit cooperatives on sale

09:25, September 03, 2010      

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China is inviting domestic banks and private and foreign investors to take over the country's most problematic rural credit cooperatives.

The China Banking Regulatory Commission (CBRC) said it particularly hoped that investors would buy into the worst performing of these institutions that serve the country's villages and farmers.

"These institutions will find it hard to walk out on their own anytime in the near future, and it is hard to conduct reform of these institutions via market measures," the CBRC said, explaining why it is pushing the sale of the cooperatives.

Domestic banks can buy up to 100 percent of a cooperative, but foreign investors or private firms are restricted to 20 percent, in line with limits on their stakes in Chinesebanks, according to a guideline published on the CBRC's website.

International banks have scrambled in recent years to gain a foothold in China's heavily regulated financial service sector and enter into partnerships with its leading banks.

Foreign firms are now casting their sights further afield to expand business in China, with the rural sector offering largely untapped but riskier opportunities.

China had 2,023 rural credit cooperatives as of the end of June, with total outstanding loans of 5.5 trillion yuan ($807.79 billion), or 12.2 percent of the national total.

The cooperatives reported a non-performing loans ratio of 6.6 percent at the end of June, according to the People's Bank of China.

Analysts believe that the true amount of bad debt on their books could be much higher.

Source: Global Times


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