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Bank of China to get US$20b bailout(12/26/03)

   Bank of China, the nation's second-largest lender by assets, will get a US$20 billion government bailout as soon as next week to help write off bad loans before a first-time share sale in 2005, said an executive at the bank on Dec.24.

    China's oldest lender, which will receive the capital in U.S. dollars, will use the funds to reduce bad loans and speed up plans to sell shares, said the official, who asked not to be identified.

    Bank of China is one of four State-owned banks trying to reduce US$400 billion of bad loans created by five decades of lending to State companies.

    Bank of China wants to cut its bad-loan ratio below 10 percent from 17.98 percent now, to make it more attractive to investors and to compete with overseas competitors, including Citigroup Inc., which can enter China without restrictions at the end of 2005.

    "Bank of China is qualified to be the first lender to go public as it has a higher capital adequacy ratio and better management than the others,'' said Wu Yonggang, a bank analyst at Guotai Junan Securities Co. in Shanghai.

    "The injection will greatly help Bank of China cut its bad-debt ratio to below 10 percent.''

    Bank of China said it had loans and overdrafts of 1.74 trillion yuan (US$210.3 billion) at the end of last year, indicating it has about US$37.7 billion of bad loans, some of which were place in an asset management company in 1999.

    The Beijing-based lender doesn't give a breakdown of its bad loans. The bank's asset management company has disposed of 63.7 billion yuan of the bad assets since 1999.

    Industrial & Commercial Bank of China, the nation's biggest lender, Agricultural Bank of China and the two other State-owned lenders control about US$1.7 trillion of assets and account for 70 percent of all lending in the nation.

    China's second bailout of the banks in five years is aimed at cutting total bad loans in the system estimated by the government at US$500 billion.

    China in 1998 spent 270 billion yuan to bolster capital at the four lenders. A year later, it formed four asset-management companies to acquire more than 1.4 trillion yuan of bad assets from the banks.

    Premier Wen Jiabao said this month the government would inject more money into its four largest banks within six months to help cut bad loans.

    Bank of China, which had a capital-adequacy ratio of 8.15 percent at the end of last year, plans to sell shares either in China or overseas within two years, chief executive Xiao Gang said earlier this month.

    The bank will sell shares in itself rather than create a separate bank with the best assets, he said. China Construction Bank's capital adequacy ratio was 6.91 percent at the end of last year.

    Xiao, 45, became head of the Bank of China in April when his predecessor, Liu Mingkang, was named chairman of the newly created China Banking Regulatory Commission.

    The Beijing-based bank, which raised US$2.63 billion selling shares for the first time in its Hong Kong unit last year, needs to reduce its bad-loan ratio from 18 percent of total loans to 10 percent to receive government approval to sell shares overseas.

    Bank of China sold US$1.5 billion of stock in its BOC Hong Kong (Holdings) Ltd. unit this month, raising funds to help write off the bad loans. Bank of China was taking advantage of a 95 percent surge in BOC Hong Kong's stock this year to boost capital.

    China this month allowed overseas lenders to buy as much as 20 percent of a mainland bank, up from 15 percent earlier. HSBC Holdings Plc's Hang Seng Bank Ltd. was the first to take advantage of the higher limit, buying 16 percent of Industrial Bank of Fujian last week. HSBC also has an 8 percent stake in Bank of Shanghai.

    Citigroup, the world's largest financial services company, owns 4.6 percent of Shanghai Pudong Development Bank Ltd., China's second-biggest publicly traded lender.

 


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