Bloomberg News

China Urges Shareholder-controlled Banks to Reduce Bad Loans

March 03, 2006

China's banking regulator urged its shareholder-controlled banks to reduce non-performing loans by enlisting foreign investors and selling asset-backed securities to clean up their balance sheets.

Bank of Communications, Shanghai Pudong Development Bank and other shareholder-controlled lenders should try to lower their bad-loan ratio to below 5 percent within two years, the China Banking Regulatory Commission said in a statement on its Web site.

Shenzhen Development Bank Co., controlled by buyout firm Newbrige Capital LLC, had a bad loan ratio of 10.29 percent as of Sep. 31. Guangdong Development Bank, which is selling a 85 percent stake, had a ratio of above 20 percent.

China's government wants lenders to clean up their balance sheets, cut non-performing loans and improve risk management and internal controls before the end of this year, when foreign banks will be allowed unfettered access to China's $1.84 trillion of household savings and competition will intensify.

Shareholder-controlled lenders are smaller than state-owned banks and less reliant on government support. China spent $60 billion bailing out its three largest state-owned banks in the past three years.

The lenders had 147.1 billion yuan ($18.3 billion) of dud loans on their books as of Dec. 31.

Still, the overall bad-loan ratio average of these banks dropped to 4.22 percent at the end of last year from 16.62 percent in 2001, the regulator said.

The government has so far approved China Development Bank and China Construction Bank, both state-owned lenders, to sell a combined 7.4 billion yuan of asset-backed securities so that they can raise cash and better manage risks.

To contact the reporter on this story: Luo Jun in Shanghai at at jluo6@bloomberg.net

To contact the editor responsible for this story: Michael Mullane at m.mullane@bloomberg.net.


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