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ROUNDUP - China approves 15 bln usd cash injection into ICBC

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BEIJING (AFX) - China's State Council, the top government body, has approved the
injection of 15 bln usd in foreign exchange reserves into the Industrial and
Commercial Bank of China (ICBC).

The cash injection, which is part of a broad program of banking reform, is aimed
at boosting the core capital adequacy ratio of the country's largest bank to six
pct.

ICBC's core and non-core capital adequacy ratio stood at 4.77 pct and 5.52 pct
respectively at the end of 2003, well below the eight pct minimum level set
under the Basel Accord for commercial banks.

ICBC said in a statement that an inadequate capital base and heavy non-
performing loans (NPL) burden undermined its restructuring and its ability to
compete against foreign entrants.

The bank's multi-billion dollar bail-out will be financed from China's foreign
exchange reserves, which stood at 659.1 bln usd at the end of March this year.

The central bank will eventually issue subordinated bonds to raise ICBC's ratio
to more than eight pct.

China is trying to strengthen its banking system before fully opening its
financial markets to foreign players at the end of 2006 in line with its
commitments to the World Trade Organization.

ICBC is the third of the big four state-owned commercial banks to be bailed out
by the government.

At the end of 2003, the Bank of China (BOC) and the China Construction Bank
(CCB) received 22.5 bln usd each to clean up their balance sheets and prepare
them for listing.

Those bailouts followed an earlier lifeline extended to all four of the big
banks, which are still saddled with bad loans from years of policy-driven
lending and corruption.

Industry analysts said government is likely to intervene again on ICBC's behalf
ahead of its public listing.

They predict the bank will receive another capital boost, could divest more of
its other NPLs and introduce a foreign strategic investor. "The injection is
likely to form part of a sizable recapitalization package for ICBC, which needs
to address its inadequate capitalization and a large shortfall in its loan loss
provisions," Standard & Poor's said in a statement.

More than 70 bln of the 74.7 bln yuan in operating profits that ICBC earned last
year was used to write off NPLs and to set additional provisions against loan
losses.

If the bank does as BOC and CCB have done, it will treat the 15 bln usd grant as
new capital, while using its own accumulated cash reserves to cover loan losses.

The extra capital is likely to boost investor confidence ahead of the bank's
expected public stock offer and listing.

ICBC said in its statement that it aims to finish its joint-stock restructuring
this year, but will wait for the right time to list on both domestic and
overseas capital markets.

That will leave the Agricultural Bank of China, considered the bank with the
biggest NPL problem, as the last in line to receive a government funding package
and make it to the capital markets.

BOC and CCB were selected first for capital injections as part of a pilot reform
project, to be completed this year, involving another clean-out of NPLs, the
introduction of foreign strategic investors, internal restructuring and
corporate governance reforms.

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