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Friday April 22, 05:30 AM

China ICBC needs more capital, restructuring ahead of listing - analysts
BEIJING (AFX) - China's 15 bln usd bail-out of its biggest bank, the Industrial and Commercial Bank of China (ICBC), will not go far enough to prepare the lender for public listing, analysts said.
They expect the government to inject more capital into ICBC, reorganize the bank and secure a strategic foreign partner before it goes to the capital markets.
The bail-out, approved by China's top government body, is aimed at boosting the state-run bank's core capital adequacy ratio (CAR) to six pct.
The central bank will eventually issue subordinated bonds to raise ICBC's CAR above the eight pct minimum set under the Basel Accord for commercial banks.
ICBC said on its website that an inadequate capital base and heavy non-performing loans (NPL) burden could undermine its ability to compete against foreign entrants, which officially gain entry to China's banking sector at the end of next year.
Morgan Stanley economist Andy Xie said the cash injection fell short of expectations.
'I thought it was going to be more. It's the biggest bank in China.'
Two other state-run banks, Bank of China (BOC) and China Construction Bank (CCB), received 22.5 bln usd each from the government in 2003 to clean up their balance sheets and prepare them for listing.
Xie said it may be too early to say how much ICBC needs from the government, because of uncertainty over what can be recovered of its non-performing assets.
'It's really a big unknown. Any sort of estimate is probably going to be way off,' he said.
Standard and Poor's said in a statement that the 15 bln usd cash injection is probably just one part of a 'sizeable recapitalization package' for ICBC.
'This action reinforces Standard and Poor's belief that the Chinese government is likely to provide additional support for ICBC in the near term,' S&P credit analyst Ryan Tsang said.
Tony Liu, banking analyst with DBS, also said more announcements could be in the pipeline.
'Unless the government is doing something else in cleaning up the bank, I think the amount seems to be small relative to the size of ICBC,' he said.
ICBC had a NPL ratio of 19.1 pct at the end of 2004.
It spent the bulk of the 74. bln yuan in operating profit it recorded last year covering NPLs and setting aside additional provisions against loan losses.
Liu said that as well as issuing subordinated bonds, ICBC may need to divest more of its NPLs to asset management companies.
'That's one way I can think of (for ICBC) to lower its non-performing assets and also to rebuild its capital base,' he said.
China's 'big four' banks - ICBC, BOC, CCB and Agricultural Bank of China - jointly shifted 1.4 trln yuan in NPLs to four asset management companies created in 1999.
Liu said other reforms are also needed because ICBC lacks the banking expertise and sophistication required to compete when the country opens its financial markets in line with its commitments to the World Trade Organization.
'First they need to recapitalise, then internally they also need to do some engineering,' he said.
Xie said that priorities for the bank include strengthening accounting controls and selling equity, ahead of its planned listing, to a strategic foreign investor.
BOC and CCB, which are first in line for an initial public offering (IPO), are already in talks with foreign banks about doing just that.
Liu said based on the time it has taken these banks to restructure, it could be two or three years before ICBC lists.
ICBC, however, said on its website that it will finish restructuring this year.
'The end game is still IPO,' Xie noted.
(1 USD = 8.3 yuan)