CNN.com - China to pump $15bn into�bank - Apr 22, 2005

CNN.com - China to pump $15bn into�bank - Apr 22, 2005China to pump $15bn into bank



BEIJING, China (AP) -- China announced plans Friday to inject $15 billion (&euro11.5 billion) into its biggest state-owned commercial bank as part of efforts to turn it into a profitable, independent competitor as Beijing opens its financial markets to foreign rivals.

The Industrial and Commercial Bank of China will use the money to replenish its financial reserves, the official Xinhua News Agency reported.

Like other state banks, ICBC is burdened by billions of dollars in unpaid loans to state companies.

The communist government is preparing its major state-owned commercial banks to raise capital by selling shares for the first time to private investors, including some abroad.

Regulators believe ICBC is "basically ready" to take such a step, Xinhua said, though no date has been announced.

The amount given to ICBC is smaller than the $22.5 billion (&euro17 billion) given each to two other major state-owned banks last January in the first stage of the overhaul. Xinhua didn't explain why ICBC was receiving less money.

The money will come from China's foreign reserves, Xinhua said.

China's state banks until recently were treated as a source of money to prop up failing government companies, leaving them with too little capital to meet regulator requirements.

Efforts to reform the industry have taken on added urgency as China prepares to meet commitments to the World Trade Organization to open its financial markets to foreign competitors by 2006.

This is the second round of capital injections into China's major state banks, coming six years after they were given US$32 billion in an effort -- later judged incomplete -- to restore their balance sheets.

ICBC, founded in 1984, is the biggest of China's four main state-owned commercial banks by deposits. But Xinhua said it also faces the most serious financial problems, with up to 20 percent of its loans considered unrecoverable.

Until recently, Chinese law barred banks from declaring loans to state companies uncollectable and writing them off, leaving lenders with unpaid lending on their books for decades.

The government has begun turning over outstanding loans to a series of newly created debt-management agencies, which try to obtain payment by seizing assets or accepting shares in debtor companies.

A handful of Chinese banks have formed ventures with U.S., European and other partners, benefiting from access to investment capital and more advanced banking skills.

Last year, British-bank HSBC Holdings PLC bought a near 20 percent stake in Shanghai-based Bank of Communications, China's fifth-largest bank. Citigroup Inc. of the United States, Dutch lender ING Groep NV and others have announced plans to buy into smaller banks.

ICBC announced a venture in March with American Express Co. to issue credit cards.

ICBC and other Chinese banks also are struggling to modernize their accounting, plugging gaps that have permitted massive thefts through phony loans and other schemes.

In January, the government announced the arrest of dozens of government officials and others implicated in a scheme to steal 7.4 billion yuan ($900 million; euro700 million) from ICBC through fraudulent loans.



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