Yahoo! News - China in 15 billion dollar bailout of state-run ICBC

Yahoo! News - China in 15 billion dollar bailout of state-run ICBC

China in 15 billion dollar bailout of state-run ICBC

Fri Apr 22, 4:09 AM ET


SHANGHAI, (AFP) - The Chinese government has authorised a 15 billion dollar bailout of Industrial and Commercial Bank of China (ICBC), the country's largest but financially weakest lender, the central bank said.


AFP/File Photo

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"Recently the State Council has approved the share holding reform of ICBC," the People's Bank of China said.


"Through the foreign exchange reserves, a capital injection of 15 billion dollars will boost the core capital adequacy ratio of the (ICBC)," said a Xinhua news agency dispatch posted on the central bank's website.


The long-awaited move, part of a broad program of banking reform that began more than a year ago, is aimed at boosting the state-run bank's core capital adequacy ratio (CAR) to six percent, it said.


ICBC's current 5.52 percent CAR is well below the eight percent minimum set under the Basel Accord for commercial banks, and accepted by China's banking regulator, that is a must for a potential overseas listing.


The cash injection is expected to pave the way for an eventual overseas stock offering to further shore up the bank's finances, while providing an unprecedented test of Beijing's ability to reform its troubled financial sector ahead of sector-wide liberation at the end of 2006.


"Its all about the government paying the bill for the banks so a better system of multiple share holders can be created and the historical problems of the banks can be solved," said Zhao Xianming, financial analyst from Great Wall Securities.


The handout will be financed from China's massive foreign exchange reserves, which stood at 659.1 billion dollars at the end of March, the central bank said.


ICBC aims to "finish its share holding reform in 2005 and then create the conditions and seek the opportunities to gain a public listing both in domestic and overseas markets," ICBC chief Jiang Jianqing said in a statement.


"Its a complicated and systematic project with high standards, a reform that we cannot afford to fail in," Jiang said.


ICBC is the third of China's big four state-owned commercial banks to win a bailout by Beijing although the amount had been expected to well exceed the 20 billion dollar mark.


In December 2003, the Bank of China and the China Construction Bank received 22.5 billion dollars each to clean up their balance sheets and prepare them for listing.


The move helped boost the CARs at the two banks to around eight percent while reducing their non-performing loan (NPL) ratios to below 10 percent. Last year ICBC had a non-performing loan ratio of 19 percent.


"The other two banks are in a hurry to get listed so they got more money while ICBC still has a couple of years before its listing and should be capable of solving part of its capital adequacy problems through its own profits," said Zhao of Great Wall Securities.


Those bailouts followed an earlier lifeline extended to all four of the big banks, which are still saddled with hundreds of billion of yuan in bad loans after years of easy lending and corrupt practices.


The Agricultural Bank of China is awaiting a similar package that would complete the financial rescue of the nation's four biggest banks.


Last month central bank governor Zhou Xiaochuan said the stock offerings of state-owned Bank of China and the China Construction Bank were now only a matter of time with preparations largely completed.