01-16-2004, 04:58 AM
From : The Financial Times - A Subscription Site
<b>CHINA SAYS âNO FREE LUNCHâ FOR STATE BANKS</b>
<b>China plans to impose a stiffer regime of corporate governance on those state banks that recently benefited from a $45bn capital boost so it does not amount to a "free lunch".</b>
The clampdown will include ending lifelong employment contracts, scrapping the government titles of staff and taking resolute supervisory action if bad loan levels climb once more.
<b>Officials at the People's Bank of China, the central bank, said the new blueprint was meant to ensure that the $45bn in foreign exchange reserves injected into the Bank of China and China Construction Bank was not a "free lunch" for the state banking sector.</b>
Both CCB and BoC hope to attract foreign strategic investors this year and list on the Hong Kong stock market either later in 2004 or next year. So far two banks, Citibank and Deutsche Bank, have signalled their interest in taking a stake in CCB, which appears set to become the first bank to list.
According to the central bank plan, not only domestic and foreign commercial banks will be eligible to become shareholders but also investment banks, insurance companies and international financial institutions. Industrial and commercial institutions may also be allowed to take stakes, officials said.
Once the BoC and CCB are transformed into shareholding banks, a stiffer supervisory regime will click in. If the capital base of either bank is once again eroded by a build-up in non-performing loans, supervisory authorities will restrict new lending and curtail the remuneration of employees, officials said.
Following the $22.5bn injection into each bank this month, the capital adequacy ratios of both are thought to be well above the 8 per cent minimum required by international rules. But if the ratio falls considerably below the 8 per cent benchmark, senior managers might be punished for misconduct, said one official who declined to be identified.
Lending will be based on commercial - rather than political - criteria. To reinforce a new market ethos at the banks, government titles such as "section chief" and "division chief" will be abolished. Lifelong employment, which is no longer common practice at BoC and CCB, is to be scrapped.
Staff are to be employed under contracts and paid by peformance. In further attempts to improve efficiency, the closure and merging of loss-making branches and businesses will be accelerated, along with staff redundancies.
A central bank spokesman confirmed that such a plan existed but declined to give details or say when its implementation would start.
An official supervisory body headed by Huang Ju, vice-premier, was recently established to see through reforms related to the recapitalisation of state banks, officials said.
Mr Huang's deputy in the body is Zhou Xiaochuan, governor of the central bank. Liu Mingkang, chairman of the China Banking Regulatory Commission, is also on the body, which has not yet been announced.
Cheers
<b>CHINA SAYS âNO FREE LUNCHâ FOR STATE BANKS</b>
<b>China plans to impose a stiffer regime of corporate governance on those state banks that recently benefited from a $45bn capital boost so it does not amount to a "free lunch".</b>
The clampdown will include ending lifelong employment contracts, scrapping the government titles of staff and taking resolute supervisory action if bad loan levels climb once more.
<b>Officials at the People's Bank of China, the central bank, said the new blueprint was meant to ensure that the $45bn in foreign exchange reserves injected into the Bank of China and China Construction Bank was not a "free lunch" for the state banking sector.</b>
Both CCB and BoC hope to attract foreign strategic investors this year and list on the Hong Kong stock market either later in 2004 or next year. So far two banks, Citibank and Deutsche Bank, have signalled their interest in taking a stake in CCB, which appears set to become the first bank to list.
According to the central bank plan, not only domestic and foreign commercial banks will be eligible to become shareholders but also investment banks, insurance companies and international financial institutions. Industrial and commercial institutions may also be allowed to take stakes, officials said.
Once the BoC and CCB are transformed into shareholding banks, a stiffer supervisory regime will click in. If the capital base of either bank is once again eroded by a build-up in non-performing loans, supervisory authorities will restrict new lending and curtail the remuneration of employees, officials said.
Following the $22.5bn injection into each bank this month, the capital adequacy ratios of both are thought to be well above the 8 per cent minimum required by international rules. But if the ratio falls considerably below the 8 per cent benchmark, senior managers might be punished for misconduct, said one official who declined to be identified.
Lending will be based on commercial - rather than political - criteria. To reinforce a new market ethos at the banks, government titles such as "section chief" and "division chief" will be abolished. Lifelong employment, which is no longer common practice at BoC and CCB, is to be scrapped.
Staff are to be employed under contracts and paid by peformance. In further attempts to improve efficiency, the closure and merging of loss-making branches and businesses will be accelerated, along with staff redundancies.
A central bank spokesman confirmed that such a plan existed but declined to give details or say when its implementation would start.
An official supervisory body headed by Huang Ju, vice-premier, was recently established to see through reforms related to the recapitalisation of state banks, officials said.
Mr Huang's deputy in the body is Zhou Xiaochuan, governor of the central bank. Liu Mingkang, chairman of the China Banking Regulatory Commission, is also on the body, which has not yet been announced.
Cheers