China is preparing to once again bail out its insolvent state-owned commercial banks in a move that has been widely expected for some time, the Financial Times reported yesterday.
Details of a comprehensive package are now being worked out between the finance ministry and the People's Bank of China, the central bank, Vice Finance Minister Lou Jiwei (
It will involve possibly using some of China's nearly US$400 billion in foreign exchange reserves as a source of funds while the state may also issue debt or "print money," Lou said.
The decision to inject fresh cash into the country's banks was taken at a key meeting of the Communist Party last month.
This bailout would follow a 270 billion yuan (US$32 billion dollar) capital injection in 1997 into the "big four" state banks -- the Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China.
Regulators also transfered 1.4 trillion of non-performing loans off the banks' balance sheets into four asset management companies in 1999, which have tried to divest the bad debt at heavy discounts.
Lou did not say whether more of the banks' non-performing loans would be taken off their balance sheets and transferred to the four special asset management companies.
Asset management companies have so far worked "slowly" in selling off the bad debt that had been accumulated and are unlikely to receive another big transfer soon, he said.
"We have to adopt different modalities and different ways to inject new resources into the banks," he said.
Neither did Lou give an estimate of the cost of the planned bailout that is expected to go on for some time.
"We have many main banks so I am afraid recapitalization will go on for many years," he said.
Official statistics show non-performing loans in the nation's big four banks account for 23 percent of total assets or some 2 trillion yuan, although international economists estimate the figure to be at least 40 percent or about 3.5 trillion yuan.