China may inject US$40 billion into Industrial and Commercial Bank of China, the nation's biggest lender, as it accelerates a program to help state banks reduce bad loans before selling shares to the public.
Industrial Bank would be the third lender to receive a bailout after the government last month pumped US$45 billion into Bank of China and China Construction Bank, China <
The government plans to use US$120 billion from its foreign reserves to shore up the four biggest state banks, Business Post said. The four, which have bad loans estimated by the government at more than a fifth of total lending, face stiffer competition as China opens the industry to overseas competition.
"The banking system is a big burden on economic reform," said Joseph Lau, chief investment officer at Tai Fook Asset Management Ltd in Hong Kong. "If the system isn't cleaned up, problem lending will carry on and ultimately bankrupt the government."
The big four, including Agricultural Bank of China, have bad loans estimated at US$400 billion, a legacy of poor management and five decades of government-directed lending to unprofitable state companies. Premier Wen Jiabao said last month that the government will inject more money into the four within six months to help them reduce bad loans and prepare for share sales.
The government injected US$22.5 billion each into Bank of China and Construction Bank, the second and third-biggest lenders, at the end of last year, the banks said last week.
Construction Bank is discussing a US$5 billion initial share sale this year and Bank of China targets a sale in 2005.
"The government hasn't started discussing the bailout for the Industrial Bank," said Li, a member of the central bank's monetary policy committee.
Industrial Bank, Bank of China, Construction Bank and Agricultural Bank between them control about US$1.7 trillion of assets and account for 70 percent of all lending.
Standard & Poor's estimated the bad-loan ratio for China's financial industry as a whole at about 45 percent as of the end of June, more than double the government figure. Merrill Lynch estimated the cost of bailing out the big four at US$250 billion.
Industrial Bank said yesterday it cut its non-performiung loan ratio to 21.3 percent of total lending at the end of last year, from 25.5 percent a year earlier. The bank spent 60 billion yuan writing off bad loans last year, up from 38.1 billion 2002, prompting a 66 percent drop in the bank's 2003 pretax profit to 2.1 billion yuan.
The bank has a higher bad-loan ratio than its two nearest rivals. Construction Bank cut bad loans by 19.6 billion yuan in the first half of last year to 12.9 percent and said it aimed to reduce the ratio to 10 percent by year's end.
Bank of China, the country's oldest lender, said non-performing loans were equal to 17.98 percent of total lending at the end of October.
Industrial Bank has said it aims to cut its bad-loan ratio to 10 percent by 2006 before selling shares.
The bank said its total lending rose by 391.1 billion yuan, or 13 percent, last year as people borrowed more to buy cars, homes and computers in the world's fastest-growing major economy.
China's economy, the world's sixth-largest, grew 9.1 percent in the third quarter, faster than any of the other 10 biggest economies.
RSS