BEIJING -
China's big four state-owned commercial banks -
the Industrial and Commercial Bank of China
(ICBC), the Bank of China (BOC), the China
Construction Bank (CCB) and the Agricultural Bank
of China (ABC) - are again shaking the financial
markets.
Last October, CCB landed on the
Hong Kong stock
exchange with an initial public offering (IPO) of
US$9.2 billion, the biggest IPO of a bank at that
stage. In May, the BOC took in $9.7 billion in
Hong Kong, the biggest IPO worldwide since 2000.
After
its H-share debut in Hong Kong last week, BOC
said in a statement on Tuesday it had filed an
application for an A-share IPO on the Shanghai stock exchange
to raise up to 20 billion
yuan (US$2.5 billion).
The China Security Regulatory Commission is
scheduled to hold a hearing on BOC's A-share IPO
plan. BOC would be the biggest company in terms of
assets to list in China, the Shanghai Securities
News said.
But even that record may be
broken by the impending listing of ICBC, the
largest of the big four. ICBC could raise about
$12 billion in its IPO in Hong Kong this year.
ICBC would likely
allocate 25% of the new
shares for a number of elite and well-known Hong
Kong-based institutions.
ICBC chairman
Jiang Jianqing said last week that he expected the
bank, by stock market value, to become one of the
world's top 10 banks, with 2006 business profits
exceeding 100 billion yuan ($12.5 billion). ABC is
also lining up.
But the listings story is
not just about size. Turning the previously wholly
state-owned lenders into public ones was itself a
brave decision made three years ago.
The
big four, which controlled more than half of the
total banking assets in China, had been resting on
government support. Incomparable branch networks,
strong fiscal backing from the state and close
links with China's top corporations all helped
create a cozy environment for the four, in which
market competition did not seem to matter too
much.
But the tide of economic reform and
China's entry to the World Trade Organization
(WTO) have swept the country, bringing changes
that every business in China, including banks,
must grapple with if they want to survive.
With many of the state-owned enterprises
shifting to joint-stock companies with
market-driven strategies, banks have also been
urged to provide more professional services to
modern enterprises and to improve their risk
management and governance.
As stated by
the industry watchdog, the China Banking
Regulatory Commission (CBRC), last year, the
purpose of reforming the big four is to transform
the traditional banking businesses into modern
enterprises with rich capital adequacy, sound
internal controls, good service and solid
performance.
On the one hand, this
transformation will free the government from a
bottomless cash drain. On the other, it will make
the banks more internationally competitive as
China further opens up to foreign investors and
more domestic companies expand beyond China.
Gradually the Big Four are moving towards
that goal in a similar order, which the
authorities helped design: financial restructuring
(with capital injection to digest the bad loans),
corporate governance reform (forming joint-stock
companies), and listing on the capital market.
But that is just the beginning. Next they
have to be tested by the public, particularly
investors, both at home and abroad, by themselves,
with their performance as the only convincing
proof of their strength.
In the meantime,
China has also encouraged its small and
medium-sized banks to introduce strategic
investors from overseas in order to introduce
advanced management ideas and techniques to
improve their core competitiveness, CBRC chairman
Liu Mingkang reiterated over the weekend.
Addressing an annual national meeting on
city commercial banks in Jinan, the provincial
capital of Shandong province, Liu
said China had already made important progress in
introducing strategic overseas investment in small
and medium-sized banks.
To date, nine city
commercial banks in Beijing, Shanghai, Nanjing, Xi'an,
Jinan, Hangzhou, Nanchong, Tianjin and Ningbo had
introduced strategic investment from overseas,
according to CBRC statistics. Foreign investment
accounts for about 5%, on average, of the overall
equity of those city commercial banks.
The
introduction of overseas investment contributed to
marked improvement in those banks' corporate
governing structures, management ideas and
internal controls as well as financial
performance, said Liu.
By the end of last
October, 19 overseas investors had become
shareholders of 16 banks in China, with their
investment totaling $16.5 billion, or about 15% of
the total capital of Chinese banks.
CBRC
statistics show 71 foreign banks from 20 countries
or regions have set up 238 business branches with
a total of $84.5 billion in financial assets in
China. The figure accounts for about 2% of the
total capital of Chinese financial institutions.
Snapshots of the Big
Four
China Construction
Bank The CCB was the first of the four to
propose a restructuring plan to the State Council
in February 2003. The Central Huijin Investment Co
Ltd, a central government investment arm, injected
$22.5 billion into the bank at the end of 2003.
The bank set up a joint-stock company in September
2004.
The Bank of America invested $2.5
billion in the bank in June 2005, purchasing a 9%
stake. Singapore's Temasek Holdings Ltd purchased
a 5.1% stake in the bank for $1.4 billion. CCB
kicked off an IPO in Hong Kong in October 2005,
floating 30.5 billion shares priced at HK$2.35 and
raising US$9.2 billion. Its shares have risen
about 60% since then.
According to the
2005 annual report, CCB's total assets stood at
4.6 trillion yuan (US$574 billion) by the end of
2005. Net profits dropped 4% last year to 47
billion yuan, affected by the macroeconomic
environment. The average earnings per share were
0.24 yuan. Its non-performing loan ratio was
3.84%. CCB is planning to grant stock options to
senior executives and other staff this year, said
president Guo Shuqing recently.
The
Bank of China The BOC received a $22.5
billion capital injection from Huijin at the end
of 2003. Its joint-stock company was launched in
August 2004. The Royal Bank of Scotland invested
$3.1 billion for a 10% in the bank. Other
strategic investors include Switzerland's UBS, the
Asian Development Bank and Temasek Holdings Ltd.
The bank had total assets of 4.7 trillion yuan by
the end of 2005. Its non-performing loan ratio was
4.4% in mid-2005.
The Industrial and
Commercial Bank of China The bank received
a US$15 billion capital injection from Huijin in
April 2005. It launched a joint-stock company in
October. Months later, American Express and
Allianz Group paid a combined $3.78 billion for an
8.89% stake in the bank, the biggest amount of
foreign investment in a Chinese bank. It has been
reported that the bank's IPO could amount to $12
billion. The bank will restructure its departments
in June to improve efficiency. The ICBC has assets
worth more than 6 trillion yuan. Its capital
adequacy ratio was 10.26% by the end of 2005. Its
NPL ratio fell to 4.43% then.
The
Agricultural Bank of China The bank is
still waiting for the State Council's approval of
its restructuring proposal. Senior bank officials
said earlier this year that the bank is seeking an
overall listing and is in talks with potential
strategic investors. Its assets have exceeded 5
trillion yuan. The bank's NPL ratio was 26.17% by
the end of 2005, down 0.56 of a percentage point
from a year ago. Its net profit was 1.04 billion
yuan for 2005, down 48% from 2004.
