China calls of reduction of non-performing loans

cctv.com 11-12-2003 16:07

In today's policy update, China Banking Regulatory Commission, the supervisor of banking sector, requires the continuing efforts by the big four State-owned commercial banks to reduce their non-performing loans. That should be done in five areas, including assessment of bad loans and strict control of the quality of new loans. Industry insider points out that the key to solve the problem is to improve the overall banking management system over the loan lending and establish proper risk warning system.

The country's banking regular has identified five areas for action: strengthening the assessment and disposal of bad loans preventing new bad loans strictly controlling the quality of new loans and verifying the eligibility of loan applicants making new plans for key industries and sectors with high occurence of bad loans and, the last but not the least, exploring new channels for disposal of bad loans.

Song Guoliang, Professor of Finance Institute, UIBE, said, " As for the significance of the decision, I think, its important to note that China has just joined the World Trade Organization, there is a timetable for banking and financial sectors to integrate with the international market. The protection period is limited. The State-owned banks should, try to partner with large overseas commercial banks within the short period of two to three years, especially in the areas of reducing NPLs ratio and improving management system. On the other hand, the big four commercial banks are stepping up in their restructuring for going public. Listing can provide a greater stimulus for healthy development. But I think the most serious thing ahead of listing is the high ratio of non-performing loans and bad loans, so to strengthen the efforts to deal with NPLs could help them go public as early as possible. "

Professor Song also talks about the reasons leading to the mountain of non-performing loans, including the construction and over-investment. He also says that the announcement will further stimulate the flow of overseas investment into China.

Song also said, " Many big international banks and financial institutions have keen interest in China's financial market. The multinational commercial banks are likely to set up their representative offices in China, some of them have established joint ventures with Chinese banks, for instance, the International Finance Corporation have bought stocks of many Chinese commercial banks. As for local banks, they are also likely to cooperate with overseas financial institutions, which have advanced management expertise. That will benefit both sides. But the precondition for the cooperation is to improve the management system, reduce the ratio of NPLs and meet the demand of common practice of international commercial banks. That could provide an equal platform for them to cooperate."

According to the latest statistics, by the end of June this year, the outstanding non-performing loans in commercial banks in China hit nearly 320 billion US dollars, accounting for more than 19 percent of the total loans. Out of all the outstanding non-performing loans, some 22 percent is held by state-owned commercial banks, 18.6 percent is held by policy banks and 9.34 percent is held by stock holding commercial banks.

Editor:Zhang  Source:CCTV.com