Abbreviations Chinese Financial Markets C: People's Bank of China By Zhang Xiao BOC: Bank of China ICBC: Industrial and Commercial Bank of China CCB: China Construction Bank Lecture 3: Reform of Chinas Banking Syste BoCom: Bank of Communication PSBC: Postal Savings Bank of China JSCB: Joint-stock Commercial Banks Abbreviations Topics Covered AMC: Asset Management Company History of Chinas Banking System SAFE: State Administration of Foreign Exchange CBRC: China Banking Regulatory Committee Current Banking System in China CIRC: China Insurance Regulatory Committee Reform of socbs CSRC: China Security Regulatory Committee MOF: Ministry of Finance CIC: China Investment Co SOE. State-owned NPL: Non-performing Loans Origin of Banks in Ancient China Bank rudiment emerged 1000 years ago( Tang 3.1 History of Chinas Banking System Institutions providing deposit and loans, money exchange, trade financing formed up and developed in Song, Ming and Qing e village): silver standard The worlds first paper-printed currency was innovated in Song era(960-1279). The financial system adopted Partnerships in money villages formed in early 1900s
1 Chinese Financial Markets By Zhang Xiaorong Lecture 3: Reform of China’s Banking System 3-1 3-2 Abbreviations — PBC: People’s Bank of China — BOC: Bank of China — ICBC: Industrial and Commercial Bank of China — CCB: China Construction Bank — ABC:Agricultural Bank of China — BoCom: Bank of Communication — PSBC: Postal Savings Bank of China — SOCB: State-owned Commercial Banks — JSCB: Joint-stock Commercial Banks 3-3 Abbreviations — AMC:Asset Management Company — SAFE: State Administration of Foreign Exchange — CBRC: China Banking Regulatory Committee — CIRC: China Insurance Regulatory Committee — CSRC: China Security Regulatory Committee — MOF: Ministry of Finance — Huijin: China Huijin Investment Co. — CIC: China Investment Co. — SOE: State-owned Enterprises — NPL: Non-performing Loans Topics Covered — History of China’s Banking System — Current Banking System in China — Reform of SOCBs 3-4 3.1 History of China’s Banking System 3-5 3-6 Origin of Banks in Ancient China — Bank rudiment emerged 1000 years ago (Tang era, 618-907) — Institutions providing deposit and loans, money exchange, trade financing formed up and developed in Song, Ming and Qing eras — Piaohao (bills shop) vs. Qianzhuang (money village);silver standard — The world's first paper-printed currency was innovated in Song era (960-1279). — The financial system adopted Partnerships in money villages formed in early 1900s
Qianzhuang(Money village) in Government Banks Qing Era 国 The first Chinese-owned bank, Imperial Bank of China, was founded in Shanghai in 1897. in China that modeled The building was constructed in 1906, Bund 6. Government Banks Government Banks Before 949 Before 949 Chinas first central bank was established as the Bank of Communications was organized by the Bank of the board of revenue in 905 Ministry of Posts and Communications in 1908 The name was changed to the Great Qing It was chartered as"the bank for developing the Government Bank(Daqing Bank) in 1908 country s ind Daqing Bank's note was granted exclusive The bank's aim was to unify funding for privilege to be used in all public and private steamship lines, railways, as well as telegraph fund transfers, including tax payments and debt and postal facilities settlements The bank opened its first Hong Kong Branch on Following the Xinhai Revolution of 1911, Daqing 27 November 1934 Bank was renamed the bank of china Government Banks Private Banks in China Before 949 Before 949 The Central Bank of Republic of China was Private banks appeared in the late Qing, and originally established in 1924 in guangzhou gradually developed in the 1920s. It took over the role of central bank from the Till 1927. there were 343 domestic banks in Bank of China in 1928 after the northern China, in which 62 were in Shanghai Expedition, and moved the headquarter t In late 1920s and early 1930s, private banks extended their business in syndicated industrial loans and offering loans to government to Taiwan in 1949 The bank was reestablished in 96I and took 49-52)after the civ ver the role of central bank from the bank of war,private banks were completely Taiwan nationalized and consolidated 2
2 3-7 Qianzhuang (Money Village) in Qing Era 3-8 Government Banks Before 1949 — The first Chinese-owned bank, Imperial Bank of China, was founded in Shanghai in 1897. — It was also the first bank in China that modeled onWestern banks and banking practices. — The building was constructed in 1906, Bund 6. Government Banks Before 1949 — China's first central bank was established as the Bank of the Board of Revenue in 1905. — The name was changed to the Great Qing Government Bank (Daqing Bank) in I908. — Daqing Bank's note was granted exclusive privilege to be used in all public and private fund transfers, including tax payments and debt settlements. — Following the Xinhai Revolution of 1911, Daqing Bank was renamed the Bank of China. 3-9 Government Banks Before 1949 — Bank of Communications was organized by the Ministry of Posts and Communications in 1908. — It was chartered as "the bank for developing the country's industries". — The bank's aim was to unify funding for steamship lines,railways, as well as telegraph and postal facilities. — The bank opened its first Hong Kong Branch on 27 November 1934. 3-10 3-11 Government Banks Before 1949 — The Central Bank of Republic of China was originally established in 1924 in Guangzhou. — It took over the role of central bank from the Bank of China in 1928 after the Northern Expedition, and moved the headquarter to Shanghai. — The bank moved along with the Kuomintang government to Taiwan in 1949. — The bank was reestablished in 1961 and took over the role of central bank from the Bank of Taiwan. 3-12 Private Banks in China Before 1949 — Private banks appeared in the late Qing, and gradually developed in the 1920s. — Till 1927,there were 343 domestic banks in China, in which 62 were in Shanghai. — In late 1920s and early 1930s, private banks extended their business in scope, making syndicated industrial loans and offering loans to rural areas. — In the recovery period (1949–52) after the civil war, private banks were completely nationalized and consolidated
Foreign Banks in China Foreign Banks in China Before 949 Before 949 First foreign bank(Eastern Bank of Britain came to China in 847 From 1847 to 1860, more than 10 foreign banks France and the US Chartered Bank established the branch in 858 HSBC was established in 1865 in Shangha Citibank established a branch in 902 The HSBC building(Bund 12) By l936, 84 foreign banks in China in total, 29 in now occupied by the Headquarter of Shanghai h eign Banks in China Foreign Banks in China Before 949 Before 949 Sino-Russian Righteousness Victory Bank(华俄 道胜银行) opened the shanghai branch in1896 The Mackellar Bank( Chartered Bank) The building( Bund 15)served the central bank Building(Bund 18) uilding after 1928 Banking System 1953-1978 Banking System 1953-1978 PBC had sole responsibility for issuing currency Bank of China handled all dealings in foreign d controlling the money supply, and served as onsible for allocating the the government treasury, the holder of countrys foreign exchange reserves, arranging erprise deposits, the main source of credit foreign loans, setting exchange rates for China's or economic units, the clearing nancial transactions, the national savings bank, carrying out all financial transactions with and a ubiquitous monitor of economic activities foreign firms and individuals. Bank of Communication merged to PBC and CCB in 195Bexcept the business in Hong Kong
3 3-13 Foreign Banks in China Before 1949 — First foreign bank (Eastern Bank of Britain) came to China in 1847. — From 1847 to 1860,more than 10 foreign banks came to China from Germany, Japan, Russia, France and the US — Chartered Bank established the branch in 1858 — HSBC was established in 1865 in Shanghai — Citibank established a branch in 1902 — By1936, 84 foreign banks in China in total, 29 in Shanghai Foreign Banks in China Before 1949 3-14 — The HSBC building (Bund 12) — now occupied by the Headquarter of Shanghai Pudong Development Bank Foreign Banks in China Before 1949 — Sino-Russian RighteousnessVictory Bank(华俄 道胜银行) opened the Shanghai branch in 1896 — The building (Bund 15) served the central bank building after 1928 3-15 Foreign Banks in China Before 1949 3-16 — The Mackellar Bank (Chartered Bank) Building (Bund 18) Banking System 1953-1978 — PBC had sole responsibility for issuing currency and controlling the money supply, and served as the government treasury, the holder of enterprise deposits, the main source of credit for economic units,the clearing center for financial transactions, the national savings bank, and a ubiquitous monitor of economic activities. 3-17 Banking System 1953-1978 — Bank of China handled all dealings in foreign exchange, and was responsible for allocating the country's foreign exchange reserves, arranging foreign loans,setting exchange rates for China's currency, issuing letters of credit, and generally carrying out all financial transactions with foreign firms and individuals. — Bank of Communication merged to PBC and CCB in 1958except the business in Hong Kong. 3-18
Banking System 1953-1978 The Agricultural Bank was established in th 1955 to facilitate financial operations in the 3.2: Current Banking System rural areas and provide financial support to agricultural units, merged with PBC in 1957,re- established in 1963, and merged with PBC ag in 1965 The People's Construction Bank was affiliated to MOF and managed state appropriations and loans for capital construction The Banking System Reform The Banking System Reform since 978 since 978 m State-Owned Specialized Banks(1978-1994) ABC reestablished in 979 o People's Construction Bank was separated from inistry of Finance in 1979, and became directly supervised by the State Council ICBC separated from PBC on Jan. Is1984 Big four state-owned specialized commercial banks were formed in providing different services PBC started to function as a central bank Plural-banking system started The Banking System Reform Banking System Reform since since 978 l978 State-Owned Specialized Banks(1978-1994) State-Owned Commercial Banks(1994-2003) es began to emerge in the mid 80s Agricultural Development Bank the Export-In supplementary banking to support economic growth Bank of China)were formed in1994 Rural credit cooperatives are small, collectively- People's Construction Bank was renamed as china dled In 1995. the PBCs central bank status was legally milies, villages, and cooperative organizations. Urban credit cooperatives provide small-scale PBC still supervised the commercial banks: financial financial services to individual and collective onstruction: improving internal management; enterprises that sp in urban areas external regulation reinforced 4
4 Banking System 1953-1978 — The Agricultural Bank was established in the 1955 to facilitate financial operations in the rural areas and provide financial support to agricultural units, merged with PBC in 1957,reestablished in 1963, and merged with PBC again in 1965. — The People's Construction Bank was affiliated to MOF and managed state appropriations and loans for capital construction. 3-19 3.2 : Current Banking System 3-20 The Banking System Reform since 1978 3-21 3-22 The Banking System Reform since 1978 — State-Owned Specialized Banks(1978－1994) ◦ ABC reestablished in 1979 ◦ People’s Construction Bank was separated from Ministry of Finance in 1979, and became directly supervised by the State Council ◦ ICBC separated from PBC on Jan.1st 1984 ◦ Big four state-owned specialized commercial banks were formed in providing different services ◦ The State Council approved re-establishment of BoCom in 1986, headquarter in Shanghai ◦ PBC started to function as a central bank ◦ Plural-banking system started 3-23 The Banking System Reform since 1978 — State-Owned Specialized Banks(1978－1994) ◦ Rural credit cooperatives and Urban credit cooperatives began to emerge in the mid 80s as supplementary banking to support economic growth. ◦ Rural credit cooperatives are small, collectivelyowned savings and lending organizations that handled deposits and short-term loans for individual farm families, villages, and cooperative organizations. ◦ Urban credit cooperatives provide small-scale financial services to individual and collective enterprises that sprang up in urban areas. 3-24 Banking System Reform since 1978 — State-Owned Commercial Banks(1994－2003) ◦ Three policy banks (China Development Bank, China Agricultural Development Bank, the Export-Import Bank of China) were formed in1994 ◦ People’s Construction Bank was renamed as China Construction Bank in 1996 ◦ In 1995,the PBC's central bank status was legally confirmed ◦ PBC still supervised the commercial banks: financial reconstruction; improving internal management; external regulation reinforced
Banking System Reform since 1978 Current Banking System State-Holding Joint Stock Commercial Banks Central bank People's Bank of china f banking system reform is to transform state wned commercial banks to state-holding joint- Banking Institutions stock banks BOC and ccB were chosen as two pilot banks CBRC Instituton BoCom got listed in HKSE in 2005, became state- e After financial reconstruction and introduction of Self-discipline rategic investors, all big 5 are now listed in HKSE China Banking Association nstitution Current Banking System Policy Banks China Development Bank 44 City Commercial Banis State Council The major task is to provide long-term financing for key projects and supportiv 80o town andvilage bank construction in infrastructure and basic and pillar industries The bank was reformed in 2008 with $20 hina Develooment bank corporation Policy Banks Policy bank The Export-Import Bank of China Established in 1994, directly supervised by the State council State council lectronic products and high-tech products, cy credit businesses specified by the contracts Most of the funds come from the central bank It also accepts government concession loans and onlends loans of foreign government and business and overseas financing international financial institutions 5
5 Banking System Reform since 1978 — State-Holding Joint Stock Commercial Banks ◦ In 2002, the State Council confirmed the major task of banking system reform is to transform stateowned commercial banks to state-holding jointstock banks ◦ BOC and CCB were chosen as two pilot banks, financed with $45 billion in the end of 2003 ◦ BoCom got listed in HKSE in 2005, became stateowned in 2008 with transfer of equity to MOF ◦ After financial reconstruction and introduction of strategic investors, all big 5 are now listed in HKSE and SSE 3-25 Current Banking System 3-26 Central bank People’s Bank of China Regulatory institution CBRC China Banking Association Self-discipline institution Banking Institutions Non-banking Institutions Current Banking System 3-27 Banking System in China 5 State-owned Commercial Banks 12 Joint Stock Commercial Banks 144 City Commercial Banks 3 Policy Banks 337 Rural Commercial Banks 147 Rural Cooperative Banks 1927 Rural Credit Cooperatives 42 Incorporates Foreign Banks 67Trust and Investment Companies 4 Asset Mgt. Companies 150 Finance Companies 20 Financial Leasing Companies 16Auto Finance Companies 1 Postal Saving Bank As of end 2012 4 Consuming Finance Companies 5 Money Brokerage Firms 800+ Town andVillage Banks Policy Banks — China Development Bank ◦ Established in 1994, directly supervised by the State Council ◦ The major task is to provide long-term financing for key projects and supportive construction in infrastructure and basic and pillar industries ◦ The bank was reformed in 2008 with $20 billion capital injection and renamed as “China Development Bank Corporation”. 3-28 Policy Banks — Agricultural Development Bank of China ◦ Established in 1994, directly supervised by the State Council ◦ It raises funds for agricultural policy businesses and undertake the agricultural policy credit businesses specified by the central government ◦ Most of the funds come from the central bank lending,supplemented by deposits from business and overseas financing. 3-29 Policy Banks — The Export-Import Bank of China ◦ Established in 1994, directly supervised by the State Council ◦ It finances the exporting of machinery and electronic products and high-tech products, and supports overseas constructions contracts. ◦ It also accepts government concession loans and onlends loans of foreign government and international financial institutions. 3-30
State-owned Commercial banks Joint-stock Commercial Banks 74426 HKSE and SSE Bank of communic 200564HKsE 65% 20755E China Construction Bank 1954 In planning Bank of China China EverbrightBank1992/a 2008&sE dustrial and Commercial I 355%353% 那BoCh-|95210HK5403393 g Bank 2004reorganized in planning As of end 2012 Postal Savings Bank of china Key Indicators of Chinas Banking Sector Postal savings services started from 1986 with Total Assets and Liabilities(in trillion RMB the establishment of CPSrB( China Postal Saving Regulatory Bureau) CPSRB had a deposit balance of 1.6 RMB trillion by the end of 2006, the biggest saving institution fter the" big four” State Council approved the establishment of the postal savings bank in July 2005: CBRC released the plan in June 2006 CPSB was established in Mar 20th. 2007. Key Indicators of Key Indicators of Chinas Banking Sector Chinas Banking Sector Market Share by Assets Deposits, Loans and Deposit-to Loan Ratio abhE Rural financial institutions and Posting Savings Bank Non-bank institutions foreign banks
6 3-31 Bank Year Listed Huijin Equity MOF Bank of Communication 1908 2005/6/24,HKSE 2007/5/15,SSE 26.5% China Construction Bank 1954 2005/10/27,HKSE 2007/9/15,SSE 57.2% Bank of China 1912 2006/6/11,HKSE 2006/6/23,SSE 67.7% Industrial and Commercial Bank of China 1984/1 2006/10/27, HKSE and SSE 35.5% 35.3% Agricultural Bank of China 1955 2010/7/15,SSE 2010/7/16,HKSE 40.2% 39.2% State-owned Commercial Banks As of end 2012 3-32 Bank FoundedTime Listed/non-listed China Merchant Bank 1987/4 2002/4/9, SSE China Citic bank 1987/4 2007/4/26, HKSE and SSE Shenzhen Development Bank 1987/12 1991/4/3, SZSE (Fujian) Industrial Bank 1988/6 2007/2/5, SSE Guangdong Development Bank 1988/6 In planning China Everbright Bank 1992/8 2010/8/18, SSE Shanghai Pudong Development Bank 1992/8 1999/11/10, SSE Huaxia Bank 1992/10 2003/9/12, SSE China Minsheng Bank 1996/1 2000/12/19, SSE Evergrowing Bank 2003 reorganized China Zheshang Bank 2004reorganized In planning China Bohai Bank 2006/2 Joint-stock Commercial Banks 3-33 Postal Savings Bank of China — Postal savings services started from 1986 with the establishment of CPSRB(China Postal Saving Regulatory Bureau) — CPSRB had a deposit balance of 1.6 RMB trillion by the end of 2006,the biggest saving institution after the "big four” — State Council approved the establishment of the postal savings bank in July 2005; CBRC released the plan in June 2006 — CPSB was established in Mar 20th, 2007. 3-34 Key Indicators of China’s Banking Sector Total Assets and Liabilities (in trillion RMB ) 3-35 Key Indicators of China’s Banking Sector — Market Share by Assets Policy banks; SOCB; JSCBs; Urban CBs and coops; Rural financial institutions and Posting Savings Bank; Non-bank institutions; foreign banks 3-36 Key Indicators of China’s Banking Sector — Deposits, Loans and Deposit-to-Loan Ratio
Key Indicators of Key Indicators of Chinas Banking Sector China's Banking Sector Numbers and percentage of banks meeting the Asset impairment coverage ration(100 million RMB) Key Indicators of Key Indicators of Chinas Banking Sector Chinas Banking Sector NPL balance and ratio of commercial banks(100 Income structure(2012) million RMB) Net interest income: Net fee-base income Investment returns: Others Key Indicators of Key Indicators of Chinas Banking Sector Chinas Banking Sector Liquidity condition Foreign banks and financial institutions in China
7 3-37 Key Indicators of China’s Banking Sector — Numbers and percentage of banks meeting the CAR requirement 3-38 Key Indicators of China’s Banking Sector — Asset impairment provisions and provisioning coverage ration (100 million RMB) 3-39 Key Indicators of China’s Banking Sector — NPL balance and ratio of commercial banks(100 million RMB) 3-40 Key Indicators of China’s Banking Sector — Income structure (2012) Net interest income; Net fee-base income; Investment returns; Others 3-41 Key Indicators of China’s Banking Sector — Liquidity condition Key Indicators of China’s Banking Sector — Foreign banks and financial institutions in China 3-42
Global Competitiveness Global Competitiveness pricol Group hi UF Fnancial Group n Chase Co ruction Bank Corporation Bank of china 230B2 eyal Bank of Scotland Group 15 Citigroup Inc USA 881.7 Reform of socbs The reform of SoCBs was in parallel with the 3.3 Reform of socbs economic refo The purpose was to transform the traditional government banks into commercial banks, for which profitability is of the prior importance. However the banks used to work in the guidance of the government, and had been subsidized the SOEs for a very long time and had accumulated much NPL. Reform of socbs Special Policy Arrangeme Special Policy Arrangements(1997-2003) Abolishment of credit plan( 1998) Abolishment of credit plan their own discretion PBC control and intervene the amount of credit Establishment of AMC and Disposal of NPL Market-Oriented Banking System(2003-) Capital from 13% to 8s Second round capital injection thus released RMB 270 billion of liquidity in SOCBs Introducing of foreign strategic investors IPO in HKSE and SSE hich injected the proceeds into the former B/S structure of SoCBs changed
8 Global Competitiveness Rank Bank Country Total assets, US$bn 1 Industrial & Commercial Bank of China China 2,953.85 2 HSBC Holdings UK 2,681.36 3 Deutsche Bank Germany 2,597.36 4 Credit Agricole Group France 2,582.42 5 BNP Paribas France 2,507.96 6 Mitsubishi UFJ Financial Group Japan 2,486.31 7 Barclays PLC UK 2,414.78 8 JPMorgan Chase & Co USA 2,389.35 9 China Construction Bank Corporation China 2,361.60 10 Japan Post Bank Japan 2,118.84 11 Agricultural Bank of China China 2,295.80 12 Bank ofAmerica USA 2,174.61 13 Bank of China China 2,130.82 14 Royal Bank of Scotland Group UK 1,979.14 15 Citigroup Inc USA 1,881.73 3-43 Global Competitiveness 3-44 3.3 Reform of SOCBs 3-45 Reform of SOCBs — The reform of SOCBs was in parallel with the economic reform. — The purpose was to transform the traditional government banks into commercial banks, for which profitability is of the prior importance. — However, the banks used to work in the guidance of the government, and had been subsidized the SOEs for a very long time and had accumulated much NPL. — The disposition of NPL and the role change of the banks were two challenges. 3-46 3-47 Reform of SOCBs — Special Policy Arrangements (1997-2003) ◦ Abolishment of credit plan ◦ First round of capital injection ◦ Establishment of AMC and Disposal of NPL — Market-Oriented Banking System(2003-) ◦ Second round capital injection ◦ Introducing of foreign strategic investors ◦ IPO in HKSE and SSE 3-48 Special Policy Arrangements — Abolishment of credit plan(1998) ◦ SOCBs could allocate funds and select projects at their own discretion ◦ PBC control and intervene the amount of credit through moral suasion (window guidance) — Capital injection(1998) ◦ PBC lowered legal required reserve from 13% to 8%, thus released RMB 270 billion of liquidity in SOCBs ◦ SOCBs purchased special bonds issued by MOF, which injected the proceeds into the former ◦ B/S structure of SOCBs changed
Special Policy Arrangements Special Policy Arrangements Establishment of AMCs(1999 Four AMCs were established to take nPls off from SOCBs book Time of SOCBs sell NPLs to AMCs by purchasing bonds Cinda an PBC provides loans to AMCs to cover the difference Development Bank Apr: 20, 1999 etween NPLs disposed by SOCBs and the bond Huarong oet71999 issued by AMC Great Wall BC recalls the same amount of loans from soCBs Special Policy Arrangements Special Policy Arrangements harpes it Banc sheet a"AMcs FE and cciS asto帮 Disposa Darim等+20 The disposal of NPL did not eliminate NPL. It just stripped the NPL from commercial banks balance sheets and moved it to AMcs B/S Prew iso a/e Loans te MCs The b/s quality of commercial banks had beer improved for further reform. The AMCs are more ed in asre Bad loans that cannot be recovered are losses in aMc and subsidized by moF Market-oriented Banking System Market-oriented Banking System China entered WTo in Dec 2001, and promised The"big four had very poor performance
9 Special Policy Arrangements — Establishment of AMCs(1999) ◦ FourAMCs were established to take NPLs off from SOCBs’ books. ◦ All AMCs are financed by MOF. ◦ SOCBs sell NPLs to AMCs by purchasing bonds issued by AMCs. ◦ PBC provides loans to AMCs to cover the difference between NPLs disposed by SOCBs and the bonds issued by AMCs ◦ PBC recalls the same amount of loans from SOCBs. 3-49 50 Special Policy Arrangements — Establishment of AMCs(1999) Name of AMC Name of Banks Time of Establishment Orient BOC Oct.15,1999 Cinda CCB and China Development Bank Apr.20, 1999 Huarong ICBC Oct.17,1999 GreatWall ABC Oct.18,1999 Special Policy Arrangements 3-51 Special Policy Arrangements — The disposal of NPL did not eliminate NPL. — It just stripped the NPL from commercial banks’ balance sheets and moved it toAMCs’ B/S. — The B/S quality of commercial banks had been improved for further reform. — The AMCs are more specialized in handing the NPL by reselling or recovering it. — Bad loans that cannot be recovered are losses in AMC and subsidized by MOF. 3-52 Market-oriented Banking System — China enteredWTO in Dec 2001, and promised to open the financial market in 5 years. 3-53 Market-oriented Banking System — The “big four” had very poor performance 3-54
Market-oriented Banking System Market-oriented Banking System Reform of corporate governance staying at the To transform the banks into internationally competitive joint-stock commercial banks Promotion of"three transformations"" Transformation of the banks'ownership structures Transformation of the banks' corporate governand internal controls, safe and sound business structures and mechanisms operations, quality services as well as Transformation of the banks' internal controls system desirable profitability Market-oriented Banking System Market-oriented Banking System Second Round of Capital Injection Further disposal of NPLs CBRC established and began its operating in April RMB 500 million by releasing the original Ur MOF made a debt-to-equity conversion China Huijin Investment Company was established based on the foreign exchange reserve of SAFE. form of receivables of future dividends Huijin Invested US$45 billion into BOC and CCB in Dec 2003. RMB 3 billion into BoCom in June 2004 PBC provided loans to AMCs to purchase the and ussi5 billion into ICBc doubtful NPLs and required SOCBs to existing capital invested by MOF to BOC and CCB purchase an equivalent amount of special bills. was written off, and Huijin became the sh AMCs can purchase NPLs from any SOCB MOF didnt write off the capital invested in ICBC. Market-oriented Banking System Market-oriented Banking System Principles in choosing strategic investors To upgrade the SOCBs'corporate Long-term share holding Optimizing governance struc To reinforce the risk management and internal Business cooperation control Avoiding competition To achieve the capital adequacy ratio Will foreign strategic investors hurt the To improve the IPO price
10 3-55 Market-oriented Banking System — Objective ◦ To transform the banks into internationally competitive joint-stock commercial banks with appropriate corporate governance structures, adequate capital, stringent internal controls, safe and sound business operations, quality services as well as desirable profitability 3-56 Market-oriented Banking System — Reform of corporate governance staying at the core — Promotion of “three transformations” ◦ Transformation of the banks’ ownership structures ◦ Transformation of the banks’ corporate governance structures and mechanisms ◦ Transformation of the banks’ internal controls system 3-57 Market-oriented Banking System — Second Round of Capital Injection ◦ CBRC established and began its operating in April 2003. ◦ China Huijin Investment Company was established based on the foreign exchange reserve of SAFE. ◦ Huijin Invested US$45 billion into BOC and CCB in Dec.2003,RMB 3 billion into BoCom in June 2004, and US$15 billion into ICBC. ◦ Preexisting capital invested by MOF to BOC and CCB was written off, and Huijin became the shareholder of SOCBs. ◦ MOF didn’t write off the capital invested in ICBC. 3-58 Market-oriented Banking System — Further disposal of NPLs ◦ MOF made a debt-to-equity conversion about RMB 500 million by releasing the original paid-in capital and making up the loss with a form of receivables of future dividends. ◦ PBC provided loans to AMCs to purchase the doubtful NPLs and required SOCBs to purchase an equivalent amount of special bills. ◦ AMCs can purchase NPLs from any SOCB through auction. Market-oriented Banking System — Introducing strategic investors ◦ To upgrade the SOCBs’ corporate governance structure ◦ To reinforce the risk management and internal control ◦ To achieve the capital adequacy ratio ◦ To encourage innovation on products and technology ◦ To improve the IPO price 3-59 3-60 Market-oriented Banking System — Principles in choosing strategic investors ◦ Long-term share holding Optimizing corporate governance ◦ Business cooperation ◦ Avoiding competition — Concern ◦ Will foreign strategic investors hurt the national financial security?