China announced plans today to inject US$15 billion into its biggest state-owned commercial bank as part of efforts to turn it into a profitable, freestanding competitor as
Beijing opens its financial markets to foreign rivals.
The Industrial and Commercial Bank of China will use the money to replenish its financial reserves, Xinhua reported. Like other state banks, ICBC is burdened by unpaid loans issued to state companies.
China’s government is preparing its major state-owned commercial banks to raise capital by selling shares for the first time to private investors, including those abroad.
Regulators believe ICBC is "basically ready" to take such a step, Xinhua said, though a date is not announced.
The amount given to ICBC is smaller than the $22.5 billion two other major state-owned banks each received last January in the first stage of the banking overhaul.
The money will come from China's foreign reserves, Xinhua said.
Until recently, China's state banks were treated as a source of money to prop up failing state companies, leaving them with too little capital to meet regulatory requirements.
Efforts to reform the industry have taken on added urgency as China prepares to meet commitments to the WTO to open its financial markets to foreign competitors by 2006.
ICBC, founded in 1984, is the biggest of China's four main state-owned commercial banks by deposits. But Xinhua said it also faces the most serious financial problems, with up to 20 percent of its loans considered unrecoverable.
Until recently, Chinese law barred state-owned banks from declaring loans to state firms uncollectable and writing them off, leaving lenders with unpaid lending on their books.
The government has begun turning over outstanding loans to a series of newly created debt-management agencies, which try to obtain payment by seizing assets or accepting shares in debtor companies.
A handful of Chinese banks have formed ventures with U.S., European and other partners, benefiting from access to investment capital and more advanced banking skills.
Last year, British-bank HSBC Holdings PLC bought a near 20 percent stake in Shanghai-based Bank of Communications, China's fifth-largest bank. Citigroup Inc. of the United States, Dutch lender ING Groep NV and others have announced plans to buy into smaller banks.
ICBC announced a venture in March with American Express Co. to issue credit cards.
ICBC and other Chinese banks also are trying to modernize their accounting, plugging gaps that have permitted massive thefts through phony loans and other schemes.
In January, the government announced the arrest of dozens of government officials and others implicated in a scheme to steal 7.4 billion yuan ($900 million) from ICBC through fraudulent loans.
