Chinese bank regulator warns of bad debt challenge

October 28 2005

SHANGHAI, Oct 28 (Reuters) - China, scrambling to lure investment as it cleans up a creaky financial sector, said on Friday it had no timetable for lifting curbs on foreign ownership of banks and was on guard against a rash of new bad loans.
Bad loans on the books of of major financial institutions dipped below 10 percent of all loans for the first time at the end of September, more than 4 percentage points lower than at the beginning of the year, the top bank regulator said. "Reducing the non-performing loan ratio and avoiding the resurgence of bad debt is still our biggest challenge", Liu Mingkang told the EU-China roundtable on financial services in Shanghai. Asked later if regulators would abolish or increase a 20 percent ceiling on foreign ownership by a single investor, the chairman of the China Banking Regulatory Commission told Reuters: "That's a big issue. We don't have a timetable for that."
Beijing is readying to open up the sector wider to foreigners by the end of 2006. It has made a priority of reforming a banking sector weighed down by about $200 billion of bad debt, for fear it could jeopardise future economic stability. The government has urged domestic banks to seek foreign capital and expertise. There are signs that Beijing is making headway. So far, 19 foreign institutions have taken stakes in 16 local lenders, investing a total of $16.5 billion, or about 15 percent of the total capital of the country's banks, Liu said. And Chinese banks holding 71.4 percent of the nation's financial industry assets had met capital adequacy ratios of 8 percent or more by the end of September, versus 44 percent a year ago, he added.
Overseas giants from Bank of America Corp to Citigroup Inc. have bought into Chinese lenders but are now allowed at most a combined stake of 25 percent in a local bank, falling to 20 percent for a single investor.
Reuters 2005. All Rights Reserved.