Bank mulls bond plan for pilot restructuring
By Zhang Dingmin (China Daily)
Updated: 2004-03-31 08:35

The Bank of China (BOC) plans to issue subordinated bonds to further bolster its capital adequacy level as it prepares to sell its shares in 2005, a senior bank official said.

The move follows a capital injection worth US$22.5 billion into the bank by the central government late last year as part of a pilot programme to reform the nation's four State-owned commercial banks into joint-stock entities.

The China Construction Bank (CCB), the other of the two banks chosen for the pilot joint-stock restructuring, won a recapitalization bid of the same size.

"We do have a plan (to issue subordinated bonds), since the government has given us the policy to do so," said Zhang Yanling, vice-president of BOC. "It's a common international practice." She did not give further details.

The BOC was the second to reveal a plan to issue such bonds. Last year, the Industrial and Commercial Bank of China (ICBC), the largest of the State-run banks, said it wanted to raise as much as 100 billion yuan (US$12 billion) through bond issuances.

The China Banking Regulatory Commission (CBRC), China's banking watchdog, promulgated a regulation late last year to allow commercial banks to calculate proceeds from subordinated bonds, which ranks behind other liabilities in terms of claims on bank assets, as non-core capital in a bid to broaden their channels to replenish their capital bases.

Most of China's commercial banks fall short of the 8 per cent minimum requirement on capital adequacy. Prior to last year's recapitalization, BOC was believed to be the only of the four State-owned lenders, which also includes the CCB, the Industrial and Commercial Bank of China and Agricultural Bank of China, to meet the 8 per cent requirement.

According to the CBRC's regulation and available information on the four banks, they may issue a total of up to 300 billion yuan (US$36 billion) in subordinated bonds to improve their capital adequacy ratios.

Earlier this month, Liu Mingkang, chairman of the CBRC, revealed an appraisal system to evaluate progress in the restructuring of the two pilot banks. The system contains targets, using seven benchmark indicators such as the capital adequacy ratio, non-performing loan ratio and return on assets, for the two banks to meet in 2005 and 2007 respectively.

The targets, which were set in accordance with the world's top 100 banks, are not easy for the Bank of China, Zhang admitted, vowing hard work instead of any "fraudulent practices" to meet them.