S&P reports State banks assessment
(China Daily)
Updated: 2005-04-29 08:49

Standard & Poor's Ratings Services yesterday estimated the recapitalization of the Industrial and Commercial Bank of China (ICBC) and Agricultural Bank of China would cost the government at least US$110 billion.

The estimate takes into account the minimum level of loan loss provisions required by the regulators and an adequate level of capitalization to support the banks' existing balance sheets, the rating agency said yesterday in a report.

This sum is in addition to a recent US$15 billion capital injection by the government to ICBC.

Recapitalization could be funded in a variety of ways, including cash injections by the State, purchases of non-performing loans (NPL) through asset management companies, the introduction of strategic investors and initial public offerings, said Paul Coughlin, managing director of Asia Corporate & Government Ratings at Standard & Poor's, at a briefing in Beijing yesterday.

China has planned to list the four largest State banks after turning them into joint stock operations to meet international standards. Capital amounting to US$45 billion was pumped into Bank of China and China Construction Bank in 2003, and the disposal of US$34 billion in NPLs engineered in 2004.

Coughlin sees the recapitalization of the banks as a daunting task. They may need yet more capital injection, and will need to achieve higher returns to support growth.

Standard & Poor's estimates the major commercial banks need to realize a 2.1 per cent operating income before provisions and business tax on average assets to support a 15 per cent annual asset growth and a 5 per cent ratio of equity to assets.

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