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The Chinese have looked inwards at their financial sector and arrived at the profound realization that the system is unworkable.
They also know that they have to take decisive steps to avert a crisis. It means a fundamental and complete overhaul.
“Look at the statement made by the premier about market reform,” begins one senior investment banker. “Wealth creation is the bedrock. That frames everything.”
“The government wants a world-class economy and it realizes that the predicate for this is to structure a world-class financial system,” says Michael Carr, Goldman Sachs’ head of investment banking for Asia. However, it’s not going to be easy. Sorting out banking and capital markets is going to be one of the People’s Republic’s greatest challenges.
Activity in the Chinese banking sector revolves around four state-owned banks: Industrial and Commercial Bank of China, Bank of China, Bank of Communications and Bank of Agriculture. Between them they own 70% of the banking sector’s assets, have just under 150,000 branches and employ an army of over 1.5 million workers.
Chinese bankers are keen to show they are adopting western-style management, business practices, and corporate governance. Many point out that Chinese bankers now all wear western-style business attire, perhaps not appreciating the spread of a dress-down culture in London and New York.
One of the main difficulties is that a one-size-fits-all restructuring template is not going to work. “The four commercial banks have contrasting histories, contrasting developments and contrasting burdens,” says Tang Shisheng, vice-president of China Galaxy Securities in Beijing, “so restructuring will have to be different. But the smallest will be the fastest. Costs? Well when we changed to western suits it was cheaper for the shortest people.” Maybe China’s smaller financial institutions will adapt more quickly to free markets than the largest banks.
For the banks to be successful they will have to have balance sheets that are benchmarked to European and US banks, be able to track capital and make loans that help the economy expand, and restructure in such a way that they are able to attract capital to enable the banks themselves to grow. It’s time to roll up the sleeves because over the next 24 to 36 months there’s going to be a lot of internal restructuring as the government-owned banks attempt to get in shape to go public.
But discarding Chinese clothes and putting on western suits isn’t going to be enough. A fundamental change in mentality is required. A realization that the essence of the free market does not begin and end with a successful IPO, or other capital markets funding, and that adopting financial transparency is not a short-term means to a one-off fund-raising event. Banks must understand about managing themselves so as to deliver shareholder value consistently. If they don’t, they will be punished at a later date.
The immediate problems the state-owned banks face are no great secret. All are under-capitalized. They have too many employees. They have too many non-performing assets. What’s more, banks’ business practices are at odds with accepted international standards. And they are not famed for their transparency.
“All the banks are doing something. They are trying to change but they have a long way to go,” says Shawn Xu, managing director of China International Capital Corporation’s research department, based in Beijing. “And I am not optimistic. I don’t think that the kind of restructuring programme they have entered is the right kind. They are only dealing with the symptoms and not the causes. They need to take the surgery and cut out the cancer.”
The cancer, according to Xu, is the ownership structure. For all the denials, the government still interferes with and controls the banks. What the government has to decide is whether it really wants the banks to run along commercial lines or to continue as government agencies, albeit ones more inclined to channel funds to financially viable companies and away from the basket cases.
Non-performing loans
The blurred line between banks acting as pillars of the government treasury and their running themselves as commercially viable enterprises is most evident when their lending practices are examined. Non-performing loans are the biggest concern for everybody.
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Beijing workers get on their bikes as market reforms begin to hurt |
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NPLs have haunted the Chinese markets for many years. Before the 1990s the boundaries between policy-oriented bank status and commercial bank status were at best fuzzy. During the 1980s when the Chinese economy entered a period of inflationary uncertainty, the four state-run banks were burdened by a government that looked to them to bail out substantial parts of the economy. “The banks took on a lot of extra tasks on behalf of the finance ministry,” says Li Ziqing, China Everbright Bank’s executive vice-president. “They were required to issue special loans in an attempt to alleviate poverty. The state also issued directives that the banks were to lend to state-owned enterprises, since many of these SOEs lacked the necessary capital to produce anything.”
The government’s attempts to keep the production lines running and the unemployed off the streets were, in the short term, successful. But this growth in policy lending ushered in an unprecedented period of poor credit and risk management practices that has left a legacy of rotten loans.
Guocang Huan, managing director and co-head of Asia-Pacific investment banking at Salomon Smith Barney, says: “The policy lending stopped so much progress. There was no effective protection mechanism.” That seems to apply to the accounting methods too. Nobody, and this includes the banks themselves, really knows how big the problem is.
“The Chinese want to postpone the issue. But they can’t. They really will have problems running their operations since they need to look at how they can get more equity from either the domestic or international markets,” says Huan.
According to Chinese policy, a bank should have no more than 3% NPLs on its books. But this figure can be discounted immediately as offering any guidance to the true state of affairs.
Shisheng offers his thoughts: “My personal opinion is that they are around 15%, but as you know some NPLs can disappear.” He fails to clarify what he means by disappear. “The discrepancies between the figures that are offered is because institutions use different criteria and have different perspectives about what constitutes an NPL. In my opinion an NPL is just an unreceivable. It’s something that will never be received even after restructuring, even after an M&A has occurred.”
It’s yet another method of designating an NPL. A US bank might call that a write-off, or a loss.
According to international standards, a loan becomes non-performing after 90 days, whereas generally in China it’s only after two years.
In Shanghai, Daniel Conklin, Standard Chartered Bank’s head of global corporate banking for China, says: “Here people say the NPLs are between 30% and 40%. Whatever the number is, it’s significant, and it is certainly more than the 20% that the Chinese have admitted to. If these banks were private enterprises they would be out of business.”
Policy lending has decreased. China’s central bank, The People’s Bank of China, has instructed the banks to be more commercial and competitive, to stop the bad lending practices of injecting funds into capital-starved, non-profitable enterprises. Foreign banks operating in China have been given the same instructions and told not to rely on implicit government guarantees for repayment of loans to Chinese companies. In response, those foreign banks have simply stopped lending to Chinese companies, extending credit instead mainly to foreign multinationals and Chinese joint ventures with creditworthy foreign companies.
But doubt remains as to the government’s and Chinese banks’ commitment to such a hard-headed loan policy. They can’t just turn the taps off. Conklin explains: “If they did that the number of people spilling on to the street would be unimaginable. They have not stopped all policy lending.” But it’s an intelligent step back from a good idea. It’s just been adjusted to fit the reality of the situation.
Xu at CICC still remains highly sceptical: “Government is government, its behaviour remains the same. It looks for everything but profit. Unemployment should not be a commercial bank’s concern, but they are still being used as policy instruments. The governors of these banks are appointed by the government and they have to report to their boss – the government. What happens if the president of ICBC decides to go against his boss and rejects the idea of some policy lending? At best he won’t get promoted.”
Xu points out that at the beginning of the year GDP growth was falling and that the government was worried. A decision was made to expand fiscal credit and so China issued more bonds. At the same time, the banks were told to extend more credit. Basically more loans were needed to stimulate domestic demand. Old habits die hard.
Asset management companies
The Chinese authorities are making attempts to address the NPL problem and all banks speak of the need to introduce better credit and risk management systems. The strategy with the highest profile is the establishment of four asset management companies charged with taking over the banks’ bad assets. In effect the AMCs buy the loans from the banks, which they then dispose of through either debt-for-equity swaps, secondary sales or liquidation.
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Daniel Conklin |
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It’s a scheme with recent precedents across Asia as well as in America’s resolution of the savings&loan crisis 10 years ago and Scandinavian governments’ response to bad loan problems in the early 1990s. Chinese bankers at least pay lip service to the idea that this can only be a one-off relief programme of government-sponsored clean-up. What’s less clear is its likely eventual scale. According to recent figures, the AMCs have taken Rmb400 billion ($48 billion) on board. And there’s a lot more to come.
US and European banks in Hong Kong, many hoping for plenty of China business, appear to be much more positive about the scheme than Chinese bankers based in Shanghai and Beijing.
Colin Stewart, managing director of Morgan Stanley Dean Witter’s ECM team in Hong Kong, states plainly: “The good banks should divorce themselves from the bad assets and be allowed to move on.”
Standard Chartered’s Conklin also remains upbeat. “Look at it positively,” he says. “If our marketing staff was just focusing on NPLs we wouldn’t be able to bring any money in.
We’d be losing money on not just the NPLs but also future business development. When a bank has done everything it can, the NPLs should be shifted out and managed by people who are trained. But, I suspect there aren’t many people here who know how to deal with bad assets.”
Some of the brokerage firms and banks based in Beijing believe that using the AMCs is not the best method, arguing that because the banks created the NPLs themselves it is up to the banks to solve the problem. “The banks know why a loan became an NPL, and understand the history of the loan. It’s a waste of time and resources for the AMCs to create their own networks and go chasing after these loans,” says a confident Chinese banker in a very secure office 10 minutes from Tiananmen Square who asked not to be named.
The managing director of another Chinese bank freely admits that the AMCs were not quite what they seemed. “There is a complete conflict of interest,” he says. “These AMCs are not as independent as so many claim. The personnel involved have been lifted straight out of the banks with the NPL problems and put into the AMCs. If you use the same personnel who created the loan, how can they be objective about which loans should be written off?”
Shawn Xu takes his criticisms further. He believes that the AMCs are not only subject to a conflict of interest but also create greater problems. He fears moral hazard if the AMCs begin to be seen as a long-standing safety net. “Right now all the banks’ officers know they can screw up a loan book because 10 years down the road it will be up to the asset management company to sort it out.”
The Chinese government spent a lot of time looking at the Resolution Trust Corporation that was set up to deal with bankrupt savings&loans in the US, a crisis that involved some US bankers being put behind bars. But as Xu points out: “Chinese officials know this but they don’t want to remember that part. They transfer the NPLs over to the AMC without questioning the process. Oh my god. Can you believe that? Well, it’s very nice for the bankers who should be in jail.”
Nobody has come up with a better solution, though. Chinese banks will be in no position to lend again until their balance sheets are cleaned up and the weight of past bad loans, many the result of policy lending, is lifted.
Certainly the banks know that they have to appear more forward-thinking and internationally minded. If the banks do want to float, and Bank of China’s name is bandied about as one promising candidate, they will have to do more than partly restructure, otherwise international investors will demand a heavy discount for buying new shares.
At least when the Chinese banks do go public they’ll be in much better shape than they were – though hardly super-efficient, highly-transparent institutions. And some Chinese believe that were the banks to restructure too quickly, they just wouldn’t be able to survive.
The stock market
Like the banks, China’s stock market is facing up to the need for change. The government realizes that it is a vital component in its reform strategy. With a fully effective domestic capital market, the government will be better able to meet its quest to raise capital for state-owned enterprises, to speed up the restructuring process, and promote the improvement of SOEs’ corporate governance and competitiveness.
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China’s stock market in its present form is split in two. The A share market, comprising 1,070 stocks, is open to any investor so long as it is domestic. The B share market, 113 stocks, is supposedly open solely to foreign investors. Supposedly, because the truth is that although the law states that domestic investors are not allowed to trade B shares, they actually find ways to dominate this market.
A Shanghai banker explains: “Controls are very lax. If you go to the B share market you will only see local people. They use the passport of a relative who lives abroad. This also means they can then get their hands on foreign currency. They then trade.” Chinese investors cannot, however, arbitrage the two markets, buying cheap B shares and selling them as A shares. To that extent the two markets are kept separate.
Standard Chartered’s Conklin further explains the loose restraints: “The government wants to maintain control but they do allow things to tatter at the edges. Officials are quoted, rumours are floated and opinion is tested over a long period of time. Then two hours before it’s all about to crack open, the government announces the needed change. The bankers here all just say ‘Yeah right! Like we didn’t see that coming.’ While overseas you only see the dramatic shifts.”
The rumour, though, is that the A and B share markets are about to merge. That’s good news for the B share market. These kind of rumours have helped it to survive, as investors enter to do a bit of speculative trading. Its stocks trade well below those on the A share market, so any talks of a merger ramp the B share prices up.
Over the past decade the markets have grown fast. Since 1990 over 1,000 companies have listed on the two exchanges and they now account for just under 50% of the country’s GDP. But despite great changes over the past decade the Chinese stock market remains dogged by the familiar problems of all emerging share markets: a lack of transparency, vague accounting standards, weak corporate governance and poorly reported earnings.
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One reason for the dramatic increase in the number of companies listed is the slightly more stringent loan guidelines that have been introduced with the establishment of the AMCs. Fragile SOEs can no longer always rely on banks for funding and so have been pushed to the markets. There would be no problem in this were company managers to accept market disciplines and respect shareholder value. But as one banker says: “This is not in their minds. Listing is the way to get money and that’s it. As soon as they get their hands on the cash the performance of the share deteriorates quite rapidly.”
One American banker looks down on the impressive Shanghai stock exchange in Pudong and lets out a sigh. “The market that’s open to foreign investors is pretty damned depressed because of the lack of demand and the poor Chinese stock that’s listed. There was a heyday a few years ago, but the underlying fundamentals of these companies are seriously lacking.” Although a handful of Chinese companies have recently begun reporting impressive profits following liberalization of prices for their products, including oil, these cannot always be relied on. “The government will do a shock audit and the company is suddenly reporting surprise losses. That’s not exactly a confidence builder.”
Because many of the companies listed provide investors with very little in the way of a decent return, some domestic securities companies have resorted to making money through market manipulation. Insider trading is as common as it is blatant. CICC’s Xu gives numerous examples. “A securities firm may wish to build a position. The broker phones the company and asks for some bad news to be released. That company’s CEO will most probably hold a personal account at that securities firm. When the position is built the broker gets back on the phone and asks for good news to be released. It’s that simple.
The CEO and securities firm walk away with a nice fat cheque. It’s a well-known practice. Those taken to court are just the tip of the iceberg. It’s the normal investor that is getting ripped off.”
China’s markets are the most restrictive in the region, which is one of the reasons why the solid corporates have had to go for non-China listings. However the government knows that an unrestricted market would lead to quicker growth and increased wealth. The questions are how will they overcome the hurdles they face and how far are they prepared to go.
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Colin Stewart |
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Michaël De Lathauwer, managing director of Asia capital markets at Goldman Sachs in Hong Kong, says that China realizes that it is behind in its capital market development and that it would be naïve to think that substantial change will occur in the next year or two. But he also admits that the pace of change in Asia is very fast. And the Chinese don’t want to be left behind. He says: “Over the next couple of years they are going to have to make some pretty bold moves. But it’s a complex issue. From a macroeconomic point of view they will have to tread carefully. The A and B share markets will converge over time and foreigners will be able to buy any kind of Chinese company they want.” But he adds: “That’s not going to happen for another 10 years.”
However, the notion that a merger will occur sooner rather than later has been fanned by the statement of Zhou Xiaochuan, chairman of the China Securities Regulatory Commission, who said: “The listing of qualified companies with foreign investment will help upgrade the structure of the stock exchange.” It resulted in an immediate rise in the price of B shares.
Over the year this illiquid market consisting of only a handful of real stocks has risen 85%.
One banker says: “This rumour has been floating around for a couple of years and it seems that these periodic rumours of a merger are meant to breath life into an otherwise stagnant market. I wish I had bought B shares.
But no doubt those government officials who invested in the market will be handsomely rewarded.”
The major obstacle to any merger is the convertibility of the currency, and until this occurs merging the markets will prove difficult. According to Sherry Lui, managing director at CLSA in Beijing, this will take a further three to five years. She also mentions China’s concerns about its $100 billion foreign currency reserves. By opening up the market they could become vulnerable. This makes the authorities very nervous. They fully understand that by opening up China’s domestic capital markets to foreign investors any negative event could have far-reaching consequences. That’s something China has for so long been relatively cushioned against. But nobody said it would be easy.
Finishing homework before going public
Bank of China is the most forward-looking and internationally minded of the four state run banks. It’s widely believed that it will be the first to go public. And it’s getting serious. In October the bank announced that it was to lay off 15,000 employees worldwide in an attempt to trim off some of the excess fat.
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Liu Mingkang |
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Chris Cockerill met Liu Mingkang, the bank’s London trained president – who apparently picked up his English listening to Voice of America on a secret transistor radio while working in the rice paddies. Being a proponent of the asset management companies that deal with non-performing loans, he answers the critics who say the banks are just getting a free lunch.
What proportion of your assets are outside of China?
Forty-one per cent of our assets are outside China, and 75% of our profits come from outside China.
What proportion of assets does the bank hold in greater China?
Ninety per cent, producing 70% to 80% of our profits.
Bank of China has a presence in 23 countries, but what challenges does it face as it attempts to enlarge its global presence?
I think the biggest challenge is human resources. I think if you want to be more competitive you have to be able to hire very talented people within different countries.
You also have to deal with different regulators, the cultivation and education of employees, and understanding the trends and needs of different customers.
How are you attempting to overcome these problems?
We have strengthened our training facilities both in and outside of China. We have four overseas training centres in New York, London, Singapore, and Hong Kong, and two centres within China.
There are rumours that Bank of China will go public next year. Will the fact that you have more assets outside mainland China than your competitors persuade the government to allow you to go public quicker?
We haven’t got the details or the timetable for going public. And before we reach that target, we’ve got to do our homework first.
To go public you have to understand the real meaning of the capital markets with confidence. You have to clean your house, follow international practice and make sure there is good corporate governance. If you have not done all these things you had better forget it.
Completing your homework is going to cost money. Will Bank of China tap the international markets?
The answer is definitely yes.
When and how much will it be for?
I think, well I haven’t brought my calculator, but I can tell you ways we can do it. One way is to issue fixed-income products.
So you are going to tap the international bond market next year?
We haven’t got the timetable but this is the direction. And I think we will do so if necessary. The second method is the equity market, but this depends on a lot of things.
We are not quick-buck seekers, we’ve got to do our homework first. And we have to prove to ourselves that we will pay a fair price. We do have a timetable for almost all the restructuring, but for some missions we don’t need outside financing, for example upgrading our IT systems within two years.
How long do you think it will be before you are a commercial bank by western standards?
I think it’s a gradual change, and in my opinion it will take at least three to five years. It will take time to digest the historical burdens such as the NPLs. It takes time to build up a solid, good corporate governance mechanism. It takes time too for changes in the legal framework, and accounting methods. There is a worldwide business language and we have to speak this language before we can go the market.
But sceptics would charge that you cannot be an independent commercial bank when your boss is the government.
I think the government is changing too. Ten years ago the government dictated all big lendings. Now it only gives a direction, saying: “Go west. There’s a lot of potential in the west.” It’s up to us whether we want to go west or east. We pick the project.
But isn’t there a conflict of interest? A commercial bank is there to make a profit. The government is concerned with macros. If the government came to you and asked you to lend to more state-owned enterprises, what would your answer be?
I would say yes if it is economically viable and no if it is not.
So politicians do not run this bank?
Not now. We have an independent risk management committee. The bank’s top executives, including myself do not have any seats. It’s the committee’s decision [who the bank lends to].
You don’t have any seats but will you have any say?
If the committee says yes [to a project] I can say no. But if they say no, I cannot say yes.
Western banks are unsure as to the level of the bank’s NPLs, with some suggesting they are as high as 40%. In your opinion using international accounting methods, what is their current level?
Bank of China was one of the first banks in China using the international standard of five categories. The good news is that the NPLs have declined. For many branches the NPLs have declined from 30% to 40% down to 20% and in some cases even lower over the past two years.
How have you done that so quickly?
Thanks to the central government’s policy we have asset management companies. So we can reduce the NPLs by 10% to 15%.
But isn’t the AMC solution just taking a problem out of one pocket and putting it into the other pocket?
No it’s different. We are clearly dividing the good banks from the bad. With the AMCs disposing of the bad loans, we can clear our hands.
Isn’t that just like getting a free lunch?
Yes and no. Yes it is a free lunch for the Bank of China and other commercial banks, but you have to look back on the history of China.
It is very different from the west. This is a transition from a planned economy to a market economy. We have some government-oriented projects, so we have the historical burdens.
So to transform we have to get rid of these historical assets. It’s a free lunch to some degree.
On the other hand it’s not. We have to set up new and responsible accounting systems. The NPLs have to be brought down and controlled, and then we have set about improving our asset portfolios and risk-management systems, so it’s not a free lunch.
But the AMCs may be more hazardous, allowing banks to continue careless lending practices knowing that they have a safety net.
The separation of the bad loans to the AMCs is not a continuous process. You can’t keep transferring bad loans. What we will do now is focus on risk management and use prudent accounting methods to make sure that there will be no moral hazard. From the bottom of our hearts we realize we can’t create any moral hazards or we won’t be competitive when we enter the WTO.
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Jiang Jianqing |
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ICBC remains opaque about NPL problem
Industrial and Commercial Bank of China is the largest of China’s four state-owned banks and ranked 10th in the world by tier one capital. But for a bank with total assets of $427.6 billion its international impact is minimal. It has only 12 foreign branches. But ICBC, with Jiang Jianqing, its president, at the helm, says it is aware of the need to change its monolithic image. Still many international bankers are concerned about how far and how fast it is prepared to go, what its future focus will be and whether it will ever own up to the true figures for non-performing loans.
Senior sources at the bank have put NPLs at 20% – depending on which method of classification is used. Other sources are unable to give any number. Chris Cockerill spoke to Jiang Jianqing and tried to get some answers.
You are only 47 and president of one of the largest banks in the world. What’s your secret?
But I admire presidents and chairmen of IT companies who are even younger than me.
But they are not responsible for an organization of 500,000 people, 36,000 branches and 420 million accounts.
What really matters is not the age of the management but the age of the bank. The bank should be considered young and vigorous.
Unfortunately the bank in the past had a considerably opaque leadership and is now seen by leaders of the new economy as a future dinosaur and I am worried about this. For a bank to be young and vigorous it needs to set itself new and challenging targets.
What kind of targets?
Not only to be the best domestic bank but one of the best globally.
So you see the bank as a global player?
Yes, our target is to be a global bank. But at the moment 98% of our assets are based in China. By the way our assets amount to Rmb3,800 billion [$427.6 billion]. We see two ways for us to globalize. We shall set up branches overseas and also achieve it through M&A. This year ICBC acquired the listed Union Bank in Hong Kong.
What timetable have you set in achieving these considerable targets?
With only 2% of our assets overseas it will take a long time to be a globally large bank.
However we have set about improving our economic results, to earn profits for investors of the bank and we are also making more of an effort to achieve stable economic growth each year. The bank is also making a greater effort to enhance its asset quality and its quality of management, and has set about improving internal controls in accordance with the new commercial banking laws. As well as this we are trying to introduce more business innovation in an attempt to develop new products for our customers. I think these aims are in accordance with the governors and chairman of some of Europe’s and America’s largest commercial banks.
You mentioned that you were trying to improve the bank’s asset quality. How do you measure the bank’s non-performing loans?
The assets of all banks are classified into four categories: normal, overdue, doubtful and bad loans. Those loans which are granted and which have reached maturity we consider as overdue; a loan that has surpassed one year off maturity date we put into the doubtful category. For those even longer we consider it a bad loan. However, since the end of 1998 we began to apply the five categories used within the European banking sector. So we are now using both methods in measuring our NPLs.
Is there a discrepancy between the figures that you get?
At first, yes there was. But as time goes by the discrepancy is being reduced by a large margin and this reflects the fact that we can now more precisely analyze and define the real quality of our assets.
So what are the bank’s NPLs?
Well by adopting each of the two standards the differences between the two is very limited.
So what are they?
Well, now the People’s Bank of China still adopts the Chinese classification. That means a loan one day over maturity will be classed as an NPL. And actually the PBoC has set a new standard. For an enterprise that has a loan three months over maturity it will be considered a loan that banks must put pressure on to pay. By adopting this standard the bank’s NPL’s will be reduced substantially.
What is the bank doing to improve its corporate governance?
The government will have requirements for the overall economic growth of the banks and different industrial sectors in order to set up a healthy economic system, which means a healthy banking system. Depending on the sector the government will introduce different policies. The People’s Bank of China will, in compliance with these overall requirements, set relevant monetary, trade and financial policies. As a commercial bank in China we will act in accordance with these policies.
Can you be more precise?
I would like to take the steel sector in China as an example to give you more definition. In China we have many small steel companies which only have a small annual output. The central government knows that in the long term these small steel companies will not make money or profits in the future. Therefore it will adjust its policies towards these companies.
And as a commercial bank we will also adjust our credit policy towards small companies and will recover our loans already granted in order to avoid financial risks.
Have you introduced these new credit risk policies?
Well, I should not say that we have implemented, or we are implementing the measures to avoid credit risks. But to tell you the truth for the past 10 years we have always been making efforts to hedge and dissolve the financial risks and we have already got a very stable and sound financial risk system.
So there is no more policy lending?
Well, the only standard for us to decide whether we will grant a loan to an enterprise is not in accordance with the ownership of the enterprise but in accordance with whether the enterprise is profit making or loss making.
When can we expect ICBC to go public?
What we are doing now is a solid step for going public. But I think the process will probably be decided according to two factors.
First, as a large bank we will prepare ourselves in all aspects, namely improve efficiency and quality. Secondly, ICBC might be too large to be accepted in the domestic stock exchange. So in my opinion to go public we might separate the bank and then go public.
If you did split ICBC, what would the bank focus on first and what direction would it take?
To decide which part of ICBC to go public first will be to decide which part is best prepared. We will consider our credit card company. We have issued 68 million cards to date and we occupy 65% of all transaction and consumption volumes in the domestic sector. We will look at the parts of our business that are growing most rapidly. Our mortgage business, for example will reach Rmb500 billion over the next five years. We will consider differing areas in China. For example Shanghai is very profitable.
Which of the big four will be first to go public then?
It’s really hard to say, but it will be decided by which bank will do the best in restructuring and which bank prepares the best.
So, which bank is preparing the best?
Well, ICBC is doing very well in all aspects. But to go public for a bank in China is not the most important or most effective measure to solve problems. For a Chinese bank, restructuring and reform are the most important things.
