China has proposed that the weakest of its big four state banks, the
Agricultural Bank of China, be broken up into smaller entities or undergo a
major capital restructuring, state press has reported.
But this reported plan is said to have met with strong resistance from some
staff and experts.
An Agricultural Bank
of China office. [China Daily] |
In a report to China's cabinet on May 9, the central bank suggested that the
troubled lender's Beijing headquarters be abolished and the bank be split into
smaller provincial entities, the China Business Post reported, citing sources.
But neither the central bank nor the agricultural bank confirmed the plan. A
spokeswoman at the agricultural bank said she had not seen any official document
relating to the split proposal.
At the State Council briefing, People's
Bank of China governor Zhou Xiaochuan also suggested shoring-up the debt-ridden
bank with a major capital outlay, the same kind that the three other big
state-run banks received.
According to the newspaper, however, Zhou is believed to be leaning towards
splitting up the bank, leaving provincial and local governments to share the
bank's "historical burdens" -- a reference to the bank's massive bad loan burden
built up.
It is estimated that the bank would need some US$60-70 billion to clear its
stressed debt before it could become a viable lender and list on overseas
stockmarkets -- as regulators had hoped and the other three others are doing.
China's banks have long struggled with severe debt problems, a major hangover
from the country's central planning days when easy credit was provided with
little concern for commercial gain.
Between December 2003 and April 2005, the government spent US$60 billion to
bailout the Bank of China, China Construction Bank and the Industrial and
Commercial Bank of China as part of preparations for initial public offerings in
Hong Kong.
China Construction then raised US$8.0 billion in a listing last October in
the former British colony last year, while Bank of China, China second largest
bank, may raise more than US$11 billion when it lists in Hong Kong on June 1.
The Industrial and Commercial Bank of China could list later this
year.
Senior officials at the agricultural bank said earlier this year that the
bank had submitted a restructuring proposal to the State Council. But instead of
a spin-off, the bank suggested an overall listing, putting the reduction of the
bad loans as the top priority, to be followed by a financial reshuffle. The bank
was also said to be in talks with potential foreign strategic investors.
"The news of a possible split gave us a blow," a member of staff at the
agricultural bank's headquarters in Beijing said yesterday. "We cannot accept
it." If the plan is implemented, the bank's image would be damaged and
competitiveness eroded, said the staff member, who preferred to remain
anonymous.
"A major advantage of our bank is the big national network. If that network
is broken or split into small ones, then we will lose big clients. And what is
the difference between our bank and city banks and rural co-operatives?" she
said.
Experts also said the idea of splitting the national bank into regional ones
should take into consideration the heavy cost of redundancies and the
reallocation of labour and bank units.
He Ziyun, a professor of banking at the University of International Business
and Economics in Beijing, said the split of a big bank like the Agricultural
Bank of China goes against current trends.
Now that many city banks and co-operatives have merged or are seeking
partners to become larger and stronger, it would be unwise to split up a big
bank, which would lower the bank's reputation and competitiveness, he said.
The reshuffle will also affect the morale of staff and lead to unnecessary
chaos, which will ultimately slow down the pace of restructuring, he said.
