Unformatted text preview: that focus exclusively on the collection and resolution of the NPLs.
In 1998, the central government issued special treasury bonds having a worth of RMB 270
billion to replenish the big four lenders’ capital base and hence to increase their capital adequacy
In 1999, the four Asset Management Companies (Huarong, Orient, Cinda and Great Wall) were
established to take over and dispose RMB 1.4 trillion (US$168 billion) worth of NPLs from the
four SOCBs within ten years from their establishment. Each of the four AMCs pairs up with one
of these big four banks in China, i.e. Cinda with CCB, Huarong with ICBC, Orient with BOC, and
Great Wall with ABC. The loans transferred to AMCs were primarily “substandard” or “doubtful”
loans (under the old 4-category classification mechanism) made prior to 1996 and overdue for
more than one year by the end of 1998. The AMCs purchased the NPLs at book value. The
recovery value of the NPLs will surely be below the full book value that the AMCs paid for the
assets. Non-Performing Loan of China’s Banking System 139 In 2003, China Banking Regulatory Commission (CBRC) was founded. The main functions of
the CBRC is to formulate supervisory rules and regulations governing the banking institutions;
authorize the establishment, changes, termination and business scope of the banking institutions;
conduct on-site examination and off-site surveillance of the banking institutions, and take
enforcement actions against rule-breaking behaviors; conduct fit-and-proper tests on the senior
managerial personnel of the banking institutions; provide proposals on the resolution of problem
deposit-taking institutions; and be responsible for the administration of the supervisory boards of
the major State-owned banking institutions. CBRC is pushing the banks to reform faster. These
reforms have had positive results, including: increased provisioning, broader NPL resolution
strategies and improved credit risk management policies. After the establishment of CBRC, the
PBoC is responsible only for monetary policy and the payments system, just like central banks in
most developed countries.
In 2003, the government injected a foreign exchange reserve worthy of RMB 370 billion (US$45
billion) into CCB and BOC, both slated for public offerings. Central Huijing Investment Company
was founded to manage this part of capital, which is owned by China’s central government
and administrated through the Ministry of Finance. Through capital injection, Central Huijing
Investment Company has become the major shareholder of the SOCBs. The fund injected by
Huijing helped to resolve non-performing loans made to state-owned and quasi-state-owned
enterprises and to provincial development projects.
In 2004, Cinda AMC won the auction to purchase RMB 278.7 billion ($34 billion) NPLs from BOC
and CCB, at 50% of book value. The ultimate recovery rate of 33 cents on the dollar for the loans
is required by year-end 2005. In the same year, Cinda AMC bought RMB 4...
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This document was uploaded on 03/12/2014.
- Spring '14