Each of the four amcs pairs up with one of these big

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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 ratio. 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.

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