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Unformatted text preview: gencies like Standard and Poor’s, Moody’s or Fitch to provide essential information
o n potential borrowers of corporations, nor a national consumer credit bureau to provide
information on enormous potential borrowers of consumers and small business owners. This is
partly due to the lack of nationwide standards for collecting and sharing the necessary data. Until
January 2006, Shanghai was still the only Chinese city that had a local data collection directive
and a formal personal credit bureau system covering 300 million people.
Finally, Chinese banks don’t have effective performance management systems for the
e mployees. Loan officers neither need to assume the responsibilities of issuing bad loans,
especially to SOEs, nor get rewards for taking a well-calculated risk in new lending segments like
consumer lending or small business loans. Managers accordingly don’t have sufficient incentives
to expand the lending to consumers and SMEs since this part of loan is typically more risky but
also has higher return rate comparing with loans to large companies or SOEs. Therefore, despite
the low efficiency of SOEs, many banks still lend heavily to them, particularly the large SOEs,
since their scale and the support from the government makes the loan to them seem low risky. As
a result, the loan to corporations, large SOEs in particular, accounts for two-thirds of total bank
lending while the loan to consumer only accounts for 10 percent of the lending.
With operational weakness, the profitability of SOCBs is far from being satisfactory. The profit
of Big Four SOCBs is mainly made from the difference in interest rate between deposit and loan.
The interest income of loan accounts for 69 percent of the four SOCBs’ total income. In 2000,
the profit margin of is only 0.13 percent in ICBC, 0.01 percent in ABC, and 0.14 percent in BOC
and CCB while the profit margin in Citibank (China) and Hong Kong and Shanghai Banking
Corporation _HSBC, China_ is 1.5 percent and 1.77 percent respectively. In 2001, the profit per
capital in the Big Four is barely RMB 10,000, which is roughly equivalent to 1/25 of profit made by
foreign banks (Zhong Wei etc, 2003). V.�New�Challenges
Although NPL ratio fell sharply from 31 percent to around 10 percent in 2005, it seems that
China’s NPL problem is likely to persist. The rapid decline of NPL ratio is not really the result of
NPL recovering, but mainly due to two factors. First, the transfers of more than $300 billion bad
loans from banks to AMCs explained around 60 percent of the decline in NPL ratio. Second, the
rapid expansion of bank lending in 2003 and 2004 also contributed significantly to the reduction of
NPL ratio by increasing the denominators. Although these factors could lower the NPL ratio in
the short time, operating weakness of the banks is the underlying factors that might lead to new Non-Performing Loan of China’s Banking System 149 NPLs. Moreover, given lower cash recovery rate of NPLs within AMCs, the burden of NPLs wil...
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This document was uploaded on 03/12/2014.
- Spring '14