The official chinese xinhua news agency recently

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Unformatted text preview: almost 20 percent of the shares and was chosen by a controlling group of shareholders to run operations. Non-Performing Loan of China’s Banking System 147 Chinese government is willing to provide funds to state owned banks. It will not only lessen the profit pressures of the banks, but will also create moral hazard, with which the banks will take risky operations. Moreover, high levels of state ownership make it difficult for banks to escape the political influence from the local governments and to reduce bloated bank payrolls. Even worse, the gold-plated corruption, reckless lending, misappropriation and fraud have actually plague China’s dysfunctional banking system. According to CBRC, during the first half of 2005 the Big Four SOCBs handled 98 criminal cases of fraud among bank employees. The official Chinese Xinhua News Agency recently reported that CBRC punished 6,826 bank officials in 2005 for illegal actions or outright financial crimes. China Construction Bank disclosed in its October, 2005 offering prospectus that it experienced more than 100 cases of fraud and embezzlement by employees between 2002 and 2004. Operational�Weakness Despite the efforts made by the Big Four SOCBs to upgrade management oversight and lending skills in recent years, Chinese banking system as a whole still have several operational weaknesses. First, most banks don’t have good internal credit-assessment capabilities. Under the planned economy, most of loan was directed or ordered by the government to fund the project or SOEs. Under such environment, loan officers were not required to develop good credit-assessment skills. It is actually no need for banks to develop credit scoring tools or to keep good records of borrowers’ credit histories under the circumstances of extensive policy lending. Although the government intervention on lending has been greatly reduced since the banking reform of 1994, banks still make lending decision based on incomplete data with insufficient analysis in many parts of China, partly due to the poor quality and unreliability of many companies’ financial statements. With poor credit-risk-management skills, when a major bank reviewed its lending portfolio in one region, it would find that for 60 percent of the loans, it couldn’t determine which industry had received the loan, what collateral was provided for it, or even who had made the lending decision. In order to overcome the operational weakness, some SOCBs have made great effort to improve the skills of their loan officers; some SOCBs have required provincial or regional approval for larger loans. However, in small banks, loan officers still make loan decisions according to past experience and hierarchical approvals, instead of rigorous analysis of companies. Second, the banks commonly lack external information on the credit histories and the financial condition of potential borrowers, including corporations and consumers. Under the environment of extensive policy lending in the past, banks do not collect the good-quality information on 148 研 究 所 年 報 borrowers’ credit histories and financial performance. Moreover, China has neither independent credit rating a...
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This document was uploaded on 03/12/2014.

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