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Asia-PacificMay 1 2005

Zhejiang Province Commercial Banks

Wenzhou City Commercial Bank, Hangzhou City Commercial Bank and Ningbo City Commercial Bank, all lenders thriving on the booming private economy of Zhejiang Province, are front-runners in improving capital adequacy ratios, reducing NPLs and shifting from shareholder bases dominated by local government entities to those comprised mainly of private companies. Analysts say that these are among the top choices after Suzhou City Commercial Bank. Potential foreign investors have been visiting them.
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  • Wenzhou City Commercial Bank This small bank in Wenzhou, a thriving centre of private commerce on China’s eastern coast, is one of the fastest growing candidates for foreign investment in the banking sector. It has grown quickly since its launch in 1998 and managed to trim its NPL ratio to 5.55% by the end of 2004 from an alarming 28.85% at the end of 1999. The lender’s capital adequacy ratio is estimated to be more than 8%, just meeting the China Banking Regulatory Commission’s minimum requirement and much higher than the average for the 111 city commercial banks. The bank’s total assets had grown from Rmb4.28bn when it was launched in 1998 to Rmb14.88bn by the end of 2004. “The bank is small but much easier to manage than buying into one of the 12 medium-sized shareholding banks,” says a foreign bank official who is looking into possible investments in China. Wenzhou City Commercial has issued new shares twice since its launch in December 1998 to help boost its capital and reduce the government’s share in its ownership. It raised Rmb181m in its first private offer at the end of 2003, which added to its registered capital of Rmb290m and brought its total capital up to Rmb471m. Eight private shareholders took major stakes and the local government’s share dropped from 34.4% to 8.6%. “By ushering in some excellent local private firms and foreign strategic investors, I hope we will bring in new management ideas and optimise our bank’s shareholding structure,” Xia Ruizhou, the bank’s chairman, said during the last share launch in October. The bank has a three-year plan that calls for it to go public by 2007. It intends to increase its total assets to Rmb20bn by the end of 2007 and to reduce its NPL ratio to less than 1%. It has about 60 branches and sub-branches in the city.

 

  • Hangzhou City Commercial Bank Hangzhou City Commercial Bank, based in the capital of booming Zhejiang province, has been negotiating the sale of stakes to several foreign banks. As The Banker went to press, it was announced that Commonwealth Bank of Australia (CBA) had agreed to take a 19.9% stake for $78m. CBA already has an 11% interest in Jinan City Commercial Bank in Shandong Province. Hangzhou’s attraction lies in its clientele: small and medium-sized private companies that have challenged the long-time dominance of the state sector. It has not always been that way, though. Its loans traditionally went to big city construction projects, with the average loan per client being about Rmb10m, which is very large for China. But in the past two years, it completed a new share issue and ownership restructuring that reduced the city government finance bureau’s stake to 31.8% from 60.9% and increased the stake held by private companies to 45%. The management team took the remaining shares. Thanks to its reduced exposure to politically mandated lending, the bank reduced its NPL ratio to 2% by the end of 2003 from more than 70% when it was founded in 1997. Its capital adequacy ratio was 8.13% by the end of 2003 and its assets totalled Rmb39.7bn. The lender, whose operations now are confined to Hangzhou, is hoping to win approval from the China Banking Regulatory Commission (CBRC) to expand to other provincial cities, such as Ningbo and Yiwu. “The task of diversifying our ownership is done and we expect three more breakthroughs in the near future: bringing in overseas investors, becoming a regional bank and becoming a publicly listed company,” bank president Wu Taipu told the Chinese press earlier this year. Mr Wu became president of the Hangzhou City Credit Co-operative in 1995, and became president of the city bank when it was formed from the co-operative a year later. Prior to that, he was Hangzhou branch manager of the China Construction Bank.

 

  • Ningbo City Commercial Bank Little-known Ningbo City Commercial Bank, located in the old port city of Ningbo, across Hangzhou Bay from Shanghai, has the healthiest balance sheet among the city banks profiled for this article. Although it is one of the most attractive city banks, no foreign banks are known to have started negotiations on taking a stake.The bank recently completed a new issue of 1.38 billion shares, taking its total capital to Rmb1.8bn at the end of 2004. That raised its capital adequacy ratio to 10.81%, the highest among the city commercial banks and even higher than the 6.59% average for the 12 strong and competitive nationwide shareholding banks. After the share issue, the bank has a balanced structure with 20% of its ownership in the hands of management and employees, 55% held by private companies and 15% held by the city government. In a statement, the bank said that its goal was to have assets worth Rmb50bn within three years, up from Rmb34.3bn at the end of 2004. It intends to maintain its NPL ratio, at an admirable 1.1%, within 3% during the next three years. Unlike some of the other city banks, Ningbo is eager to bring in foreign investment. “We would like to bring in foreign investors to bring in modern management ideas and help our bank meet international standards,” the bank said. The bank, set up in April 1997, has 65 branches and offices in Ningbo city.

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