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Top policy bank to go commercial by June-end

By Mao Lijun (China Daily)
Updated: 2008-06-20 09:46

China Development Bank will transform into a full fledged commercial bank before the end of June, sources told China Daily.

The country's largest policy lender has secured formal approval from the State Council to establish a new firm, which will be called China Development Bank Corp.

The Ministry of Finance and Central Huijin Investment Co Ltd, a subsidiary of China Investment Corp, are expected to keep their significant stakes in the new firm.

The lender is also inviting strategic investors, including financial institutions and overseas investors to join the firm.

But sources said domestic financial institutions will be the main strategic targets in the first phase. With ongoing restructuring, the lender may start inviting overseas equity investors next year.

With the commercial transformation, the lender will shift to all-round business activities, including retail banking, analysts said.

It will also retain its right to issue financial bonds in the interbank market and its long-term credit business.

"But the lender's advantage will remain in financing national development projects after it is transformed into a commercial bank," Yuan Lin, an analyst with BOC International Securities, told China Daily.

Liu Kegu, vice-governor of the lender, also told the media earlier that the bank would mainly serve medium and long-term national development strategies after its commercial transformation.

Established in 1994 with 50 billion yuan capital, the lender has devoted most of its business to supporting the nation's development in major public infrastructure and technologies.

At the end of 2007 the lender received $20 billion recapitalization from Central Huijin, which paved the way for the bank's commercial reform.

The cash injection has helped increase the bank's net asset value from 158 billion yuan to more than 300 billion yuan, while a commercial bank's capital reserve should, according to industry regulations, account for no less than 8 percent of its total assets.

The lender reported total assets of 2.83 trillion yuan by the end of 2007 and its non-performing loan (NPL) ratio stood at 0.68 in June 2007.

Liu said the bank has the best asset quality among domestic banks and its NPL ratio is much lower than other domestic banks.

Currently, the lender is 100 percent owned by the State Council, with the Ministry of Finance acting as the representative of the shareholder. The lender has been the first of the country's three policy banks to undergo a commercialization reform, and also a key project in the reform of China's State-owned banking system.