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Strategic Investors May Help Restructure Rural Credit Cooperatives

04-15 14:38 Caijing

This is a departure from previous rescues of cooperatives, which the government bailed out in 2003 with 193.6 bln yuan in fresh capital.


By staff reporter Zhang Yuzhe

 

(Caijing.com.cn) Strategic investors may help restructure China’s rural credit cooperatives, which have 650 billion yuan worth of bad assets, with the finance ministry not providing funding for this round of asset disposals, an official with the China Banking Regulatory Commission told Caijing.

 

The proposed strategic-investor approach is a departure from previous rescues of cooperatives, which the government bailed out in 2003 with 193.6 bln yuan in fresh capital. But the sector remains largely insolvent because the policy-lending nature of rural finance means the loans are not extended on commercial terms, and local governments often exert pressure on the cooperatives to lend without a proper credit evaluation of the project.

 

Government agencies played a prominent role in restructuring the banking sector in the middle of the decade, but the message to cooperatives appears to be that they are on their own this time around, with the sector expected to restructure with their own funds or find investors to help with the disposals.

 

The proposal to involve strategic investors is awaiting approval from the State Council, China’s cabinet.

 

Since 2003, China has restructured 185 rural credit cooperatives, transforming 22 of them into rural commercial banks and 163 into rural cooperative banks, a transitional stage halfway to becoming a rural commercial bank.

 

In 2008, outstanding loans by RCCs totaled 3.7 trillion yuan, accounting for 89 percent of rural loans granted by China’s financing system.

 

At the end of 2008, RCCs booked profits of 57.8 billion yuan. Their average non-performing loans ratio declined to 15.9 percent from 29.3 percent five years ago. The sector’s capital adequacy ratio increased to 3.5 percent from minus 6.8 percent in 2003.

 

RCCs were supervised by the Agricultural Bank of China until 1996 and then transferred to the People’s Bank of China, the central bank.

 

Full article in Chinese: http://www.caijing.com.cn/2009-04-13/110142729.html

 

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