Presented at the Bankers Association for Finance and Trades 14th Annual Conference on International

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Zhu Xinqiang
Executive Assistant President Bank of
China Development of China Banking Industry and
Restructuring Practices of BOC
Presented at the Bankers Association for
Finance and Trades14th Annual Conference on
International TradeThe Pace Quickens November
4-5, 2004The Hotel InterContinental, Chicago, IL
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Framework of Chinas Banking Industry
By the end of year 2003 Financial Assets reached
RMB 28 trillion Deposit Balance reached RMB 22
trillion Loan Balance reached RMB 17 trillion
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Banking Institutions in China 4 state-owned
commercial banks 3 state policy banks 12
joint-stock banks 4 asset management
companies 112 city commercial banks 709 urban
credit cooperatives 33,586 rural credit
cooperatives 59 trust and investment companies
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• Banking Institutions in China
• 4 rural commercial banks
• 4 rural cooperative banks
• 74 finance corporations
• 12 financial leasing companies
• auto-financing companies
• 199 operation branches 216 representative
  offices
• of foreign Banks

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• Assets Quality Improved Continually
• The average NPL ratio of four state owned
  commercial banks dropped dramatically from 33 in
  year 2000 to 20 in year 2003.
• The average NPL ratio of joint-stock banks was
  below 5 in year 2003.
• The average NPL ratio of foreign banks was 1.5
  by the end of July 2004.

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Capital Adequacy Ratios of State-ownedBanks Figure
as of year-end 2003
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Retrospect on Development of Chinas Banking
Industry Phase I The Forming of Modern Banking
System (1979-1993) In year 1985, four major
banks were set up BOC - foreign exchange
foreign trade ICBC- commercial industrial
loans CCB- financial support to infrastructure
construction ABC- agriculture-related business
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• Milestones in Chinas Banking Industry
• Since 1987, 10 shareholding banks were
  established.
• Since 1979, foreign banks were allowed to set up
  representative offices in China.
• In 1981, foreign banks are approved to establish
  branches in China.

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• Phase II The Transforming Phase from Specialized
  Bank to Commercial Bank (1994-1999)
• In 1994, China Development Bank, EXIM Bank
• and Agricultural Development Bank of China
• were established.
• In 1995, the Commercial Banks Law of PRC
• was issued the business scope of Chinese
• commercial banks expanded to 12 categories.

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• Phase II The Transforming Phase from Specialized
  Bank to Commercial Bank (1994-1999 )
• In 1999, four major Assets Management
• Companies were formed by state-owned
• banks to solve NPL problems.
• In December 1996 and August 1998,
• qualified branches of foreign banks were
• allowed to offer RMB products.

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• Phase III The Current Joint-stock Reform for
• State- owned Commercial Banks. (Since 2000)
• Risk awareness and culture improved
• All-round risk control and monitoring system
• Accountability and follow-up check and report
• Chinas WTO accession challenges and chances in
  the process
• Financial market fully open after 2006
• Asset quality and capital adequacy emphasized

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• Multiple Challenge Faced by Banks in China
• High NPL ratio
• Lack of sound corporate governance mechanism
• Inadequate capital base and low profitability
• Poor IT support innovation capability

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• New Chapters to be Made
• At the end of year 2003, Bank of China and China
  Construction Bank were chosen as two pilot banks
  for joint stock reform, and got capital injection
  of USD 22.5 billion from the government
  respectively.
• In August and September 2004, BOC and CCB were
  incorporated into stock companies.

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Restructuring of Bank of China On August 26 2004,
after completion of NPL disposal, financial
audit, legal due diligence and asset evaluation,
Bank of China was incorporated into Bank of
China Limited. A breakthrough in several
dimensions for BOC
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• Creation of Strong Capital Base through Financial
  Restructuring
• The balance of BOCs owners equity prior to the
  capital injection, RMB 220 billion was used to
  absorb write-offs of historical NPA. By the end
  of June 2004, NPL ratio has been reduced to
  5.46, from 16.26 at the end of 2003 and
  provision coverage ratio has risen to over 50.
• By issuing subordinated debt of RMB 14.07
  billion, BOC has improved its capital adequacy
  ratio to 8.3.

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• Establishment of sound corporate governance
• BOC has established the General Meeting of
  Shareholders, the Board of Directors, the Board
  of supervisors.Under the board of directors, five
  committees are set up, including Strategy
  Committee, Risk Management Committee, Audit
  Committee, Nomination Remuneration Committee,
  Related Transaction Committee.
• BOC is actively engaging potential strategic
  investors for possible stake taking, so as to
  diversify investors structure.

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Reform on management and administration (a)Streng
then risk management internal control (b)Reform
of the Human Resources Management (c)Streamline
business processes (d)Redesign of IT
blueprint (e)Building of MIS(Management
Information System)
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Objectives for the Reform Through the
joint-stock reform, BOC intend to dispose of NPA,
build up good corporate governance, adopt new
development strategy, perfect management systems
and create a solid foundation for the long term
development of the Bank.
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Thank you!