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The International Finance Corp., a World Bank member, is scheduled to sign an agreement with Nanjing Commercial Bank in Beijing today to purchase a 15 percent stake in the Chinese lender.
Under the largest-ever share sale deal between a domestic bank and an overseas financial institution, the IFC is expected to pay US$27 million for the stake.
The Nanjing-based bank has received approval from the People's Bank of China for the stake transfer, said a central bank official in Jiangsu Province neighboring Shanghai.
"The association with the IFC will have a positive influence on our future business development," said Wang Chenxi, president of Nanjing Commercial. "It will make us well prepared, in terms of financial power and management skills, for the nation's accession to the World Trade Organization."
The move will help enlarge Nanjing Commercial's capital base and upgrade its operations to inter-national standards, said bank officials. The bank's assets were valued at 18 billion yuan (US$2.169 billion) at the end of June, compared with 3.2 billion yuan (US$387.1 million) in 1996 when it was founded.
Officials of Nanjing Commercial and the IFC declined to reveal further details about the transfer.
Industry insiders said the IFC also intended to increase its stake in the Bank of Shanghai from 5 percent to 7 percent, and was interested in becoming a major shareholder of the locally listed China Minsheng Banking Corp. Ltd.
Analysts noted that such Sino-foreign banking association will benefit both domestic banks, burdened with non-performing loans, and overseas financial institutions, seeking to break into the Chinese market, which has huge development potential.
"China's WTO entry is likely to bring the biggest challenge to the nation's banking sector," Nicholas R. Lardy, senior fellow of the Brookings Institution, said recently in Shanghai.
Lardy named low profitability, a high non-performing loan ratio and over-staffing as the main disadvantages of state-owned Chinese commercial banks, especially the so-called "Big-Four," the Industrial and Commercial Bank of China, the Bank of China, China Construction Bank and the Agricultural Bank of China.
The average non-performing loan ratio at the four banks is con-servatively estimated at more than 25 percent.
China has pledged to fully open its banking industry to overseas investors five years after the nation becomes a WTO member.
(eastday.com November 28, 2001)
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