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Approval Guidelines for Joint-stock Banks

China's banking watchdog on Wednesday issued guidelines on approval that is required of joint-stock banks making major investment plans. The guidelines require that boards of directors assess annual business plans and investment portfolios proposed by bank management.

The China Banking Regulatory Commission (CBRC) guidelines "streamline the operation of boards of directors of joint-stock banks, effectively give play to their decision-making and supervising functions, and make commercial banks run in a stable, healthy manner," according to CBRC.

Typically, if a bank's capital base is not strong enough to meet the needs of its future development or banking regulators' requirements, its board of directors should draw plans to replenish its capital and oversee their enforcement.

The CBRC has set an 8 percent minimum capital adequacy ratio (CAR) requirement for commercial banks that are eager to modernize ahead of the World Trade Organization-mandated opening of the country's financial market to foreign competitors by the end of 2006. The CAR is measured by a bank's own capital in proportion to its total lending.

The CBRC guidelines also require boards of directors to administer affiliated businesses that might be conducted by common shareholders of joint-stock banks exercising an unfair advantage.

"The boards of directors should have enough information and make 'independent' judgments and decisions relating to any affiliated business of the banks. The judgment of shareholders and senior management should not replace that of boards of directors," the regulator said.

Compared with the country's Big Four state banks including Bank of China and China Construction Bank, the smaller joint-stock banks reported fewer crimes involving corruption, and bad loans in the last few years.

(Xinhua News Agency September 22, 2005)

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