Bank of China, the country's largest foreign exchange bank, said yesterday its operating profits grew a year-on-year 22 per cent during the first 10 months of this year.

The bank's operating profits stood at 53.55 billion yuan (US$6.5 billion) during the period, President Li Lihui said in a press conference in Beijing yesterday.

"The growth rate is higher than that of total assets, liabilities and business costs respectively," he said.

By the end of October, the bank's outstanding amount of bad assets came to 96.4 billion yuan (US$11.6 billion), a decline of 250 billion yuan (US$30.1 billion) from the beginning of the year and 18.5 billion yuan (US$2.2 billion) from the end of June.

The bank's bad assets ratio reached 4.55 per cent by October, a drop of 0.91 percentage point from the end of June and 11.73 percentage points from the beginning of the year, he said.

Bank of China's capital adequacy ratio, a measure of how much capital it has relative to assets, stood at 8.56 per cent at the end of October, he said.

The latest development suggests the bank has moved closer to a final initial public offering (IPO), economists said.

Bank of China and the China Construction Bank, which won a US$45 billion bail-out from the government in late December, were chosen by the central government as a pilot project to turn them into joint stock banks.

Bank of China reorganized itself into a joint stock company in August, following the establishment of the Bank of China Limited, while the China Construction Bank established a joint stock listing vehicle in September, following the split-up of the institution into two parts.

Yi Xianrong, a senior economist with the Chinese Academy of Social Sciences, said establishment of the joint stock companies suggests the two banks' shareholding reforms have made an important stride forward.

Establishment of a board of directors indicates the two banks are trying to improve their corporate governance, although it has a long way to go before the organizations can play their roles, he said in a telephone interview.

Chinese commercial banks will have to sharpen their competitive edge before foreign banks can enter the Chinese market without restrictions by the end of 2006, he said.

The two banks have both been approved to issue a certain amount of subordinated bonds to replenish their capital bases.

The bonds rank after other bank liabilities in terms of claims on bank assets.

They also have plans to usher in foreign company investors as equity owners, in an aim to increase capital strength, optimize the capital structure and diversify ownership.

Chang Zhenming, president of the China Construction Bank, who also spoke at the press conference, said his bank was in talks with two or three potential strategic investors.

The strategic investors should be well-known internationally and have rich experiences, he said.

"Their contributions to management and experiences are vital for us," he said.

But the president said his bank did not set a timetable for selecting the company investors.

Li said Bank of China was also in talks with a number of strategic investors on important issues such as prices and the amount of share they can invest.

"We hope we can have a final answer in the next few months," he said.

Li said his bank hopes to list shares at a proper time next year.

"But this will depend on the process of our work and market conditions," he said.

The principal of the IPO was that the speed should be subject to the quality, Li said.

"We hope all the bank's financial indicators will reach the level of a good listed company, when we become listed," he said.

Chang said the China Construction Bank have also been actively preparing for an IPO, but there is a lot of work to do before making it a reality.

"If we go public, we need to audit all the financial figures since 2001," he said.

"We also need to answer questions from our customers on how to beef up risk management and increase the bank's competitiveness," he said.

Chang expressed hope that his bank could go public some time next year.

(China Daily December 1, 2004)