Huaxia Bank plans to raise 5 billion yuan (US$603.8 million) within the next few weeks by issuing about 1 billion shares on the Shanghai Stock Exchange, a senior bank official told Business Weekly.

The IPO was approved last month by the China Securities Regulatory Commission (CSRC).

The IPO is the latest effort by China's commercial banks to raise money through public flotations, and to enhance their reforms.

A spokesman for the 10-year-old bank said the timetable for the listing had not been finalized.

Preparatory work, the spokesman added, is proceeding.

Funds raised through the listing will be mainly used to finance the bank's cash-strapped capital base and to develop more networks in major domestic cities, the official said.

The Basel Committee on Banking Supervision reached an internationally accepted basic regulation in 1988 to streamline the smooth growth and ward off credit risks of commercial banking sectors by requiring a bottom line 8 per cent capital adequacy ratio, the benchmark fund requirement for banks to ward off possible risks.

The current ratios of most domestic banks are still less than the requirement.

"The IPO is a golden opportunity ... for our business expansion," the official said, on condition of anonymity.

Compared with large banks - such as the Big Four, the Bank of China, the Agricultural Bank of China, China Construction Bank and the Industrial and Commercial Bank of China - banks like Huaxia are small, have limited networks and are fragile.

But their assets are generally better than those of their giant rivals because of their short histories - the smaller banks generally have fewer non-performing assets.

These banks are generally better able to expand more quickly.

Huaxia Bank's assets grew by an annual average 50 percent to reach 157.9 billion yuan (US$19.07 billion), with a profit of 5 billion yuan (US$603.8 million), by last September.

Huaxia Bank now has more than 170 branches in 21 cities. Most of the outlets are located in big cities in eastern coastal areas. There is still much room for the bank to expand into China's vast mid and western regions.

However, the sluggish domestic stock markets could affect Huaxia Bank's listing.

"The move shows it is thirsty for fund back-ups," said Liu Jipeng, a financial expert.

China's stock market, dogged by frequent scandals involving listed firms, has been suffering from a nearly two-year downturn since its record 2,240 points in mid 2001.

Shanghai's market currently is at 1,390 points.

Public flotations have become one of the most preferred shortcuts for Chinese banks to survive the current fierce competition and outpace their rivals.

Huaxia Bank is also considering mergers or stake takeovers with foreign partners and overseas listings in Hong Kong and New York within four years.

By introducing foreign partners, domestic banks hope to enhance their reforms, said Chen Yucheng, chairman of the bank.

Triggered by the anticipated fierce competition from foreign rivals, domestic banks have speeded up their reforms.

China Minsheng Bank, another small domestic bank, also recently announced it is planning an overseas listing aimed at enhancing its reforms.

With 350 million A shares issued in its initial public offering in Shanghai's stock market in late 2000, the bank raised 4 billion yuan (US$483 million).

That helped spur the bank's growth in China's market, said Dong Wenbiao, president of the bank.

Minsheng plans to list in either New York or Hong Kong in the first half of 2004.

The listing will also help the bank fund its capital base. Its capital adequacy ratio is about 8 per cent, less than international rivals' average of 10 percent.

(Business Weekly January 21, 2003)