President Zhang Enzhao said his bank, together with Wuhan University in Central China's Hubei Province, has recently developed a new internal control system to minimize financial risks.

The new system, which devotes greater attention to risk identification and evaluation, has been applied on a trial basis in some bank branches at the provincial level.

"The system will be implemented in all bank branches by the end of this year," Zhang said.

Yang Xiaoyang, head of the bank's asset preservation department, said an improved internal control capability will make the bank more competitive.

"The bank will become more attractive to investors after it gets listed," Yang said.

The bank did not set a timetable for a final listing, but Zhang said the bank wants to be the first State-owned banks listed on a domestic stock exchange.

Huang Jinlao, a senior researcher with the International Financial Research Institute under the Bank of China, said Chinese commercial banks will have to increase internal vitality, because more and more foreign financial institutions have come to China.

Chinese commercial banks should step up business supervision and risk control measures, Huang said.

Also, they should speed up establishment of corporate governance mechanisms, he said.

More importantly, China's banking industry should lower the rate of non-performing loans (NPLs), get rid of historical financial burdens and raise their capital adequacy to international standards, he said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 percent, the minimum required by the Basel agreement reached by international banking managers.

This means China's commercial banks, especially the four State-owned banks, will have to achieve the goal before they get listed, Huang said.

The People's Bank of China, the central bank, said that the big-four State-owned banks - China Construction Bank, Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China - will be transformed into large modern and strongly competitive commercial banks.

Some State-owned commercial banks will be restructured to become State-controlled shareholding commercial banks, the central bank said.

"With an aim to raise capital adequacy, commercial banks will have to reduce the amount of risk assets," Huang said.

The central bank required that commercial banks drop the NPL ratios by two to three percentage points each year before the end of 2005.

By the end of March this year, the NPL ratio at China Construction Bank, by the international standard of five category classification, stood at 14.05 percent.

(China Daily April 21, 2003)