The Chinese central government is considering another capital infusion program for the country's big four state-owned commercial lenders, which are laden heavily with mounting dud loans, as it continues to open the financial market to overseas investors.

China has plans to enlarge the capital bases of the big four banks, which dominate 60 to 70 percent of the domestic banking industry, by pouring fresh capital into them, Li Ruogu, deputy governor of the People's Bank of China, said at the 2003 International Finance Forum in Beijing Tuesday.

"The non-performing loan ratio in the big four banks is really a little bit high though the lenders have made some progress in disposing these bad loans," said Li.

The average NPL ratio in the big four banks, namely the Industrial and Commercial Bank of China, Bank of China, China Construction Bank and the Agricultural Bank of China, stood at 22.19 percent at the end of June, down 4.02 percentage points from the beginning of this year, according to the China Banking Regulatory Commission.

However, the central bank official did not reveal how much and when the government will inject capital into the big four banks.

But it will not be the first time that the central government has given direct financial support to the big four banks, which are required by the central bank to cut their NPL ratio to below 15 percent by 2006.

The PBOC transferred 1.39 trillion yuan (US$167.94 billion) worth of bad assets in the lenders to four asset management firms in 1999.

"The NPL problem in China is getting better," said Michael Kantor, former US Trade representative and commerce secretary.

Meanwhile, the central bank has asked the nation's lenders to be cautious about the potential negative impact generated from excessive lending in the past few months.

The outstanding value of lending in domestic financial institutions reached 16.7 trillion yuan at the end of September, a rise of 2.7 trillion yuan from the beginning of this year, said the PBOC.

"Despite dealing with these NPLs, Chinese banks should build up internal risk control capabilities to ward off risks of new NPLs from extending new loans," said Jeffrey R. Shafer, vice chairman of Citigroup Global Markets International Investment Banking.

In addition, financial executives attending the forum called on Chinese lenders to enhance their efficiency and be more transparent to the public.

The average profit that each mainland banking staff yielded last year was less than 100,000 yuan, com-pared with HK$1.8 million (US$232,039) by Hang Seng Bank's employees in Hong Kong, according to an official with the government.

(Shanghai Daily October 29, 2003)