China Construction Bank said on Friday it earned 15.97 billion yuan (US$1.9 billion) in operating profits during the first quarter, an increase of 32.4 per cent from a year ago.

The bank's book profit stood at 7.78 billion yuan (US$937.3 million) during the period, without giving a comparison.

Its outstanding amount of non-performing loans (NPLs) decreased 2.5 billion yuan (US$301 million) compared with the end of last year.

By the end of March, the bank's non-performing loan ratio, by the international standard, was 8.88 per cent, a drop of 0.24 percentage point from the year-beginning.

Economists said more profits but less NPLs were good news for China Construction Bank, which plans to go public before the end of the year.

President Zhang Enzhao said his bank would try to be listed simultaneously on the mainland, Hong Kong and New York stock exchanges.

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

Wang Zhao, a researcher with the State Council's Development Research Center, said China's four largest State-owned banks will have to sharpen their competitive edge before the end of 2005, when foreign banks will have unfettered market access under China's World Trade Organization commitments.

"The banks will have to lower the rate of NPLs, get rid of historical financial burdens and raise their capital adequacy to international standards," he said.

Commercial banks' capital adequacy ratio will have to reach 8 per cent, the minimum required by the Basel Capital Accord reached by international banking managers, according to the nation's commercial bank law.

Wang stressed that this goal will have to be achieved before China's commercial banks, especially the big four, get listed.

Chinese banks usually write off their NPLs by using bad loan reserves taken from their profits.

And increased profits mean they can write off those NPLs more quickly, Wang said.

China Construction Bank also explored new ways to deal with the bad assets.

Yang Xiaoyang, head of the bank's asset preservation department, said his bank would continue to hold two important "auction months" in the spring and autumn to sell mortgaged assets.

Last month, China Construction Bank kicked off a road show in New York and Tokyo to try to sell some of its non-performing assets to international investors.

The non-performing assets, with a book value of about 4.2 billion yuan (US$506 million), consist of 162 mortgaged real estate projects in the country's 58 major cities.

"Cutting bad loans is the first step by the bank to go public," said Dong Chen, an analyst with China Securities.

With the aim of becoming more competitive, Chinese commercial banks would have to step up business supervision and risk control measures.

They would also have to speed up the establishment of a corporate governance mechanism, he said.

(China Daily April 17, 2004)