Intense investor interest in the Industrial and Commercial Bank of China's 20 billion dollar float appears to be a ringing endorsement of China's banking reforms but critics caution that systemic problems lie unresolved.
The lender is the third of China's big four banks to list offshore after China Construction Bank, which floated in Hong Kong last year.
Bank of China listed in Hong Kong in June, and then in Shanghai in July, while smaller banks such as China Merchants Bank held its initial public offering (IPO) last month in the former British colony.
The sales come after regulators rammed through banking reforms aimed at flushing from the banking system the hundreds of billions of dollars of bad debt accumulated when commercial gain took a back seat to communist ideology.
Regulators were driven by fears that the large but nearly insolvent banks would fare badly in competition with foreign financial firms as China prepares to open its financial sector in line with World Trade Organization rules in December.
By forcing its state-run banks to be made accountable to public shareholders regulators hope to improve management and operational transparency and even end pernicious corruption.
China's banks are indeed healthier today but analysts said investors are ignoring at their peril what is still congenitally poor management, weak lending practices and a banking culture mired in the bad habits of central planning.
Beijing initiated reforms in late 2003 and April 2005 with two bailout packages worth 60 billion dollars aimed at wiping out non-performing loans and preparing three of its big four state banks for foreign listing.
Four state-run asset management companies took on around 200 billion dollars of banks' bad debt, which the government now says leaves about 200 billion dollars of unrecoverable loans in the banking system.
The government has pledged that no more aid will be forthcoming, but Zuo Xiaolei, chief economist with Galaxy Securities, said Beijing's capital injections have sent the wrong message.
"More and more foreign investors now know that as long as the government is not bankrupt then the banks will not be allowed to go bankrupt," he said. "That's how Chinese banks get rid of their bad debts and that's how the government-backed banks in China operate."
While it may be too early to pass judgment on China's banking reforms, lending for the first nine months was 2.76 trillion Yuan, well past the government target of 2.5 trillion in new credit, raising concerns that loans are still being handed out indiscriminately.
"The high debt figure shows that the banks are insensitive to the change in reserve deposit ratios or interest rates, which proves that the operation system has not changed a bit since the IPOs," said Zuo.
The performance of a bank depends on the quality of the borrower and the rule of law. Until China can improve both, using IPOs as the vehicle for banking reform is "shortsighted".
Source:佚名