It?s said that private capital may account for over 50 percent of the bank?s share, while shares held by the government finance department will drop to nearly 30 percent.

Meanwhile, the president of the Hangzhou City Commercial Bank attended a Forum on National City Commercial Bank Development in Tianjin, to deliver a speech on ?how to deal with a history of non-performing assets.? The speech also alluded to new initiatives that may be introduced after the injection of private capital.

Open to Domestic Private Capital

Statistics from the Hangzhou Branch of the People?s Bank of China, the country?s central bank, show that government finance departments, at the city and district levels, currently hold 61 percent of the Hangzhou City Commercial Bank?s shares, which is considered quite a significant figure even in Zhejiang where private capital is abundant. ?It has greatly influenced the market orientation of the bank?s operations,? commented an industry insider. For example, the average loan per bank client is around 10 million yuan (US$1.2 million), surpassing those of the Bank of Communication and Guangdong Development Bank branches in the same area. The Hangzhou Commercial Bank?s loans have flowed into large-scale projects such as municipal constructions.

?The large proportion of shares held by the government finance department is due to historical factors,? a bank executive said, ?The consolidation of city cooperative banks resulted in a large number of non-performing assets. The government then requested fiscal departments to buy shares in the banks to replace the bad loans.?

Currently, the rate of non-performing assets owned by the bank has been lowered to just 1.7 percent; an amount attractive enough to lure private capital. Throughout June and July 2002, a plan to attract private capital was officially launched.

On July 3, eight city commercial banks in Zhejiang Province, including the Hangzhou City Commercial Bank, jointly announced an Action Proclamation, saying that they will rebuild city commercial banks as local commercial banks with a collection of mostly private capital. The plan attracted a great deal of attention and provoked nationwide controversy.

On September 4, a report named Exerting the Full Play of Small and Medium-Sized Commercial Banks, released by the Banking Supervision Department of People?s Bank of China, confirmed the actions of the eight city commercial banks, accelerating the opening up to private domestic capital.

Community Bank Targeted

?Registered capital has been increased from 520 million yuan (US$63 million) to 1.1 billion yuan (US$133 million),? the executive of Hangzhou City Commercial Bank said, ?Capital is not the key issue. The introduction of private capital can promote the founding of market-oriented management mechanism, as does the introduction of foreign funds.?

Banks have also been gaining decision-making power through the retraction of the government?s shares.

Hangzhou City Commercial Bank, which will achieve self-determination, has now begun to make plans for its future. In the Action Proclamation announced on July 3, eight banks brought forward the plan to support 1,000 private enterprises. The Hangzhou Commercial Bank, however, will aim to achieve a different set of targets.

On September 18, the bank declared that the reform scheme made by an international finance consulting company had taken shape. The scheme suggested that the bank should adopt a strategy of market segmentation, and launch new products according to the needs of different clients.

?We want to be a grass roots community bank,? the senior executive said, ?We will adjust our policies to target private enterprises and small to medium-sized enterprises (SMEs). The average loan per client will be greatly reduced.?

Joint-stock commercial banks that have penetrated local financial market will take the same attitude to providing loans to bigger projects, but the Hangzhou City Commercial Bank will adhere to a principle of ?small profits and superior sales.?

?Currently, there?s no bank that can meet the needs of SMEs and evade risk at the same time, ?the executive said, ?but we want to give it a go.?

(china.org.cn by Tang Fuchun, October 2, 2002)