The China Banking Regulatory Commission (CBRC) said Thursday it would speed up an ongoing reshuffling of the nation's 700-plus urban credit cooperatives (UCCs) this year.

The commission urged its regional branches to work closely with local governments in drafting reform schemes for those that do not yet have reform plans, and to proceed with approved plans to suspend operations of or liquidate some of the problematic co-operatives.

UCCs that have been restructured will be encouraged to optimize their shareholder structures and become joint-stock financial institutions to better serve small- and medium-sized enterprises (SMEs) and the private economy, according to a press release.

As part of China's financial reforms, many credit cooperatives were established in cities over the past few years to enhance financial support largely for SMEs and the private sector.

But due to their small size, poor risk resistance and an absence of effective internal control mechanisms, the problems of chaotic management and low asset quality became apparent in recent years. This eventually led to the start of a government-led consolidation in 1998.

"Over more than five years, bank regulators and local governments... have made some achievements in preventing and dissolving risks at urban credit co-operatives by various means," reads the CBRC news release.

China had 731 urban credit co-operatives at the end of last year, with their assets totaling 146.8 billion yuan (US$17.7 billion), up 23.1 percent on a year-on-year basis.

They had an average 23.8 percent non-performing loan ratio at the end of last September, much higher than the 8.4 percent recorded at joint-stock commercial banks, while none of them met a minimum 8 percent capital adequacy requirement.

Different UCCs are being treated differently in terms of restructuring according to their management, asset quality and risk levels, and the CBRC has taken an "easiest ones first" approach, it said.

"In some regions, it is very difficult to proceed with the work on a comprehensive basis. We can take a differentiated approach and handle whichever has the best conditions," the commission said.

Market principles need to be upheld as UCCs are reshuffled into city commercial banks or are acquired by commercial banks, the commission stressed.

It also encouraged those with sound performance to strengthen their capital base and continue with their healthy growth plans.

(China Daily March 19, 2004)