Re-capitalization; precondition for higher Chinese bank ratings

Terry Chan, director of financial services ratings at Standard & Poor''s explains what needs to be done to re-capitalize the Chinese banking system.

If China's state-owned banks are to achieve the targets set for them by the government in respect of non-performing loans NPLs, loan loss provisions, and capital adequacy by 2005, additional support will most likely be required. The performance of the financial institutions are likely to remain constrained by their need to make additional loan loss provisions over the next decade if they rely solely on their own abilities to generate capital.

The banks' net profits, as measured by return on assets, are likely to remain at low levels as these institutions continue to use a large portion of their operating profits before provisions to write off non-performing assets, reverse unrecoverable interest...

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