Fitch Ratings, the international rating agency, recognises that China's banking system is undergoing a long-term structural improvement and that reforms to make the banks more commercial entities have been given impetus by the reforms of BOC, CCB and lately ICBC. "Chinese banks are now focused on a serious effort to improve corporate governance, risk management and internal controls, which should bear fruit over the medium to long-term in a stronger credit culture and sounder controls environment," said David Marshall, managing director and head of Fitch's Financial Institutions group in Asia.

In 2004 and 2005, Fitch have seen increased foreign investments in Chinese banks, including the high profile cases of HSBC seeking a 19.9% stake in BCOM, Bank of America's 9% investment in CCB and Royal Bank of Scotland Consortium's 10% stake in BOC. Fitch views the introduction of foreign strategic investors as credit positive as Chinese banks stand to benefit from the much-needed foreign expertise in risk management, internal control and corporate governance.

However, Fitch expressed its concern over the current level of capital for Chinese banks which Fitch thinks as inadequate. Mr. Marshall noted that the 13 Chinese banks Fitch observed held aggregate level of reserves to NPLs ratio at just 15% at end-2004.

Fitch just published special report titled Chinese Banks: 2004 Review and 2005 Outlook which reviews the 2004 results of the 13 major commercial banks in China that have published accounts for the year and discusses the key factors affecting their performance in 2005 and beyond. It forecasts the banks to constinue to be profitable due to the country's strong economic growth in the medium-term but is not optimistic about the improvement on quality of bank assets in 2005.

By People's Daily Online