Mon, February 02, 2009
Business > Industries

China to inject 30 bln dollars into Agricultural Bank, Wen tells FT

2009-02-02 09:47:05 GMT2009-02-02 17:47:05 (Beijing Time)

The Chinese government will inject 30 billion dollars into the Agricultural Bank of China

BEIJING, February 2, 2009 - The Chinese government will inject 30 billion dollars into the Agricultural Bank of China, the nation's weakest major lender, Premier Wen Jiabao told the Financial Times in remarks published Monday.

The money, an increase from a previously announced 19 billion dollars, is part of a lengthy effort to make the bank fit for a stock listing, following other major state banks in recent years.

"The China Agricultural Bank is the last among five national banks which is now undertaking a banking reform.... Our decision for this recapitalisation is around 30 billion dollars," Wen was quoted as saying.

The recapitalisation would happen soon, the paper said, quoting an unnamed Chinese official accompanying Wen on a trip to Europe, without giving a firmer timeline.

The Agricultural Bank, the financial backbone of China's vast rural interior, said in November it would be "technically ready for an initial public offering" in the second half of 2009.

Observers said the injection was sorely needed, not least in the context of the unfolding global economic crisis.

"If it wants to finish the reform and go public in the light of the financial crisis, it does need more government support," said Shi Jianxun, a finance professor with Shanghai-based Tongji University.

The bank is in the process of carrying out reforms that will transform it into a stock-holding company, recent reports in state media said.

The introduction of shareholders demanding a return for their investment would force the bank to start operating for profits -- a break from its role so far of supporting government policies, observers say.

The extra cash injection could also signal concern in Beijing about the model followed for the other state banks where foreign strategic investors were introduced prior to the listing.

In the wake of the financial crisis, several of these investors have pulled out, including Britain's Royal Bank of Scotland, which said last month it had sold its stake in Bank of China for 1.6 billion pounds (2.3 billion dollars).

"Claims have emerged that it is not necessary to introduce foreign strategic investors in the shareholding reforms of Agricultural Bank," said Shi of Tongji University.

"(People ask if) they will really become strategic investors or turn out to be 'strategic speculators'."

The bank reported last month a net profit for 2008 of 51.1 billion yuan (7.5 billion dollars), up 19.1 percent from the previous year.

The bank said its profitability "has improved significantly" after the initial stages of restructuring, with new deposits last year up 15 percent to 807.8 billion yuan.


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