Subject category:
Finance, Accounting and Control
Published by:
IBS Research Center
Length: 22 pages
Data source: Published sources
Share a link:
https://casecent.re/p/71250
Write a review
|
No reviews for this item
This product has not been used yet
Abstract
Bank of China launched its domestic initial public offering (IPO) and raised US$13.6 billion by selling 14.7% of its stake. Established in 1912, Bank of China was one of China's four state-owned commercial banks. The bank had come a long way from being 'technically insolvent' in 1998 to become one of the biggest banks in Asia. The banking reform of China had helped the bank to reduce its non-performing loan (NPL) ratio by 23% within a period of four years, from 27.5% in 2001 to 4.6% in 2005. Still, some old lending practices, such as focusing on market share rather than profitability and providing loans based on direct orders from the government rather than ability to repay, persisted. As the majority of stake was held by the government, shareholders lacked their accountability. Privatisation was required for improvements in bank governance structures and an overhaul of their staff. Besides, China's World Trade Organisation commitment to open up the banking sector to foreign strategic partners by the end of 2006, led the bank to offtake its holdings. But the bank was yet to recover from some basic problems. Besides, the huge level of NPL and antiquated computer systems, Bank of China was also struggling to overcome a legacy of fraud and mismanagement. The bank accounted for 75% of the US$94 million fraud linked to bank bills and promissory notes. The bank was also financing its long term assets through short term liabilities, thus the liquidity position was at high risk. Still, financial institutions and individual investors rushed for the IPO and it was oversubscribed around 80 times.
Teaching and learning
This item is suitable for postgraduate courses.About
Abstract
Bank of China launched its domestic initial public offering (IPO) and raised US$13.6 billion by selling 14.7% of its stake. Established in 1912, Bank of China was one of China's four state-owned commercial banks. The bank had come a long way from being 'technically insolvent' in 1998 to become one of the biggest banks in Asia. The banking reform of China had helped the bank to reduce its non-performing loan (NPL) ratio by 23% within a period of four years, from 27.5% in 2001 to 4.6% in 2005. Still, some old lending practices, such as focusing on market share rather than profitability and providing loans based on direct orders from the government rather than ability to repay, persisted. As the majority of stake was held by the government, shareholders lacked their accountability. Privatisation was required for improvements in bank governance structures and an overhaul of their staff. Besides, China's World Trade Organisation commitment to open up the banking sector to foreign strategic partners by the end of 2006, led the bank to offtake its holdings. But the bank was yet to recover from some basic problems. Besides, the huge level of NPL and antiquated computer systems, Bank of China was also struggling to overcome a legacy of fraud and mismanagement. The bank accounted for 75% of the US$94 million fraud linked to bank bills and promissory notes. The bank was also financing its long term assets through short term liabilities, thus the liquidity position was at high risk. Still, financial institutions and individual investors rushed for the IPO and it was oversubscribed around 80 times.