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One Chinese Bank Acquires Another

March 18, 1999

BEIJING (AP) _ Everbright Bank of China announced today it has acquired China Investment Bank, a deal that signals government plans to marry troubled financial institutions to stronger commercial banks.

In the deal, Everbright pays nothing for China Investment Bank, which has assets of 80 billion yuan ($9.7 billion), but must assume an extensive portfolio of non-performing loans, said Zhu Xiaohua, chairman of Everbright Holdings, the bank’s parent. Zhu told reporters at a signing ceremony that about 50 percent of China Investment’s loans are believed to be bad.

An additional 80 percent of the ailing bank’s foreign currency loans are considered non-performing and will be shifted to the Ministry of Finance to try to recover. The hard currency loans are owed to such institutions as the World Bank and the Asian Development Bank, he said.

Everbright officials said the bank was acquired through a competitive bidding process, not a government-orchestrated bailout.

In the past, the Chinese government has put its debt-ridden financial institutions in the custody of state banks, which then sold off assets and tried to retrieve loans.

Beijing departed from this practice in January when it declared Guangdong International Trust and Investment Corp. bankrupt and said creditors would have to pursue their claims in court. The move, however, shook foreign confidence in China’s banking system and led to a tightening of overseas credit.

Everbright officials said Thursday’s acquisition of China Investment marks a new step in efforts to restructure failing banks along commercial lines.

Everbright, one of China’s most profitable commercial banks, is taking over China Investment from State Development Bank, which is keeping 20 branches to use as regional banking centers. State Development Bank currently has only one bank branch outside Beijing.

Everbright will get 29 branches and 137 banking offices from China Investment. Everbright will also keep about half the bank’s employees.

Zhu, who said the takeover occurred ``without political or administrative interference,″ predicted Everbright can pull China Investment out of the red by the end of this year.

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