CDB gets capital injection

Policy lender China Development Bank (CDB) moved closer to becoming an all-round financial group after receiving a $20 billion recapitalization from the China Investment Corp (CIC), sources said.

CDB signed an agreement on December 31 with Central Huijin, an investment arm incorporated into CIC before the latter was formally launched at the end of September, according to a statement by the People's Bank of China, the central bank.

CDB is one of three policy lenders in China, along with the Agricultural Development Bank of China and the Export-Import Bank of China. The capital injection will raise CDB's capital adequacy ratio and push the bank closer to a more commercialized operation, the statement said.

Central Huijin and the Ministry of Finance will each take half of the bank's stake, Caijing magazine cited an insider as saying. Like with commercial banks, a board will be established within CDB, the insider said.

"The recapitalization may cater to CDB's drive to become a financial holding group composed of multiple businesses," said Chen Gong, chairman and chief economist with Beijing-based Anbound Consulting.

According to the Caijing magazine report, the CDB will retain its long-term credit business and the right to issue financial bonds in the interbank market. Meanwhile, it will also be allowed to have the new investment bank function and absorb corporate deposits.

The lender has caused controversy among other lenders by increasingly involving commercial business in recent years. The upcoming commercialization reform will pacify that dispute because it will create a level playing field, analysts said.

The bank's sound credit management has ensured its expansion into the commercial areas. It has a non-performing loans ratio below 1 percent - much lower than that of China's major commercial banks.

The CDB has seen its lending expand rapidly, which is a built-in factor for the recapitalization, analysts said.

In 2001, it extended policy lending of 176 billion yuan before increasing to 546 billion yuan in 2005. Analysts said it may continue to grow strongly in the coming years, which means it needs more capital to ensure its capital adequacy ratio is not below 8 percent, the minimum requirement of the international norm.

Last year, its capital adequacy ratio was about 9 percent.

The commercialization will improve the bank's efficiency, said Chen. "It will help it expand into more business fields."