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Establishment of Bank of China Limited with the Joint Stock Reform (2004)


 

In order to accelerate financial reform for healthier development of the financial industry, at the end of 2003, the State Council decided to select Bank of China and China Construction Bank to conduct pilot joint stock reform according to the actual conditions of wholly state-owned commercial banks. Premier Wen Jiabao raised strict requirements for such pilot reform on state-owned commercial banks: "This reform is a matter of our last blow, so we cannot afford to fail. We have taken so vigorous measures because this undertaking is desperately calling for success. We must resolve to ensure the success of this reform."

The key to the successful implementation of the joint stock reform lies in transforming the pilot banks in the joint stock reform into real commercial banks. As a brand-new practice and profound transformation, this reform had three distinctive characteristics:

I. The ownership system of state-owned banks was reformed to introduce institutional investors, strategic investors and public investors, so as to break the single ownership system featured by sole ownership of the State and transform the state-owned commercial banks into real modern commercial banks.

II. The State would invest capital fund in the banks rather than strip bad assets off as it did in the past. The capital fund invested could not be used to write off the asset losses of the banks.

III. Emphasis would be laid on mechanism transformation and the corporate governance structure would be reformed.

Bank of China made a lot of practical and careful efforts to promote the joint stock reform. After the State's decision to input USD 22.5 billion supplementary capital fund, the bank quickened its pace of writing off asset losses and enhanced the disposal of bad assets, thus substantially improving its asset quality and financial status. By the end of June 2004, the total amount of credit granted by Bank of China Group hit RMB 2,103.048 billion, the total amount of non-performing loans was RMB 114.889 billion, and the NPL rate was lowered to 5.46% at the end of June from 16.29% at the beginning of the same year. A rather healthy financial basis basically came into being.

Meanwhile, Bank of China made efforts to transform its internal operational mechanism and intensify internal reform by laying down clear and definite strategy, establishing a sound and scientific decision-making system, an internal control mechanism and a risk management system; to integrate the business and management processes by setting up a market-oriented and standardized human resource management system and an efficient incentive and restraint mechanism; to establish a prudent accounting and financial system and a transparent information disclosure mechanism; and to quicken the pace to build IT infrastructure and clearing, receipt and payment systems.

Ever since the launch of the joint stock reform, Bank of China staff almost worked round the clock for good result. After more than nine months of hard work, initial achievements were attained in the pilot reform. With the approval of the Chinese Government, Bank of China Limited was established in Beijing on August 26, 2004. The establishment of Bank of China Limited was the result of the overall restructuring of the century-old Bank of China, which laid a sound foundation for its IPO in the future.

Bank of China was wholly restructured into a joint stock commercial bank controlled by the State from a wholly state-owned commercial bank, and its name was changed into Bank of China Limited, or Bank of China for short. Bank of China Limited completely inherited the assets, liabilities, claims, debts and staff of the original Bank of China, with the business scope remaining unchanged.

In accordance with applicable national laws and regulations, Bank of China Limited drew up new articles of association, and formed the governance structure required of every modern joint stock company comprising general meeting of shareholders, board of directors, board of supervisors and senior management. Xiao Gang was appointed as the chairman of board of directors and Li Lihui appointed as the deputy chairman and president. The registered capital of Bank of China Limited was RMB 186.39 billion, which was split into 186.39 billion shares. With the approval of the State Council, Central Huijin Investment Ltd. would hold 100% equity of Bank of China on behalf of the State, exercise and perform the rights and obligations as the contributor of Bank of China Limited according to law and play a positive role in helping Bank of China Limited to establish a desired corporate governance mechanism so as to build the bank into a modern joint stock commercial bank with adequate capital, strict internal control, safe operation, good service and high profitability.

After the establishment of the joint stock company, Bank of China would introduce strategic investors and allow the general public to subscribe for shares in order to diversify the investment subjects and form a standardized and efficient supervision and restraint mechanism. In addition, Bank of China would continue to transform its operational mechanism, perfect governance structure, improve business performance, and deepen the reform needed by the joint stock company so as to ensure the complete success of the pilot joint stock reform and serve as a good guide for the reform of other state-owned commercial banks.

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