Xinhua Finance/Milken Institute Banking Strength Indicator Update: Chinese Banking Sector Strengthens Significantly

2007-10-19 16:08 850

SHANGHAI, China, Oct. 19 /Xinhua-PRNewswire/ --

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Indicator Value Change

2006: 5.06

2005: 3.79

Percentage Change: Up 33.5%

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Increased capitalization and earnings in 2006 raised the Banking Strength Indicator (BSI) 33.5 percent, to 5.06. The indicator shows that the financial strength of Chinese banks exceeds that of the top fifteen international banks.


The striking improvement in the BSI is largely due to the increase in the capitalization of the Industrial and Commercial Bank of China (ICBC), the country's largest bank, which-because of its size in the sector-accounts for nearly one-fourth of the indicator value. Given the high numbers of bad loans that have been written off, as well as the recapitalization occurring in the past few years, bank earnings and interest margins rose in 2006.

The issue of the most concern continues to be the quality of bank assets. Despite recent declines in nonperforming loans, the ratio is still quite high by international standards. Indeed, the nonperforming loan ratio for the Agricultural Bank of China is 23 percent. Bank sensitivity to market risk also tends to be lower in China than among international banks, due to a relatively large ratio of non-operating income to total income.


The Xinhua Finance/Milken Institute Chinese Banking Strength Indicator (BSI) measures the financial strength of Chinese banks, benchmarked to the top fifteen international banks, which are ranked according to their Tier-1 capital. The BSI is based upon financial statements from Chinese banks(1) and combines the selected data into a single number. The compilation process relies on CAMELS, a rating system widely used in bank examinations in the United States that assesses capital, asset quality, managing expenses, earnings, liquidity, and sensitivity to market risk.

(1) To the extent possible, data used in calculating BCI are based on

international financial reporting standards.

Xinhua Finance/Milken Institute China Indicators

The Xinhua Finance/Milken Institute China Indicators provide investors, analysts, and financial professionals insight into China's money and capital markets. Five of the eight indicators were launched since November 2006: the Renminbi Pressure Indicator, the Chinese IPO Indicator, the Market Adjusted Debt (MAD) Indicator, the Banking Strength Indicator (BSI), and the Adjusted Trade and Finance (ATF) Indicator. The remaining three indicators (the China M&A Indicator, the China Privatization Indicator, and the China Corporate Governance Indicator) will be launched later this year.

Time Period Coverage and Frequency

The indicator begins at year-end 2000 and extends annually to December 2006. Following that, the indicator is published on a semi-annual basis.

Sources of Data

The data used in the construction of the indicator are obtained from Bankscope and CEIC.

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Xinhua Finance Limited ("XFL") is China's premier financial information and media service provider and is listed on the Mothers Board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial markets and the world, Xinhua Finance's proprietary content platform, comprising Indices, Ratings, Financial News, and Investor Relations, serves financial institutions, corporations and re-distributors worldwide. Through its subsidiary Xinhua Finance Media Limited (Nasdaq: XFML), XFL leverages its content across multiple distribution channels in China including television, radio, newspaper, magazine and outdoor media. Founded in November 1999, XFL is headquartered in Shanghai, with offices and news bureaus spanning 11 countries worldwide. For more information, please visit .

The Milken Institute is a nonprofit, independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. The Milken Institute has extensive expertise in China and conducts ongoing research on China's banking and capital markets. It is based in Santa Monica, Calif. For more information, please visit .

Source: Xinhua Finance; Milken Institute
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