A Study Of The Solutions To Dealing With The Unprofitable Assets In China's Banks

China's bank system, whose turnover contributes 90% of the whole financial business volume, plays a crucial role in national economy. The unprofitable assets of the national commercial banks do not only obstruct the capital flow, but also heavily damage the banks' credit and their processes of reconstruction, and even worse, they would trigger the financial crisis. The lessons we draw from the international cases show that the high proportion of the unprofitable assets becomes the main reason of the bank crises and bankruptcies. Since 1980, according to the statistics of the IMF, above 66% of the financial problems and above 58% of the financial crises in the member countries are brought up by the reason mentioned above. Therefore, it is emergent to solve the problems of the unprofitable assets in China's banks, which makes them more competitive.With the trend of globalisation, it becomes an international focus on how to prevent the financial crises through solving the unprofitable assets puzzles. While China becomes the member of WTO, it is obliged to open the bank business to investors abroad in comply with the regulations of GATS on financial services. However, burdened by the huge volume of unprofitable assets, the structure of business management and internal risk supervision of China's banks nowadays do not meet the requirement of WTO rules. On the other hand, the steady and secure bank system consists of the important basis of the sound growth of national economy, while guaranteeing the effective implement of macroeconomic policies. To keep the sustained growth and development of the national economy, it is in need of the enlarging scale of the bank loans. Under those circumstances, the volume of the unprofitable assets would be larger thus make the negative effect on the economic and financial development if the banks fail to improve the management structure and strengthen the supervision on loans.In recent years, the quality of the loan assets of China's banks has improved much by adjusting the consistent of the loans and marketing the bank lending through debts swapping, assets separating and so on, but the proportion of the unprofitable assets has not been reduced to the required level yet due to the historic accumulation. Based on the data published by the National Bureau of Statistics, the balance volume of the unprofitable assets in China's main financial institutions had reached to 2.44 thousand billion RMB yuan until 2003, making its proportion to 17.8%. Considering the possibility that the banks use some technical measures to get rid of supervision by listing the loans under the item of other assets on balance sheet, the real proportion of the unprofitable assets is far above that of statistics. Meanwhile, along with the fast growth of loans, it will bring in much more new potential risks to the national commercial banks.Until now, we have not found the effective solutions to the unprofitable assets yet, no matter in theory or in practice. Therefore, using the experiences of foreign countries for reference, we are in extreme need of working out the practical solutions by analysing the origins and current situations of the unprofitable assets in China. That idea is just the main purpose of this dissertation.