China has proposed that the weakest of its big four state banks, the Agricultural Bank of China, be broken up into smaller entities or undergo a major capital restructuring, state press has reported.

But this reported plan is said to have met with strong resistance from some staff and experts.

An Agricultural Bank of China office. [China Daily]

In a report to China's cabinet on May 9, the central bank suggested that the troubled lender's Beijing headquarters be abolished and the bank be split into smaller provincial entities, the China Business Post reported, citing sources.

But neither the central bank nor the agricultural bank confirmed the plan. A spokeswoman at the agricultural bank said she had not seen any official document relating to the split proposal.

At the State Council briefing, People's Bank of China governor Zhou Xiaochuan also suggested shoring-up the debt-ridden bank with a major capital outlay, the same kind that the three other big state-run banks received.

According to the newspaper, however, Zhou is believed to be leaning towards splitting up the bank, leaving provincial and local governments to share the bank's "historical burdens" -- a reference to the bank's massive bad loan burden built up.

It is estimated that the bank would need some US$60-70 billion to clear its stressed debt before it could become a viable lender and list on overseas stockmarkets -- as regulators had hoped and the other three others are doing.

China's banks have long struggled with severe debt problems, a major hangover from the country's central planning days when easy credit was provided with little concern for commercial gain.

Between December 2003 and April 2005, the government spent US$60 billion to bailout the Bank of China, China Construction Bank and the Industrial and Commercial Bank of China as part of preparations for initial public offerings in Hong Kong.

China Construction then raised US$8.0 billion in a listing last October in the former British colony last year, while Bank of China, China second largest bank, may raise more than US$11 billion when it lists in Hong Kong on June 1.

The Industrial and Commercial Bank of China could list later this year.

Senior officials at the agricultural bank said earlier this year that the bank had submitted a restructuring proposal to the State Council. But instead of a spin-off, the bank suggested an overall listing, putting the reduction of the bad loans as the top priority, to be followed by a financial reshuffle. The bank was also said to be in talks with potential foreign strategic investors.

"The news of a possible split gave us a blow," a member of staff at the agricultural bank's headquarters in Beijing said yesterday. "We cannot accept it." If the plan is implemented, the bank's image would be damaged and competitiveness eroded, said the staff member, who preferred to remain anonymous.

"A major advantage of our bank is the big national network. If that network is broken or split into small ones, then we will lose big clients. And what is the difference between our bank and city banks and rural co-operatives?" she said.

Experts also said the idea of splitting the national bank into regional ones should take into consideration the heavy cost of redundancies and the reallocation of labour and bank units.

He Ziyun, a professor of banking at the University of International Business and Economics in Beijing, said the split of a big bank like the Agricultural Bank of China goes against current trends.

Now that many city banks and co-operatives have merged or are seeking partners to become larger and stronger, it would be unwise to split up a big bank, which would lower the bank's reputation and competitiveness, he said.

The reshuffle will also affect the morale of staff and lead to unnecessary chaos, which will ultimately slow down the pace of restructuring, he said.