April 22 (Bloomberg) -- Industrial & Commercial Bank of China, the nation's biggest lender by assets, needs at least $50 billion to clear its bad loans, more than three times a bailout announced yesterday, Fitch Ratings said.

The central bank bailout is a third less than that provided to Industrial Bank's two biggest competitors in December 2003, leaving the Beijing-based lender needing to seek private funding to boost its capital to the minimum required by regulators.

``We can't see any other possible alternative but another capital injection,'' by the central bank, said David Marshall, Hong Kong-based managing director at Fitch, a credit rating company. ``Maybe they are fudging it a bit by injecting some money now and the bank has to meet certain targets and then they'll put in more money.''

China's top four banks had $188 billion of bad loans at the end of September, 15.7 percent of total lending, a figure that is swelling as the government moves to slow an economy growing at record pace. Industrial Bank, which has 100 million customers, three times the population of Canada, needs to cut bad loans totaling about 700 billion yuan ($84.6 billion), or a fifth of total lending.

China's top banking regulator Liu Mingkang said last month he would assist Industrial Bank with a reorganization this year needed to prepare the bank to sell shares to the public.

Capital

The bailout will help Industrial Bank increase its capital adequacy ratio, a measure of financial strength, to 6 percent, the People's Bank of China said in a statement last night. The bank, the 26th biggest in the world by assets, will be allowed to sell subordinated debt to increase its capital to the minimum 8 percent required by regulators.

Bank of China, the nation's No. 2 lender, and China Construction Bank, which ranks third, received $22.5 billion each in public funds to reduce bad loans and prepare for similar share sales. The nation's four largest banks are all state-owned.

``The capital injection is much less than I expected because Industrial Bank is bigger than either Bank of China or Construction Bank,'' said Yuan Lin, a Shanghai-based analyst at BOC International Holdings Ltd. ``This is only the first step that is to solve the capital adequacy issue.''

``The premise of having a proper banking system, to really get the country on the straight and narrow, is vital,'' said Hugh Young, managing director of Singapore-based Aberdeen Asset Management, which manages $15 billion of assets in Asia.

IPO Preparations

The bank said in a statement on its Web site today that the bailout, made with China's foreign exchange reserves, would help its preparations to sell shares at home and overseas.

The government bailout ``will fundamentally relieve the bank of the historical burdens that have long stemmed healthy operations and development at the bank,'' Jiang Jianqing, Industrial Bank's president said in the statement.

Industrial Bank, which had 5.7 trillion yuan of banking assets at the end of 2004 -- 18 percent of China's total -- may sell shares no earlier than 2008 or 2009, Yuan said. The bank is set to raise $10 billion in its initial public offering, a record for China, analysts and bankers estimate.

``The next step would be to deal with the bad loans,'' Yuan said. ``The bank will definitely transfer bad loans to asset management companies, because there's no way the lender can digest it by itself.''

Deregulation

A share sale would help strengthen the Chinese bank and help it compete with overseas lenders, including Citigroup Inc. and HSBC Holdings Plc, when the nation is obliged to allow them to conduct local currency business with its 1.3 billion citizens at the end of 2006.

Bank of China and China Construction Bank both formed shareholding companies, hired investment banks as advisers and are preparing to sell stock. They were chosen by Liu's China Banking Regulatory Commission last year for a government-backed pilot project to make them attractive to investors.

Founded in 1984, Industrial Bank which has 20,000 branches, offices and outlets in China and 71 overseas, used more than 70 billion yuan to write off bad loans last year, it said in an earlier statement. That cut its non-performing loan ratio by 2.14 percentage points to 19.1 percent at the end of December. Bad loans stood at about half of total lending in 1999.

China Huijin Investment Co., the biggest shareholder of Bank of China and Construction Bank, will own half of Industrial Bank after the capital injection, with the other 50 percent owned by the Finance Ministry, Industrial Bank said in its statement.

``This is just the first step,'' said Tang Chuan, a Shanghai- based analyst at KGI Securities Co. ``Considering the bank's heavy burden of bad loans, there must be another government bailout.''

To contact the reporter for this story: Michele Batchelor in Beijing mbatchelor@bloomberg.net

Last Updated: April 22, 2005 00:24 EDT