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

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

October 19, 2007

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

    (Logo: http://www.xprn.com/xprn/sa/200611140926-min.gif
)

    Indicator Value Change
     2006: 5.06
     2005: 3.79
     Percentage Change: Up 33.5%

    Click
http://www.xinhuafinance.com/en/charts/indicator/bsi/bsi_chart0710_b_en.jpg
to download the chart. 

    Highlights 

    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.

    Analysis 

    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.  

    Methodology 

    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. 

    To view additional information, visit
http://www.xinhuafinance.com/indicators and
http://www.milkeninstitute.org/chinaindicators. 

    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 http://www.xinhuafinance.com . 

    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
http://www.milkeninstitute.org . 


    For more information, please contact: 

    Xinhua Finance 

    China
     Ms. Joy Tsang
     Tel:   [phone] or [phone]
     Email: [e-mail]

     Mr. Scott Zhang
     Tel:   [phone]
     Email: [e-mail]

    Taylor Rafferty (Media contact for Xinhua Finance) 

    Japan 
     Mr. James Hawrylak
     Tel:   [phone]
     Email: [e-mail]

    United States
     Mr. John Dudzinsky
     Tel:   [phone]
     Email: [e-mail] 

    Europe
     Faisal Kanth
     Tel:   [phone]
     Email: [e-mail]

    Milken Institute 
     Ms. Jennifer Manfre, 
     Associate Director of Communications 
     Tel:   [phone]
     Email: [e-mail]