- Speech by CBRC Chairman LIU Mingkang at Lujiazui Forum
(May 20, 2011)
Party Secretary Yu, distinguished guests, ladies and gentlemen,
This year marks the beginning of the 12th Five-year Period. Over the past three decades,
In recent years, as a result of vigorous facilitation by the Central Government, the financial reform and opening-up has got in full swing. Thanks to over 8 years of prudential guidance, the banking sector has withstood the impact and test of the international financial crisis that rarely occurs in everything 100 years. Remarkable changes have taken place in internal mechanisms and external image. In particular, the operating mechanisms and managerial efficiency have seen some delightful changes, which is not easy to achieve.
First, operating efficiency has been drastically improved. As of end-2010, the amount of loans extended by banking institutions reached 4 times that of 2003, and the average profitability has grown by 10 times, comparable to that of well-managed international banks. One source of such profitability is effective cost control. One famous example is that the Industrial and Commercial Bank of
Second, the banks’ ability to fend off risks has been significantly enhanced. The amount and proportion of major commercial banks’ NPLs dropped respectively from RMB 2.28 trillion and 23.61% (on the basis of 4-category loan classification) at the end of 2002 to RMB 364.6 billion and 1.15% (on the basis of more stringent 5-category loan classification) at the end of 2010. The banks’ consolidated weighted average capital adequacy ratio rose from -2.98% at the end of 2003 to 12.2% at the end of 2010, with the capital adequacy ratio of each and every commercial bank exceeding the required 8%. More importantly, the banks have developed the awareness of capital constraints and the internal dynamism for continued capital supplementation. As a result, the banks’ provisioning coverage rose from 6.7% at the end of 2002 to 218.25% at the end of 2010, and the ratio of loan loss provisioning reached 2.41%. To make sufficient provisions for withstanding risks has become a consensus shared by bank shareholders, directors and senior officers.
Third, the sources of revenue have become increasingly diversified. In 2010, the net amount of listed banks’ service fee and commission revenues grew by 30% over 2009, hitting a growth rate 7 percentage points than that of 2009. As for China Construction Bank and other banks, the contribution of the net revenue from service fees and commissions to their operating revenues has grown from 4% in 2002 to 20% in 2010. The model of making profit mainly from difference in interest rates is experiencing unnoticeable changes. What is delightful is that the growth in service fee and commission revenue comes from the development of new business activities. As of end-2010, commercial banks issued 200 million valid credit cards, which mean that one out of every 6 people owns a credit card. Besides, the average overdraft limit rose by around 40% over 2009. In addition, the wealth management sector has also seen a sharp growth. In 2010, the wealth management products sold by the ICBC only totaled RMB 4.5 trillion.
Nevertheless, we must look at the existing issues of
2. To strategically facilitate the banking sector to transform the development mode
President Hu Jintao stressed that it is of necessity to accelerate the transformation of development mode so as to adapt to major changes in global demand structure and match the new characteristics of
Firstly, continued efforts must be made to boost business innovation. In 2010, One fourth of funds raised by non-financial corporate sector in
Secondly, the banks must improve the capability of performing due diligence and selecting quality clients.
Thirdly, the banks must continue to promote their capability of pricing products on a reasonable and equitable basis. Banking institutions should be able to accurately calculate their own costs, expenses and risks, and “calculate before doing other than do before calculating”. First is to improve the funds transfer pricing mechanism. Some leading international banks have been able to amortize over 90% of all costs to every product and transaction via funds transfer pricing. Commercial banks in China must step up the efforts to establish the FTP system, accurately calculate the costs associated with deposited funds and returns on lent funds in light of mid to long-term risk-cost calculations and supply-and-demand situation in the money market, and improve their capability of pricing lending and intermediary businesses.
Second is to accelerate the collection of risk data and development of managerial infrastructure. The banks should improve the system platform and dynamic modules from data tracking analysis and scientific assessment, strengthen the measurements and calculations of various risks, and adopt cost-plus pricing to make sure that return is sufficient to cover costs and maturity-matched risks. Third is to give the clients the right of choice. The banks should inform the consumers of available options concerning services and fee charges in an understandable and acceptable way, and provide the clients with instructions and options to choose from. Fourth is to establish sound appraisal rules. The banks should, in light of the actual situations and in the spirit of sustainable development, define the scope and objectives in relation to appraisal of various business activities, and have in place reasonable incentive and disciplinary measures. They should implement the scientific approach to development throughout their organizations in a consistent manner.
Fourthly, the banks must promote the “problem solving” culture. With the support of sound corporate culture, systems and policies are useless. As banks are service providers, “solving problems for the clients” is a fundamental requirement. First, the banks should strictly follow the prioritized order of safety, liquidity and profitability, and pursue growth on the basis of robust operation. Every employee must work hard towards that and solve the problems for the clients. Second, the banks should promote the “problem solving” culture and enhance the employees’ sense of responsibility. Every employee working with the clients or in the market represents a bank’s image, so they should improve their ability to work alone and collaboratively. In fact, what
3. To strengthen overarching design and create a supervisory environment to support sound economic growth
Firstly, the banking sector should positively interact with the new countryside development and urbanization programs. In this regard, the banking sector covered all unbanked townships/towns with basic financial services at the end of 2010, and accomplished for two successive years the goal of “making sure that the growth rate of agro-related and SME loans is not lower than the average growth rate of all loans and the amount of new agro-related and SME loans extended is not smaller than that of previous year”. In this year, efforts will be made to set up banking outlets in 500 under-banked townships/towns. What is crucial is that efforts must be made to promote the equalization of public services at the grass-roots level. That is to say, besides basic financial services, efforts should be strengthened to improve the delivery of public services, such as housing, employment, education, social security and medical insurance, in a coordinated manner, to have in place well-designed systems and mechanisms, to define short-term and mid-to-long-term goals, and to ensure the implementation in a consistent way.
Secondly, the banking sector’s development and deepened SOE reform should promote each other. The scientific development and careful management of the banking sector will help to boost the deepening of corporate reforms, particularly with regard to SOEs, hence promoting the quality of socio-economic development at both macro and micro levels. On the other hand, the substantial socio-economic progress at both macro and micro levels will safeguard the sound development of banking sector. At present, a very important task is to play down the nature and size of companies,. The banks should, in the spirit of promoting sound and rapid development, make sure that various resources, including bank credits, are accessible through equal competition, thus optimizing the configuration of social resources.
Thirdly, we should effectively boost the transformation of development mode. Currently, given the impact of domestic and international factors, many links of
Fourthly, the development of the banking sector needs fundamental supports from public policies. First, public policies should be conducive to the sustainable development of economy and finance. Currently,
Ladies and gentlemen, at a time when everybody is eyeing on Asia and
Copyright: China Banking Regulatory Commission