Sustainable Economic Development Calls for a Sound Banking System

-- Speech of Chairman SHANG Fulin at the 13th China Development Forum

(March 17th, 2012)

Ladies and gentlemen,

Good evening!

It’s a great honor to attend the China Development Forum. I’d like to take this opportunity to update you on banking sector’s support to the real economy and the CBRC’s regulation on banking sector.

Currently, the financial market is still in turmoil with the international financial crisis and debt crisis interacted with each other. The uncertainty in the economic recovery is hovering over developed economies; and the emerging economies are confronted with pressure in economic restructuring. At this complex stage, we need to consider how to build a more stable banking system which is both safe and efficient.

Firstly, a sound banking system is instrumental to the sustainable development of the real economy.

This financial crisis once again proves that the steadiness of banking sector should be based on the sustainable development of real economy, and be committed to driving the long-term and stable economic growth. The National Conference on Financial Work earlier this year has made it clear that the priority in reforming and developing financial sector is to promote economic and social development, increasing financial support to those weak areas.

China’s banking sector needs to further strengthen loan management. On the one hand, we should maintain a reasonable growth rate of credit volume, promoting balanced lending according to the law of economic development. Moreover, we must make sure that loans flow to the real economy, avoiding money speculation and excessive expansion of the virtual economy. On the other hand, we should improve credit structure, increase the financial support to key national industries and emerging strategic industries and enhance the financial services to “agriculture, farmers and rural areas” and weak areas like small and micro businesses. Besides, restrictions should be imposed on loans to highly energy consuming and highly polluting sectors with excess capacities.

In terms of “agriculture, farmers and rural areas”, the CBRC will, by continuing to deepen rural credit cooperative reforms and developing new rural financial institutions, coordinate with other governmental departments concerned to offer policy support, pushing forward the “two full coverage” of financial institutions and services in rural areas. By the end of 2011, the number of village and township banks had totaled 726, efficiently improving rural financial services in remote areas. In terms of small and micro businesses, we will effectively implement the differentiated regulatory policies on the loans to small and micro businesses, guide banks to speed up product and service innovation, strengthen the financial support to small and micro businesses and encourage banks to issue special financial bonds to small and micro businesses.

We encourage commercial banks to explore efficient mode and mechanism to support the real economy. Commercial banks are transforming their operation philosophy to a customer-oriented one. They attach more importance to financial innovation on products, service, procedure and business model, so that the increasingly diversified demands of the real economy can be fulfilled.

Secondly, a sound banking system needs regulatory standards which advance with the times.

The global financial crisis is a historic opportunity to review and restructure financial governance and regulatory framework. Due to the financial crisis, the focus of international financial regulation reforms is shifting from regulatory policy formulation to implementation and assessment of regulatory standards. China’s banking sector, which is integrating into global financial market and becoming more and more internationalized, should timely introduce the latest achievements of international financial regulatory reforms, and boost the implementation of new international regulatory standards. This year, according to the core content of Basel II and Basel III, based on China’s actual conditions and reality of banking sector, the CBRC will issue new regulatory standards on capital management of commercial banks and liquidity risk management.

Currently, the implementation of new capital regulatory standards is being orderly pushed forward. Earlier, we carried out QIS in the top 10 commercial banks and some medium-sized and small banks, which showed that the effect of implementing new capital regulatory standards on bank operation is controllable. At the same time, we are planning to adopt differentiated regulation on capital management, so as to help banks establish a stable, high-quality and diversified capital supplement mechanism. We should improve the banking sector’s ability to develop scientifically, by means of financial innovation. The implementation of new capital regulatory standards has profound significance to the sound and scientific development of banking sector.

Meanwhile, we pay close attention to the liquidity risk of banking system, and will carry out new regulatory standards on liquidity risk of commercial banks. We will urge commercial banks to deepen their understanding of new regulatory standards, enhance liquidity risk monitoring and strengthen stability management of banks’ financing sources. We will speed up building the supporting system for liquidity management which is composed of relevant policies, procedures, technology and IT system, establishing a more efficient liquidity risk management system.

Last but not least, a sound banking system calls for comprehensive and efficient risk controls.

With the evolution of financial crisis, more instabilities and new risks appear in both domestic and global financial market. Currently, the international financial market and domestic financial market are increasingly interconnected to one another. Risk contagion became more evident across the on-balance sheet and off-balance sheet. Formal financial system and private lending market are closely related as well. Despite the rapid growth of the profitability of China’s banking industry, potential risks still need high attention.

The CBRC will spare no effort to avoid systemic and regional financial risks, maintain the continuity and stability of regulatory policies, urge banking industry to take precautions to manage potential risks, improve the five-category loan classification standards, and fully carry out the regulatory requirements of risk management. The CBRC will enhance risk warning and promote the construction of risk monitor information system, so that systemic and regional financial risks can be identified and addressed at an early date.

Meanwhile, we will encourage banking institutions to build up the foundation of risk management, cultivate sound risk culture and awareness, construct steady risk appetite framework, and establish an overall risk management concept. In the meantime, we will help banking institutions to improve corporate governance, strengthen internal controls, and improve the forward-looking and effectiveness of risk management by applying tools like stress testing etc.

Dear guests and friends, we will commit ourselves to balancing between defending risk and promoting development, combine overseas experience with China’s reality, and enhance internal management of banks while strengthening external supervision, so as to establish a sound banking system and achieve scientific development of banking sector.

Thank you!



Copyright: China Banking Regulatory Commission
ADDR:Jia N0.15 Financial Street, Xicheng District, Beijing, 100033