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Better banking service to real economy

Li Yang
Updated: Sep 24,2014 11:14 AM     China Daily

China Banking Regulatory Commission promotes banking reform and development

Serving the sound and balanced development of the real economy is one of the objectives of China’s banking reforms and restructuring, according to the top regulator of China’s banking industry.

Sticking to risk control and scientific development, the China Banking Regulatory Commission has made great contributions to the nation’s financial stability and economic development during the past 10 years since its founding.

CBRC Chairman Shang Fulin pointed out that there are five goals for the reform and development of China’s banking industry: a system of banking institutions with wide coverage, differential operations and high efficiency; a banking service system responding to market demands and rooted in real economy; an operational and management system with better risk control and efficiency for banks; a stable and prudent regulatory system; and a coordinated financial market system that serves the real economy according to the requirement of socialist market economy.

The banks are required to operate according to market rules and the market plays a decisive role in allocating resources.

To expedite the reform of banks, China set up the banking regulatory commission in 2003, a milestone in the regulation and management of China’s banks.

The 10 years since CBRC was launched have witnessed the fast development of Chinese banks. Among the world’s top 10 banks today, four are from China.

The CBRC has been exploring ways to form a regulatory system for the banks according to the national conditions in China, and using new policies and mechanisms to encourage the banking industry to better serve the real economy.

China’s banking industry has tried out many new concepts and new ideas in the process, which succeeded in maintaining financial stability despite the grave international financial crisis.

Better quality

China’s banking industry has not only addressed the risks that had accumulated, it is also changing to effectively control new risks.

The weighted average capital adequacy ratio of Chinese commercial banks was 12.19 percent last year. By the end of last year, only 1 percent of the loans, about 592.1 billion yuan ($96.39 billion), were bad loans. The commercial banks’ provision coverage ratio rose from 41.4 percent in 2007 to 282.7 percent last year, which consolidated the financial institutions’ ability to resist a financial crisis.

And the net annual profit of the banks and financial institutions rose from 446.7 billion yuan to 1.74 trillion yuan last year. The ratio of return on assets and capital return ratio of commercial banks increased from 0.9 percent and 16.7 percent in 2007 to 1.3 percent and 19.2 percent respectively.

One core function of the banks and other financial institutions is, through market channels, to allocate resources as a lever at comparatively low social transaction costs.

The CBRC has always followed the central authority’s lead and strengthened coordination among financial policies, monetary policies and industrial policies, to guide the banking industry so it takes the government’s macroeconomic policies into account.

The CBRC has encouraged and guided banks to actively support the development of strategic emerging industries — including advanced manufacturing, environmental protection and energy conservation — designated by the central authority, which are key for China’s restructuring and industrial upgrading.

The commission has also encouraged banks to try their best to guarantee sufficient loans to key projects of national importance, as well as big infrastructure projects and government-subsidized housing projects, which are central for sustaining social development and improving people’s livelihoods.

A strict control over loans to the industries with overcapacity, and energy-consuming and polluting industries is also effectively promoting environmental protection, energy conservation and green growth.

Balanced growth

The CBRC has always encouraged the banks and financial institutions — in a commercially sustainable manner — to expand their branches, and extend their services to the less-developed regions. This is the banking industry’s important contribution to the balanced growth of the country.

Bank loans to the central and western parts of China have grown faster than those to the better-off eastern region for four years in a row. Much of the funds have gone to infrastructure construction, ecological restoration and industrial relocation.

The financial services offered by institutions in the countryside laid a solid foundation for the development of modern agricultural industries.

The accelerating number of loans to agriculture stayed higher than the average growing speed of all loans in 2013.

Serving small firms

Banks have also taken concrete actions to solve the difficulties small and micro businesses face in obtaining loans and the other financing problems.

Some small and medium-sized banks have developed into specialized banks serving smaller enterprises, while the big banks have set up special centers and branches for small and micro-sized enterprises.

And the banks pay special attention to serving small and micro enterprises by building a special system, in terms of interest rate risk pricing, independent accounting, loan approvals, personnel training and information disclosure.

Lending to small and micro enterprises is no longer a small business, but an increasingly important part of the whole banking industry’s development strategies. The loans to such enterprises have increased at a faster average growth rate than that for all loans.

The CBRC encourages banks and financial institutions to offer innovative services and products to small and medium-sized enterprises and especially small and micro-sized enterprises to help them create more jobs.

New opportunities

Shang said the recovery of global economy, the deepening of reform in China, as well as the country’s new urbanization move, the initiative to solve overcapacity of manufacturing industries, a new growth mode driven by innovation and the new developments of the financial market have all offered new opportunities to the transformation and development of China’s banking industry.

However, Shang said the banking industry also faces many challenges at present because of the complicated and fast-changing international economic and financial dynamics, the shift of China’s growth mode and the newly emerging financial business modes. “All these test our ability to adapt to changes and control risks,” Shang said.

“We should further promote reform and opening-up, improve financial services, enhance risk control and improve operational efficiency to lift the industry’s capacity to serve the real economy,” Shang stressed.