18th International Conference of Banking Supervisors

Responsibility and the real economy

Message from Shang Fulin, chairman of the China Banking Regulatory Commission

As the Basel Committee celebrates its 40th anniversary this year, it gives me great pleasure to meet banking supervisors all over the world, to share our experiences in banking supervision, discuss global regulatory reforms, and map out strategies for financial stability.

Reforms

Thirty years ago, China’s financial market was underdeveloped with no commercial banks in a real sense.

The banking sector witnessed historic transformations during the 30-year period of fast economic growth.

A modern financial system has now taken shape with commercial banks as the major market players, supplemented by policy banks, cooperative institutions, and various types of financial institutions coexisting.

Currently, China has nearly 4,000 financial institutions nationwide with a total banking assets of 160 trillion yuan ($26 trillion), accounting for more than 90 percent of the country’s total financial assets.

The capital adequacy ratio of the commercial banks has reached 12.4 percent, non-performing loan ratio stands at 1.08 percent, and provisioning coverage ratio 263 percent, showcasing the banking sector’s good asset quality, strengthened risk-absorbing capacity and controllable risks.

According to the Top 1,000 World Banks ranking for commercial banks released this June by The Banker, the UK magazine, 110 Chinese banks are among the top 1,000 world banks, and four are among the top 10 in terms of capital strength.

China pursues a policy of opening up. Especially since its accession to the WTO in 2001, we have been honoring our commitments, and steadily open up the banking industry.

So far, foreign banks from 51 countries and regions have set up 43 locally incorporated banks, 92 branches and 187 representative offices in China with a total asset of $437 billion and an annual growth rate of nearly 20 percent. In the meantime, Chinese banks have also expanded their overseas presence with 1,127 operating institutions in 51 countries and regions abroad.

Practice

Since its inception in 2003, the China Banking Regulatory Commission, the CBRC, has been exploring a banking regulatory system that both meets international regulatory standards and accommodates China’s actual situation. After years of practice, we have gradually established an effective banking regulatory system that played an important role in confronting the international financial crisis and promoting sound and sustainable growth of the banking industry.

The Financial Sector Assessment Program jointly carried out by IMF and World Bank in 2009 and the Regulatory Consistency Assessment Program conducted by the Basel Committee in 2013 both fully acknowledged China’s banking regulatory system, supervisory capacity and effectiveness.

Here, I would like to briefly talk about the banking supervisory practices and experiences in China.

First, combining international standards and domestic practices. Since its establishment, the CBRC has drawn on international supervisory experience and set up the supervisory philosophy of “conducting consolidated supervision, ensuring the supervised institutions establish effective risk management and internal control systems, and enhancing transparency”.

Second, combining macro- and micro-prudential supervision. We adhered to building a risk-based prudential supervisory system that combines macro- and micro-prudential supervisory measures.

With nearly 700 laws and regulations issued and implemented, we have established a comprehensive supervisory system covering various types of banking institutions, businesses, banks’ executives and corporate governance.

Third, combining institutional supervision and functional supervision. We continue to improve the supervisory mechanism, and have built a supervisory matrix integrating both institutional and functional supervision.

Fourth, combining both internal controls and market discipline mechanism.

We place equal emphasis on banks’ internal risk controls by self-discipline, and external market discipline. We focus on improving transparency, strengthening information disclosure and give full play to the role of self-discipline in industry associations, so as to convert market discipline into the internal incentives for risk prevention among banks.

We use both the “visible hand” and the “invisible hand” to enhance market efficiency, effectively preventing and reducing the risks in the banking system.

Fifth, combining risk-based supervision and services for the real economy.

While strengthening supervision and risk prevention, we always focus on guiding the banking sector to serve the real economy, better support the key areas and weak sectors that are related to national development and people’s livelihoods, and make the banking industry more effective in serving the real economy.

System

The Basel Committee since its establishment has played a significant role in introducing sound global banking regulatory standards, raising the resilience of the financial system, creating a level playing field for internationally active banks and maintaining global financial stability.

Particularly, built upon the lessons learned from national regulatory authorities in response to the recent financial crisis, the Basel Committee introduced a number of regulatory reforms including capital, leverage and liquidity standards, and placed more emphasis on the dynamic macro-prudential supervision and the effective implementation of international regulatory standards.

As a member of the Basel Committee, China will work with other member jurisdictions to jointly push forward the international financial regulatory reforms and promote the establishment of an effective international banking regulatory regime.

Here, I would like to make five propositions:

First, jointly promote the introduction and implementation of simple and transparent international regulatory standards.

Second, jointly promote the establishment of a fair international regulatory environment.

Third, jointly promote the coordination of banking regulatory policies and macroeconomic policies.

Fourth, jointly promote financial services to better serve the real economy.

Fifth, jointly promote cross-border supervisory cooperation.

A far-away destination will be reached if we keep going forward; a difficult task will be accomplished if we keep doing it. Looking forward, we have every confidence in global banking regulatory reforms.

As always, the CBRC will fulfill its responsibility as a member of the Basel Committee, strengthen communication and cooperation with regulatory authorities around the world, participate in global banking regulatory reforms, promote sound development of the banking industry, and help maintain the safety and soundness of the global financial system.

The article is an excerpt of the chairman’s speech during the 18th International Conference of Banking Supervisors.