Current challenges and future prospects of China's banking industry

The current situation, challenges and future prospects of China's banking industry--a speech by Wang Huaqing, secretary of China's CBRC, at the FT's high-end forum September 16, 2010 Ladies and gentlemen, I am delighted to be present at this high end of the FT forum.　　Next, I will talk about the current situation, challenges and future of China's banking industry. First, China's banking reform and development of the "three major achievements" is the overall competitiveness of the banking sector has significantly improved. As at the end of June 2010, the total assets of the banking institutions amounted to RMB 87.2 trillion and the total liabilities amounted to 82.3 trillion yuan, respectively, 3.2 times times and 3.1 times times the total assets and liabilities of the CBRC when it was first established in 2003, and the weighted average capital adequacy ratio of all commercial banks from 2003 to 2.98% Rose to 11.1% per cent at the end of the two quarter, with a significant increase in provision coverage to 186%.　　Among the top 1000 banks in the world in 2010, bankers from China increased from 8 in 1989 to 84. Second, the Banking company governance and risk management improved markedly. The value consciousness, the capital restraint consciousness, the risk management consciousness and the brand consciousness are popular, the economic capital, the economic value added and the risk adjusted capital return and so on the advanced management method obtains the attention and the application. The basic framework of banking corporate governance has been established and perfected, and the independence and professionalism of the risk management organization system has been continuously enhanced, and the business operation process has been optimized. Some commercial banks have begun to develop the internal rating system according to the requirements of the new Basel capital Accord.　　Banking financial institutions actively respond to the CBRC's advocacy, actively change business processes and organizational structure, and strive to meet the diversification of small enterprises, personalized and "three rural" development of financing needs, innovative financial products and financial services, business functions have greatly expanded. The third is the gradual maturity of the banking prudential regulatory framework. In recent years, the CBRC has established a capital adequacy ratio, the comprehensive risk Supervision index system, including coverage, leverage, ratio control of large risk concentration, liquidity ratio and so on, explores the implementation of macro-prudential supervision, puts forward the regulatory framework of counter-cyclical capital supervision and dynamic provisioning, strengthens the firewall of bank credit market and capital market, We should strengthen the supervision of shareholder supervision and relationship and the conflict of interest, and put forward a series of simple, transparent and effective supervision policies such as mortgage ratio control. "Three approaches, one guideline" was introduced, and the loan risk management and payment process were reformed.　　The CBRC has become a full member of the Basel Committee on Banking Supervision and the Financial Stability Council, and the comprehensive and supervisory capacity has gradually been recognized internationally. The "three challenges" facing the development of China's banking industry is that there are still many uncertainties in the macroeconomic situation at home and abroad. The risk of Europe's sovereign debt crisis is still spreading, and fiscal balance policies in major European countries could bring the already fragile recovery back into a weak state, and the endogenous dynamism of the global economic recovery remains inadequate. Although the domestic real economy is stable to a good trend, there are still downside risks. The export environment is stillNot ideal, the global trade boom is still low, the trend of international protectionism, the rise in raw material prices and labor costs will weaken the international competitiveness of our products.　　Some local investment projects are still growing rapidly, some of the industry overcapacity phenomenon, the transformation of economic development mode, economic restructuring and energy-saving emission reduction task is arduous. Second, the compensatory risk of local government is more prominent. According to preliminary data from the June end of the banking industry, local government platform company loan balance of about more than 7 trillion, 2009 year-on-year growth of more than one, many loan projects are to deal with the financial crisis during the issue, the loan subject of compliance, local government security legitimacy, loan project cash flow and security methods exist some problems, The compensatory risk of local finance has aroused the concern of all parties. It should be said that these platform companies to promote China's urbanization process, to deal with the global economic crisis, to start domestic demand has played a positive role. Since the second half of last year, the CBRC, in accordance with the "package open, by the pen check, reassessment, rectification and preservation" requirements, launched a platform for the company's loans self-examination and clean-up. In strict control of the new Project loan risk, based on the supervision of the bank to carry out the project compliance assessment, the implementation of the first and second repayment sources, to do the mortgage and guarantee management, reclassified before the end of the year, corresponding to the provision of adequate, good bad debt write-off. From the initial grasp of the situation, the platform company loan risk is generally controllable.　　However, in the long run, how to control the financial risk of local government to transfer to the banking system, how to improve the local government debt model and infrastructure construction investment and financing model is an important subject of banking risk management. Third, the real estate price fluctuation and the industrial structure adjustment brings the credit risk. Since 2005, China's real estate market has seen rapid development, the main cities have been rising prices too fast, the phenomenon of high prices. In recent years, the State Council has issued a number of real estate market regulation and control policy, this January and April, the State Council issued a regulation of the real estate market, "11" and "New Country 10", launched a new round of real estate regulation of the deal. In order to implement the State Council real Estate Regulation policy, in recent years, the CBRC has promulgated the "two-suite" policy, perfected the land and the construction project mortgage policy, urged the bank to implement the real estate credit list type management, carried out the real estate loan and the real estate closely related steel, cement, building materials and so on credit pressure test. Although China will not appear the American-style "subprime mortgage" crisis, the quality of real estate credit will directly affect the commercial bank's bad rate and risk level. In addition to real estate, the State Council in recent years successively issued a number of industrial restructuring policies, strict control of "high energy consumption, high emissions" industry development, the elimination of backward production capacity, to prevent overcapacity. On the one hand, the risk of industrial restructuring will be directly reflected in the balance sheet of commercial banks, we have had such a lesson in the 890 's. On the other hand, the optimization of industrial structure is the foundation of sustainable Development of China's economy, and also the long-term development of banking. So in the process, bankingIt is necessary to prevent credit risk and use credit resources to support new industries and industrial upgrading vigorously.　　These are the task of the Times and historical responsibility, but also the bank's credit risk management level and ability test. Third, the development of the Chinese banking industry "three prospects" one is that China's banks will be more competitive. China's economic structure will be more optimized, the government's macro-control capacity continues to rise, China's macro-economy will remain 6-8% rapid growth, China's banking sector will continue to benefit from the rapid growth of macro-economy. As the external environment changes, China's banking industry will implement a more diversified business strategy. The process of marketization of interest rates will accelerate, the deposit and loan spreads will shrink, the traditional "eat spreads" of the profit model will be unsustainable. China's banking capital accounted for 9% of the top 1000 of global banking in 2009, but earnings accounted for 25%, a situation that would change. On the one hand, large, complex banks will be more deeply involved in international competition, the implementation of "go out" strategy, on the other hand, small and medium-sized commercial banks will choose a more diversified business strategy, retail banks, SME banks, funds trading banks, community banks and other strategic banks will be more and more.　　At the same time, the two-yuan structure of China's economy decides that many small and medium-sized financial institutions, such as rural credit cooperatives and village banks, should be based on county areas and serve three agricultural enterprises, so as to improve the coverage and effectiveness of financial services. Second, the banking capital replenishment and capital restraint will continue to strengthen. Since the 90 's, China's state-owned commercial banks have completed the major deployments such as the policy stripping of non-performing assets, government capital injection, financial reorganization, shareholding system reform and public listing. Since 2005, China's commercial banks have undergone two rounds of concentrated capital replenishment. The first round is to focus on public listing, the second is the last two years in response to the rapid growth of credit assets, under the constraints of regulatory capital of collective capital replenishment. On the one hand, the periodicity of capital supplement indicates that regulatory capital restraint has been well conducted in commercial banks, on the other hand, the level of capital management and capital planning of commercial banks has yet to be improved. In the next ten years, the indirect financing channel of bank credit will still dominate, and the rapid growth of the national economy still has a lot of credit demand, and capital replenishment planning will become an important task of the Bank board of directors. The CBRC has always attached great importance to capital supervision and actively promoted the implementation of new Basel capital accord by commercial banks. In recent years, commercial banks in the minimum capital adequacy ratio of 8% basis, but also to take into account the inverse cycle of additional capital and system importance of additional capital, large banks and small and medium-sized banks capital adequacy ratio is not less than 11.5% and 10% respectively. At the same time, commercial banks are required to allocate more than 150% of the coverage rate, but also to introduce dynamic allocation and leverage, as an important supplement to capital regulation. The concept of capital and provisioning as a core tool to cover unforeseen and foreseeable risks has been widely recognized by commercial banks. On September 12, the Basel Committee unveiled the latest global Minimum capital standards, requiring that the minimum requirements for commercial banking core-level capital (common stock and retained earnings) be raised from the original 2%Up to 4.5%, and the new demand for commercial banks to hold over 2.5% of capital retained excess capital as a cushion against possible future difficulties. The above two increases, which have led to a core-level capital requirement of 7%, reflect the international consensus and determination to strengthen capital regulation, as well as the Basel Committee's attitude towards higher capital requirements for banking activities such as proprietary trading, derivatives and asset securitization. At present, China's commercial banks are nearly 80% of the capital, mainly for common stock and retained earnings of the core level of capital, the overall situation is good. Our quantitative calculations also show that the new capital accord will not have a direct impact on the capital replenishment of our current banking sector. How to guide commercial banks to establish capital restraint and capital replenishment mechanism is a major challenge for the regulatory authorities.　　Continuously improve the internal and external sources of capital replenishment mechanism, improve capital absorption of losses and capital quality, reduce the periodicity of capital replenishment, improve capital management capacity and level. Third, the banking financial services innovation capacity will be significantly improved. The investment needs of Chinese residents ' savings will grow rapidly, and the demand for financial services will be more diversified. With the marketization of the price index such as interest rate and exchange rate, the demand of enterprise risk management will increase rapidly, and the financial instruments of various risk management should be provided by banking. China's banking innovation capacity and product homogeneity will be greatly improved, commercial banks will be more effective in dealing with the relationship between innovation and prudent management, innovation and risk prevention, innovative business comprehensive risk management ability will be greatly improved.　　Banking financial consumer protection will be more attention, innovative products, information disclosure will be more timely and perfect, financial consumers will be more mature. Ladies and gentlemen, the future is full of opportunities and challenges. We will be based on the current, focus on the long-term, and continuously promote the continued sound development of the Chinese banking industry to provide more powerful support for national economic development!