Speech by the CBRC Chairman Shang Fulin at Lujiazui Forum 2013
Respectable Mayor Yang Xiong, Vice Mayor Tu Guangshao, distinguished guests, ladies and gentlemen,
Good morning! First, I extend my warm welcome to your arrival as the rotating president of the Lujiazui Forum 2013, and express cordial congratulations to the remarkable achievements made in the construction of Shanghai Financial Center.
The theme of Lujiazui Forum 2013 is “A New Vision for Financial Reform and Opening Up”. As is known to all, in the process of over 30 years’ reform and opening up, China’s banking reform development has achieved historic breakthroughs and gained remarkable accomplishments, under the correct leadership of the CPC central committee and the state council. Since this year, the banking industry has maintained a smooth and healthy operation trend.
To the end of May this year, bank assets had achieved steady increase, with total assets of 140 trillion Yuan, 16.3% up year on year. Deposits and loan had increased steadily, with a total deposit of 102 trillion Yuan, 16.2% up from last year. The growth rate was close to the same period last year. Total loan was 72 trillion Yuan, 15.6% up from last year. The growth rate was close to the same period last year. Quality of overall asset is stable. Commercial banks’ non-performing loan ratio is at 1.03%, slightly higher than last year, but still kept at a relatively low level. Provision coverage is at 280%, maintaining a high level.
A few days ago, influenced by many factors, some tight liquidity problems appeared on the market. In general, China’s banking system does not lack of liquidity. Up to June 28th, the excess reserves of all financial institutions are around 1.5 trillion Yuan, over twice as much as the normal payment and settlement amount. Deposit reserve rate has been around 20%, abundant for cash payment. These days, the inter-bank market liquidity squeeze has started to ease, which will not affect the overall smooth operational pattern in China’s banking industry. At the same time, we also see some defects of commercial banks in aspects of liquidity management and business structure This should arouse great concerns of the banking industry and requires banks to strengthen their risk management, structure readjustment and business transformation. Next we will coordinate the top level design of the reform and development for the banking industry, in accordance with the natural requirements for financial support to real economy and guarding against financial risks, to better display the basic function of market allocation of resources, and further promote economic structure adjustment, transformation and upgrade. Reforms would be carried out in the following five aspects.
Firstly, perfect wide coverage, differentiated, effective banking institutions. The focus is to guide all banking financial institutions to intensify reform, position reasonably and achieve a scientific layout to increase the efficiency of financial resources allocation and the banking sector’s ability to support economic transformation and upgrade through characterized development, differentiated competition and specialized services.
The first step is to optimize classified supervision mechanism: to Actively improve classified license management system, to achieve differentiated management on the operation area and business scope of various types of banking institutions, and to establish corresponding examination and evaluation system to facilitate a better more inclusive financial service with differentiated operation and competition of banking financial institutions and bring down the risks brought by homogenous competition.
As everyone knows, banks in China, large banks and small banks alike, provide basically the same services, so the trend for homogenous competition actually exists. We need to encourage differentiated competition according to the demands of real economy and actual situation of banks to provide better financial services to real economy.
The second step is to mobilize private capital into banks: Encourage private capital to invest and participate in restructuring financial institutions; allow the development of mature and steady village banks; adjust the capital ratio of the mainline and other shareholders at the lowest ratio requirement; and allow private banks at their own risks by private capital to try getting into private financial institutions such as renting companies, consumer finance companies.
The third step is to promote specialized development of non-banking financial institutions: Continue to push forward trust companies’ intensified mechanism reform to better display the functional advantage of trust in the emerging property right system, social livelihood area and wealth management aspects; promote the high-connect between social capital and quality projects; encourage financial renting companies to moderately expand scope of lease business; actively develop a full set of equipment and assets project financial lease business; promote the adjustment of technological innovation and industrial structure; optimize enterprise group finance companies’ access standards, strengthen internal management, support enterprise groups improve development quality, and facilitate the upgrade of industrial structure.
Secondly, improve the banking service system which is close to the market and able to cure the real economy: Seize firmly the significant strategic opportunity brought to China’s banking industry by industrialization, urbanization, informatization and agricultural modernization. Firmly establish a customer-focused service concept; complete the modern banking system to provide real economy with specified, sustainable and high value-added financial services.
The first step is to utilize trust lever to facilitate industrial structural adjustment. More trust support should be offered to promising advanced manufacturing industry, strategic emerging industry, modern information industry, information consumption & high-end service industry and environmental friendly industry to actively cultivate new industrial growth point. According to the CPC’s “four batch” requirements, differentiated credit policies should be implemented to industries with excess capacity respectively, depending on individual cases, to promote the adjustment of excess capacity.
The second step is to develop consumer finance to boost consumption upgrade. We will speed up the improvement of bank card consumption service function, optimize bank card consumption environment, expand the bank card usage scope of urban and rural residents, gradually enlarge the scope of consumer finance companies’ pilot cities, and strive to cultivate new consumption growth points. Innovate product service according to the consumption characteristics of groups such as migrant workers, improve the matching degree and adaptability of financial services to promote consumption upgrade.
The third step is to innovate service mechanism to improve service efficiency. Support banks and network telecom operators to carry out high level intensified cooperation. Innovate service mode, service channel and business products. With the help of internet technology, further strengthen comprehensive service functions such as payment, settlement, financing and consulting. Spread institutions and outlets to lower levels and innovate mechanism and products. According to the characteristics of small and micro emerging agricultural management main bodies and produce wholesalers, develop specified financial products and services, attach more importance to the convenience of financial services, and support enterprises to go out.
Thirdly, improve the financial market system in division of labor, cooperation and coordinated development. Lay stress on revitalizing the stock, well using increment and improving social capital efficiency to increase the ratio of direct financing and gradually form a well structured coordinately developed financial market system where direct financing and indirect financing are complementary. Banking industry, as a major participant of China’s financial market, should play a dominant role in the construction of financial Market system.
The first step is to regulate the development of financing. We need to fully utilize the banks’ technological, network and personnel advantages to classify financing business into direct financing business within the creditors’ type and constantly explore new mode and product for financing businesses to serve real economy.
The second step is to promote normalized development of securitization of credit assets. Support the development of securitization of credit assets, vitalize credit stock, and further develop its function of promoting economic structural adjustment.
Fourthly, improve the well risk-control, efficient operation management system. Promote the development of a comprehensive risk management system in banking industry and financial institutions, improve the level of management and operation, give full play to the role of risk management as the first line of defense, and stick to the bottom line of without systematic and regional risk.
Recently, some international institutions and industrial professionals expressed concerns to the risks in aspects of Chin economic growth, local debts and real estate. It should be noted that these risks are just some side effects in the process of slowing down, development, transformation and institutional transition of China’s economy. As long as the risks re sufficiently realized and correct risk management measures are taken, the risks are manageable.
In terms of loan from local financing platform, up to the end of the first season, the loan balance is 9.59 trillion Yuan. There are various ideas in the society, and the number of local financing platforms is always unclear. The date I quoted, the balance amount on the platform, in terms of banks, is 9.59 trillion Yuan. Non-performing loan ratio is only 0.14%. The local debts mainly belong to productive liabilities. Compared with European debts, the big difference is that China’s local debts is productive instead of consumptive, and have corresponding asset guarantee. The overall risk is manageable. In the next step, we will strengthen the specification of platform loan management to reduce the risks and hidden danger, according to the principle of total amount control, classified management, differentiated treatment and gradual resolution. Meanwhile, we should pay close attention to studying systems and methods for regulating local government loan management.
In the aspect of real estate loans, up to the end of April, the loan balance is over 13 trillion Yuan, among which housing mortgage loans accounts for nearly 70%, i.e. a major part of real estate loans. Chinese people have credibility and loan default rate is rather low, non-performing loan ratio far less than 1%. In addition, the rising trend of housing has been effectively controlled. We are taking an list type management to real estate developers, and the management has been further strengthened. The non-credit financing has been effectively controlled, and the overall risk of real estate loans is also controllable.
In terms of wealth management business, up to the end of the first season, the book balance of wealth management capital is 8.2 trillion Yuan, 70% of which has been put into real economy. To prevent financial funds flowing from real to virtual, total amount control is put forward on financial funds’ investment into nonstandard credit assets. At the beginning of the year, we have a No.8 article, in which specific provisions are stated on the total amount control requirements. Moreover, investment item should be in accordance with national macroeconomic regulation and control policy and industrial policy. Meanwhile, prudent risk out management requirement has also been put forward. That is to say those non-standard products management should be conducted in accordance with self-loan. A series of regulatory requirements have been set.
For the next step, we need to continue regulate wealth management business of commercial banks, strengthen behavior management and strictly control risks according to the principle of division of wealth management and credit operations, matching of products and projects, independent account management and transparency of information.
First, further improve regulatory framework of banking industry. Continue improving micro-prudent and macro-prudent regulatory framework, increase individual institutional and systematic risk identifying and coping ability, accelerate the innovation of regulatory mechanism, improve regulatory methods, enhance data quality, strengthen behavior ratification and punishment to improve the authority and pertinence of regulation. Coordinate regulatory standards, and strive to solve inter-industry inter-disciplinary regulation problems to prevent regulatory arbitrage, reduce regulatory cost and bring down the invisibility and infectiousness of financial risks.
Regulatory standards are not consistent among different regulatory sections, because of financial industry’s pilot projects in comprehensive operation, especially in wealth management. This situation is prone to institutional arbitrage, and mutual transfer of risk. So we need to improve regulatory coordination mechanism, uniform regulatory standards and scales, to guard against risks from transferring and spreading.
The third is to enhance the protection on finance consumers: to take financial consumption protection as an important goal of regulatory objectives and put it at a distinguished position; to expand market constraints and effectiveness of public regulatory through improving the mechanism for consumer rights protection; to promote the improvement of managing mechanism of service pricing, and strictly strictly regulate the behavior of financial service charges; increased information disclosure and transparency, and actively take the initiative to protect legitimate rights and interests of depositors and financial consumers.
Now there are more and more products for financial consumption, especially those designed for private consumers. We hope to see an increase in the products’ transparency. Tell the consumers what the product is about, tell them the possible benefits, and at the same time, tell them the risks. Because banks used to be places for deposition, so people believes their money is safe in the banks.
We used to say “achievement for the country, interest for you” when we try to let more people deposit their money in the banks, but now the banks are doing financing business, which is quite different from deposition. Bank financing is a kind of investment, for all investment, there are risks. Banks should inform their customers with the risks of their products. Also banks should sell their products to the right people. They need to evaluate their customers’ ability against risks. It is not proper to sell the high-risk products to customers with low risk resistance capacity. This does not meet our regulatory requirements, nor consistent with our social responsibility.
So with changes in financial market, there are a lot of works to do to protect the interest of finance consumers. On one hand to increase the transparency, on the other hand is to sell products to the right people. Besides, we also need to increase consumers’ capability to protect themselves and the ability to recognize risks.
Ladies and gentlemen, China’s economic and financial development is still at an important strategic period. CBRC will further enhance the sense of mission, the overall situation awareness, sense of urgency, and pay attention to risks, to encourage financial innovation, and actively guide the banking industry, in order to build a well-off society and make great contribution the realization China’s dream of great rejuvenation.
Copyright: China Banking Regulatory Commission