KUALA LUMPUR: Chinese banks, despite facing new development opportunities, should stick to their core businesses, suggests senior banking industry expert.

Chinese banks should avoid rapid over-expansion of their businesses in their initial stages of development to ensure they are best able to manage corporate risks, Emmanuel Daniel, founder and managing director of The Asian Banker, told China Business Weekly last week.

The Asian Banker is a Singapore-based intelligence company.

"Today's marketplace requires banks to be very focused," Daniel said, on the sidelines of the Asian Banker Summit.

"Banks are urged to have a strong understanding of their customers, so they can meet their business needs."

According to experts, in addition to credit risks, to which much attention has been paid, Chinese banks should address operational risks.

Operational risks refer to the potential of something going wrong with a bank's integrity and/or system.

Even Basel II, the proposed capital standard requirements for commercial banks, does not suggest how advanced banking environments should be risk weighted, let alone a developing system such as China's.

Since China's banking industry is in the initial stages of development, the country would be off the chart in terms of its score for operational risks.

It is crucial that China's banks separate the "too-close" relationship between shareholders and owners, Daniel said.

"Ambiguous team-ups will easily trigger new management risks," Daniel said.

China's banks should identify new, profitable products before they begin competing head-to-head with foreign banks, which will be allowed to conduct renminbi business, Daniel said.

China, in accordance with its WTO (World Trade Organization) commitments will allow foreign banks to begin conducting renminbi business before the end of 2006.

Chinese banks, Daniel said, have been fixing their eyes on the traditional businesses of mortgages and corporate loans.

"Private banking and wealth management will become a major arena in which foreign and local banks will wrestle," Daniel said.

"Some domestic banks have proceeded with new products."

Unlike Hong Kong, which many experts and government officials expect will become an offshore renminbi centre, Singapore will possibly become the offshore centre for China's private banking businesses.

Singapore, many suggest, is an ideal choice, given its geographical proximity and cultural similarity with the Chinese mainland.

Chinese banks, Daniel said, must be able to detect future trends and prepare for them.

Planning for any scenario, experts suggest, is crucial for the banking industry, as such practices help commercial banks through difficult times.

No one can predict without fail when or where a crisis will occur, but banks must look at all variables that could affect their businesses and anticipate what could happen, experts suggest.

"It is interesting to note there are few new mistakes in the banking industry. People tend to make old mistakes, in new ways," Daniel said.

Banks can better plan their potential businesses and reduce risks by learning from previous mistakes, Daniel said.

The Asian Banker Summit, a gathering of the world's banking and financial services leaders, has become an annual, high-demand event.

The summit was the first major conference for senior banking industry executives since the SARS (severe acute respiratory syndrome) outbreak plagued the world earlier this year.

The Asian Banker, established in 1996, has become a leading provider of strategic business intelligence to the financial services community.

(Business Weekly 09/23/2003 page4)