Risk management upgrading urged
By Sun Min (China Daily)
Updated: 2004-06-09 09:00

Chinese banks should upgrade their risk management systems to improve levels of discipline and avoid the emergence of new non-performing loans (NPLs) as the fast expansion of the country's economy fuels new financial risks, according to the vice-chairman of the Credit Suisse Group.

During China's transition toward a market economy, banking sector reform is playing a crucial role.

When trying to resolve the existing NPLs, Chinese banks should introduce modern risk management measures and use the necessary restraints when granting consumer credit and car and mortgage loans, said Hans-Ulrich Doerig from the Swiss-based group.

They would be a defence against potential financial risks amid a steady rally of the Chinese economy, which has already seen soaring prices and over-investment in some sectors and pushed the central bank to tighten credit supply.

Doerig said the Chinese banking system is not in crisis, but banks should be better disciplined and learn to reject loan applicants who are not properly qualified.

Staff training, especially for executives, about risk management is also urgent.

All are prerequisites to realizing a step-by-step transition of the Chinese economy into a market-driven one.

It will take some time to achieve and also require the banks to undertake "tremendous changes in skill, attitude, mentality and manpower" so they can adjust to the new environment, Doerig said.

An expert in risk management, Doerig launched the Chinese edition of his book "Operational Risks in Financial Services" in Beijing yesterday.

It offers a guide to banks and other financial institutions in controlling operational risks and classifies such risks to make management easier.

Credit Suisse has also been providing training programmes to staff at Chinese banks over the past 15 years and has worked together with the banks to develop new products, including a recently clinched 2.6 billion yuan (US$314 million) NPL securitization project with the Industrial and Commercial Bank of China.

Apart from that, the group also has investment banking and life insurance subsidiaries in China.

Credit Suisse First Boston (Hong Kong) Ltd, an investment banking unit of Credit Suisse, for example, is applying to increase its qualified foreign institutional investor (QFII) investment quota by US$700 million, after acquiring an initial QFII quota of US$50 million in December.

Doerig says the bank is ready to add investment as soon as the authorities allow the new quota.

The investment strategy would depend on the market situation.

But Doerig said that presently, the counters with the greatest potential include energy, transportation and solid high-tech firms, though the market as a whole still needs higher liquidity.

Meanwhile, in the coming years, more legislation and capital market rules implementation are expected, increasing the predictability of the legal framework and enhancing investor confidence.

Although there have been some complaints about the slow pace of innovation in the capital market, Doerig says it is reasonable for the Chinese authorities to control the speed to ensure an orderly transition of the market.

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