Meeting increased competition with modern models

By Xu Xiao (China Daily)
Updated: 2012-01-19

"China's financial supervision is much stricter and more efficient than in Europe and US due to both administration and market self-control," said Zhao Shigang, president of China Bohai Bank.

Zhao made the remarks at the 21st Century Annual Finance Summit of Asia held last month in Beijing.

Though the industry is tightly regulated, China's commercial banks will confront challenges in 2012, he said.

Zhao said the country's commercial banks face difficulties with the volume of loans issued during the nation's rapid economic development.

Borrowers are now struggling to increase profits as exports slow and the government tightens currency policies.

He said another challenge is capital constraints by the China Banking Regulatory Commission that limit risk, but also restrain the growth of capital reserves.

As well, stockholders are asking for greater returns on invested capital, so commercial banks have to make more profit from internal operations instead of relying on outside capital, said Zhao.

Compliance and risk management are also challenges. As China's economy grows, approaches are changing. Financial services are becoming more diverse at the same time domestic banking supervision is much stricter.

Zhao said commercial banks must adjust their business culture along with operating and management models to adapt to the new environment.

Compared to many other domestic publicly traded commercial lenders, Bohai Bank was founded relatively recently as apart of the Tianjin Binhai New Development Zone. It brought in overseas investors from the very beginning.

As China's banking industry became more competitive, Bohai Bank carved out a niche using diverse sources of income, SME clients and electronic services, the bank president said.

He noted its first breakthrough came in personal retail and financial market businesses. Its income structure has since become more diverse, a main goal for the bank, Zhao said, with the most important growth in its intermediary business.

From January to September last year, income from the bank's intermediary business increased 297 percent over the same period the year previous.

Its risk management has also improved. In the past, the bank focused on table services, but currently, focus has turned to both table services and brokerage business.

Zhao noted that the bank has listed important industries in its management guide to further raise the level of risk management. In the past, Bohai Bank relied on staff experience to manage risks, but it has now moved to a professional testing models. As a result, bad loans have been kept at a relatively low level and its overall capital quality has remained stable.

(China Daily 01/19/2012 page16)