Bloomberg:

My question is about the banking system. What's the latest assessment risks associated with the nation's smaller banks? Some rural banks in Henan were found to be a part of a suspected financial scam involving tens of billions of yuan. Do you have any comment on this? This specific case and on the broader risk field of the smaller banking sector. Also, to what extent has the property market slowdown impacted banks' asset quality? And what measures do you plan to resolve these risks? Thank you. 

Xiao Yuanqi:

Thank you for your questions. This issue also concerns us. We are paying a lot of attention to the healthy development of small and medium-sized banks, especially small banks. There are currently 3,991 small and medium-sized banks in China, including 147 city commercial banks (including private banks), 2,196 rural credit cooperatives (including rural commercial banks and rural cooperative banks), and 1,651 village and town banks. The total assets of these banks reached 92 trillion yuan, accounting for 29% of the whole banking sector, mainly focusing on providing financial services for small and micro enterprises and services related to "agriculture, rural areas, and rural residents." Related loans accounted for 47% and 40% of the total banking sector.

Concerning the non-performing loans (NPLs) you just asked about, we have made great efforts in disposing of 5.3 trillion yuan of NPLs at small and medium-sized banks in the past five years. On the whole, small and medium-sized banks in China are operating smoothly and developing in a healthy way. Generally speaking, the risks are completely manageable, though there are still some problems, in particular, certain individual institutions are relatively high-risk, and some are suspected of crimes. The legitimate rights and interests of financial consumers are protected in accordance with the law, and the financial regulatory authorities will spare no effort to do a good job in related work.

We have taken the following measures to deal with non-performing assets and relevant risks.

First, we have taken coordinated action to advance reform and risk-defusing. In our efforts to advance reform and defuse risks for small and medium banks in a coordinated way, we have focused on corporate governance and mechanism building. We have also given priority to fostering their internal momentum for development, prevention, and control of risks, and ensuring the delivery of the duties of all parties. For individual key institutions, we adopted tailored policies for each bank to make plans for deepening reforms and defusing risks.

Second, we have strengthened our efforts to deal with non-performing assets. We have carried out the classification of non-performing assets of the small and medium banks, improved the provision coverage ratio, and stepped up efforts and taken more measures to dispose of non-performing loans. At the same time, we have also provided policy support for small and medium banks to dispose of non-performing loans.

Third, we have worked to replenish capital through multiple channels. We have taken coordinated steps to aid the internal capital replenishment of small and medium banks and the external capital replenishment of the market, including both domestic and overseas markets. At the same time, under the guidance of the Party Central Committee and the State Council, we have launched a mechanism to make good use of the special bonds issued by local governments to replenish capital, which is currently being advanced prudently and has yielded positive results and which has greatly enhanced the capital strength of small and medium banks.

Fourth, we have improved corporate governance. We have explored and advanced the integration of Party leadership and corporate governance in small and medium banks and to build a simple and practical corporate governance arrangement that is in line with the reality of small corporations. As the scales of some small banks are very small, with assets and liabilities of only hundreds of millions of yuan or billions of yuan, when it comes to corporate governance, it is necessary to construct simple and effective corporate governance arrangements based on the characteristics of these institutions, including scale, complexity of business, and requirements for risk control and prevention. In the meantime, we have actively developed a professional manager market and improved professional thinking, professional expertise, and professional methods. In terms of shareholder behavior and equity management, it is necessary to further strengthen supervision, especially to restrain the behavior of major shareholders, strictly prevent illegal affiliated transactions, and severely crack down on illegal and criminal activities.

Fifth, we have strengthened the empowerment of science and technology. We have promoted the digital transformation of the small and medium banks and made use of technology to consolidate the traditional advantages of small and medium banks in supporting agriculture and small enterprises.

Six, we have improved the layout of institutions. We have advanced the development of a differentiated, distinctive institutional system where institutions cooperate and compete with each other to meet the increasingly diverse financial needs of the people and to enhance the capacity of the small and medium banks to serve the real economy, effectively preventing and controlling risks and achieving sustainable development.

Regarding the issue of some village banks in Henan province, local police authorities and financial sector regulators have recently informed the media about that issue. At present, the police are investigating the cases and has detained a group of criminal suspects and seized a number of assets involved in the cases. The CBIRC will offer its coordination with local CPC committees and governments to ensure relevant work is done to good effect. We have instructed Henan Banking and Insurance Regulatory Bureau to perform its oversight duties and protect the legitimate rights and interests of the people in accordance with the law.

Thank you!