China Banking and Insurance News:

The central financial work conference pointed out that economic and financial risks remain relatively high and require relevant departments to timely handle the risks of small and medium-sized financial institutions. What measures will the NFRA take in 2024 to address such potential risks? Thank you.

Xiao Yuanqi:

Thank you for your question, which many of you may be concerned about. I'll be happy to answer it. First, I want to share with you some statistics. Currently, there are 3,912 small and medium-sized banks in China. These are mainly city commercial banks, rural credit cooperatives, and rural banks, with total assets of 110 trillion yuan, accounting for 28% of the total assets of the banking industry. For these 3,912 banks, the outstanding agricultural loans and small and micro enterprise loans stood at 21 trillion yuan and 29 trillion yuan respectively, accounting for 38% and 44% of that of the entire banking industry. These small and medium-sized banks play a vital role in supporting private, small, and micro businesses, as well as rural development and revitalization. The operations of China's small and medium-sized banks are generally stable, with stable asset quality, strong capital strength, and good performance in terms of capital adequacy ratio, provision coverage ratio, and asset quality. These are all reasonable and healthy indicators of their operation and regulation. However, a small number of small and medium-sized banks have accumulated some problems and risks in the past, and the risks of some small and medium-sized banks remain relatively high. Compared to the whole banking industry or the small and medium-sized banking system, these high-risk banks account for a small proportion in terms of number, assets, and non-performing assets. For these small and medium-sized banks with relatively high risks, we will conduct strict regulations to gradually reduce their risks. Additionally, we will work with local party committees, governments, and relative departments to roll out customized plans and measures for deepening reform and addressing risks. In general, we are using multiple methods to resolve and dispose of the existing risks in a prudent and orderly way, as well as controlling the new risks in a strict manner. As a result, a large number of such banks have reduced their risks and achieved sustainable operations. Our measures to deepen reform and address risks are paying off.

The financial regulatory authorities will fully implement the decisions and plans of the CPC Central Committee and the State Council, work with local party committees, governments, and relevant departments to push forward reform, prevent and control risks of small and medium-sized banks, and improve their management. Our work will focus on the following aspects:

First, strengthen corporate governance. We will integrate party leadership with company management, optimize the equity structure, standardize the duties of corporate governance entities, and establish a balanced and efficient corporate governance mechanism. In particular, we will make efforts to guard against manipulation by major shareholders and insiders and prevent the transfer of interests and illegal and irregular transactions.

Second, we will work with local party committees and governments to select and appoint qualified personnel for key positions in local small and medium-sized banks according to the standards of political strength, competence, and discipline. We should also strengthen the construction of the executive team and the talent pool. Efforts will be made to require large banks and national joint-stock banks, as well as some leading small and medium-sized banks, to transfer talents and technology to other local small and medium-sized banks, including the core customer system and the risk control system. This work has already begun, and the results are significant. For example, China Merchants Bank has provided great support to Liaoshen Bank in terms of risk control, talent, and information systems. We will enhance the behavior management of executives and key personnel, improve their political integrity, legal awareness, and professional competence, and ensure that they operate banks in line with laws and regulations.

Third, category-based policies will be implemented to deepen reforms. For the system of rural credit cooperatives, the focus is on transforming the functional positioning of provincial rural credit unions and standardizing their performance. The "one province, one policy" initiative has been launched to implement reforms in rural credit cooperatives, achieving phased results. Some reform plans for rural credit cooperatives have been approved by the State Council, some are actively being organized and implemented, and some have already started operations. We have conducted a phased assessment, achieving the expected results and demonstrating the effect. We have adopted a combination of measures to advance reforms in  city commercial banks. The "one bank, one policy" initiative has also been launched. The overall goal is to fundamentally enhance small- and medium-sized banks' long-term sustainable operation and development by further reforming the systems and mechanisms. This will better serve the real economy and numerous households and enhance risk prevention and control.

Fourth, we will urge small- and medium-sized banks to focus on their main businesses. Small- and medium-sized banks must firmly adhere to their market positioning of serving the local community, small and micro businesses, agriculture, rural areas and farmers, contributing to rural revitalization. They should base themselves locally, become more refined, and deeply cultivate their local markets. Small- and medium-sized banks have a natural advantage in being familiar with the local environment. Small- and medium-sized banks should have the will and ability to resist the temptation of disregarding risks and recklessly pursuing rapid and complete development. Small- and medium-sized banks should carry out differentiated and characteristic operation and give full play to their unique advantages. Small- and medium-sized banks have many advantages, and they are very familiar with customers in the local area. This advantage must be fully utilized, and the future development prospects of small- and medium-sized banks are quite broad.

Fifth, we will adhere to results-oriented and problem-oriented approaches, seeking stability while making progress, addressing both the symptoms and root causes, and comprehensively strengthening supervision to prevent and resolve risks. We will strictly regulate the entry standards of small- and medium-sized banks, strictly regulate the access qualifications of shareholders and executives, and thoroughly examine the sources of capital, utilizing capital's role in controlling leverage, allocating resources, and absorbing losses. Capital supervision is crucial and a key focus of our regulatory efforts. We will implement early identification, warning, mitigation, and disposal of risks, adhering to the "four earlies" approach and the principle of early prevention and control of small risks. We will establish a robust corrective mechanism with stringent constraints. Efforts will be made to prevent and control risks in small- and medium-sized banks, as well as in larger institutions. Efforts should be directed towards preventing and controlling existing risks, and the most important is controlling new risks. We will focus on the "key individuals," "key events," and "key behaviors" associated with financial risks, strictly enforce the law, take an unequivocal stance, and resolutely crack down on financial corruption and illegal activities. It is necessary to stimulate and enhance the endogenous mechanism of financial institutions to prevent and control risks, and further strengthen and solidify it, so as to prevent, control and manage risks fundamentally and at their source. We will actively promote a financial culture with Chinese characteristics and resolutely follow the path of developing finance with Chinese characteristics. Thank you.