Chinese commercial banks should reform themselves even faster in preparation for their head-to-head competition with global banking houses that are eyeing China's vast financial market.
"It has become the trend for worldwide financial institutions to show increasing interest in the Chinese market," said Philip Strause of Deloitte Consulting.
They are well prepared to enter the market as China will gradually allow them to operate in the country following its accession to the World Trade Organization, said Strause, practice director of the company's Asia-Pacific-Africa region responsible for financial services industry.
Strause noted that the financial industry across the world, especially in Asia, has been creating large institutions through mergers and acquisitions to compete on the international market.
And they manage to increase capital adequacy and capital return by various ways including beefing up risk control.
According to the Babel agreement, the ratio of commercial banks' capital to total assets will have to be more than 8 percent.
On the other hand, they are competing fiercely for customers by pursuing mixed operations which allow banks to operate in securities and insurance sectors, and increasing the use of information technology.
"All these trends will bring challenges to Chinese commercial banks, especially the State-owned banks," Strause said.
Wang Xuebing, president of China Construction Bank, said the integration of the world economy will make China's financial market international. "Financial institutions will have to improve their management."
Wang noted that State-owned banks will have to firstly reform their internal mechanism.
Since the State-owned banks - the Industrial and Commercial Bank of China, the Agricultural Bank of China, China Construction Bank and Bank of China - have been operating under the centrally planned economy, they often treat them as government organizations instead of commercial banks.
"They have a weak sense of responsibility for their creditors," he said.
In fact, State-owned banks should not only be responsible for their owner - the State - but also for the benefits of the deposits' owners, or the creditors in other words, Wang said.
Although China has been reforming its financial sector for years, the idea of "being responsible for creditors" is still not established, he said.
The four State-owned banks occupy a bulk share of the domestic financial market and resources, but are far less experienced in management than their peer organizations in developed countries.
According to Wang, China's financial sector is unlikely to pursue mixed operations in the near future.
"The current system has its own historical background, because China's financial market is underdeveloped and financial institutions are not experienced," he said.
However, this did not mean different financial institutions would operate separately. The country encourages financial institutions to make strategic alliances to expand their intermediary business.
(China Daily 09/27/2001)
