The chief of one of China’s leading municipal commercial banks says it and its peers need to specialise in order to survive in the country’s financial ecosystem, as well as focus more on financial inclusion and private enterprise.
Wang Tianyu (王天宇), Bank of Zhengzhou chair and member of China’s National People’s Congress, said in an interview with 21st Century Business Herald that specialisation remains essential to the future success of municipal commercial banks.
“The innate resource endowments of municipal commercial banks determines that they cannot be comprehensive banks,” said Wang. “There must be things that they do, and things that they do not do.
“Only by concentrating on advantages and focusing on specialisation will they have a path and a future.
“Based on its regional advantages and resource endowments, our bank has established itself as a ‘commercial trade and logistics bank,’ and a specialist in finance for small and micro-enterprise.”
Wang said that China’s municipal commercial banks are well placed to support Beijing’s current push for greater financial inclusion.
“The private economy has already become an indispensable force for driving the growth of our nation. For a long period of time, however, private enterprise and small and micro-enterprises have continually faced the problem of finance being difficult and expensive.
“Small and medium-sized banks possess the advantage of natural closeness to private enterprise and small and micro-enterprise, and are the main force in China’s financial system for servicing private enterprise and small and micro-enterprise.
“However, resolving the problem of finance being difficult and expensive for private enterprise and small and micro-enterprise cannot rely on the banking sector alone, but needs common consensus between the government, regulatory authorities and the banking sector.”
Wang called for a range of measures from Chinese regulators, including differentiated regulatory policies that encourage the banking sector to expand financial support for private enterprise, as well as “optimised non-performing loan metric assessment benchmarks, adjustments to credit risk weighted asset assessment regulations, and the implementation of differentiated provision coverage ratios.”
Wang also revealed that he had submitted a proposal for amendments to the bond-related provisions of the “People’s Republic of China Securities Law (2014 Amendment)” (中华人民共和国证券法（2014年修正）) in order to address the problem of a recent spate of defaults.
“Corporate bonds have seen a gradual rise in their share of total social financing, from 1.5% in 2003 to 14.85% in 2018, already well ahead of the share for equity financing by non-financial enterprises,” said Wang. “Their financing scale has risen from 49.9 billion yuan in 2003 to 2.4993 trillion yuan in 2018.
“In recent years, impacted by China’s easing economic growth and a tightening of credit on financial markets, there has been a concentrated explosion in defaults on the bond market, yet default liability has been hard to pursue, because legal mechanisms on China’s bond market still lag.”
Wang also submitted a proposal in relation to the formulation of a “People’s Republic of China Internet Finance Law” (中华人民共和国互联网金融法), calling for heightened legal mechanisms to address risk issues.
“Internet finance has expedited financial innovation and raised the efficiency of financial resource allocation,” said Wang. “With regard to driving the growth of financial inclusion, it has played a positive role that is hard for existing financial institutions to replace.
“However, the growth of internet finance confronts many difficulties, which are best resolved via legislative means.”