Deloitte 2012 China Banking Industry Top Ten Trends and Outlook Enhancing Capital Management, Meeting New Challenges Deloitte China Financial Services Industry Center of Excellence
2012 China Banking Industry Top Ten Trends and Outlook Enhancing Capital Management, Meeting New Challenges Deloitte China Financial Services Industry Center of Excellence 2012 年中国银行业十大趋势与展望 - 提升资本管理 迎接新的挑战 德勤中国金融服务业卓越中心 2012 年中国银行业 十大趋势与展望 提升资本管理 迎接新的挑战
Table of contents Risks for local government financing platforms are controllable but banks' non-performing loan ratios on the rise ll. Direction of the real estate market requires that banks proactively Ill. Commercial banks actively engaged in finding a solution to IV. Rural financial system reform accelerates from the promotion of rural-related financial services V. Chinese banks are focusing on efforts to expand their VI. Mobile banking in China is easing into an era of mobile financial services VIl. Private banking is a strategic emerging market niche for commercial banks VIll. Foreign banks continue to move into the China market IX. Shadow banking system poses a powerful challenge to industry rules and supervision/regulation X. Supervisory and regulatory institutions are actively strengthening nternational financial guidelines and banking industry supervision and regulati Conclusions
B Table of Contents Introduction 1 I. Risks for local government financing platforms are controllable but banks’ non-performing loan ratios on the rise 2 II. Direction of the real estate market requires that banks proactively respond to potential credit risks 4 III. Commercial banks actively engaged in finding a solution to financing problems for small and medium enterprises 6 IV. Rural financial system reform accelerates from the promotion of rural-related financial services 8 V. Chinese banks are focusing on efforts to expand their international footprint 10 VI. Mobile banking in China is easing into an era of mobile financial services 13 VII. Private banking is a strategic emerging market niche for commercial banks 16 VIII. Foreign banks continue to move into the China market 19 IX. Shadow banking system poses a powerful challenge to industry rules and supervision/regulation 22 X. Supervisory and regulatory institutions are actively strengthening international financial guidelines and banking industry supervision and regulation 24 Conclusions 26 Contacts 27 Acknowledgements 27
Introduction Profits in the Chinese banking industry were considerable in 2011 The industry performed well despite the performance of the Chinese economy overall, which is mired in a downturn. The China Banking Regulatory Commission( CBRC) reported that banking industry assets reached 113. 28 trillion yuan by year-end 2011, a 19 percent increase compared to the prior year. In 2011, annual net profits for Chinese commercial banks were 1,041.20 billion yuan, a 36 percent increase compared to 2010. Net interest income for 2011 was 2. 15 trillion yuan, up 29 percent compared to the same period the previous year Although bank profits are high, the capital market performance of Chinese commercial banks has suffered. Share prices and valuations have been low for some time, reflecting global uncertainty with the continued deterioration of the European debt crisis as well as the pressure brought on the quality of bank assets associated with local financing platforms and real estate loans. unstable Risk in the European banking system may further shrink deposits and curtail lending in the regon y Looking forward to 2012, the domestic and overseas macroeconomic and financial environments remain highly International rating agencies have already downgraded the ratings of many European banks, and the banking industry in Europe is in a recession. In the United States, a sustained loss of investor confidence in the banking system following the onset of the 2008 financial crisis has led to financing difficulties At the national working conference in January 2012, the CBRC reported that banks in China are"still at an important stage of strategic opportunity"for reform and development. The complicated operating environment and intense competition will continue, forcing the industry to shore up key controls and mitigate credit, liquidity and other risks Close to two trillion yuan of local debt will mature in 2012. With real estate regulation and control policies in place banks will need to understand the risks this debt retirement will have on the industry. In addition, multiple factors will threaten the quality of bank assets, such as the impact of tightened monetary policy on liquidity and operating risk from private loans and shadow banking. Local government financing platform loans further affect risks that must be anaged effectively to support ongoing growth In this research report, Deloitte China financial services industry and banking industry experts discuss the top 10 most influential topics facing the Chinese banking system in the next two to three years. The report discusses the risk of local government financing platforms; real estate credit risk; commercial bank financing for small and medium enterprises; rural financial system reform; the globalization of Chinese banks: mobile banking and mobile financial services; emerging private banking businesses; competition and cooperation with foreign banks; shadow banking and private loans; and the influence of Basel ll and the International Financial Reporting Standard 9-Financial Instruments on the banking industry In this analysis of the Chinese banking industry, we have collected and processed large volumes of data and refer to the opinions of relevant experts. At the same time, we provide an outlook of developmental trends in the banking ndustry. We hope this report will serve as the starting point for further dialogue both within and outside the banking dustry, and among all who must work together to respond to the challenges and risks in the financial markets and overall economic environment 2012 China Banking Industry Top Ten Trends and Outlook--Enhancing Capital Management, Meeting New Challenges 1
2012 China Banking Industry Top Ten Trends and Outlook—Enhancing Capital Management, Meeting New Challenges 1 Profits in the Chinese banking industry were considerable in 2011. The industry performed well despite the performance of the Chinese economy overall, which is mired in a downturn. The China Banking Regulatory Commission (CBRC) reported that banking industry assets reached 113.28 trillion yuan by year-end 2011, a 19 percent increase compared to the prior year. In 2011, annual net profits for Chinese commercial banks were 1,041.20 billion yuan, a 36 percent increase compared to 2010. Net interest income for 2011 was 2.15 trillion yuan, up 29 percent compared to the same period the previous year. Although bank profits are high, the capital market performance of Chinese commercial banks has suffered. Share prices and valuations have been low for some time, reflecting global uncertainty with the continued deterioration of the European debt crisis as well as the pressure brought on the quality of bank assets associated with local financing platforms and real estate loans. Looking forward to 2012, the domestic and overseas macroeconomic and financial environments remain highly unstable. Risk in the European banking system may further shrink deposits and curtail lending in the region. International rating agencies have already downgraded the ratings of many European banks, and the banking industry in Europe is in a recession. In the United States, a sustained loss of investor confidence in the banking system following the onset of the 2008 financial crisis has led to financing difficulties. At the national working conference in January 2012, the CBRC reported that banks in China are “still at an important stage of strategic opportunity” for reform and development. The complicated operating environment and intense competition will continue, forcing the industry to shore up key controls and mitigate credit, liquidity and other risks. Close to two trillion yuan of local debt will mature in 2012. With real estate regulation and control policies in place, banks will need to understand the risks this debt retirement will have on the industry. In addition, multiple factors will threaten the quality of bank assets, such as the impact of tightened monetary policy on liquidity and operating risk from private loans and shadow banking. Local government financing platform loans further affect risks that must be managed effectively to support ongoing growth. In this research report, Deloitte China financial services industry and banking industry experts discuss the top 10 most influential topics facing the Chinese banking system in the next two to three years. The report discusses the risk of local government financing platforms; real estate credit risk; commercial bank financing for small and medium enterprises; rural financial system reform; the globalization of Chinese banks; mobile banking and mobile financial services; emerging private banking businesses; competition and cooperation with foreign banks; shadow banking and private loans; and the influence of Basel III and the International Financial Reporting Standard 9 – Financial Instruments on the banking industry. In this analysis of the Chinese banking industry, we have collected and processed large volumes of data and refer to the opinions of relevant experts. At the same time, we provide an outlook of developmental trends in the banking industry. We hope this report will serve as the starting point for further dialogue both within and outside the banking industry, and among all who must work together to respond to the challenges and risks in the financial markets and overall economic environment. Introduction
I. Risks for local government financing platforms are controllable but banks non-performing loan ratios on e rise Local governments raise financing through a variety (PBOC)released a report which found that since 20 of approaches including platforms, and have achieved government financing platforms throughout China, in positive results in promoting economic and social regard to the specific investigations made into the loans, development from these financial platforms, particularly state-owned commercial banks and policy-orient in public infrastructure construction. An estimated banks are the major suppliers for this type of specialized 80 percent of the debt held by local government lending. The loans issued for local government financing investment and financing platforms in China was platforms are primarily mortgages and pledges originally obtained as bank credit. Despite management and other risks, much can be done to control loan risks Among these loans, more than fifty percent are invested of local government platforms in China, including highways and municipal infrastructure promoting the reformation of the national and local debt management system; clarifying financial allocations On June 27, 2011, the National Audit Office of among various levels of government; improving the local China released a comprehensive audit report on local finance and taxation system; and actively expanding government debts, which further clarified the scale and financing channels. classification of such debts. The Audit Office reported local government debt of Renminbi(RMB)10.7 he volume of loans on local government financing trillion Of that amount, RMB 8.5 trillion yuan latforms is massive, and the peak period for maturity 79 percent-consisted of bank loans. Based on the falls between 2011 and 2013. Local investment and average platform repayment period of 2 to 5 years, the financing platforms may expand financing channels peak period for debt repayment of financing platforms that support funds for central rill fall between 2011 and bout 5.6 trillion projects by issuing corporate bonds or medium-term close to 53 percent of local debt, will mature within notes On June 1, 2011, the peoples Bank of China his three-year period (see Figure 1) Figure 1. Annual Distribution of debts due by local governements as of the end of 2010 3.5Unit: Trillion Yuan 3.2 a Debts payable by local governments Debts guaranteed by local overnments 1.8 a Other relevant local 1.0 0.8 2016 and later Data Source nal Audit office Announcement No 35. June 27. 201 Although risk surrounding local government financing In recent years, nationwide fiscal revenue has also platform loans is controllable, non-performing loan ratios grown at a high rate. Nationwide, fiscal revenue in 2010 at banks are expected to rise in 2012; non-performing increased by 21.3 percent compared to the same period loans are not, however, expected to develop into large the previous year. At the same time, among the large balances of bad debts. The smooth, stable and rapic volumes of ownership rights formed by expenditures of development of Chinas economy remains unchanged, local governments in China, many belong to effective and local fiscal revenue is stable on the whole, which assets and are cashable to a certain degree. Collectively, both provide support for loan repayment. The ability of these factors reflect improvements in conditions for debt various levels of government in China to meet mid-to repayment. According to the CBrC, the non-performing nnouncement No 35 of loan ratio of commercial banks has risen somewhat At 2011,June27.2011 long-term debt repayment will continue to improve hrough their onomic development efforts and year-end 2011, the balance of non-performing loans at Wind Information commercial banks was 427.90 billion yuan, and was up
2 2 一、地方政府融资平台风险可控， 但银行的不良贷款率将温和上升 1 2 国家审计署，2011年第35 号公告，2011年6月27日 国家统计局，Wind资讯 地方政府通过平台等多种方式融资，在推动经 济与社会发展特别是公共基础建设方面取得了 积极成果。据测算，在我国地方政府投融资平 台的负债中，80% 都是通过银行信贷获得资 金。由于地方政府融资平台存在管理不规范不 审慎、监督机制缺失等问题，也埋下了一些风 险隐患。但整体来说，我国地方政府平台贷款 风险基本可控；可是要真正化解地方政府性债 务风险，还得深入推进国家和地方债务管理体 制改革，进一步理顺各级政府间的财政分配关 系，健全地方财税体系，并积极拓宽融资渠道。 地方政府融资平台贷款规模巨大，2011 至 2013 年迎来到期高峰期。地方投融资平台可 以通过发行企业债券、中期票据等方式，拓宽 中央政府投资项目的配套资金融资渠道。中国 人民银行在 2011 年 6 月 1 日发布的报告中对 2008 年以来全国各地区政府融资平台贷款情 况的专项调查显示，国有商业银行和政策性银 行是贷款的供给主力。当前对地方政府融资平 台发放的贷款以抵、质押方式为主，约五成以 上地方政府融资平台贷款投向公路与市政基础 设施。2011 年 6 月 27 日，中国国家审计署发 布了对地方政府债务的全面审计报告，进一步 明晰了此类负债的规模和分类。审计署将地方 政府债务总额评估为人民币 10.7 万亿元，其 中人民币 8.5 万亿元为银行贷款。由于地方政 府建设性债务暴涨出现在2008年下半年之后， 因此，以 2 到 5 年的平台平均还款期计算， 融资平台真正的还债高峰将出现在 2011 年至 2013 年。根据国家审计署报告的披露，约 5.6 万亿，近 53% 的地方债务将在这段时期到期 1 （见图 1）。 资料来源：国家审计署，2011年第35号公告，2011年6月27日 预计 2012 年，地方政府融资平台贷款风险基 本可控，但银行的不良贷款率将有所上升。地 方政府融资平台贷款虽然存在着潜在风险，但 并不会演化成大规模的坏账。从偿债条件看， 我国经济平稳较快发展的总体趋势未变，地 方财政收入总体稳定。从中长期来看，我国各 级政府通过自身的经济发展和财力增长，偿债 图1 2010年底全国地方政府性债务偿债年度分布 能力不断提高。近年来，全国财政收入继续保 持高速增长，2010 年全国财政收入同比增长 21.3%2 。同时，我国地方政府支出所形成的大 量权属中，有许多属于有效资产，具有一定的 变现能力。这些都有利于改善偿债条件。根据 银监会数据显示，商业银行的不良贷款率有所 上升。2011 年末，商业银行不良贷款率余额 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2011年 2012年 2013年 2014年 2015年 2016年及以后 单位：万亿元 3.2 0.8 1.0 1.2 1.8 2.6 政府负有偿还责任的债务 政府负有担保责任的债务 其他相关债务 I. Risks for local government financing platforms are controllable but banks’ non-performing loan ratios on the rise Local governments raise financing through a variety of approaches including platforms, and have achieved positive results in promoting economic and social development from these financial platforms, particularly in public infrastructure construction. An estimated 80 percent of the debt held by local government investment and financing platforms in China was originally obtained as bank credit. Despite management and other risks, much can be done to control loan risks of local government platforms in China, including: promoting the reformation of the national and local debt management system; clarifying financial allocations among various levels of government; improving the local finance and taxation system; and actively expanding financing channels. The volume of loans on local government financing platforms is massive, and the peak period for maturity falls between 2011 and 2013. Local investment and financing platforms may expand financing channels that support funds for central government investment projects by issuing corporate bonds or medium-term notes. On June 1, 2011, the People’s Bank of China (PBOC) released a report which found that since 2008 government financing platforms throughout China,in regard to the specific investigations made into the loans, state-owned commercial banks and policy-oriented banks are the major suppliers for this type of specialized lending. The loans issued for local government financing platforms are primarily mortgages and pledges. Among these loans, more than fifty percent are invested in highways and municipal infrastructure. On June 27, 2011, the National Audit Office of China released a comprehensive audit report on local government debts, which further clarified the scale and classification of such debts. The Audit Office reported total local government debt of Renminbi (RMB) 10.7 trillion yuan. Of that amount, RMB 8.5 trillion yuan – or 79 percent – consisted of bank loans. Based on the average platform repayment period of 2 to 5 years, the peak period for debt repayment of financing platforms will fall between 2011 and 2013. About 5.6 trillion yuan, or close to 53 percent of local debt, will mature within this three-year period (see Figure 1).1 1 National Audit Office, Announcement No. 35 of 2011, June 27, 2011 2 National Bureau of Statistics, Wind Information Figure 1. Annual Distribution of debts due by local governements as of the end of 2010 Data Source: National Audit Office, Announcement No. 35, June 27, 2011 n Debts payable by local governments n Debts guaranteed by local governments n Other relevant local government debts 2011 2012 2013 2014 2015 2016 and later Although risk surrounding local government financing platform loans is controllable, non-performing loan ratios at banks are expected to rise in 2012; non-performing loans are not, however, expected to develop into large balances of bad debts. The smooth, stable and rapid development of China’s economy remains unchanged, and local fiscal revenue is stable on the whole, which both provide support for loan repayment. The ability of various levels of government in China to meet mid- to long-term debt repayment will continue to improve through their own economic development efforts and financial growth. In recent years, nationwide fiscal revenue has also grown at a high rate. Nationwide, fiscal revenue in 2010 increased by 21.3 percent compared to the same period the previous year.2 At the same time, among the large volumes of ownership rights formed by expenditures of local governments in China, many belong to effective assets and are cashable to a certain degree. Collectively, these factors reflect improvements in conditions for debt repayment. According to the CBRC, the non-performing loan ratio of commercial banks has risen somewhat. At year-end 2011, the balance of non-performing loans at commercial banks was 427.90 billion yuan, and was up Unit: Trillion Yuan
20. 1 billion yuan compared to non-performing loans the will indubitably face the pressure created by a suddenly prior quarter. The rise in non-performing loans bumped tightened capital chain the non-performing loan ratio slightly to 1.0 percent but it is still below the 1.1 percent ratio the previous year. In addition, a considerable number of platform loans are Doubtful and subordinated credits made up the vast in land mortgages and pledges. Therefore, the majority majority of non-performing loans. Among various types of repayments rely on land assessment revenues, which of commercial banks, the non-performing loan ratios for are depressed and not expected to rebound anytim rural commercial banks and large commercial banks were soon. With less land assessment revenue coming in, the 1.6 percent and 1. 1 percent, respectively, and were both debt repayment ability of such financing platforms will higher than the average level. 3 At the same time, the decrease, and it is probable that the asset quality of the rating agency Moody's evaluated the bank loans in local credits will deteriorate government debts, and predicted that 8 to 12 percent of total loans may become non-performing loans. 4 The minimization of risk in local financing platform loans is a long-term process that is dependent on further There are two main reasons that loans default from local progress being made to government financing platforms. First, local government Promote the reformation of the national and lo revenues and expenditures do not match. In 2010 debt management system Allocate debt among various levels of government 48.9 percent of nationwide fiscal revenue, but assume based on financial capacity, duties and responsibilities: 82.2 percent of nationwide fiscal expenditures. The Improve local finance and taxation systems ocal financial deficit climbed as high as 3, 327. 1 billion Control the actions of local governments in incurring yuan, and national funds accounted for 82 percent of debt and undertaking guarantees ocal fiscal revenue. Because local government financing Monitor and control debts associated with local latform loans generally involve large amounts and long governments terms, and certain difficulties exist in supervising their Clean up and standardize financing platform use, close attention needs to be paid to the risks for companies, credit default Establish open, clear and complete government Second, as disclosed in the PBOC report, 70 percent Design a direct financing mechanism with market of the more than 10,000 financing platforms were restrictions on such basis. 5 scattered among county-level governments, which have the tightest financial resources among all levels In 2012, we expect to see banks supporting management of government. Under relatively high liquidity restraints efforts by local financing platforms to minimize risks. For at present, Tier-1 credit loans put into the county level example, loans for completed projects (including railways, by banks will be greatly tightened, the space for the highways and infrastructure) should immediately enter borrowing money to pay debt operating model the period for principal repayment to accurately reflect practiced by the financing platforms of county-level exposure. Prior to approval, efforts should be taken to governments with tight financial resources will become scrutinize any new construction projects and minimize increasingly restricted, and by that time, such platforms the occurrence of non-performing loans Operation Report (2011). China Banking Regulatory oody,s, "Gradually Debt burd Poses Challenge to Chinese Banks", July 12, 2011 14,2011,http://news.hexun com2011-12.14136311609 2012 China Banking Industry Top Ten Trends and Outlook--Enhancing Capital Management, Meeting New Challenges
2012 China Banking Industry Top Ten Trends and Outlook—Enhancing Capital Management, Meeting New Challenges 3 20.1 billion yuan compared to non-performing loans the prior quarter. The rise in non-performing loans bumped up the non-performing loan ratio slightly to 1.0 percent, but it is still below the 1.1 percent ratio the previous year. Doubtful and subordinated credits made up the vast majority of non-performing loans. Among various types of commercial banks, the non-performing loan ratios for rural commercial banks and large commercial banks were 1.6 percent and 1.1 percent, respectively, and were both higher than the average level.3 At the same time, the rating agency Moody’s evaluated the bank loans in local government debts, and predicted that 8 to 12 percent of total loans may become non-performing loans.4 There are two main reasons that loans default from local government financing platforms. First, local government revenues and expenditures do not match. In 2010, fiscal revenues of local governments accounted for 48.9 percent of nationwide fiscal revenue, but assumed 82.2 percent of nationwide fiscal expenditures. The local financial deficit climbed as high as 3,327.1 billion yuan, and national funds accounted for 82 percent of local fiscal revenue. Because local government financing platform loans generally involve large amounts and long terms, and certain difficulties exist in supervising their use, close attention needs to be paid to the risks for credit default. Second, as disclosed in the PBOC report, 70 percent of the more than 10,000 financing platforms were scattered among county-level governments, which have the tightest financial resources among all levels of government. Under relatively high liquidity restraints at present, Tier-1 credit loans put into the county level by banks will be greatly tightened, the space for the “borrowing money to pay debt” operating model practiced by the financing platforms of county-level governments with tight financial resources will become increasingly restricted, and by that time, such platforms will indubitably face the pressure created by a suddenly tightened capital chain. In addition, a considerable number of platform loans are in land mortgages and pledges. Therefore, the majority of repayments rely on land assessment revenues, which are depressed and not expected to rebound anytime soon. With less land assessment revenue coming in, the debt repayment ability of such financing platforms will decrease, and it is probable that the asset quality of the credits will deteriorate. The minimization of risk in local financing platform loans is a long-term process that is dependent on further progress being made to: • Promote the reformation of the national and local debt management system; • Allocate debt among various levels of government based on financial capacity, duties and responsibilities; • Improve local finance and taxation systems; • Control the actions of local governments in incurring debt and undertaking guarantees; • Monitor and control debts associated with local governments; • Clean up and standardize financing platform companies; • Establish open, clear and complete government balance sheets; and, • Design a direct financing mechanism with market restrictions on such basis.5 In 2012, we expect to see banks supporting management efforts by local financing platforms to minimize risks. For example, loans for completed projects (including railways, highways and infrastructure) should immediately enter the period for principal repayment to accurately reflect exposure. Prior to approval, efforts should be taken to scrutinize any new construction projects and minimize the occurrence of non-performing loans. 3 China Banking Industry Operation Report (2011), China Banking Regulatory Commission. 4 Moody’s, “Gradually Intensified Local Government Debt Burden Poses Challenge to Chinese Banks”, July 12, 2011. 5 hexun.com, “Basic Financing Mode of Local Governments”, December 14, 2011, http://news.hexun. com/2011-12-14/136311609. html
II. Direction of the real estate market requires that banks proactively respond to potential credit risks The shape of the real estate market represents the The National Bureau of Statistics(as shown in Figure greatest risk facing the banking industry. 6 Asset quality 2)reported that nationwide investment in real estate exposure is heightened based on disruption to the capital development was 6, 174 billion yuan as of year-end supply chain resulting from stagnant real estate sales 2011. Although this represents an increase of 27.9 falling real estate prices and mortgage loan defaults percent compared with the same period the previous as well as chain reactions in the real estate-related year, the rate of growth fell each month from August ndustries. Prior to 2010, the pillar of the banking hrough December industry was real estate Bank investment in real estate accounted for about 23 percent of fixed-asset Annual commodity property sold countrywide in 2011 nvestment in China. Since 2010, the central government was 1, 099 billion square meters, an increase of 4.9 has introduced escalating real estate regulation and percent over the same period the prior year. While control measures, such as purchase restrictions, loan property sales are positive, the increase in sales shrank by restrictions and affordable housing and property taxes. 3.6 percentage points when compared with the growth The central government also implemented controls in rate from January through November 8 areas such as land supply, bank credit, supervision and regulation and industry policy. In 2011, the real estate The same trend is reflected in the land market as well market was further subject to strict macro-level controls where the cash amount for commodity property sold that led to tighter capital conditions and accelerated throughout China was 5,911.9 billion yuan. The cash onsolidation. By year-end 2011, the balance of real amount represents an increase of 12. 1 percent over the estate loans from financial institutions in the banking ame period the prior dustry was 10.73 trillion yuan, accounting for 19.6 percent of all loans. Industry insiders estimate that bank According to the China Index Academy, the national k related to the real estate industry will further increase land market in February 2012 was also down Market veral times over. supply was weak and the sales volume of land in 300 cities nationwide dropped both in comparison with the The real estate market is showing weakness under previous month and in comparison with the same period stricter real estate policy regulation and controls, and he previous year In 300 cities throughout China, 2,023 otal parcels of land were put on the market, a drop of Figure 2. Real Estate Investment and Sales Growth Rates from January 2007 to December 2011 a- Real estate development investment completion percentage Area of commodity property sold: cumulative 100.00 emulative in comparison with the same period of the in comparison with the same period of the previous year 80.00 r Commodity property sales volume: cumulative in omparison with the same period of the previous ye 6 China Banking Association, "China Banker 011°, October26,201 People's Bank of China, 888gNa8888s8宫 "2011 Financial Institution 三豆9 Orientation Statistical Report", January 30, 2012. Data Source National Bureau of Statistics, wind Information tics, wind Information
4 II. Direction of the real estate market requires that banks proactively respond to potential credit risks The shape of the real estate market represents the greatest risk facing the banking industry.6 Asset quality exposure is heightened based on disruption to the capital supply chain resulting from stagnant real estate sales, falling real estate prices and mortgage loan defaults as well as chain reactions in the real estate-related industries. Prior to 2010, the pillar of the banking industry was real estate. Bank investment in real estate accounted for about 23 percent of fixed-asset investment in China. Since 2010, the central government has introduced escalating real estate regulation and control measures, such as purchase restrictions, loan restrictions and affordable housing and property taxes. The central government also implemented controls in areas such as land supply, bank credit, supervision and regulation and industry policy. In 2011, the real estate market was further subject to strict macro-level controls that led to tighter capital conditions and accelerated consolidation. By year-end 2011, the balance of real estate loans from financial institutions in the banking industry was 10.73 trillion yuan, accounting for 19.6 percent of all loans.7 Industry insiders estimate that bank risk related to the real estate industry will further increase several times over. The real estate market is showing weakness under stricter real estate policy regulation and controls, and market growth is slowing. The National Bureau of Statistics (as shown in Figure 2) reported that nationwide investment in real estate development was 6,174 billion yuan as of year-end 2011. Although this represents an increase of 27.9 percent compared with the same period the previous year, the rate of growth fell each month from August through December. Annual commodity property sold countrywide in 2011 was 1,099 billion square meters, an increase of 4.9 percent over the same period the prior year. While property sales are positive, the increase in sales shrank by 3.6 percentage points when compared with the growth rate from January through November.8 The same trend is reflected in the land market as well, where the cash amount for commodity property sold throughout China was 5,911.9 billion yuan. The cash amount represents an increase of 12.1 percent over the same period the prior year. According to the China Index Academy, the national land market in February 2012 was also down. Market supply was weak and the sales volume of land in 300 cities nationwide dropped both in comparison with the previous month and in comparison with the same period the previous year. In 300 cities throughout China, 2,023 total parcels of land were put on the market, a drop of 6 China Banking Association, “China Banker Investigation Report 2011”, October 26, 2011. 7 People’s Bank of China, “2011 Financial Institution Loan Investment Orientation Statistical Report”, January 30, 2012. 8 National Bureau of Statistics, Wind Information. 4 房地产市场大幅调整带来的风险是银行业界面 临的最主要的风险 6 。银行业所面临的相关资 产质量风险主要集中在房地产销售停滞和价格 下降造成的开发商资金链断裂以及按揭贷款违 约事件，和房地产相关行业的连锁风险。过去 5 年，房地产作为国家的支柱行业，行业投资 约占中国固定资产投资的 23% 左右。自 2010 年以来，中央政府出台了一系列不断升级的房 地产调控措施 – 限购、限贷、保障房、房产税 等，已初步实现了对土地供应、银行信贷、机 构监管和产业政策等方面的控制。2011 年， 房地产市场遭遇严格宏观调控，弱势下行；房 地产企业资金紧张，整合加速。截止2011年末， 银行业金融机构房地产贷款余额为 10.73 万亿 元，占各项贷款的比重为 19.6%7 ，但据业内 人士估测，加上其它形式或渠道流向房地产行 业的隐性贷款，金融机构对房地产行业贷款的 敞口将成倍增长。 二、银行应把握房地产市场走势， 积极应对潜在信贷风险 在严格的房地产政策调控下，房地产市场已 经呈现弱势下行的局面， 并且有很大可能在 2012 年上半年持续。国家统计局发布的数据 显 示（ 如 图 2）， 截 止 到 2011 年 12 月 底， 全国房地产开发投资 61,740 亿元，同比增长 27.9%，增速已连续 5 个月下滑。1-12 月， 全国商品房销售面积 10.99 亿平方米，同比上 升 4.9%，升幅较 1-11 月下降 3.6 个百分点； 全国商品房销售金额 59,119 亿元，同比上升 12.1%，升幅较 1-11 月下降 3.9 个百分点 8 。 同时，土地市场也不容乐观。中国指数研究院 的数据显示，全国土地市场 2012 年 2 月仍延 续前期的低迷状态，市场供应乏力，全国 300 个城市的土地供应量环比、同比均有下滑。全 国 300 个城市共推出土地 2,023 宗，环比减少 28%，同比减少 27%；推出土地面积 8,555 万 平方米，环比减少 28%，同比减少 29%9 。 6 7 8 9 中国银行业协会，《中国银 行家调查报告2011》，2011 年10月26日 中国人民银行，《2011年 金融机构贷款投向统计报 告》，2012年1月30日 国家统计局，Wind资讯 中国指数研究院，《2012 年2月全国300个城市土地 市场交易情报》，2012年 3月11日， http://fdc.soufun.com/ report/5050.html 数据来源：国家统计局，Wind资讯 图2 2007年1月 – 2011年12月房地产投资及销售增速 100.00 80.00 60.00 40.00 20.00 0.00 -20.00 -40.00 房地产开发投资完成比额：累计同比 % 商品房销售额：累计同比 % 商品房销售面积：累计同比 % 2007-02 2007-04 2007-06 2007-08 2007-10 2007-12 2008-03 2008-05 2008-07 2008-09 2008-11 2009-02 2009-04 2009-06 2009-08 2009-10 2009-12 2010-03 2010-05 2010-09 2010-11 2011-02 2011-06 2011-10 2011-04 2011-08 2011-12 2010-07 Figure 2. Real Estate Investment and Sales Growth Rates from January 2007 to December 2011 Data Source: National Bureau of Statistics, Wind Information Real estate development investment completion percentage: cumulative % in comparison with the same period of the previous year Commodity property sales volume: cumulative % in comparison with the same period of the previous year Area of commodity property sold: cumulative % in comparison with the same period of the previous year –––– ––n–– ––––
28 percent when compared with the previous month, 98 percent of personal mortgage loans is currently lower and a decrease of 27 percent when compared with the than 80 percent. The average debt repayment to income he period the previous year. The area of the land on ratio for mortgage loans is 33 percent, and the average the market was 85.55 million square meters, down 28 collateral ratio for development loans has reached 189 percent when compared with the previous month and percent. In addition, the non-performing loan ratio for by 29 percent when compared with the same period the real estate loans issued by banks, including rural credit institutions, is below 2 percent, and may be trending downward in many regions. 12 With the real estate market depressed, the financial status of real estate enterprises may be of concern Some insiders in the banking industry have pointed out Based on the reports released by various listed real that there are various types of loans that have not been estate companies, by the end of the third quarter 2011, issued as real estate loans, but ultimately have flowed operating cash flows were negative for 70 percent of to the real estate market through various channels, and ch enterprises; more than 40 percent of them saw net there are other loans that use real estate as collateral profits drop or even registered losses, and more thar The total amount of nominal and actual real estate. 80 percent saw debt levels increase when compared related loans is conservatively estimated at more than with the same period the previous year. o With capital 20 trillion yuan. 3 At the same time, the real estate markets tightening daily, many small and medium real industry impacts upstream and downstream industry estate enterprises have assigned equity and creditor's hains. If the real estate market remains depressed dt rights, and dumped tangible assets such as real estate to the lack of demand and decline in producer price and projects in construction, to survive. According to index, the profits of 42 related industries will be affected the Centaline China Property Research Center, from considerably. These industries include iron and steel lanuary to the first half of december in 2011, the equity concrete, electrolytic aluminum, glass, lime, construction trading markets saw a total of 491 real estate industry machinery, building materials, household appliances equity and asset transactions (not including related-party furniture, and automobiles. 14 In this, banks will face transactions)that involved a cash amount of over 130 not only a rise in the rate of bad accounts from real n on Land mar- billion yuan. Property right transactions from enterprises estate loans, but also an increase in loan default risks for et Transactions in 300 real estate as the main business accounted for 253 transactions, which was approximately double the 2012,http://fdc.soufun.com number of horizontal mergers and acquisitions for the Looking forward to 2012, relaxation of real estate entire year of 2011; the cash amount for mergers and regulation and control policies is unlikely. The number 1o Moneyweek,"Sensi- tive Real Estate: Capita acquisitions exceeded 90 billion yuan. of loans designated as real estate will slow in growth Although real estate prices may drop by 10 to 15 rol of Fate". Janua In 2012, banks may face higher levels of default for percent, the intermediate business revenue of banks is 2012,http cn/house/2012/01/ loans in real estate and related industries. In the past few very high; many banks have a profit level of 50 to 100 09073912000685 shtml ears, the Cbrc has conducted several rounds of stress percent. Even if falling real estate prices incur some tests on real estate loans The Commission found that sses, it may not have much of an impact on the overall the breadth and depth of real estate risks are further earnings of banks. However, we still need to note that expanding, but that the supervisory and regulatory falling real estate prices will increase risks regarding authorities believe these risks to be controllable for a the quality of commercial bank assets, leading to umber of reasons. First, the proportion of real estate increased default risks for loans in real estate and related credit loan assets in Chinas banking system is relatively dustries Falling real estate prices will also affect land Liu Mingkang, china Bank- low, and among all loans, the proportion is below 20 and related industries, and therefore the quality of other ing Regulatory Commission, percent. Second, China has maintained effective control commercial and local financing platform loans. It is our ctober 19. 2011. CEO Organization Summit f real estate financial derivatives in the banking industry, hope that, as the major financing channel for the real the volume of securitized products is extremely limited, estate industry, the banking industry can actively grasp 1 China Business News, other innovations such as the ratio of collective trusts the macro-trend in the real estate market, and respond Real Estate Loan Stress Test over the balance of real estate loans is only around 4 cautiously to real estate credit risks. percent, and the risk characteristics are relatively simple May Reach 10 Trillion Yuan" Third, from the perspective of the specific structure of 1 Xun Yugen, "Real Estate real estate loans, the loan to house price ratio for about urns Out in Full force securities Market Weekly, December 3. 2011. 2012 China Banking Industry Top Ten Trends and Outlook--Enhancing Capital Management, Meeting New Challenges
2012 China Banking Industry Top Ten Trends and Outlook—Enhancing Capital Management, Meeting New Challenges 5 28 percent when compared with the previous month, and a decrease of 27 percent when compared with the same period the previous year. The area of the land on the market was 85.55 million square meters, down 28 percent when compared with the previous month and by 29 percent when compared with the same period the previous year.9 With the real estate market depressed, the financial status of real estate enterprises may be of concern. Based on the reports released by various listed real estate companies, by the end of the third quarter 2011, operating cash flows were negative for 70 percent of such enterprises; more than 40 percent of them saw net profits drop or even registered losses, and more than 80 percent saw debt levels increase when compared with the same period the previous year.10 With capital markets tightening daily, many small and medium real estate enterprises have assigned equity and creditor’s rights, and dumped tangible assets such as real estate and projects in construction, to survive. According to the Centaline China Property Research Center, from January to the first half of December in 2011, the equity trading markets saw a total of 491 real estate industry equity and asset transactions (not including related-party transactions) that involved a cash amount of over 130 billion yuan. Property right transactions from enterprises with real estate as the main business accounted for 253 transactions, which was approximately double the number of horizontal mergers and acquisitions for the entire year of 2011; the cash amount for mergers and acquisitions exceeded 90 billion yuan.11 In 2012, banks may face higher levels of default for loans in real estate and related industries. In the past few years, the CBRC has conducted several rounds of stress tests on real estate loans. The Commission found that the breadth and depth of real estate risks are further expanding, but that the supervisory and regulatory authorities believe these risks to be controllable for a number of reasons. First, the proportion of real estate credit loan assets in China’s banking system is relatively low, and among all loans, the proportion is below 20 percent. Second, China has maintained effective control of real estate financial derivatives in the banking industry, the volume of securitized products is extremely limited, other innovations such as the ratio of collective trusts over the balance of real estate loans is only around 4 percent, and the risk characteristics are relatively simple. Third, from the perspective of the specific structure of real estate loans, the loan to house price ratio for about 98 percent of personal mortgage loans is currently lower than 80 percent. The average debt repayment to income ratio for mortgage loans is 33 percent, and the average collateral ratio for development loans has reached 189 percent. In addition, the non-performing loan ratio for real estate loans issued by banks, including rural credit institutions, is below 2 percent, and may be trending downward in many regions.12 Some insiders in the banking industry have pointed out that there are various types of loans that have not been issued as real estate loans, but ultimately have flowed to the real estate market through various channels, and there are other loans that use real estate as collateral. The total amount of nominal and actual real estaterelated loans is conservatively estimated at more than 20 trillion yuan.13 At the same time, the real estate industry impacts upstream and downstream industry chains. If the real estate market remains depressed due to the lack of demand and decline in producer price index, the profits of 42 related industries will be affected considerably. These industries include iron and steel, concrete, electrolytic aluminum, glass, lime, construction machinery, building materials, household appliances, furniture, and automobiles.14 In this, banks will face not only a rise in the rate of bad accounts from real estate loans, but also an increase in loan default risks for related industries. Looking forward to 2012, relaxation of real estate regulation and control policies is unlikely. The number of loans designated as real estate will slow in growth. Although real estate prices may drop by 10 to 15 percent, the intermediate business revenue of banks is very high; many banks have a profit level of 50 to 100 percent. Even if falling real estate prices incur some losses, it may not have much of an impact on the overall earnings of banks. However, we still need to note that falling real estate prices will increase risks regarding the quality of commercial bank assets, leading to increased default risks for loans in real estate and related industries. Falling real estate prices will also affect land and related industries, and therefore the quality of other commercial and local financing platform loans. It is our hope that, as the major financing channel for the real estate industry, the banking industry can actively grasp the macro-trend in the real estate market, and respond cautiously to real estate credit risks. 9 China Index Academy, “Information on Land Market Transactions in 300 Cities across the Country in February 2012”, March 11, 2012, http://fdc.soufun.com/ report/5050.html. 10 Moneyweek, “Sensitive Real Estate: Capital Policy Is the Person in Control of Fate”, January 9, 2012, http://finance.jrj. com.cn/house/2012/01/ 09073912000685.shtml. 11 Guangzhou Daily, “Industry Expects That Non-mainstream Real Estate Enterprises Will Dump Assets”, December 21, 2011, http://www. cs.com.cn/fc/02/201112/ t20111221_3178416.html. 12 Liu Mingkang, China Banking Regulatory Commission, October 19, 2011, CEO Organization Summit. 13 China Business News, November 14, 2011, “Bank Real Estate Loan Stress Test Has Blind Spots, and Hidden Real Estate-related Loans May Reach 10 Trillion Yuan” 14 Xun Yugen, “Real Estate Turns Out in Full Force”, Securities Market Weekly, December 3, 2011
III. Commercial banks actively engaged in finding a solution to fnancing problems for small and medium enterprises As an important component of the national economy, owners. Credits between 1 and 3 million yuan are small and medium-sized enterprises constitute a vital eligible for priority approval. The new management economic group and play an increasingly important model has enhanced Minsheng Banks profitability, and ole in areas such as promoting Chinas economic both its net interest margin and its net interest spread prosperity, increasing employment, driving innovation are top-ranked among 16 leading banks. and accelerating the birth of new industries. More than 99 percent of enterprises throughout the country are State-owned large banks have also started to focus on small and medium enterprises. Their contribution to GDP expansion of small and medium enterprise business, and is over 60 percent and their contribution to tax revenue in particular, on the small and micro enterprise segment. exceeds 50 percent. These same institutions have created China Construction Bank has specifically formulated a about 80 percent of employment positions in urban credit check and extension process for small and mic areas.5 Financing difficulties, however, are holding back enterprises with annual sales volumes below 5 million small and medium enterprises. Currently, 70 percent yuan, and has adopted a priority guarantee for good of these institutions are facing financing difficulties. 6 quality customers. Recently, some foreign banks have The situation of funding shortfalls for all but the largest also expanded their efforts to extend credit to nterprises in China is related to both tightened liquidity and medium enterprises. Standard Chartered Bank is and expanded demand for capital to support rapid also looking at loans to small and medium enterprise businesses as a strategic business niche, and will provide quick and convenient services to small enterprises with Since the end of 2010, when China implemented a nnual sales volumes below 10 million U.S. dollars. 18 prudent monetary policy, banks have been actively engaged in expanding credit to small and medium At the same time, State policies for supporting small and enterprises. Although competition for good-quality loans medium enterprises gives banks even greater confidence is high, these enterprises are attractive borrowers due or supporting these credits. Premier Wen Jiabao of the to higher returns from healthy interest rates and lower State Council of China held an executive meeting of costs of capital. Based on a deloitte study of the industry, the State Council on October 12, 2011, at which the the average interest rate premium on small and medium nine financial and taxation policies and measures for enterprise loans can be more than 20 to 30 percent, and supporting small and micro-enterprise development were the interest rate for micro-enterprise credit loans may go studied. These discussions included measures to expand by 200 per credit loan support of small and micro-enterprises with a single account credit line below 5 million yuan In the past two years, all banks have begun to develop expansion of financing channels for small and micro- small and medium enterprise business in practice. Some enterprises; fine-tuning of disparate supervisory and Statistics banks focus on this segment as a strategic core business; regulatory policies on providing financial services to 16 NETEASE Finance"Zha most large commercial banks have established small and micro-enterprises; promotion of financial department responsible for this segment. institution reform and development; elevation of the starting point of taxation for collecting value-added As of year-end 2011, all financial institution loans totaled tax and sales tax from this segment; exemption of the 54.8 trillion yuan. The balance of the small and medium stamp tax within three years for loan contracts between 17 China bank enterprise loans was 10.8 trillion yuan, and accounted financial institutions and small and micro-enterprises; for 19.6 percent of all loans. The year-end balance was and extension of the policy on deducting loss reserve year, and exceeded the average growth rate for all loans and medium enterprises until the end of 2013. 19 25.8 percent higher than efore tax for loans from financial enterprises to by 10 percentag ember 21, 2011, "Banks On October 24. 2011. the CBRC issued the Expand Small and Medium Currently, joint-stock banks have taken the lead upplementary Notice on Supporting Commercial Banks Enterprise Loan Scal developing loan business for small and micro enterprises. in Making Further Improvements to Small and Micro Sohu, December 23, 2011, Minsheng Bank has adopted a mature management enterprise Financial Services". According to the Notice model to serve this segment. Beginning in 2009, loans to small and micro-enterprises with a single of the State[Council] Minsheng Bank transferred the focus of personal loans account below 5 million yuan(inclusive)to which the Resolve Financing Difficul- from real estate loans to the"Shang DaiTong Commercial financial bonds issued by commercial banks correspond ties for small and micro- Loan"business targeted at small and micro enterprise nay be excluded from the scope of assessment wher
6 III. Commercial banks actively engaged in finding a solution to financing problems for small and medium enterprises As an important component of the national economy, small and medium-sized enterprises constitute a vital economic group and play an increasingly important role in areas such as promoting China’s economic prosperity, increasing employment, driving innovation and accelerating the birth of new industries. More than 99 percent of enterprises throughout the country are small and medium enterprises. Their contribution to GDP is over 60 percent and their contribution to tax revenue exceeds 50 percent. These same institutions have created about 80 percent of employment positions in urban areas.15 Financing difficulties, however, are holding back small and medium enterprises. Currently, 70 percent of these institutions are facing financing difficulties.16 The situation of funding shortfalls for all but the largest enterprises in China is related to both tightened liquidity and expanded demand for capital to support rapid growth. Since the end of 2010, when China implemented a prudent monetary policy, banks have been actively engaged in expanding credit to small and medium enterprises. Although competition for good-quality loans is high, these enterprises are attractive borrowers due to higher returns from healthy interest rates and lower costs of capital. Based on a Deloitte study of the industry, the average interest rate premium on small and medium enterprise loans can be more than 20 to 30 percent, and the interest rate for micro-enterprise credit loans may go up by 200 percent. In the past two years, all banks have begun to develop small and medium enterprise business in practice. Some banks focus on this segment as a strategic core business; most large commercial banks have established a primary department responsible for this segment. As of year-end 2011, all financial institution loans totaled 54.8 trillion yuan. The balance of the small and medium enterprise loans was 10.8 trillion yuan, and accounted for 19.6 percent of all loans. The year-end balance was 25.8 percent higher than the same period the previous year, and exceeded the average growth rate for all loans by 10 percentage points.17 Currently, joint-stock banks have taken the lead in developing loan business for small and micro enterprises. Minsheng Bank has adopted a mature management model to serve this segment. Beginning in 2009, Minsheng Bank transferred the focus of personal loans from real estate loans to the “ShangDaiTong Commercial Loan” business targeted at small and micro enterprise owners. Credits between 1 and 3 million yuan are eligible for priority approval. The new management model has enhanced Minsheng Bank’s profitability, and both its net interest margin and its net interest spread are top-ranked among 16 leading banks. State-owned large banks have also started to focus on expansion of small and medium enterprise business, and in particular, on the small and micro enterprise segment. China Construction Bank has specifically formulated a credit check and extension process for small and microenterprises with annual sales volumes below 5 million yuan, and has adopted a priority guarantee for good quality customers. Recently, some foreign banks have also expanded their efforts to extend credit to small and medium enterprises. Standard Chartered Bank is also looking at loans to small and medium enterprise businesses as a strategic business niche, and will provide quick and convenient services to small enterprises with annual sales volumes below 10 million U.S. dollars.18 At the same time, State policies for supporting small and medium enterprises gives banks even greater confidence for supporting these credits. Premier Wen Jiabao of the State Council of China held an executive meeting of the State Council on October 12, 2011, at which the nine financial and taxation policies and measures for supporting small and micro-enterprise development were studied. These discussions included measures to expand credit loan support of small and micro-enterprises with a single account credit line below 5 million yuan; expansion of financing channels for small and microenterprises; fine-tuning of disparate supervisory and regulatory policies on providing financial services to small and micro-enterprises; promotion of financial institution reform and development; elevation of the starting point of taxation for collecting value-added tax and sales tax from this segment; exemption of the stamp tax within three years for loan contracts between financial institutions and small and micro-enterprises; and extension of the policy on deducting loss reserve before tax for loans from financial enterprises to small and medium enterprises until the end of 2013.19 On October 24, 2011, the CBRC issued the “Supplementary Notice on Supporting Commercial Banks in Making Further Improvements to Small and Microenterprise Financial Services”. According to the Notice, “loans to small and micro-enterprises with a single account below 5 million yuan (inclusive) to which the financial bonds issued by commercial banks correspond may be excluded from the scope of assessment when 15 National Bureau of Statistics. 16 NETEASE Finance “Zhang Zhigang of Cinda Securities: 70% of Small and Medium Enterprises Find It Difficult to Get Financing”, August 31, 2011. 17 China Banking Regulatory Commission, “China Banking Industry Operation Report (2011)”, February 15, 2012. 18 Guangzhou Daily, November 21, 2011, “Banks Make Greater Efforts to Expand Small and Medium Enterprise Loan Scale”. 19 Sohu, December 23, 2011, “Nine Financial and Taxation Policies and Measures of the State [Council] to Resolve Financing Difficulties for Small and Microenterprises
the loan-to-deposit ratio is calculated. "Applications enterprise business as a long-term strategic business. But have also been approved by the CBrC for issuance from a short-term perspective, the single transaction size of micro-enterprise financial bonds in the following for small and medium enterprise business is relatively amounts respectively-50 billion yuan, 30 billion yuan, small with low derivative deposits, and does little to help 20 billion yuan, 30 billion yuan and 8 billion yuan -for a banks grow rapidly. Moreover, on an enterprise-wide total of 138 billion yuan issued by the five leading small level, the strategic goals and plans for small and medium Industrial Bank, Shenzhen Development Bank, Shanghai in the short-term have slowed development of thep R and medium enterprise lenders, namely Minsheng Bank, enterprise businesses are generally clear. The small gains Pudong Development Bank and Bank of Hangzhou. 20 instruments, as banks branches generally develop and push higher-margin loan products that contribute more In 2012. we believe that banks will face a multitude significantly to profit targets of challenges in the process of developing small and medium enterprise business niches due to the internal Banks must find a business model that fits the resource reallocations, business model adjustments and characteristics of small and medium enterprise business. operating system optimization. 21 Currently, a considerable number of these enterprises fail to establish a sound financial base due to strategic With the reallocation of internal resources, the contrast and human factors. They also lack complete accounting between long-term gains and short-term gains, as well adequate financial statements accepted by financial as between strategy for the entire bank and execution auditing departments, and sound and continuous by bank branches, creates challenges For a long time, operating performance. At the same time, systems expansion has been the primary goal of domestic banks. for supporting small and medium such as mortgages do so long-term, banks must adjust their asset and guarantees, credit ratings and financial support systems. business structure and focus on small and medium may not be sound. Banks find it difficult to understand development prospects of such enterprises, which can make it difficult to manage and control for risk, further slowing the spread of these credits. If the traditional odel of business banking is used to develop small and medium enterprise business, banks will face an unfavorable situation in which investment costs are high efficiency is low, and business volume is difficult to grow rapidly. Moreover, most banks lack the specialized skillset medium enterprise credits: additional talent and training as well as operating system adjustments would need to be made to upgrade staff and systems to efficiently process these credits Resolving financing difficulties for small and medium enterprises is a long-term process For banks, the development of these credits is aligned with the necessary adjustments to asset structure and revenue that can achieve sustainable bank growth. In order to develop small and medium enterprise business well, though, commercial banks need to adjust the internal organizational structure as well as management enterprise business models that fit the banks inherent Five Banks" characteristics; and build supporting systems for corresponding business processes, human resources and information that make lending to this sector more of China to Develop Business, December 2011 2012 China Banking Industry Top Ten Trends and Outlook--Enhancing Capital Management, Meeting New Challenges
2012 China Banking Industry Top Ten Trends and Outlook—Enhancing Capital Management, Meeting New Challenges 7 the loan-to-deposit ratio is calculated.” Applications have also been approved by the CBRC for issuance of micro-enterprise financial bonds in the following amounts respectively – 50 billion yuan, 30 billion yuan, 20 billion yuan, 30 billion yuan and 8 billion yuan – for a total of 138 billion yuan issued by the five leading small and medium enterprise lenders, namely Minsheng Bank, Industrial Bank, Shenzhen Development Bank, Shanghai Pudong Development Bank and Bank of Hangzhou.20 In 2012, we believe that banks will face a multitude of challenges in the process of developing small and medium enterprise business niches due to the internal resource reallocations, business model adjustments and operating system optimization. 21 With the reallocation of internal resources, the contrast between long-term gains and short-term gains, as well as between strategy for the entire bank and execution by bank branches, creates challenges. For a long time, expansion has been the primary goal of domestic banks. To do so long-term, banks must adjust their asset and business structure, and focus on small and medium enterprise business as a long-term strategic business. But from a short-term perspective, the single transaction size for small and medium enterprise business is relatively small with low derivative deposits, and does little to help banks grow rapidly. Moreover, on an enterprise-wide level, the strategic goals and plans for small and medium enterprise businesses are generally clear. The small gains in the short-term have slowed development of these instruments, as banks branches generally develop and push higher-margin loan products that contribute more significantly to profit targets. Banks must find a business model that fits the characteristics of small and medium enterprise business. Currently, a considerable number of these enterprises fail to establish a sound financial base due to strategic and human factors. They also lack complete accounting, adequate financial statements accepted by financial auditing departments, and sound and continuous operating performance. At the same time, systems for supporting small and medium such as mortgages, guarantees, credit ratings and financial support systems, may not be sound. Banks find it difficult to understand the financial status, operating performance and development prospects of such enterprises, which can make it difficult to manage and control for risk, further slowing the spread of these credits. If the traditional model of business banking is used to develop small and medium enterprise business, banks will face an unfavorable situation in which investment costs are high, efficiency is low, and business volume is difficult to grow rapidly. Moreover, most banks lack the specialized skillset and operating systems necessary to support small and medium enterprise credits; additional talent and training as well as operating system adjustments would need to be made to upgrade staff and systems to efficiently process these credits. Resolving financing difficulties for small and medium enterprises is a long-term process. For banks, the development of these credits is aligned with the necessary adjustments to asset structure and revenue that can achieve sustainable bank growth. In order to develop small and medium enterprise business well, though, commercial banks need to adjust the internal organizational structure as well as management and control models; explore small and medium enterprise business models that fit the bank’s inherent characteristics; and build supporting systems for corresponding business processes, human resources and information that make lending to this sector more efficient and cost effective. 20 China Business Journal, November 19, 2011, “CBRC Quickly Approves 138 Billion Yuan of Small and Micro Financial Bonds Issued by Five Banks”. 21 Deloitte: New Thinking and New Modes—the Path for Chinese Commercial Banks of China to Develop Small and Medium Enterprise Business, December 2011
IV. Rural financial system reform accelerates from the promotion of rural-related financial services With reform efforts opening up Chinese markets to and 2.90 percent of assets in the banking industry as a the outside world, rural financial services in China have whole(see Table 1) undergone a development reformation as well. Efforts of rural financial institutions-including rural commercial In the past few years, the profits of rural commercial banks, rural cooperative banks and rural credit banks have grown rapidly. By 2010, after-tax profits for cooperatives-continue to support the development of rural commercial banks equaled 27.99 billion yuan. The agriculture, farmers and villages". Their major business average growth rate was 87 percent for the four years is to provide loans to rural families and micro-enterprises. from 2007 to 2010. The average annual growth rate though, for rural The shareholder system has become a focus for credit credit cooperatives(see Figure 3). As of August 2011, the cooperative reform. The CBRC reports that all existing qualification share proportion of rural credit cooperatives rural cooperative banks will be restructured as rural nationwide had already dropped below 30 percent. commercial banks in a process to be completed over the In total, 155 rural commercial banks and 210 rural next five years. 22 There are 1, 424 rural credit cooperatives cooperative banks were established, and the total assets that have met or are near to meeting the conditions of rural banking institutions accounted for 41. 4 percent for reorganization as a rural commercial banks. of assets of rural cooperative financial institutions across Reorganizing over 1,000 rural credit cooperatives is the greatest challenge in reforming the rural financial system Although assets of rural cooperative financial institutions The reform of rural credit cooperatives has made exceeded 10 trillion yuan, the qualifications of rural significant progress, and the business performance has institutions varied greatly across regions. At the provincial also considerably improved. Rural credit cooperatives are level, assets can vary from tens of billions to nearly a now being gradually transformed into rural commercial trillion yuan, and discrepancies exist in capital adequacy banks, with the purpose of better serving agriculture and ratios, non-performing loan ratios, earnings capacity, rural areas. In 2010, the total assets of rural commercial and systems and technology. By the first half of 2011 banks was 2, 767 billion yuan, which accounted for the total assets of rural credit cooperatives(excluding the 19. 53 percent of the assets of rural financial institutions assets of rural commercial banks in which restructuring Table 1. Total Assets of Rural Commercial Banks of China Proportionate to Banking Industry Assets (2006to2010) 20062007200820092010 Total assets of rural commercial banks(100 million yuan) 38 27670 Proportion of rural financial institutions ( %) 8.35% 1953% Commercial Banks Financial Proportion of financial institutions of the banking industry(%)1.15%1.16%1.49%2.37%2.90% Times, August 3, 2011. tp: /finance. people. com. cn/bank/GB/15317585htm Figure 3. After-tax Profit Comparison between Rural Financial Institutions and Urban Commercial Banks China Banking Regulatory (2007-2010) Share Proportion for 900 Rural Credit Cooperatives nt:100,000,000Yuan Throughout China Already 800 verage annual growth rate 47% securities Times 700 work, August 2, 2011 600 ural credit cooperatives content/2011-08/02/con- 500 400 Average annual growth rate 87% Average annual growth rate 6% Already Have 200 Strategy for Rural Market, 100 Average annual growth rate 51% uary4,2012,http∥ new.163com/120104 2007 O7MTTP42300014JB Data Source: China Banking Regulatory Commission 2010 Annual Report
8 8 自改革开放以来，我国农村金融事业得到了巨 大发展。农村金融机构改革持续推进 , 支持“三 农”发展力度不断加强。中国的农村金融机构 主要由农村商业银行、农村合作银行、农村信 用社组成。其主要业务是为农村家庭以及微小 型企业提供贷款。随着我国农村金融体制改革 的不断深化，股份制已经成为农村信用社改革 的主导方向。据银监会称，现有农村合作银行 要全部改制为农村商业银行，并且要通过 5 年 左右的时间全面完成农信社股份制改革 22 。目 前，还有 1424 家农村信用社已经达到或基本 达到农村商业银行组建条件 23 。如何来完成接 下来的千余家农信社的股份制改革，将是农村 金融体制改革所面临的最大挑战。 农村信用合作社的改革已经取得显著的进展并 且其业务绩效也有了很好的改观。农村信用合 作社现在正逐步转变成为农村商业银行，目的 就在于能够更好的服务于农业和农村地区的发 四、推进涉农金融服务，农村金融体 制改革的步伐日趋加快 资料来源：中国银监会 资料来源：银监会2010年报 表1 2006 – 2010年中国农商行资产总额及其在中国银行业中的比例 图3 农村金融机构与城市商业银行税后利润比较（2007-2010） 2006 2007 2008 2009 2010 农商行资产总额（亿元） 5,038 6,097 9,291 18,661 27,670 占农村金融机构比例（%） 8.35% 8.28% 9.93% 16.45% 19.53% 占银行业金融机构比例（%） 1.15% 1.16% 1.49% 2.37% 2.90% 展。在 2010 年，农商行资产总额达到 27,670 亿元，占比农村金融机构 19.53%。占比银行 业金融机构 2.90%（见表 1）。近几年来，农 村商业银行的利润增长很快，农村商业银行 2010 年的税后利润达到 279.9 亿元，从 2007 年至 2010 年的 4 年平均增长率达到 87%。而 农村信用社的4年年均增长率仅有6%（见图3）。 截至 2011 年 8 月，全国农村信用社资格股占 比已降到 30% 以下，已组建农村商业银行 155 家、农村合作银行 210 家，农村银行机构资产 总额占全国农村合作金融机构的 41.4%24 。尽 管农村合作金融机构总资产超过了 10 万亿， 但各地农合机构的资质相差悬殊。以省为单位， 资产从几百亿到近万亿规模不等，资本充足率、 不良率、盈利能力、体制机制等差别甚大。到 2011 年上半年，全国农信社（不包括已经改 制完成的农商行）总资产规模为6.5761万亿元， 总实收资本为 2,149.4 亿元，在 105.6691 万 亿元的银行业金融机构总资产中占比 6.2%25 。 22 23 24 25 银监会：农村合作银行要 全部改制为农村商业银行， 金融时报，2011年08月 03日， http://finance.people.com.cn /bank/GB/15317585.htm 银监会：全国农村信用社 资格股占比已降到30%以 下，证券时报网，2011年 8月2日， http://kuaixun.stcn.com/ content/2011-08/02/content _3110510.htm 农村金融2011 金融机构 对农村市场已有系统化战 略，中国经济网，2012年 1月4日， http://news.163.com/12/01 04/10/7MTTP42300014JB5. html 农信社改革进入最棘手阶 段 省联社模式存废未定， 三农直通车，2011年11月 21日， http://info.china.alibaba. com/news/detail/v0-d1021 627385.html 城市商业银行 农村商业银行 农村合作银行 农村信用社 单位：亿元 年均增长率 47% 年均增长率 87% 年均增长率 6% 年均增长率 51% 700 800 900 600 500 400 300 200 100 0 2007 2008 2009 2010 IV. Rural financial system reform accelerates from the promotion of rural-related financial services With reform efforts opening up Chinese markets to the outside world, rural financial services in China have undergone a development reformation as well. Efforts of rural financial institutions – including rural commercial banks, rural cooperative banks and rural credit cooperatives – continue to support the development of “agriculture, farmers and villages”. Their major business is to provide loans to rural families and micro-enterprises. The shareholder system has become a focus for credit cooperative reform. The CBRC reports that all existing rural cooperative banks will be restructured as rural commercial banks in a process to be completed over the next five years.22 There are 1,424 rural credit cooperatives that have met or are near to meeting the conditions for reorganization as a rural commercial banks.23 Reorganizing over 1,000 rural credit cooperatives is the greatest challenge in reforming the rural financial system. The reform of rural credit cooperatives has made significant progress, and the business performance has also considerably improved. Rural credit cooperatives are now being gradually transformed into rural commercial banks, with the purpose of better serving agriculture and rural areas. In 2010, the total assets of rural commercial banks was 2,767 billion yuan, which accounted for 19.53 percent of the assets of rural financial institutions and 2.90 percent of assets in the banking industry as a whole (see Table 1). In the past few years, the profits of rural commercial banks have grown rapidly. By 2010, after-tax profits for rural commercial banks equaled 27.99 billion yuan. The average growth rate was 87 percent for the four years from 2007 to 2010. The average annual growth rate for the four years was only 6 percent, though, for rural credit cooperatives (see Figure 3). As of August 2011, the qualification share proportion of rural credit cooperatives nationwide had already dropped below 30 percent. In total, 155 rural commercial banks and 210 rural cooperative banks were established, and the total assets of rural banking institutions accounted for 41.4 percent of assets of rural cooperative financial institutions across the country.24 Although assets of rural cooperative financial institutions exceeded 10 trillion yuan, the qualifications of rural institutions varied greatly across regions. At the provincial level, assets can vary from tens of billions to nearly a trillion yuan, and discrepancies exist in capital adequacy ratios, non-performing loan ratios, earnings capacity, and systems and technology. By the first half of 2011, the total assets of rural credit cooperatives (excluding the assets of rural commercial banks in which restructuring Table 1. Total Assets of Rural Commercial Banks of China Proportionate to Banking Industry Assets (2006 to 2010) 2006 2007 2008 2009 2010 Total assets of rural commercial banks (100 million yuan) 5,038 6,097 9,291 18,661 27,670 Proportion of rural financial institutions (%) 8.35% 8.28% 9.93% 16.45% 19.53% Proportion of financial institutions of the banking industry (%) 1.15% 1.16% 1.49% 2.37% 2.90% Figure 3. After-tax Profit Comparison between Rural Financial Institutions and Urban Commercial Banks (2007-2010) Data Source: China Banking Regulatory Commission 2010 Annual Report Unit: 100,000,000 Yuan Average annual growth rate 87% Average annual growth rate 51% Average annual growth rate 47% Average annual growth rate 6% Urban commercial banks Rural commercial banks Rural cooperative banks Rural credit cooperatives 22 China Banking Regulatory Commission: All Rural Cooperative Banks Will Be Restructured as Rural Commercial Banks, Financial Times, August 3, 2011, http://finance.people.com. cn/bank/GB/15317585.htm 23 China Banking Regulatory Commission: Qualification Share Proportion for Rural Credit Cooperatives Throughout China Already Dropped Below 30%, Securities Times Network, August 2, 2011, http://kuaixun.stcn.com/ content/2011-08/02/content_3110510.htm. 24 Rural Finance 2011 Financial Institutions Already Have Systemized Strategy for Rural Market, China Economy Network, January 4, 2012, http:// news.163.com/12/0104/ 10/7MTTP42300014JB5. html. 8 自改革开放以来，我国农村金融事业得到了巨 大发展。农村金融机构改革持续推进 , 支持“三 农”发展力度不断加强。中国的农村金融机构 主要由农村商业银行、农村合作银行、农村信 用社组成。其主要业务是为农村家庭以及微小 型企业提供贷款。随着我国农村金融体制改革 的不断深化，股份制已经成为农村信用社改革 的主导方向。据银监会称，现有农村合作银行 要全部改制为农村商业银行，并且要通过 5 年 左右的时间全面完成农信社股份制改革 22 。目 前，还有 1424 家农村信用社已经达到或基本 达到农村商业银行组建条件 23 。如何来完成接 下来的千余家农信社的股份制改革，将是农村 金融体制改革所面临的最大挑战。 农村信用合作社的改革已经取得显著的进展并 且其业务绩效也有了很好的改观。农村信用合 作社现在正逐步转变成为农村商业银行，目的 就在于能够更好的服务于农业和农村地区的发 四、推进涉农金融服务，农村金融体 制改革的步伐日趋加快 资料来源：中国银监会 资料来源：银监会2010年报 表1 2006 – 2010年中国农商行资产总额及其在中国银行业中的比例 图3 农村金融机构与城市商业银行税后利润比较（2007-2010） 2006 2007 2008 2009 2010 农商行资产总额（亿元） 5,038 6,097 9,291 18,661 27,670 占农村金融机构比例（%） 8.35% 8.28% 9.93% 16.45% 19.53% 占银行业金融机构比例（%） 1.15% 1.16% 1.49% 2.37% 2.90% 展。在 2010 年，农商行资产总额达到 27,670 亿元，占比农村金融机构 19.53%。占比银行 业金融机构 2.90%（见表 1）。近几年来，农 村商业银行的利润增长很快，农村商业银行 2010 年的税后利润达到 279.9 亿元，从 2007 年至 2010 年的 4 年平均增长率达到 87%。而 农村信用社的4年年均增长率仅有6%（见图3）。 截至 2011 年 8 月，全国农村信用社资格股占 比已降到 30% 以下，已组建农村商业银行 155 家、农村合作银行 210 家，农村银行机构资产 总额占全国农村合作金融机构的 41.4%24 。尽 管农村合作金融机构总资产超过了 10 万亿， 但各地农合机构的资质相差悬殊。以省为单位， 资产从几百亿到近万亿规模不等，资本充足率、 不良率、盈利能力、体制机制等差别甚大。到 2011 年上半年，全国农信社（不包括已经改 制完成的农商行）总资产规模为6.5761万亿元， 总实收资本为 2,149.4 亿元，在 105.6691 万 亿元的银行业金融机构总资产中占比 6.2%25 。 22 23 24 25 银监会：农村合作银行要 全部改制为农村商业银行， 金融时报，2011年08月 03日， http://finance.people.com.cn /bank/GB/15317585.htm 银监会：全国农村信用社 资格股占比已降到30%以 下，证券时报网，2011年 8月2日， http://kuaixun.stcn.com/ content/2011-08/02/content _3110510.htm 农村金融2011 金融机构 对农村市场已有系统化战 略，中国经济网，2012年 1月4日， http://news.163.com/12/01 04/10/7MTTP42300014JB5. html 农信社改革进入最棘手阶 段 省联社模式存废未定， 三农直通车，2011年11月 21日， http://info.china.alibaba. com/news/detail/v0-d1021 627385.html 城市商业银行 农村商业银行 农村合作银行 农村信用社 单位：亿元 年均增长率 47% 年均增长率 87% 年均增长率 6% 年均增长率 51% 700 800 900 600 500 400 300 200 100 0 2007 2008 2009 2010
