G20 china_web

Regulating finance
Banks are addressing NPL issues,
partly by disposing of bad assets
China's banking sector is restructuring
to become more customer-centric
The 'Shanghai bull' sculpture,
installed in 2010, symbolises
the Chinese markets' durability
175%
China's
non-performing
loan provision
coverage ratio,
the highest in
the world
Zhang
Yanling
PAUL BROWN/ALAMY
of liquidity after banks tightened lending
standards. With such changes, the NPL
ratio has indeed worsened. Higher NPL
ratios have a reassuringly regular pattern
of returning, though. In a given year, the
worsening ratio usually occurs in the
same banks, the same regions, the same
industries and the same economic zone.
This correlation is enough to confirm that
the main cause of the problem has been
accurately identified.
Second, banks’ exposure to higher NPL
levels is a good thing because it obliges
them to solve NPL issues, speeding up
the disposal of bad assets. Historically,
banks have not paid enough attention to
weaknesses in their risk control systems.
Now they must adopt more useful measures
to reduce credit risks more swiftly. This
contributes to the national industrial
adjustment policy by promoting the optimal
allocation of financial resources and will
help China’s banks.
Third, to be fair, the performance of
banks in other countries is no better than
that in China. According to the World Bank,
China’s NPL rate is far lower than that in
some developed countries and notably
lower than in Brazil, Russia or India. China’s
loan provision ratio is 3.06 per cent, taking
only cash into account and not the value of
collateral. Its NPL provision coverage ratio
(175 per cent) and return on equity are both
the highest in the world.
Fourth, the Financial Stability Board
should conduct ex-post evaluations of
financial regulatory reform since 2008.
The high costs of regulation, complicated
procedures for customer access to financial
services, and stringent requirements for
businesses and others should be assessed.
Today micro-payments are almost entirely
dominated by internet finance, because
banks are subject to strict procedures that
force up their costs and leave them less
competitive. Similarly, banks conducting
finance under factoring – or selling
accounts receivables to avoid a 30- or 60-
day delay – face such strict requirements
on capital and risk controls that their costs
have jumped and they are losing out to
independent factoring companies.
Development and growth
Last, to meet the challenge of marketoriented
reforms of interest rates and to
compete with emerging internet finance,
China’s banking sector has already begun
restructuring. Banks are beginning to live up
to a more customer-centric philosophy. Each
bank is also developing a differentiated
strategy to match its own strengths and
provide customers with integrated,
one-stop financial products and services.
From 2008 to 2014, China contributed an
average of 30 per cent to global economic
growth. In 2015 it still exceeded 25 per cent.
China’s financial markets and banking
sector have played an important role and
adapted considerably over the development
processes of the last decades. They will
again adapt successfully, as integral parts
of these latest reforms, and, as a result,
continue to optimise their facilitation of
Senior Fellow
Chongyang Institute for
Financial Studies
Having joined the head office of
the Bank of China in 1977, Zhang
Yanling was appointed Executive
Assistant to the President in
2000. From 2002 until retiring in
2011, she served as Executive Vice
President. She is currently a Senior
Fellow of the Chongyang Institute
for Financial Studies at Renmin
University of China, a member of
the executive board of the World
Council of the International
Chamber of Commerce (ICC),
Vice Chair of ICC-China, and
director of the Negotiable
Instruments Law Research Centre
at China University of Political
Science and Law.
www.ruc.edu.cn/en
G7G20.com September 2016 • G20 China: The Hangzhou Summit 143