Annual Report China Banking Regulatory Commission Annual Report Photograph by CBRC staff 42

Transcription

1 Annual Report 2010 China Banking Regulatory Commission Annual Report 2010 Photograph by CBRC staff 42

2 Part Three Implementation of Macroeconomic Adjustment Policies 43

3 Annual Report 2010 I. Adjusting the pace of credit supply In line with the macroeconomic policies adopted by the central government, the CBRC took a series of measures to bring the credit supply back to a healthy track. Accordingly, banking institutions were required to manage the pace of their credit extension in a rational manner so as to maintain a balanced credit supply on a quarterly basis. On the part of the CBRC, prudential supervisory tools were applied to encourage banking institutions to formulate sensible plans for credit extension, reduce the weights of business scale and revenue in performance evaluation, and develop internal mechanisms to curb irrational credit expansion and prevent fluctuations of credit supply (see Chart 9). Increasing by 19.9% year-on-year, the newly disbursed loans in 2010 amounted to RMB7.95 trillion, specifically, RMB2.6 trillion in the first quarter, RMB2.03 trillion in the second quarter, RMB1.68 trillion in the third quarter, and RMB1.64 trillion in the fourth quarter. Overall, a declining trend was witnessed while the credit supply pace was relatively stable. Chart 9: Monthly average loan growth of banking institutions and the annualized GDP quarterly growth Monthly loan growth (RMB100 mn) Annualized GDP quarterly growth 16,000 20% 14,000 12,000 10,000 18% 16% 14% 12% 8,000 10% 6,000 4,000 2,000 8% 6% 4% 2% Q Q Q Q Q Q Q Q Q Q Q Q4 0% II. Supporting economic restructuring and industrial upgrading The CBRC continued to provide guidance for banking institutions to optimize their credit allocation in a bid to facilitate China s economic restructuring and industrial upgrading. 1. Tightened credit to high polluting, energy-intensive and over-capacity sectors Based on national industrial and environmental protection policies, banking institutions were required to refrain from making new loans to high polluting, energy-intensive and over-capacity sectors. With respect to the existing loans, a variety of methods were employed in resolution, such as preparation of a caution list of borrowers, differentiated risk pricing, economic capital charge 44

4 and targeted provisioning. In addition, the CBRC encouraged banking institutions to further reduce their stock of exposures to the above-mentioned sectors and promptly resolved the recognized NPLs so as to ensure the safety of bank assets. Box 12: Efforts to support energy saving, emissions reduction and elimination of obsolete capacity In line with the overall policy framework for energy saving and emission reduction provided in the eleventh five-year plan and a series of notices issued by the State Council, the CBRC, jointly with the People's Bank of China (PBoC) issued in 2010 the Notice on Further Improving Financial Services to Help Save Energy, Cut Emissions and Eliminate Outdated Capacity, urging banking institutions to take into account relevant policies in allocating their credit resources and adjusting their portfolio structure to ensure long-term support to the abovementioned undertakings. The CBRC requires banking institutions to diligently study the national industrial and environmental protection policies, and improve their sensitivity to policy adjustment as well as their awareness of potential risks. Banking institutions should abide by relevant regulatory guidance in formulating their credit policies, improving their risk management and internal control mechanisms. In addition, banking institutions are required to assess the environmental impact of each loan project both before and after loan disbursement, and refrain from making new loans to projects that do not meet the relevant national polices and standards. For the projects promoted by relevant national policies, banking institutions are encouraged to enhance their financial support. Specifically, banking institutions are expected to step up their efforts to support the projects listed in the State s energy conservation and technology promotion directory, the ten major state projects for energy saving and emission reduction, a number of key projects to solve polluting sources, and those enterprises with better market potential and stronger innovation capacity. To this end, banking institutions are instructed to explore various means of funding support, such as making loans, issuing short-term debentures and medium-term papers, or other innovative instruments. In addition, banks are required to set up dedicated functions to closely monitor the industry developments, policy changes and loan project management. The CBRC has also strengthened coordination and collaboration with the related central and local government agencies in order to provide informed regulatory guidance and risk warnings, as well as take prompt remedial or corrective actions. 2. Credit support for key industries and sectors In accordance with the national strategy on the transformation of economic growth pattern, the CBRC encouraged banking institutions to give greater support to green industries and cultural industries. By issuing the regulatory guidance jointly with other related government agencies, the CBRC called on credit support for the shanty town renovation projects, affordable and lowrent public housing projects, under the principle of commercial viability. In a bid to stabilize market prices and satisfy households basic needs, bank institutions were also urged to extend credit to support production, processing and marketing of agricultural produces. In addition, credit support was called on for natural disaster relief and reconstruction of disaster-stricken areas. 3. Improving geographic allocation of loans The CBRC continued to actively guide banking institutions to support the economic and social development of less developed regions. Banking institutions were instructed to distribute their 45

5 Annual Report 2010 credit support in such a manner that may help to address the unbalanced development among different regions. As a result, the year-on-year loan growth rate in central and western China was 3.35 percentage points higher than that in eastern China in Box 13: Efforts to support economic development in western China While efforts were made to strengthen banking supervision to mitigate financial risks in western China, the CBRC also attached great importance to implementing the national strategy on accelerated development of the West, and accordingly took the following initiatives to enhance the financial support to this region. 1. Encouraging market competition. In a bid to improve the quality and efficiency of financial services as well as enhance the coverage of basic financial services in western region which are largely rural areas, the CBRC has, on the one hand, encouraged commercial banks to expand their branching network into the region, and, on the other hand, promoted the establishment of village or township banks, lending companies, rural mutual cooperatives and micro-finance companies in western China. The pilot program of establishing consumer finance companies has also been rolled out in the same region. Preferential policies were developed to promote the participation of foreign banks in the construction and development of central and western regions. As a result, foreign banks set up presence for the first time in 12 provinces in central and western China in Enhancing credit support. Under the regulatory guidance and in an effort to implement the relevant national strategies, banking institutions have stepped up their financial support for the key projects, infrastructure construction, agricultural and rural development, small enterprises, cultural, educational, medicare service, and welfare system development in western China. With the assistance of banking institutions, local enterprises aiming to develop crossregion or cross-border businesses enjoy a much more convenient access to financial services. Post-disaster reconstruction and environment friendly projects are also on the priority list for credit support. In addition, the CBRC has required policy banks to allocate more resources to the western region and urged small- and medium-sized rural financial institutions to improve their services through deepened reforms. Furthermore, banks are instructed to enhance credit availability in rural areas by exploring cooperation with insurance companies and credit guarantee companies. III. Participating in national policy formulation The CBRC has always paid close attention to the potential financial risks associated with economic and industrial changes. To this end, the CBRC actively participated in the research and drafting of macroeconomic policies, and prompted banking institutions to take into account the macroeconomic adjustment and industrial restructuring policies when developing their own medium-to-long term development strategies and annual operation plans. In addition, the CBRC made efforts to incentivize banking institutions implementation of macroeconomic policies, and improve its own macro prudential supervisory practices including those to counter economic cycles. Furthermore, the CBRC directed banking institutions to enhance financial support to various social and economic undertakings such as agricultural and rural development, development of small enterprises, elimination of obsolete capacity, energy saving, emissions reduction, construction of affordable houses, water conservancy projects, as well as the undertakings to ensure stable food prices. 1. Resolution of the LGFP loans The CBRC actively participated in drafting the government policies on strengthening the management of local government funding platforms (LGFPs) in Subsequently, the 46

6 CBRC joined the efforts with other government agencies, including the National Development and Reform Commission (NDRC), the Ministry of Finance (MOF) and the PBoC, to jointly issue specific requirements to underpin the implementation of relevant government policies. According to the new requirements, banking institutions were required to examine, review and re-evaluate each and every loan made to the LGFPs, and where necessary, take resolute measures to reschedule or resolve the problem loans. Banking institutions were also required to improve their mechanisms for the prompt identification and control of the related risks. In 2010, the CBRC organized banking institutions nationwide to conduct careful review and assessment of their lending to LGFPs. Through the joint efforts of the CBRC, the NDRC, the MOF, the PBoC and the National Audit Office, the definition of LGFP loans was further clarified and relevant database was established. On this basis, the CBRC required banking institutions to sort out their LGFP loans through stringent classification of loans, clarification of debt repayment parties, enhanced cushion, sufficient provisioning and prompt write-offs. 2. Management of real estate loans In 2010, the CBRC actively participated in drafting the State Council s policies on ensuring stable and healthy development of housing markets and curbing the irrational housing price surge in certain cities. Subsequently, the CBRC joined with the Ministry of Land and Resources, the Ministry of Housing and Urban-Rural Development, the PBoC and the State-owned Assets Supervision and Administration Commission to prevent banking loans made to those property developers possessing idle land or involved in other rulebreaking activities, as well as to the speculative property transactions. For this purpose, banks were required to adopt differentiated credit policies for residential mortgages, and carefully review and verify the purpose of mortgages as well as the qualifications of borrowers through face-toface interviews. For real estate development loans and land reserve loans, the CBRC continued to require banks to enhance pre-lending reviews and post-lending management. At the same time, the CBRC encouraged banks to provide credit support for the construction of affordable houses while taking measures to keep the related risks under firm control. Additionally, the CBRC resorted to stringent enforcement actions against such lending behaviors as zero down payment, fraudulent mortgages, and kickback from realtors to buyers. IV. Boosting the weak sectors 1. Improvement of rural finance In 2010, the CBRC continued to promote the establishment and growth of new-type rural financial institutions under the principles of lowered entry threshold plus stringent prudential supervision. Accordingly, the CBRC issued the Notice on Addressing the Issues Concerning Accelerated Development of New-type Rural Financial Institutions, and held seminars to analyze and address the obstacles encountered in the business operation and development of newtype rural financial institutions. Furthermore, the CBRC coordinated with the PBoC and the China UnionPay to tackle problems related to the payment and settlement as well as bank-card issuance by village or township banks. As of end- 2010, 395 new-type rural financial institutions were set up, including 349 village or township banks, nine lending companies and 37 rural mutual cooperatives. In a bid to enhance the outreach of basic financial services in rural areas, the CBRC issued the Notice on Strengthening the Supervision over the Branches of Small- and Medium-sized Rural Financial Institutions, outlining the comprehensive guidance on the branching layout of rural financial 47

7 Annual Report 2010 Vice Chairman ZHOU Mubing attended 2011 work conference on the supervision of rural small- and medium-sized financial institutions in March services. Specifically, the small- and medium-sized rural financial institutions were encouraged to appropriately enlarge the number of their branches with priority to setting presence in villages and towns. These institutions were encouraged to adopt localized and differentiated development strategies, innovate and explore approaches to providing convenient and accessible services in rural towns and villages, such as installing POS terminals and ATMs, or assigning loan officers to provide tailored services for each community. As a result, the previous blind spots of financial service coverage were effectively addressed, and the objective of achieving full banking service coverage in Chinese villages and towns was achieved by the end of In 2010, the policy framework for the promotion of rural and agricultural finance was largely in place. Specifically, the CBRC expanded the geographic coverage of preferential policies and increased the number of provinces where the local banking entities would be rewarded for distinctive performance in growing agricultural and rural services. The CBRC also gave favorable treatments for banking institutions to set up presence in underdeveloped regions. In addition, the CBRC promoted the introduction of preferential income tax policies and offered exemption of supervisory fees for all small- and medium-sized rural financial institutions. County-level financial institutions were allowed to utilize certain proportion of deposits to extend loans locally, and the qualified institutions were entitled to favorable treatment in new business approval. By the end of 2010, the outstanding balance of agriculture-related loans reached RMB11.8 trillion, increasing by RMB2.63 trillion or 28.8 percent from the beginning of the year. Such growth was 5.7 percentage points higher than the average growth of all loans. The proportion of agriculturerelated loans to the total loans witnessed a 1.6 percent year-on-year growth, which signified a powerful financial support to agricultural and rural development. Chart 10: Map of banking service coverage ( ) provinces with full banking coverage. Provinces with less than 50 counties unbanked: Guizhou (1), Shanxi (3), Henan (3), Anhui (5), Ningxia (8), Guangxi (10), Xinjiang (17), Guangdong (19). Provinces with more than 50 unbanked counties: Tibet (55), Yunnan (110), Sichuan (111). 2010, to achieve full coverage of rural financial services space. 48

8 2. Improvement of small enterprise finance Together with the PBoC, the CSRC and the CIRC, the CBRC issued in 2010 the regulatory guidance on further improving financial services for smallto medium-sized enterprises, encouraging banking institutions to step up their financial support to small enterprises in particular. Specifically, banking institutions were required to maintain the growth rate of lending to small enterprises no lower than the average growth of their total loans, while the yearly growth volume of loans no less than that of the previous year. In 2010, significant progress was witnessed in the set-up of specialized business units (SBUs) to provide exclusive services for small enterprises. By the end of 2010, 109 commercial banks have set up such units. The six mechanisms designed for small enterprise finance were well established and exercised by the SBUs, namely, risk pricing mechanism, independent accounting mechanism, efficient credit approval mechanism, incentive mechanism, professional staff training mechanism, and defaults information sharing mechanism. The SBUs were entitled to independent credit planning, independent human and financial resources, independent customer credit review and independent accounting practices. As a result, the small enterprise loans made by the SBUs of all banking institutions exceeded 60 percent of all small enterprise loans made by these institutions. Furthermore, the CBRC exercised differentiated regulatory policies for small enterprise finance. Firstly, favorable regulatory approval criteria were applied to small enterprise financing business. Secondly, the funding channels for small enterprise financing business were expanded to allow the issuance of special financial bonds. Thirdly, the off-site surveillance indicators were adjusted to encourage banking institutions engagement in small enterprise financing business. And fourthly, the regulatory tolerance of the NPL ratio of small enterprise financing business was appropriately adjusted. In 2010, the CBRC took various initiatives to enhance the public knowledge of small enterprise finance, such as organizing banking institutions to participate in the Seventh China International SMEs Expo, co-sponsoring with several local governments thematic forums and seminars on the promotion of small enterprise finance, and cooperating with mainstream media to deliver featured reports. As of end-2010, the total outstanding balance of small enterprise loans (excluding bill financing) amounted to RMB7.5 trillion, RMB 1.72 trillion more than that of the beginning of the year and RMB308.1 billion more than that of The year-on-year growth rate reached 29.3 percent, 9.4 percentage points higher than the average growth of all loans. The small enterprise finance displayed such features as accounting for a large proportion, maintaining a relatively high growth, and prioritizing on micro-enterprises. It deserved a special note that the small enterprise finance also achieved rapid growth in central and western China. With respect to the allocation of small enterprise loans, the manufacturing industry, wholesale and retail businesses, water conservancy and environmental protection projects, and public utility sector have been the main receivers of loans. Hence, the small enterprise finance is playing an increasingly important role in optimizing the economic structure as well as creating jobs. 3. Improvement of micro finance to young entrepreneurs in rural areas In a bid to address the funding obstacles faced by young entrepreneurs in rural areas in their business endeavors, the CBRC actively responded by guiding banking institutions to enhance their funding support to these young entrepreneurs. As of end-2010, banking institutions offered 316,000 rural entrepreneurs a total of RMB14.14 billion in small loans, which helped to create 777,000 jobs in rural areas. Meanwhile, the CBRC conducted diligent research on the approaches to improving small finance for young entrepreneurs in urban areas, and developed a list of banking institutions for pilot programs. 49

9 Annual Report 2010 Box 14: Promotion of small enterprise finance The CBRC has always attached great importance to the promotion of small enterprise finance. As early as in 2005, the CBRC made it clear that alleviation of the funding difficulty of small enterprises was a long-term strategic task for banking institutions, who should regard it as a part of their social responsibility as well as an effective means of contributing to economic development and social harmony. In 2005, the CBRC issued the Guidelines on Banks Lending to Small Enterprises, explicitly stating the requirements for banks to carry out small enterprise financing business under market principles. The Guidelines also provided the requirements on setting up six mechanisms for small enterprise financing business, namely, risk pricing mechanism, independent accounting mechanism, efficient credit approval mechanism, incentive mechanism, professional staff training mechanism, and defaults information sharing mechanism. With these six mechanisms in place, banking institutions are encouraged by the CBRC to set up specialized business units (SBUs) exclusively serving small enterprises, innovating their services and products for small enterprises, and exploring the approaches of leveraging small enterprise financing business in their strategic transformation. In 2006, the CBRC issued the Guidelines on Due Diligence of Commercial Banks in Lending to Small Enterprises (Tentative), which provided regulatory guidance on banks policies and procedures with respect to small enterprise financing business, as well as the guidance on risk identification and resolution. In addition, the CBRC issued the Guidance on the Set-up of Default Information Reporting of Small Enterprise Finance, which intended to enhance the defaults information sharing among banking institutions in the same region so as to help them fend off the default risks associated with small enterprise financing business. In 2007, the CBRC issued the Guidelines on Banks Credit Business to Small Enterprises, which expanded the scope of credit business to cover all types of credit extension activities, adjusted the regulatory review and approval policies, and encouraged more diversified and flexible business approaches and guarantee methods. In the meantime, the CBRC issued the Guidance on Small Enterprise Loan Risk Classification Scheme (Tentative), which clarified the classification policies with respect to overdue terms, collateral appraisal, contract execution, etc., and required on dynamic adjustment to small enterprise loan classification. In 2008, the CBRC announced the Policies on further improving the financial services to small enterprises while implementing differentiated credit policies, and required on maintaining the growth rate of loans to small enterprises no lower than the average growth of total loans, and the yearly growth volume no less than that of the previous year. In addition, the CBRC issued the Guidance on the set-up of the SBUs by banking institutions, with an aim to enhancing the professionalism and strength of financial services to small enterprises. In 2009, the CBRC issued two joint guidance with the Ministry of Science and Technology on extending credit support to high-tech SMEs, and on inviting high-tech experts to participate in high-tech SMEs credit review and approval. The two documents signified enhanced credit support to high-tech SMEs. In 2010, the CBRC issued the Provisional Rules Governing Credit Guarantee Companies, which provided regulatory requirements on the market entry and risk control of credit guarantee industry, as part of the efforts to improve the guarantee for credit business to small enterprises. Moreover, the CBRC, together with the PBoC, the CSRC and the CIRC, issued the Regulatory Opinions on Further Improving Financial Services for Small- and Medium-sized Enterprises, which encouraged broadened financial channels for small enterprises. With the unremitting guidance and promotion of the CBRC, a growing number of banking institutions are adjusting their development strategies and market positions to join in the group of serving small enterprises. One after another breakthrough was achieved in service and product innovation, and many more are in the pipeline. During the twelfth five-year plan period, the CBRC will continue to shoulder the lofty mission of improving financial services to small enterprises, further strengthening relevant functions and mechanisms, and thereby promoting the strategic transformation of the banking industry. 50

10 51 Photograph by CBRC staff