Domestic banks not lack of liquidity

Lujiazui Forum 2013 is being held from June 27 to 29 in Shanghai, theming at“A New Vision for Financial Reform and Opening Up”.

During the second thematic cession, “China's Financial Reform and Opening Up & Economic Transformation and Upgrading”, Shang Fulin, chairman of the CBRC points out that the banking system in China does not lack of liquidity, despite tight liquidity problems on the current market.

The following is transcript of Shang Fulin, Chairman of the CBRC.

Tu Guangshao (Host): Distinguished guests, good morning! The Lujiazui Forum has been going on for two nights and a day since the evening of 27th. It was really wonderful. Thematic sessions, plenary sessions and panel sessions coexist with night chats, while discussions continue day and night. I’ve heard that last night’s chats lasted much longer than we’d expected. I thought you might get tired after two days of talking and listening, but not until I saw you in the morning. I believe that today’s discussion would also be wonderful. Now let’s begin the second thematic session.

Now, let’s welcome Mr. Shang Fulin, rotating chairman of the forum and president of the CBRC to deliver a speech.

Shang Fulin: Respectable Mayor Yang Xiong, Vice Mayor Tu Guangshao, distinguished guests, ladies and gentlemen: Good morning! First, I extend my warm welcome to your arrival as the rotating president of the Lujiazui Forum 2013, and express cordial congratulations to the remarkable achievements made in the construction of Shanghai Financial Center.

The theme of Lujiazui Forum 2013 is “A New Vision for Financial Reform and Opening Up”. As is known to all, in the process of over 30 years’ reform and opening up, China’s banking reform development has achieved historic breakthroughs and gained remarkable accomplishments, under the correct leadership of the CPC central committee and the state council. Since this year, the banking industry has maintained a smooth and healthy operation trend.

To the end of May this year, bank assets had achieved steady increase, with total assets of 140 trillion Yuan, 16.3% up year on year. Deposits and loan had increased steadily, with a total deposit of 102 trillion Yuan, 16.2% up from last year. The growth rate was close to the same period last year. Total loan was 72 trillion Yuan, 15.6% up from last year. The growth rate was close to the same period last year. Quality of overall asset is stable. Commercial banks’ non-performing loan ratio is at 1.03%, slightly higher than last year, but still kept at a relatively low level. Provision coverage is at 280%, maintaining a high level.

A few days ago, influenced by many factors, some tight liquidity problems appeared on the market. In general, China’s banking system does not lack of liquidity. Up to June 28th, the excess reserves of all financial institutions are around 1.5 trillion Yuan, over twice as much as the normal payment and settlement amount. Deposit reserve rate has been around 20%, abundant for cash payment. These days, the inter-bank market liquidity squeeze has started to ease, which will not affect the overall smooth operational pattern in China’s banking industry. At the same time, we also see some defects of commercial banks in aspects of liquidity management and business structure This should arouse great concerns of the banking industry and requires banks to strengthen their risk management, structure readjustment and business transformation. Next we will coordinate the top level design of the reform and development for the banking industry, in accordance with the natural requirements for financial support to real economy and guarding against financial risks, to better display the basic function of market allocation of resources, and further promote economic structure adjustment, transformation and upgrade. Reforms would be carried out in the following five aspects.

Firstly, perfect wide coverage, differentiated, effective banking institutions. The focus is to guide all banking financial institutions to intensify reform, position reasonably and achieve a scientific layout to increase the efficiency of financial resources allocation and the banking sector’s ability to support economic transformation and upgrade through characterized development, differentiated competition and specialized services.

The first step is to optimize classified supervision mechanism: to Actively improve classified license management system, to achieve differentiated management on the operation area and business scope of various types of banking institutions, and to establish corresponding examination and evaluation system to facilitate a better more inclusive financial service with differentiated operation and competition of banking financial institutions and bring down the risks brought by homogenous competition.

As everyone knows, banks in China, large banks and small banks alike, provide basically the same services, so the trend for homogenous competition actually exists. We need to encourage differentiated competition according to the demands of real economy and actual situation of banks to provide better financial services to real economy.