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China Banking Regulatory Commission 2013 Annual Report

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Language: English
Page: 200
Publication Date: 09/2014
ISBN: 9787508647470
Table of Contents
Chairman's Statement
About the CBRC
Our history and development
Our mandates, objectives & missions
Our philosophy, approach & criteria
Management
International Advisory Council (IAC)
Organizational structure
Part One Economic & Banking Developments
Macroeconomic and financial environment
Latest development of China's banking sector
Part Two Banking Reform and Development
Reform and transformation of the banking sector
Latest developments in the opening-up of the banking sector
Financial innovation
Part Three Supporting Economic Restructuring, Transformation and Upgrading
Tapping the idle capital while making good use of incremental capital
Supporting key areas and industries
Promoting green credit and addressing overcapacity
Financial services for Micro and Small Enterprises (MSEs)
Financial services in rural areas
Thematic Column 1: CBRC continued to expand the Three Major Projects"
to support agro-related services
The development of consumer finance
China (Shanghai) Pilot Free Trade Zone and development of the banking sector
Supporting enterprises to "go global"
Balanced regional development
Part Four Prudential Supervision
Macro-prudential supervision
Corporate governance and internal controls
Capital regulation
Thematic Column 2: Chinese-version Basel III passed international assessment
Credit risk supervision
Liquidity risk supervision
Operational risk supervision
IT risk supervision
Market risk supervision
Country risk supervision
Reputational risk supervision
Part Five Banking Consumer Protection and Education
Development of the banking consumer protection regulatory framework
Efforts made by banking institutions to fulfill their responsibilities
Financial knowledge publicity
Strengthening public education
Strengthening research on banking consumer protection
Part Six Improvement of Regulatory Framework and Supervisory Capability
Supervisory thinking
Improving legal framework
Supervisory approaches
Supervisory cooperation and coordination
Organizational development
Part Seven Strengthening Transparency and Market Discipline
Enhancing information disclosure
Improving transparency of the banking sector
Strengthening market discipline
Part Eight Social Responsibility
Promoting institutional development and supervisory guidance
Securing quality financial services during public holidays
Supporting disaster relief and post-disaster reconstruction
Supporting charity and poverty-stricken areas
Enhancing labor development and caring for employees' growth
Part Nine Outlook
Economic and financial outlook
Supervisory focuses in 2014
Mid- to long-term plan and outlook of banking supervision
Part Ten Appendixes
Appendix 1: Responsibility description of the CBRC departments and local offices
Appendix 2: Financial management activities of the CBRC
Appendix 3: Rules and regulatory documents issued in 2013
Appendix 4: MOUs and EOLs with overseas regulators
Appendix 5: Significant regulatory and supervisory events in 2013
Appendix 6: Terminology
Part Eleven Statistics
Appendix 1: Total assets of banking institutions (2003—2013)
Appendix 2: Total liabilities of banking institutions (2003—2013)
Appendix 3: Total owner's equity of banking institutions (2003—2013)
Appendix 4: Total deposits and loans of banking institutions (2003—2013)
Appendix 5: Profit after tax of banking institutions (2007—2013)
Appendix 6: Returns of banking institutions (2007—2013)
Appendix 7: NPLs of banking institutions (2010—2013)
Appendix 8: Liquidity ratio of banking institutions (2007—2013)
Appendix 9: NPLs, asset impairment provisions and provisioning coverage ratio of commercial banks (2007—2013)
Appendix 10: NPLs of commercial banks (2013)
Appendix 11: Distribution of NPLs of commercial banks by industry (2013)
Appendix 12: Distribution of NPLs of commercial banks by region (2013)
Appendix 13: CAR of commercial banks (2010—2013)
Appendix 14: CBRC on-site examinations (2003—2013)
Appendix 15: Number of legal entities and staff of banking institutions (As of end-2013)"
Sample Pages Preview
The CBRC will allow finance companies to issue financial bonds in due course
Mr. LI Jianhua, Director General of the CBRC Non-banking Financial Institutions Supervision Department said that there were 174 finance companies in China by the end of October, with on- and off-balance sheet assets of RMB4.14 trillion, when attending the 2013 annual conference of the finance companies of corporate groups on November 28. Going forward, Finance companies meeting supervisory requirements will be allowed to extend their financial services to cover the downstream and upstream sectors along their groups’ industrial chains. The CBRC will vigorously support the business innovation of finance companies, and allow them to issue financial debts in due course.
NPL ratio standing at 0.11 percent
According to LI, by the end of October this year, the shareholders' equity of China's finance companies reached RMB350 billion, over 9 times the capital strength in 2003, with an average CAR of 28 percent and NPL ratio of 0.11 percent. 141 finance companies enjoyed zero bad assets. As of end-2012, finance companies served over 350,000 group affiliates, among which 746 were listed companies.
LI also expressed that, in order to reform finance companies, the CBRC will defend the risk bottom line, optimize regulatory approaches, improve supervisory efficiency and promote the stable, compliant, innovative and disciplinary development of finance companies. Firstly, more emphasis will be laid on risk control and prevention to prevent systemic and regional risks; secondly, more focus will be dedicated to compliance management by raising incompliant costs.
Innovating services for real economy
Finance companies have shifted their business from the simple deposit-taking, loan-making and settlement" into comprehensive financial services covering centralized capital management, investment and wealth management as well as financial advisory. Last year, finance companies handled RMB199.6 billion settlement deals worthy of RMB280 trillion for group affiliates, and foreign exchange business including settlement, sales and trade that they’ve dealt was worth RMB220 billion.
LI pointed out that there are also problems with finance companies including: the lower capital concentration for the industry in general, with capital concentration of some newly established finance companies to be improved; continuous migration into off-balance sheet business with compliance of entrusted business to be further enhanced; over-emphasis on investment and financing by some companies thus deviating from their own functional positioning; management level, technical strength and professionals' quality still to be improved.
The CBRC required finance companies to take root in real economy, and optimize financial resources for their groups' core business and key industries in alignment with the overall strategy of their groups, in a bid to grow along with their groups. Business innovations will be supported to further optimize the classified supervisory and evaluation system. Classified supervision will be implemented based on the capital concentration level, total centralized capital, risk control and prevention capability.
Some finance companies are making innovative attempts. According to Mr. LI Zhanguo, General Manager of Haier Finance Co, Ltd., Haier Finance designed financial products for ultra MSEs backed by personal credit and family wealth and secured by senior franchises based on related experience. In response to the demands of township franchises, the financing quota for this kind of products is controlled between RMB100, 000 and 300,000, in line with the sales of Haier's seasonal offer. It can help to solve the funding difficulties of high growth clients, and form a differentiated competitive edge for Haier Group. Meanwhile, Haier Finance has leveraged the existing customer base to conduct consumption finance for end-users.

Preface
Chairman's Statement
In 2013, facing the complex and changing international and domestic situation, the Chinese bank sector endeavored to deliver quality financial service for the economic and social development. Under the principle of seeking progress amidst stability and with emphasis on both sound development and risk prevention, the banking sector gained notable progress in many aspects, maintaining a steady and sound development momentum.
In 2013, we leveraged our policy guidance to underpin the financial support for economic restructuring, transformation and upgrading. As the economy was faced with downward pressure and transformation challenges, we guided the banking sector to tap their idle funds and make good use of incremental funds to extend financial support in line with macro-economic adjustment and industrial policies. The objective is to contribute to quality and balanced development of the real economy. Specifically, we called on banks to provide credit support for the capital projects and emerging industries encouraged by macro-economic and industrial policies, and to help boost consumption and social welfare undertakings. We promoted the green credit and loans to industrial upgrading, adjusted the credit policies pertaining to mergers and acquisitions, and curbed the credit supply to high-polluting, energy intensive sectors and sectors with redundant capacity. As an approach to tapping the idle funds, we encouraged credit securitization and improved policies for the write-off of non-performing loans. We also continued to explore the ways to facilitate efficient and quality financial support for rural and agriculture activities as well as micro and small enterprises (MSEs), including, for instance, adopting differentiated regulatory policies and performance appraisal practices, and encouraging banks to innovate the related service mechanism, channels and product. As a result, the credit growth for rural and agriculture activities as well as MSEs achieved the set target of “no lower than the average total loan growth rate and no lower than that of previous year”. In order to balance the coverage of financial services, we encouraged banks to extend their service outlets in the underdeveloped western areas and rural communities. Overall, the year 2013 witnessed a reasonable growth of credit supply, with credit structure continuously optimized and priority projects and weak areas properly financed.
In 2013, we persistently centered our supervisory efforts on preventing and controlling systemic and regional risks. In the face of the complex situation, we called on both supervisors and banks to step up early risk identification, risk assessment and risk control accountability, with an aim at timely and effectively mitigating risks. To prevent and mitigate risks arising from credit concentration, we maintained consistent policies to handle the loans to local government funding platforms (LGFP), real estate, overcapacity industries, and certain enterprise groups or regions. To prevent and mitigate risks arising from the rapid growth of off-balance sheet and other newly emerged businesses of banks, we timely promulgated new rules and policies to ensure appropriate business conduct. Specifically, we issued a set of regulatory guidance and adjusted our supervisory approaches pertaining to wealth management businesses and inter-bank market activities, aiming at both correcting the improper business conduct and addressing the root causes of such conduct. To prevent and mitigate risks associated with shadow banking, we set up dedicated taskforce to careful study the forms and potential risks of the shadow banking activities in China, and thereby specifying the definition, scale and regulatory mandates. In addition, we worked with other government agencies to combat the illegal fund-raising and regulate the business activities of credit guarantee companies. Consequently, despite the pressure of non-performing loans (NPL) rebounding, the asset quality of the banking sector remained largely stable, while the provisioning capacity and capital adequacy of commercial banks all maintained at satisfactory levels by international standards.
In 2013, we continued to carry on reform and innovation with a view to boost the inherent dynamism of banking industry. In light of the profound changes taking place in internal and external conditions of banking industry, we strived to both grasp the emerging opportunities and overcome the arising challenges, launching a comprehensive reform agenda covering banking institutions, services, management, supervision and market. The purpose of such comprehensive reform was to further release the productivity of banking industry. Specifically, we promoted the improvement of corporate governance of banking institutions, ensuring the effective functioning of checks and balances, the appropriate decision-making on development strategy and the proper set-up of performance appraisal system. We reviewed and clarified the nature of business activities of banking institutions, calling on banks to set up sound development strategy and bottom-line for risk management, and encouraged banking innovation. We launched the pilot program of establishing private banks with limited licenses, and for this purpose promulgated prudential regulatory standards and policies to ensure the originator’s eligibility and orderly market exit if necessary. We supported the eligible Chinese banks to develop abroad and qualified foreign banks to either branch in China or invest in Chinese banking institutions, and engaged actively in boosting financial reforms and innovation in Shanghai Pilot Free Trade Zone (SFTZ). Through these measures, we were delighted to witness the further diversification of banking system, further improvement and strengthening of corporate governance, further mind-set changes of banking institutions in balancing risk and return, further optimization of banks’ business structures, and further progress in banks’ profit-making and innovation capacity.
In 2013, we strived to improve the effectiveness of supervision through adjustment of administration mechanism and innovation of supervisory approaches. In line with the requirements on transforming government functions and decentralization of administrative approval power, we abolished some administrative licensing items and further streamlined the review and approval process. We also made significant changes in our regulatory approaches to reflect the latest outcome of international regulatory reforms, evidenced by the promulgation and implementation of new capital and liquidity rules, enhanced supervision over systemically important banks, and stronger consumer protection. It is worth a special note that our new capital rules passed the regulatory consistency assessment of Basel Committee on Banking Supervision, signifying our accomplishment of benchmarking our regulatory requirements to international standards. Our creditworthiness as regulators was also strengthened through enhanced communication with the public, timely response to public inquiries, and prompt and clear interpretation of hot issues.
The year 2014 marks the first year for the implementation of the key decisions adopted at the Third Plenary Session of the 18th CPC Central Committee. It is also a critical year for China to accomplish the targets set in the 12 th Five-year Plan and for Chinese banking sector to meet the daunting tasks of scheduled regulatory reforms. Against the backdrop of gradual economic recovery globally, China remains persistent in further deepening reforms on various fronts, advancing the urbanization drive, resolving industrial overcapacity, promoting the innovation-driven development, and accelerating the construction of financial markets. All these would help to create a favorable environment for the accelerated transformation of the banking sector. In the meantime, the complex and changing international economic and financial conditions, as well as the changes in China’s own economic growth pace, bring us to more challenges, putting our capability for emergency response and risk control to test.
In the face of new opportunities and challenges unfolding in such changing time, we are prepared to identify and solve the problems that may hinder the effective supervision and sound development of banking sector. Keeping the overall reform agenda in mind, the CBRC is set to further reform and open up the banking sector, to improve the coverage and quality of financial services, to upgrade operational efficiency and risk control of banking industry, and enhance its capacity to serve the real economy.

Chairman SHANG Fulin
China Banking Regulatory Commission
May 2014
Chairman's Statement
In 2013, facing the complex and changing international and domestic situation, the Chinese bank sector endeavored to deliver quality financial service for the economic and social development. Under the principle of seeking progress amidst stability and with emphasis on both sound development and risk prevention, the banking sector gained notable progress in many aspects, maintaining a steady and sound development momentum.
In 2013, we leveraged our policy guidance to underpin the financial support for economic restructuring, transformation and upgrading. As the economy was faced with downward pressure and transformation challenges, we guided the banking sector to tap their idle funds and make good use of incremental funds to extend financial support in line with macro-economic adjustment and industrial policies. The objective is to contribute to quality and balanced development of the real economy. Specifically, we called on banks to provide credit support for the capital projects and emerging industries encouraged by macro-economic and industrial policies, and to help boost consumption and social welfare undertakings. We promoted the green credit and loans to industrial upgrading, adjusted the credit policies pertaining to mergers and acquisitions, and curbed the credit supply to high-polluting, energy intensive sectors and sectors with redundant capacity. As an approach to tapping the idle funds, we encouraged credit securitization and improved policies for the write-off of non-performing loans. We also continued to explore the ways to facilitate efficient and quality financial support for rural and agriculture activities as well as micro and small enterprises (MSEs), including, for instance, adopting differentiated regulatory policies and performance appraisal practices, and encouraging banks to innovate the related service mechanism, channels and product. As a result, the credit growth for rural and agriculture activities as well as MSEs achieved the set target of “no lower than the average total loan growth rate and no lower than that of previous year”. In order to balance the coverage of financial services, we encouraged banks to extend their service outlets in the underdeveloped western areas and rural communities. Overall, the year 2013 witnessed a reasonable growth of credit supply, with credit structure continuously optimized and priority projects and weak areas properly financed.
In 2013, we persistently centered our supervisory efforts on preventing and controlling systemic and regional risks. In the face of the complex situation, we called on both supervisors and banks to step up early risk identification, risk assessment and risk control accountability, with an aim at timely and effectively mitigating risks. To prevent and mitigate risks arising from credit concentration, we maintained consistent policies to handle the loans to local government funding platforms (LGFP), real estate, overcapacity industries, and certain enterprise groups or regions. To prevent and mitigate risks arising from the rapid growth of off-balance sheet and other newly emerged businesses of banks, we timely promulgated new rules and policies to ensure appropriate business conduct. Specifically, we issued a set of regulatory guidance and adjusted our supervisory approaches pertaining to wealth management businesses and inter-bank market activities, aiming at both correcting the improper business conduct and addressing the root causes of such conduct. To prevent and mitigate risks associated with shadow banking, we set up dedicated taskforce to careful study the forms and potential risks of the shadow banking activities in China, and thereby specifying the definition, scale and regulatory mandates. In addition, we worked with other government agencies to combat the illegal fund-raising and regulate the business activities of credit guarantee companies. Consequently, despite the pressure of non-performing loans (NPL) rebounding, the asset quality of the banking sector remained largely stable, while the provisioning capacity and capital adequacy of commercial banks all maintained at satisfactory levels by international standards.
In 2013, we continued to carry on reform and innovation with a view to boost the inherent dynamism of banking industry. In light of the profound changes taking place in internal and external conditions of banking industry, we strived to both grasp the emerging opportunities and overcome the arising challenges, launching a comprehensive reform agenda covering banking institutions, services, management, supervision and market. The purpose of such comprehensive reform was to further release the productivity of banking industry. Specifically, we promoted the improvement of corporate governance of banking institutions, ensuring the effective functioning of checks and balances, the appropriate decision-making on development strategy and the proper set-up of performance appraisal system. We reviewed and clarified the nature of business activities of banking institutions, calling on banks to set up sound development strategy and bottom-line for risk management, and encouraged banking innovation. We launched the pilot program of establishing private banks with limited licenses, and for this purpose promulgated prudential regulatory standards and policies to ensure the originator’s eligibility and orderly market exit if necessary. We supported the eligible Chinese banks to develop abroad and qualified foreign banks to either branch in China or invest in Chinese banking institutions, and engaged actively in boosting financial reforms and innovation in Shanghai Pilot Free Trade Zone (SFTZ). Through these measures, we were delighted to witness the further diversification of banking system, further improvement and strengthening of corporate governance, further mind-set changes of banking institutions in balancing risk and return, further optimization of banks’ business structures, and further progress in banks’ profit-making and innovation capacity.
In 2013, we strived to improve the effectiveness of supervision through adjustment of administration mechanism and innovation of supervisory approaches. In line with the requirements on transforming government functions and decentralization of administrative approval power, we abolished some administrative licensing items and further streamlined the review and approval process. We also made significant changes in our regulatory approaches to reflect the latest outcome of international regulatory reforms, evidenced by the promulgation and implementation of new capital and liquidity rules, enhanced supervision over systemically important banks, and stronger consumer protection. It is worth a special note that our new capital rules passed the regulatory consistency assessment of Basel Committee on Banking Supervision, signifying our accomplishment of benchmarking our regulatory requirements to international standards. Our creditworthiness as regulators was also strengthened through enhanced communication with the public, timely response to public inquiries, and prompt and clear interpretation of hot issues.
The year 2014 marks the first year for the implementation of the key decisions adopted at the Third Plenary Session of the 18th CPC Central Committee. It is also a critical year for China to accomplish the targets set in the 12 th Five-year Plan and for Chinese banking sector to meet the daunting tasks of scheduled regulatory reforms. Against the backdrop of gradual economic recovery globally, China remains persistent in further deepening reforms on various fronts, advancing the urbanization drive, resolving industrial overcapacity, promoting the innovation-driven development, and accelerating the construction of financial markets. All these would help to create a favorable environment for the accelerated transformation of the banking sector. In the meantime, the complex and changing international economic and financial conditions, as well as the changes in China’s own economic growth pace, bring us to more challenges, putting our capability for emergency response and risk control to test.
In the face of new opportunities and challenges unfolding in such changing time, we are prepared to identify and solve the problems that may hinder the effective supervision and sound development of banking sector. Keeping the overall reform agenda in mind, the CBRC is set to further reform and open up the banking sector, to improve the coverage and quality of financial services, to upgrade operational efficiency and risk control of banking industry, and enhance its capacity to serve the real economy.
Chairman SHANG Fulin
China Banking Regulatory Commission
China Banking Regulatory Commission 2013 Annual Report
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