As the sector continues to mature, Chinese banks have
significantly improved their corporate governance and risk
management, according to a new report released by the Research
Center of Corporate Governance of Nankai University in Tianjin.
Publicly listed banks in the country had superior corporate
governance performance to the more than 1,000 other listed
enterprises on the Chinese mainland, according to the recently
released study.
A total of 135 domestic banks now have more than an 8 percent
capital adequacy ratio, while only eight banks reached the standard
at the end of 2003, the report says.
Banks are required to have at least an 8 percent capital
adequacy ratio before they can have a commercial operation and
apply for mainland listings. Many banks now have a capital adequacy
ratio surpassing 12 percent.
"Heated competition brought by foreign banks since the country
opened its financial market, increasing mergers and acquisitions
and expanding demand for service diversification and specialization
have pushed Chinese banks to improve their corporate governance,"
says Liu Mingkang, chairman of China Banking Regulatory Commission
(CBRC), the country's banking watchdog.
While significantly improving their corporate governance, banks
have at the same time greatly increased their profitability.
Among the 10 most profitable listed companies, five were from
the banking sector.
Industrial and Commercial Bank of China (ICBC), the country's
largest commercial bank, recorded a net profit of 63.3 billion yuan
in the first three quarters of 2007, the highest of the 66 listed
companies whose net profits were 1 billion yuan more.
China Construction Bank (CCB), the country's second-largest
lender, posted a net profit of 57 billion yuan in the first three
quarters.
Also on the list are the Bank of China (BOC), the Bank of
Communications (BOCOM) and China Merchants Bank.
"Rapid reform of banking assets and increasing innovation have
also enabled Chinese banks to improve corporate governance and risk
control," Liu says.
The average non-performing loan (NPL) ratio for the four big
State-owned banks - ICBC, CCB, BOC and BOCOM - is now 3.3 percent,
compared to more than 22 percent at the end of 2003.
The nation's 12 joint-stock commercial banks now have an average
NPL ratio of 2.8 percent, in contrast with 4.22 percent at the end
of 2005 and 16.62 at the end of 2001, according to statistics from
CBRC.
"Corporate governance is of vital importance in the financial
sector," says Li Weian, professor and director of the Research
Center of Corporate Governance with Nankai University.
The research center has introduced a corporate governance index
to help the government better supervise listed companies and
protect investors' interests.
"The index will help ensure rational investment," Li says.
The country's banking regulator says it aims to further improve
bank corporate governance through four measures, including
enhancing internal controls and risk management, setting criteria
to evaluate corporate governance, enforcing a clear responsibility
and accountability system and raising the level of transparency in
the banking sector.
(China Daily December 5, 2007)
