China needs financial institutions with comprehensive financial businesses in its post-WTO period, Tang Shuangning, vice chairman of China Banking Regulatory Commission, told the Sixth China Finance Forum, held last Saturday in Beijing.

"Foreign banks, with rich experiences, excellent service and management, impose huge impacts and challenges on domestic banks: new technologies, new financial products, profit-earning model, management system, structure, concept, regulatory mechanism and thinking," he said.

"Divisional financial institutions now face mixed industrial sectors, so institutions with mixed businesses are needed," he said. "As the transitional period of WTO comes to an end this year, it becomes urgent for China's commercial banks to explore multi-level and diversified forms of comprehensive operations."

However, Tang warned that mixed operations will bring contingency risks such as affiliated transactions, information disclosure and conflicts of interest along with credit, operational and market risk.
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He said that CBRC will urge banks to set up firewall systems according to the principle of "different legal representatives in different sectors," enabling the prevention of internal risks. Full information disclosure will also be required, preventing shared information among sub-companies causing internal transaction risks and monitoring of banks' capital adequacy ratio will be set up.

Statistics show that over 50 countries around the world allow banks to run securities brokerage businesses, and 30 of these allow banks to double up as insurance businesses. In China, some banks now attempt to set up financial groups, fund management companies or insurance companies in order to dabble in mixed financial operations.

"The average fund, raised by fund management firms of the Industrial and Commercial Bank of China, China Construction Bank (CCB) and Bank of Communications, is about 5.114 billion yuan (US$646.5 million), far surpassing the issuance scale of other companies," Tang pointed out.

Currently, the three above firms manage a total of eight investment security funds, worth over 30 billion yuan (US$3.79 billion).

In 2005, China Development Bank and CCB conducted an assets-backed securitization pilot program. They issued 10 billion yuan (US$1.26 billion) worth of secured bonds backed by corporation loans and 3.016 billion yuan (US$381.26 million) worth of bonds backed by personal mortgage loans.

Tang believes that his commission will emphasize five aspects of regulation: strengthen commercial banks' risk-resistance ability, control risk management of commercial bank's overseas financing businesses and IT technology, improve trans-industry risk management and enhance supervision on assets-backed securitization businesses.

(China.org.cn by Tang Fuchun, September 28, 2006)