Banking on sound strategies to overcome challenges (2)

In fact, many major international players such as JP Morgan and HSBC have all adopted a mixed business model, with investment banking and asset management businesses contributing 20-40 percent of their income. Although the mainland still follows the model of separate supervision over different businesses, commercial banks can actively pursue comprehensive operations under the current monitoring framework.

Third, banks should have optimised organisational structures with an enhanced corporate culture. Changes in customer mix and business innovation are founded upon organisational structure and corporate culture. In future, customers' needs will not be limited only to credit services, but also cover various aspects including investment services, settlement, and wealth management. This integrated mode of financial operations requires close cooperation and coordination among different divisions.

Commercial banks should come up with an appropriate organisational structure for future development. Apart from the traditional framework of headquarters and branches, business divisions should also be introduced. In order to adapt to changes in the external environment, commercial banks must also foster a flexible and efficient corporate culture.

The multiple layers of reporting and top-down corporate culture are inadequate to cope with intense market competition. Banks should also flatten the hierarchical structure in order to build an information-centric system and foster timely communication among various branches and offices, thereby flexibly adjusting their operational strategies.

Last but not least, banks should push for higher efficiency in capital utilisation with more contribution from retail and intermediary businesses. Following the implementation of the new capital requirements, the previous rapid growth of the commercial banks is not sustainable.

Under current market conditions, banks can only accumulate capital internally. As such, capital efficiency determines their profitability. Going forward, the rate of return on capital will be a key criterion for banks' strategic moves, and they will allocate more resources to the retail and intermediate businesses that command high return on capital.

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