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 | Friday, April 21, 2000, updated at 11:25(GMT+8) | ||||||||||||
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Strategies Need to be Implemented in the Structural Reorganization of Banking IndustryLiu Mingkang, President of Bank of China made a speech on the structural reorganization of the Chinese banking industry at the recently held China Enterprises Summit of World Economic Forum. Six strategies and tasks should be implemented in the process, he noted.Liu said the prime task and strategy is to make the bank's function for deposits safely ensured and effective. He pointed out that China has so far not differentiated well the types of saving institutions needing the protection of government policies from other financial organs that should not be protected. The real name system for savings in the bank established now is a very important measure. Without it, there can be neither healthy withdrawal system in market, nor risk management, nor any clean society. The insurance system for savings should also be set up so as to embody the principle of a big institution and of justice and fair play in society. Any delay of discussion on this system will bring about the increase in government cost and moral risks of financial industry. In addition, the decision-making mechanism for credit should also be improved in order to make use of all savings in the most efficient way. The second task is to strengthen the construction of systems. The reform of interest rate should be carried out in China. Accounts may be big and small and so are the risks they have to face. It is neither fair nor objective to apply one interest rate to all of them. The policy loans should be strictly separated from the commercial ones. The Chinese government has successfully set up three policy banks, however since 1994. However, it still needs some practice for commercial banks to do pure commercial business in accordance with the Law for Commercial Bank. The third is a safe and high-efficient payment and computing system, which should be established as soon as possible. The fourth is to establish a legal and judicial framework so as to bring about a healthy market withdrawal system for financial institutions. In this respect two principles must be observed: one is the purpose of withdrawal, that is to protect the interests of ordinary savers and investors, and not to repudiate debt. The other is, if supported directly by whatever government, local or central, and in whichever form, these banks must meet the aforesaid conditions and accept the restrictions that govern the business and financial objectives. Otherwise, the moral harm would be enormous. The fifth is to deepen the reform of banks by making full use of the capital market. The short-term objective is to give priority to the development of inter-bank lending market and the government bond market. The goal of this measure is to set free the interest rate since the marketability of interest rate is inevitable. The medium-term objective should be to enable funds to inject into banks, particularly those state-owned banks by resorting to all sorts of financial instruments. The sixth, the present inspection and management system should be improved to make it more vigorous and more integrated. The fourth is to establish a legal and judicial framework so as to bring about a healthy market withdrawal system for financial institutions. In this respect two principles must be observed: one is the purpose of withdrawal, that is to protect the interests of ordinary savers and investors, and not to repudiate debt. The other is, if supported directly by whatever government, local or central, and in whichever form, these banks must meet the aforesaid conditions and accept the restrictions that govern the business and financial objectives. Otherwise, the moral harm would be enormous. The fifth is to deepen the reform of banks by making full use of the capital market. The short-term objective is to give priority to the development of inter-bank lending market and the government bond market. The goal of this measure is to set free the interest rate since the marketability of interest rate is inevitable. The medium-term objective should be to enable funds to inject into banks, particularly those state-owned banks by resorting to all sorts of financial instruments. The sixth, the present inspection and management system should be improved to make it more vigorous and more integrated.
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