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Reform First, IPO Second, Banks Told
China's four State-owned commercial banks should concentrate on internal reform before going public, said Wang Xuebing, president of China Construction Bank.
"The time is not now ripe for the State-owned banks to adopt the shareholding system," he said. "It is unlikely they'll be listed on the stock market within two or three years."
Although going public will be helpful to maintaining the capital adequacy, and motivating banks' incentives to meet investors' demands for profits and transparency, listing can not be treated as the ultimate goal of banking reform, Wang said in an exclusive interview with China Daily.
Going public should bring hope to investors, instead of bringing them a burden, he said.
"If I bring the bank to the market, I am intending to take money from investors' pockets. Instead, I'm offering them an investment choice with better yields," he said.
If the State banks fail to fully reform their internal mechanisms and adapt to new operation ideas before going public, they could be kicked out of the market, he said.
Since State-owned banks -- the Industrial and Commercial Bank of China, the Agricultural Bank of China, China Construction Bank and Bank of China -- have been operating under the centrally planned economy, they often treat them as government organizations instead of commercial banks.
"They have a weak sense of responsibility to their creditors," he said.
In fact, State-owned banks should not only be responsible to their owner, the State, but also to the benefits of depositors, or their creditors in other words, Wang said.
Although China launched its reform of the financial sector years ago, the idea of "being responsible to creditors" is still not established, he said.
WTO CHALLENGE
Time is not standing still, as the banking sector braces itself for the country's accession to the World Trade Organization (WTO).
Analysts believe entry into the organization will, in time, lead to a full opening up of the banking industry.
Although the four State-owned enterprises occupy a bulk share of the domestic financial market and resources, they are far less experienced in management than their peer organizations in Western countries.
Wang, who has a dream to build up a domestic bank strong enough to compete with foreign banks internationally, said the challenge facing China's State-owned banks is daunting.
But Wang, a sports fan and a foreign exchange dealer 20 years ago, showed his character as a lover of challenges.
"Foreign banks are not our enemies," he said. "The increasing number of foreign bank branches in China after WTO accession will not only bring competition, but also new business ideas and management techniques."
China's State banks will have to reform themselves to increase their strength, he said.
BANK REFORM
After taking his position as president of the China Construction Bank six months ago, Wang has mapped out a reform plan for the bank.
The reform strategy will involve the bank's organization framework, credit policy, technology system, auditing, human resources and payment systems.
The bank has reshuffled its business departments to establish four major departments -- corporate banking, individual banking, real estate credit, intermediary business.
"We try our best to meet the demands of our clients," he said, "What the clients want is what we will provide. In the past, clients only enjoyed services which the bank provided."
The reshuffle will be completed next year and will later spread to local branches.
China Construction Bank will work out a more concrete strategic business development plan to give them clear operational guidance, Wang said.
Human resources reform will be the hard nut during the reform process because the reform will break both the "iron chairs" for officials and the "iron rice bowls" for staff, he said.
It is easy to break the iron chairs because the whole China Construction Bank system has less than 2,000 officials, but it will be difficult to break the iron rice bowls of the bank's 420,000 employees.
But Wang said breaking the iron rice bowl did not necessarily mean staff would be laid off.
"If a company depends on staff reduction to survive, it has few days left," he said. "More people will be retrained and sent to the marketing department."
Wang said that entry into the WTO will surely lead to the outflow of some talented personnel, "but we do not fear because it will force our human resource departments to make efficient use of personnel."
"When I leave China Construction Bank, the best thing I'll leave for the bank is not rising profits and assets but the best human resource," he said.
UNIVERSAL BANKING
Wang said China Construction Bank will increase co-operation with other non-banking financial institutions including insurance companies to expand its intermediary business, Wang said.
"We have signed contracts with several insurance companies to act as agents for these companies."
"This will not only help our bank increase income, but also help insurance companies save cost," he said.
But this does not mean China's commercial banks will rush to create a universal banking system in which banks are allowed to provide other financial business such as insurance or securities.
China has decided to adopt a compartmentalized approach in regulating different parts of the financial sector. As a result, financial institutions in one of the three sectors -- banking, insurance and securities -- can only operate within that designated sector and can not mingle its operations with other sectors.
The current system has its own significance, although the universal banking system represents a trend in the world's banking sector, Wang said.
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