The Industrial and Commercial Bank of China (ICBC) ranked first among domestic commercial lenders for core competitiveness last year, according to an industry report released on Sunday by Chinese Banker magazine.

China Merchants Bank, the country's sixth largest lender, ranked second behind ICBC, the country's largest lender, followed by China Construction Bank.

Corporate governance, business process, information technology, risk control, products and service, human resources and development strategies were factors in assessing the domestic commercial banks' competitive strength, said Wang Songqi, chief editor of the Beijing-based magazine.

Wang, also deputy director of the Institute of Finance and Banking under the Chinese Academy of Social Sciences (CASS), added the research showed domestic institutions had made headway in building their core competitive power. However, their profitability was still largely relying on traditional interest margin business.

Amid domestic and global financial uncertainties, the Chinese banking industry was facing challenges in credit risk management, liquidity risk management and profitability, he said.

It was the fourth time the magazine had released the annual domestic banking competitiveness report that took an expert panel nearly one year to complete.

Wang Luolin, former vice president of the CASS, said it is an urgent task for Chinese banking industry to improve its competitiveness as the country lacks experiences in financial globalization.

Jiao Jinpu, a professor from Renmin University of China, said although the country's banking industry has made great progress during the past three decades since the country started the reform and opening up, but the differentiation of domestic lenders is still not obvious currently.

"Domestic banks should not be carried away by their achievements and need to be alert to possible risks and improve their risk analysis capability," Jiao added.

Ba Shusong, a leading domestic economist, said the financial industry should learn lessons from the Hong Kong banks in preventing housing loan risks in the late 1990s and step up efforts for establishing a sound legal and supervision environment.

Ba, also director of finance research center of China Institute for Reform and Development, said Chinese banks should keep alert to possible chain market reactions caused by the dive of real estate shares.

The real estate sector, which was a major driver of Chinese stock market's bullish trend last year to its pinnacle last October, has since declined along with the broader market.

China Vanke, the largest listed housing developer, for example, is more than 75 percent below its peak in early November.

Wei Jianing, a senior research fellow with the Development Research Center of the State Council, suggested that research capabilities of commercial banks should also be taken as a factor of assessing their competitiveness in future.

Wei added that strong research and analysis capabilities would help banks to tide over market crisis and foster its differentiation strength.

(Xinhua News Agency July 28, 2008)