SCIO briefing on maintaining financial market stability during COVID-19 epidemic
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E-mail SCIO, March 25, 2020
China News Service:
The global market is facing a period of volatility and consequently downward pressure on the Chinese economy is also mounting. How does this combined situation impact the domestic banking and insurance sectors? Also what measures have the China Banking and Insurance Regulatory Commission (CBIRC) taken to cushion the impact?
Zhou Liang:
Thank you for your question! The international financial market is volatile and indeed our domestic economy faces downward pressures. Our judgment is that these factors will bring certain adverse impacts on China's banking and insurance sectors, but the overall impact will be limited. First, currently, the banking and insurance sectors are stable on the whole and there is no sign indicating an outbreak of risks. Second, as the domestic epidemic is being tamed, the banking and insurance sectors will maintain the robust, sound and stable development. As is known, forestalling risks remains an eternal task in the financial sector. Since the National Financial Work Conference (in 2017), the CBIRC has put forestalling financial risks on the top of its work agenda and has achieved fruitful results. Statistically, the national macro leverage ratio basically remains stable and the financial risks have been contained as the spreading trend is reversed. Over the last three years, we have disposed of non-performing loans totaling RMB 5.8 trillion in the banking industry, and reduced business of high-risk services including shadow banking and cross-industry financial services by RMB 16 trillion. Financial institutions flawed with serious defects and problems have also been disposed of in an orderly manner. Risks rising from online lending, or peer-to-peer (p2p) lending, have been substantially reduced. At present, the number of p2p platforms in service has decreased by 90 percent from three years ago. Many illegal fund-raising cases have been harshly punished, and the involved people have been held accountable. The financial market order continues improving.
Over the last few years, as the supply-side structural reform in the financial sector advanced and opening-up of the industry continued, corporate governance of banking and insurance firms have been further standardized. Focusing on the main services and duties, has become an overarching trend in the banking and insurance sectors. The preliminary achievements of the national efforts to forestall financial risks and reform the institutions laid a solid foundation for the banking and insurance industry to grow in a sound manner and to cope with risks and challenges. Facts and figures speak for themselves. For example, according to the latest statistics, China's new yuan-dominated bank loans in January and February amounted to RMB 4.2 trillion, a year-on-year increase of RMB 130.8 billion, extending strong support to the epidemic's containment and economic growth in China. In February, there was great concern that as so many businesses closed, medium, small and micro enterprises in the real economy would suffer. However, financial statistics show that the non-performing loan ratio only rose by 0.06 percentage point at the end of February, compared with the month earlier. The current ratio is 2.08 percent. At the same time, the loan-loss reserves of banks exceeded RMB 6 trillion. It means that there is a huge amount of money in place dedicated to coping with possible risks in the future. The provision coverage of banks is 181 percent, which means that we have prepared RMB 181 as loan-loss reserve for every RMB 100 of bad loans. The capital adequacy ratio of banks has reached 14.6 percent, and the solvency ratio in the insurance sector is 247 percent. The banking and insurance sectors have strong capacity and enough resources to withstand possible risks.
Next, the CBIRC will continue its efforts in forestalling and defusing financial risks, advance the supply-side structural reform in the financial sector and boost high-quality development of the banking and insurance sectors. First, we will take various measures to handle non-performing loans, deal with high-risk institutions in a sound manner, continue dismantling shadow banking and curtail high-risk financial services. Second, acting on the order that, "housing is for living in, not for speculation," we will foster stable and sound development of the real estate market. At the same time, we will give active support to local government to solve their hidden debts. Third, we will advance a special campaign on regulating online lending business and intensify regulations on online insurance services. Fourth, we will continue improving corporate governance of banks and insurance institutions. In particular, we will regulate stock equity management, as the management of stock equity in some medium- and small-sized financial institutions was rather poor. Some major shareholders illegally intervened in corporate operations, and companies were controlled by insiders or even became a cash dispenser for some people. These are the focuses of our crackdown campaign. We will continue guiding standardized and law-based running of banks and insurance firms and impose tough punishment on lawbreakers and wrongdoers. Fifth, we will support banks and insurance firms to raise capital through multiple channels. Although the capital adequacy ratio of banks is 14.6 percent, it is necessary to raise more capital to enhance their strengths. Sixth, we will deepen reform of commercial banks in urban areas and credit cooperatives in rural areas, make plans to reform asset management companies, guide banks to transform services of wealth management and trust businesses, and establish and improve the old-age security-oriented financial supporting system by developing more tailored financial products. Seventh, we will further expand opening-up and speed up the implementation of measures that have been introduced to open the financial services to foreign investors. Eighth, we will strengthen Party leadership and Party building and intensify the anti-corruption campaign in the financial sector. Various cases of corruption emerged in the financial sector. We cracked down on many cases and the lessons are painful. The cost was also huge. The CBIRC will maintain a tough stance on corruption and implement major decisions by the Central Committee of the Communist Party of China (CPC).
When the economy is stable, so will the financial sector be. On the whole, China's economy is still projecting an upbeat long-term trend. The epidemic fully demonstrated the institutional strengths of the socialism with Chinese characteristics. In the long-term trend, we have a huge domestic market, a complete industrial system, quality human resources and huge potential of urbanization. Our economy has massive potential and great resilience.
The real economy and the financial sector will reinforce each other and grow in a virtuous cycle. All in all, the task of paramount importance at present is to take good care of our own business. We believe that under the leadership of the CPC Central Committee, we are capable and powerful enough to deal with various risks and challenges arising in the development of our country and maintain sustainable, stable and sound economic growth.
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