State-owned Commercial Bank Risk Control System During The Transition Period

Finance is the centre of modem economy, with banks at the core of the finance system.The risk-management is the key factor in the daily management and operation of banks.After the flnacial crisis in south-east Asia in 1997, the inherent fragility in banking system is well-recognized and results even more strict regulation from governments than the normal business. In China, the four SOBs, although contributing a lot in reform and development of the economy, have cystalized a lot of characters of planning economy and raised huge unperforming loans, which deteriorated the operation circumstances. With the speedup progress toward WTO, which will bring even more challenge externally, it is of great importance to study the risk sources of commercial banks in China and discuss the possible solutions. According to the article, the risk that tangled the four SOBs is institutional risk, which comes from the mismatched roles of state, SOES and banks and constitues a 搑easonable ? choice of the market participants after the comparsion of risk and profit, thus could be described as unpredictable and uncontrollable. The author summerizes the reasons of huge unperforming loans in the SOBs as follows, the first, the government misunderstood the role of banks and neglected the need of banks in managing the risk and optimizing the resources allocation. The second, the low efficiency of SOBs also comes from their sole ownership system and unreasonable management system. The third, the important role of the SOBs playing in the social life such as employment, taxation and social stablization impedes them operating under market principle and encourages government to intervene the operation of banks, which constitutes the institutional reason of unperforming loans in SOBs. To solve the problems on the risk-management of SOBs, efforts must be paid on the adjustment of relationships among the government, SOEs and SOBs, not limited within the field of banks themselves. The government should recognize its own role in the new economic situation and concentrate on the necessary industries, and limit the SOEs to the areas that private capital are neither ready to nor able to get access. In a long run, the government must give up the control over the SOBs and leave them to survive and develop by their competitiveness, not by the administrative protection. The following progress must be made in the respects of managing SOBs institutional risks: Abstract I. To speed up the reform in administrative system of the government. The key factor of the reform lies not in the re-allocation of power and responsibility, but in the determination of the different function of government and market. 2.To improve the reform in ownership system of SOEs. The reform in ownership system is the core of the reform of SOEs that cannot be evaded. It has been proved that effective ownership system is the foundation of economic development. It should be bear in mind that the reform in ownership system must be coincide with the strategic adjustment of the state-capital and avoid confusions. 3.To improve the reform in the SOBs themselves with the prerequsite of optimizing their external economic situation. The design of risk-management system of SOBs is a dynamic procedure that evolves together with external situation. The management on the institutional risk is definitely the start point of risk-ma...