On Cause, Effect And Governance Strategy Of State-owned Commercial Banks' Risk

Presently the state-owned commercial banks are urgently accelerating its restructuring process and preparing to get listed. At the end of last year the State drew 45 billion dollars from foreign exchange reserves to refill the capital funds for Bank of China and China Construction Bank. This July the two banks have been successful in issuing secondary bonds and taking off doubted loan under the permission of the State. All these measures have greatly improved the capital adequacy ratio of the two banks and cut the non-performing loan ratio and therefore brought them much closer to the objective of getting listed. However, financing by shareholding is not the fundamental objective of the state-owned commercial banks' reform and instead the establishment of a consistent risk-hedging mechanism is a long-term and tough task for them. Based on the in-depth analysis of present status, cause and effect of risks in the state-owned commercial banks, this article proposes the risk management strategy for banks. I hope it will be referential for the comprehensive reform of the state-owned commercial banks.The article sets out to describe the risk status in the state-owned commercial banks and summarize its characteristics. By in-depth analysis of the risk status from four sides of assets risk, capital management, profitability and liquidity management, it demonstrates that the main risks are as follows: high loan risk and low assets quality, big proportion of bad assets and low assets profitability, high loan concentration and low risk-hedging capacity, high ratio of medium and long-term loan and low-level assets liquidity. It can be summarized that: the risks in the state-owned commercial banks are usually centralized, systematic, potential and social, with wide influences and asymmetry of risk and return. The main problem of risk management shows weak awareness of risk and insufficient management, weakness of risk management basis and common existence of virtue risk. The development direction can be summarized as: the content of risk management changes from simplification to all-direction, the focus from stock risk management to increment risk management, the objective from management of risk to creation of value for shareholders, the technology from surface measurement to in-depth measurement, the management organization from level-oriented management to vertical management, the mechanism from capital extensive management to subtle capital management. Then follows the factor analysis from three levels based on entrusted agency theory. Firstly the present entrusted property right relationship leads to banks' operation with multi-objectives, operating behavior deviation, operating target nonentity and insufficient incentive control. Secondly in the respect of the entrusted agency relationship between the higher and lower level of bank, the agency chain strengthens info asymmetry, cuts agency efficiency and causes failure in cost control. And finally in the respect of the entrusted agency relationship between the enterprises and banks, the existence of info asymmetry and budgeting control as well as the same nature of their ownership worsen the virtual risks of state-owned commercial banks.The next is establishment of the inflation and tightening effect models. The article employs currency quantity theory, currency supply theory and financial uncertainty assumption together with mass data to analyze the forming mechanism of the two effects and finally establishes the non-linear model for inflation effect and the linear model for tightening effect.The article goes on to the analysis of the transmitting route of risks in the state-owned commercial banks and finds out three channels: indebtedness, the transformation of the public expectation and banks' behavior deviation. It sets risk transmitting model, risk liquidity model and bank president efficiency function.Finally the article puts forward risk management strategy for the state-owned commercial banks. From the angle of structure reform, we should focus on th...