Analysis Of State-owned Commercial Bank Credit Balances Phenomenon

The short position on the credit balance sheets of the state-owned commercial banks was a topic wildly discussed before 1994. The short position is somehow dangerous to the security of the banking system, even to the whole national economy, especially when the rate of non-performing loan is very high, because it would lead to serious inflation. After 3 years' adjustment, the overheated economy soft-landed successfully. But things converted dramatically. There are signals of deflation, which may bring more trouble to the economy than inflation would. At the same time, the credit exposure on the credit balance sheet changed to the opposite direction. Now, there are huge long positions on the sheets, and the state-owned commercial banks were fiercely criticized for unwilling to lend. Reviewing on all those arguments, one may find it attracting to study on the outstanding of credit balance.In this thesis, I try to make out the factors that lead to the short or long positions. There are necessities and prerequisites for short or long positions under certain circumstance and they did do goods for the development of our economy. In a word, both short position and long position are inevitable in the process of gradual reform in China. Certainly, there are byproducts, such as low efficiency in resource allocation and the threats of inflation or deflation. That's why we should further our reform, developing the market economy and deepening the financial system.Now, the major issue is the long position supposed to have restrained the development of our economy. But I believe long position is the normal situation for a commercial bank whose fund resource largely depends on deposits. What China needs now is structure adjustment, which is beyond the reach of expansive monetary policies. Indeed, Current long position also suggests that our credit officials have become more prudent in credit decision. But I must say, there're some passive factors accounting for the long position and I'd emphasize that the current system of human resource management makes the credit officials less active and reluctant to take even moderate risks. Our policy now focuses on penalty and ignores reward, which in turn suppresses the original spirit of the personnel. To establish an efficient, flexible, and reasonable mechanism, we have to change the ownership of the state-owned commercial banks. My suggestion is that we should transform the state-owned commercial banks into joint-stock companies, and keep the state ownership from relative control, needless to say absolute control, over the new entities. Banking is a competitive business, so the withdrawal of state ownership could encourage the full development of competition, hence improve the efficiency of resource allocation.