| China's economy has shown an accelerative upward trend since the reform and opening-up, especially in the past decade. As the capital market becomes more and more prosperous and the financial reform is orderly carried out, finance is playing a more and more important role in China's national economy. According to the statistics released by China Banking Regulatory Commission (CBRC), the total assets of the banking institutions in China have reached 95,300 billion RMB by the end of 2010. The asset quality and the capital strength have been significantly improved. The profitability and the ability to control risks have also been greatly increased. Gradually there appears a banking system which is led by large commercial banks and where different types of banking institutions seek orderly competition and common development in order to collaboratively provide various and multi-level financial services for the national economy.With prudent management and scientific arrangement, China's banking industry has withstood the test of the financial crisis. After the crisis, the Basel Committee and the financial regulators around the world began to revise the existing guidelines and regulations extensively. As a result, Basel III Accord was officially launched on Sep 12th,2010. As a member state of the Basel Committee, China is actively executing the regulatory measures in the Basel capital accord. On the one hand, rapid economic development demands credit expansion on a large scale, on the other hand, the CBRC is determined to execute the regulatory standard strictly and to "eliminate the poorly-managed banks". Faced with pressure and opportunity at the same time, the commercial banks try to seek the balance point in rapid development----the capital.The city commercial banks have inherited the problems of their predecessor----urban credit cooperatives:small scale, high cost of capital, poor asset quality, low capital adequacy, serious shortage of loan loss reserves, irrational ownership structure and inadequate internal control. Unlike the four state-owned commercial banks, they are operated without large capital infusion from the state. And unlike the joint-stock commercial banks in the 1990s, they are not supported with any government policy. In other words, they are born untimely with deficiencies. However, their contribution in local economy and SME (small and medium enterprises) financing is undeniable. As the product of the central government's "transferring" the financial control right and resolving local financial risks, several city commercial banks have initiated reforms at their own expense to strip bad assets and carry out reorganization. Gradually there appear a set of star banks among the city commercial banks, such as Beijing Bank, Shanghai Bank, Chongqing Bank, Nanjing Bank and Ningbo Bank, etc., which can compete with the joint-stock commercial banks and therefore become the third most important force in China's financial industry.As the government has issued some policies which allow the city commercial banks to operate in different districts in recent years, there comes a peak of the city commercial banks' rapid expansion in scale. However, high growth is bound to quick consumption of the originally fragile capital. Moreover, the China Securities Regulatory Commission (CSRC) has classified the financial industry into the cautious recommendation list for IPO and the CBRC has raised the capital requirements again; the door of the capital market cannot be opened in a short time while the current capital situation of the city commercial banks is precarious. All these factors touch the already taut nerves of the city commercial banks from time to time.The city commercial banks are faced with some major issues at present:reinforcing the quality of capital, stabilizing the source of capital, and trying to establish a sustainable supplementary channel On core Tier I capital1 in particular. It has been only 16 years since the first urban cooperative bank was established. No long-term effect can be seen from the behaviors of financing, listing, reorganization and cross-district operation, etc. The only thing to do right now is to analyze what the city commercial banks have done and what they are doing so as to figure out a better long-term supplementary mechanism of core Tier I capital in favor of their development. |
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