Opportunities and Challenges of Financial Institutions

Over 20 years since the issuance of the Opening-Up and Reform policy, the continuously growing national economy provides financial institutions with a broad platform of development, and boosts them into a fast development stage. Along with the intensified reform of the national financial system, profound changes are taking place in the financial market structure. Encouraged by the government for financial market development, civic financial institutions, the representative of which are city commercial banks, gradually extend their development space. At the same time, the financial depth of national economy is also increasing, demands of enterprises and individuals on financial products and services are growing day by day, which provides more opportunities for financial institution development.

Beyond the end of 2006 when banking thoroughly opens, financial institutions with foreign investment will start comprehensive competition with domestic institutions, which will aggravate the development pressure of financial institutions. The time our domestic finance industry turning into all-around competition represents severe challenges besides development opportunities to financial institutions. At all times, the civic financial institutions taking city commercial banks as representatives are in hot water, many problems of institutions have emerged since their inceptions, and countless of them are compelled to bankrupt, to be taken over by financial surveillance and administration institutions or with their operations suspended pending rectification.

Till present, there are generally more than 100 city commercial banks around China, but most of which are with risks caused by the halfway asset and capital verification in the system reform and reorganization procedure. Compared with previous 3,300 more city credit cooperatives before rectification, there are only 690 more left at present, among which nearly 300 are already under operation suspended pending rectification. Generally, most of the civic financial institutions are still at elementary development stage, with deficient governance, undeveloped operation and administration technology, low asset quality, lack of capital, weakness against risks and shortage of skilled personnel seriously restricting the transformation of mechanism and system.

In June 2004, Shuangning Tang, the chairman of China Banking Regulatory Commission, first proposed at the National City Commercial Bank Conference that the implementation of restructuring and reorganization of city commercial banks should be accelerated, the historical issues should be solved and banks should be restructured by introducing strategic investors.