MANAGE FINANCIAL RISKS AND IMPROVE ASSETS QUALITY

Capital market should be developed to reduce the proportion of financing through banks. Currently, the funds enterprises gained through commercial banks accounts for 80 per cent of their total financing volume, which is the main cause of high capital risks and non-performing loans of commercial banks. Commercial banks may meet the need of short-term funds for enterprises.

Enforcing stock holding system can disperse risks, and establish an effective mechanism of supervision and restriction for bank operations as well.

Exploring new business such as intermediate operation is an effective way to reduce bank risks. At present, the ratio of middleman business revenue to the total revenue of our commercial banks is averagely as low as 5 to 6 per cent. In western countries, the corresponding ratio is 40 to 50 per cent.

The diversified economy, as the core of mixed operation, is an effective approach to disperse risks. Different business requires different performance in aspects of risk and management. Modern financial enterprises should manage their mixed operation in the form of holding company.

Diversification and securitization of bank assets are also important to disperse risks. For quite a long time, domestic banks have mainly been engaged in traditional business, which results in high risks and single assets structure.

Although banks have realized the necessity to adjust the assets structure, their choices are still confined in the purchase of treasury bonds and financial bonds. With the development of capital market, corporate bonds will grow as well as the treasury bonds and financial bonds. Diversification in bank assets can disperse and reduce risks of bank assets.

（by Xia Liping,Secretary General, China Banking Association）