Bank of China

Bankers reject Wen's criticism

PUBLISHED : Thursday, 05 April, 2012, 12:00am
UPDATED : Thursday, 05 April, 2012, 12:00am

Premier Wen Jiabao's tough talk about breaking the monopoly enjoyed by the nation's state-owned banks has rattled executives at those lenders.

But sceptics wonder whether Wen has the power to push through change. He has the reputation of advocating reforms that do not always happen. Moreover, Wen is due to retire in less than a year.

Still, his remarks have reverberated across the mainland and have sparked intense debate about the need to restructure the financial system. Some suggest that Wen's comments were directed at prodding state banks to focus more on the cash-strapped private sector and to foster the growth of local banks.

The premier's remark, reported by China National Radio on Tuesday, that Beijing was determined to break the mainland's banking monopoly spread quickly via e-mails among bankers on the mainland.

'I don't think it's a fair comment,' said a senior bank executive who declined to be identified. 'Because we're a state-owned bank, much of our business and loans are to support whatever the government needs, for example to support the growth of many state-owned enterprises [SOEs]. We must listen to the government, which already gives us a lot of orders and guidelines.'

Wen, echoing a prevailing sentiment, said the banks were 'profiting too easily' as a result of their dominance. But that notion had brought about a rebuttal earlier.

'The profit growth of CCB [China Construction Bank] remains at the same speed as the real economy, so I don't think you can say we [state big banks] are making windfall profits,' Pang Xiusheng, CCB's executive vice-president, said at the lender's earnings briefing last month.

The mainland's four major state banks are Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, and CCB.

Wen's comments are unlikely to change the entire landscape of the mainland's banking industry any time soon, says the senior banking executive. Not only is Wen's time left in office limited, but the relationship between state-owned firms and the government is sensitive and complicated, the executive adds.

All the senior executives at large state banks are de facto government officials. Some enjoy the same official rank as a deputy minister.

Wu Jinglian, an influential economist, said recently that he believed it would be very hard for Beijing to break the industry monopoly among SOEs, which may challenge certain special interest groups.

Wen has previously raised issues of political and economic reforms on the mainland.

For instance, the State Council - the government cabinet, which Wen leads - recently approved a milestone plan to legalise the controversial underground banking sector in Wenzhou and allow the city's residents to make direct investments abroad. If successful, it could be rolled out across the mainland, Wen said.

The four major state banks are understood to collectively enjoy at least 50 per cent of national market share in most of the traditional banking services, such as deposits and loans.

Furthermore, the mainland's benchmark interest rates, currently fixed by the central bank rather than driven by real market demand, is another major reason why the state-owned banks enjoy a huge market share. There is simply no competition mechanism.