On March 10, 2011, Bank of China President Li Lihui accepted the exclusive interview of the People's Daily Online during the interval of the second plenary meeting of the Fourth Session of the 11th National People's Congress (NPC).The report of the interview is as follows:
1. Li Lihui: the One Hundred Years of Bank of China Reflects Modern Chinese Financial History
2. Four Main Advantages by Bank of China in Developing Financial Business on Both Sides of Taiwan Strait
3. Li Lihui: Chinese Enterprises "Going Global" Need Strength, Capability and Brand
4. Bank of China Launches Community Banks to Improve Financial Services for Agriculture, Rural Areas and Farmers
5. Bank of China Accelerates Expansion of the SMEs Market While Putting Equal Attention on Large Customers as well as SMEs
People's Daily Online Beijing March 10, 2011 (Reporter Li Tong). The second plenary meeting of the Fourth Session of the 11th National People's Congress (NPC) is held in Beijing today. Li Lihui, President of Bank of China accepts our exclusive interview. Talking about the approaching centennial of the bank, Li reveals that going through trials and hardships in the past 100 years, Bank of China has become a large multi-national comprehensive bank group, with all the core index being close to or meeting the international top standards.
As the bank boasts the longest time of sustaining operation in China for 100 years, Bank of China renders a reflection of Chinese modern financial history.
First, we will continue to firmly consolidate the consciousness of responsibility for serving our homeland. Born in the Revolution of 1911, Bank of China has always been sticking to the national interest. During the period from 1912 to 1928, Bank of China performed the functions as the central bank and played the key role in maintaining the financial order and developing a unified banknote system.
During the years in the War of Resistance against Japan, the bank was the backbone behind a relatively stable financial system by actively raising funds to support the industrial and agricultural production and construction of important international channels such as the Yunnan-Myanmar railway. After the founding of the People's Republic of China, Bank of China became the specialized foreign exchange bank as a window open to the outside world for provision of international financial service.
Since the implementation of China's reform and opening-up policies, the bank has been undertaking the important mission of collecting foreign funds and become the main channel to utilize the foreign capital. Bank of China (Hong Kong) Limited and Bank of China's Macau branch, as the major banks in the local places and note issuing banks, have made great contribution to the prosperity of the regions.
As the sole banking partner of the Beijing 2008 Olympic Games, Bank of China offered quality and efficient financial services in support of the 2008 Olympic Games and the Paralympic Games, winning high praises from customers home and abroad. For the 100 years, Bank of China never put aside its mission of "pursuing benefits for people and prosperity for the nation", making all efforts to assist the national economic development.
While making great contributions to the national prosperity, it also realized the sustaining development.
Second, we will continue to keep the awareness of utmost good faith. Since the establishment of Bank of China, the words that "foundation of the bank lies in good credit" have been emphasized. In 1916 when Yuan Shikai issued the order to suspend redeeming banknotes in banks, Bank of China refused to carry out this order to protect its reputation.
This is well-known in China s financial history and fully demonstrates the determination and belief of Bank of China in defending goodwill. In the past 100 years, no matter what kinds of financial storms or social turmoil incurred, Bank of China always adhered to its good faith and protecting customers' interest, thus winning recognition and trust of customers.
The tradition of utmost good faith has been formed in the 100 years, which established the foundation for sustaining development.
Third, we will never give up the pioneering spirit and innovation awareness. Innovation is the engine for enterprises to boost development. In the past 100 years, Bank of China had been the pioneer many times in the financial field: in 1913, Bank of China was the first to reform the accounting system and set up the foundation for modern financial accounting system.
In 1929, the bank opened operating institutions in London and henceforth in the other international financial centers such as Tokyo, Singapore and New York, which was a start of internationalization of China's financial industry. Since the 1950s, Bank of China has taken the leading position in the international settlement and foreign exchange loan and so on and on behalf of Chinese financial industry participated in formulating many international finance and trade rules.
In 1974, Bank of China took the lead in adopting the PC processing methods in its operation, unveiling the electronic construction of the financing field. In 1985, Bank of China issued the first credit card in China and initiated the epoch of bank card. In 2003, the bank started the most rapid and best development as the one of the first banks in the pilot joint stock reform.
In Li's opinion, Bank of China, as a traditional brand name with 100 years of history, has too much experience to conclude and values to exploit. He said, "Currently, we concern the 100th anniversary as an opportunity to let our staff better understand and carry on the good traditions, accelerate our pace in developing our bank into the world s top-ranking one with spirits of pursuing progress and excellence, and make more contribution to the national economic construction and social development. We will start a new journey in new spirits."
While mentioning the original intention of Bank of China to develop business in Taiwan, Li Lihui reveals that to establish institutions in Taiwan is an important part of Bank of China s global strategies and the key process to improve its global service network and capacity.
Li said that in September 2010, Bank of China was one of the first to receive the approval and register its representative office in Taipei. On October 25, Bank of China's Taipei Representative Office opened in the Taipei World Trade Center International Trade Building, and the bank thus becomes the first Mainland financial institution that sets up representative office in Taipei.
He also said that with the establishment of the Office, Bank of China will provide better financial services to the Taiwan-funded enterprises and Taiwan merchants, while offer more timely services to the enterprises and residents from Mainland China.
In Li's view, Bank of China has four main advantages to develop the financial business across the Strait. First, the brand name advantage. Bank of China is one of the Chinese banks that boast the longest history, as it has been developed for nearly 100 years. People in Taiwan are not strangers to Bank of China.
Following the implementation of the opening-up policies, Bank of China is the first bank on the Mainland to start the business and personnel exchanges with the Taiwan-funded banks, the first to provide foreign exchange and credit card services to Taiwan compatriots, and the first to offer services like foreign currency loan and trade finance to Taiwan-funded enterprises.
All these enhanced the Taiwan people's knowledge of Bank of China.
Second, advantage of customer base. Bank of China has developed close cooperation with Taiwan-funded enterprises in Mainland China, Hong Kong and other places. More than 1,000 Taiwan-funded enterprises including Formosa Plastic Group and Taiwan Cement have business relationship with the bank. Moreover, Bank of China now becomes the bank on the Mainland that has the closest cooperation with the Taiwan-funded banks by establishing correspondent banking relationships with 20 Taiwan-funded banks. With years of cooperation, we deeply know the demands and features of our partners.
Third, advantages of internationalization and pluralism. Bank of China owns more than 10,000 institutions in Mainland China and 711 operating branches in Hong Kong, Macau and 31 countries, with its business covering commercial banking, investment banking, direct investment, insurance, funds, lease and so on. Bank of China is able to provide all-round financial services to both Taiwan-funded enterprises and the residents across the world. For the Taiwan-funded enterprises to develop in Mainland China, Bank of China provide them financial services not only locally but also worldwide.
Fourth, expertise advantage. Bank of China possesses powerful expertise and talents competitiveness in the international finance and trade finance. For example, in 2010, Bank of China s international settlement transaction volume hit USD 1.97 trillion, which was the highest in the world. The branches home and abroad processed all types of RMB settlement in cross-border trade with transaction value of over RMB 500 billion. Bank of China (Hong Kong) Limited is the RMB cash clearing bank that provides RMB cash supply and circulation business to the local financial institutions.
For the views regarding large numbers of banks in Taiwan, small interest spread between deposits and loans, and fierce competition, Li believes that as long as we can find right position on the market, the bank will have large development space. In the future, Bank of China will make full use of its own advantages and shift its focus on the business which the local banks in Taiwan rarely involve with and the foreign-funded usually handle, and develop advantages that are complementary with those of Taiwan-funded banks, so as to provide comprehensive financial services to the Taiwan-funded enterprises developing in Mainland China, Taiwan, Hong Kong and other places and Mainland China enterprises in Taiwan.
He said, "We will deepen our cooperation with the Taiwan-funded banks in information sharing, deposits, personnel exchanges and training, product development and innovation and RMB businesses."
Li Lihui regarded that the purpose of Chinese enterprises' going out is to increase their capability of optimizing resource allocation in the whole world and expand the international and domestic markets. The prerequisites for their going out is that they must have competitiveness, capability and brand.He introduced the experience of Bank of China s going out from three aspects.
First, service innovation. The Chinese enterprises that go out can be divided into four types:import and export trade, overseas investment, foreign contracted construction and labor cooperation project, and regional management.Depending on specific business characteristics of different enterprises that go out, we make full use of diversified business platform covering commercial banking, investment banking, direct investment, insurance, fund, lease and other sectors, to provide customized and comprehensive financial service solutions and meet the customer's diversified financial demand.
Second, high-quality services.We carry out a "global sales account manager system" to make "regional sales account manager" manage the business of the enterprises going out in this region or at home. The "global sales account manager" shall coordinate the service resources of Bank of China in the whole world so as to meet the business demand of these enterprises after they go out.
"Going out" enterprises are facing many problems, for example, the scales of the overseas branches of the enterprises going out are small, and it is difficult for them to raise fund. In order to solve these problems, we bring out global credit line, which realizes the integral credit extension in the whole world, simplifies the financing flow of individual project, and improves the financing capability of enterprises for overseas projects.
Third, institution layout. Currently, Bank of China owns 711 operating institutions in Hong Kong, Macao, Taiwan and 31 countries and regions, and these institutions have formed a relatively complete overseas service channel. Meanwhile, we own over 1,000 correspondent banks, make innovation to bring out some service models such as "China Desk", which effectively expands our service scope. Even in countries and regions where no our branch or office is set up, we still can provide high-quality service for the enterprises going out.
He also pointed out that enterprises must have clear strategic positioning.Overseas development strategy of a commercial bank should accurately select target markets on the basis of the internationalization of Chinese economy as well as the power and capability of the bank itself. With customers as the core, the bank should provide quality services to enterprises and residents going out.
Perfect risk management is necessary.The overseas markets differ from each other greatly, and the "going out" of these enterprises also differ from each other greatly. Some times these enterprises are even in face of a sudden change of political situation or occurrence of a war. Therefore it is an austere challenge for them to manage nation risk, credit risk, market risk and operational risk.
International financial talent is another condition.Internationalized operation requires a lot of internationalized talents. Such talents should familiar with international practice, market operation and laws and taxations of different countries. In addition, they should be proficient in foreign languages, and this is a big difference from domestic operation.
When he was asked why recently Bank of China had initiated and founded the first community bank, Li Lihui said that the local market was the foundation of Bank of China. So the most international and "the most leading" bank also must pay attention to the foundation, local market and agriculture, rural areas and farmers.
Li Lihui said that on March 4 this year, Qichun BOC Fullerton Community Bank - the first community bank jointly founded by Bank of China and Singapore Fullerton Financial Holdings - was officially opened in Qichun, Hubei Province.Under the plan, in the first half of this year, Bank of China will open more than 10 community banks in the central region, and all the preparatory works are currently in urgent progress.
Li Lihui made it clear that Bank of China operates community banks mainly because of three considerations.First, it is a responsibility under the state policy.The state has listed the "agriculture, rural areas and farmers" work as a top priority, and in this year's "Report on the Work of the Government", Premier Wen Jiabao reiterated the necessity of "encourage financial institutions to increase their supply of credit for agriculture, rural areas, and farmers and ensure that this year's percentage increase in credit is no less than that of last year".
As a large, state-controlled commercial bank, Bank of China has the responsibility and obligation to make a positive contribution to the financial support of the development of "agriculture, rural areas and farmers".
Second, there are demands and business opportunities.Studies of Bank of China have shown that, with acceleration of the process of urbanization in China and the gradient transfer of industries, the income of farmers are rising, with an expanding financial need, so China's vast county and rural areas are expected to become new growth points of the banking business.
Third, it possesses the strength and ability.Bank of China boasts abundant capital, strong brand, wide branch network, and strong innovation ability, which are favorable conditions to operate community banks.On the other hand, Fullerton Financial Holdings, as our partner, over the years and across several emerging markets, has developed a unique business model focusing on the SMEs, self-employed mass market (SEMMs), individuals, and farmers.
The two parties, through combining their respective strengths and complementing each other, will be bound to accomplish much in this vast world of rural finance.
According to Li Lihui, in addition to active organization of community banks, Bank of China, which relies on product innovation, has enhanced the financial services to "agriculture, rural areas and farmers".The bank has innovatively introduced many agriculture-related financial products including Cotton Tong Bao, Grain Tong Bao, Apple Tong Bao and so on, covering cotton, grain, nursery stocks and other industry clusters.
For the "short-term, frequent and urgent" financing needs of farmers and agriculture-related enterprises, by means of such guarantee forms as pledge and mortgage of personal assets, joint guarantee mortgage of rural cooperative assets and so on, the bank solves the problem of the lack of traditional collaterals concerning agriculture-related customers.
"We have also designed a full range of financial solutions for agricultural production, processing, logistics and marketing. From January to February this year, Bank of China newly offered agriculture-related loans totaling RMB 33.9 billion, an increase of more than 25% on year-on-year basis, with the balance of agriculture-related loans reaching RMB 667.
4 billion, up 5.36% over the end of the previous year," he said.
Talking of the reason why Bank of China put great effort on small and medium enterprises (SMEs) to do small business, Li Lihui expressed that actually the business of SMEs were "large markets", and it was also a "big business" if it is done well.
Li Lihui introduced that SMEs played an important strategic role in national economy.Over the 30 years of China's reform and opening up, SMEs contribution rates to GDP, tax revenue and urban residents employment reach 60%, 50% and 75% respectively.We can say that SMEs play a vital role in promoting economic development, expanding social employment, maintaining social stability, building a harmonious society and driving technological progress.
Therefore in the "Twelfth Five-Year Plan", the development of SMEs is closely connected to increasing employment and self-employment opportunities, improving people's consumption capacity, innovating systems and mechanisms and conducting industrial restructuring. This plan shows the importance of SMEs again.
Bank of China has entered such a large market with great prospect long time ago, but its development is far from enough. "Recently we made an important strategic decision on the basis of investigation and study in the earlier stage: accelerating the expansion of the market of SMEs, and realizing the business transformation from mainly depending on large customers to paying equal attention to large customers and SMEs," he said.
Li Lihui regarded that, compared with large enterprises, SMEs had their shortcomings for being small, but also had their own advantages for being small.He explained that SMEs shortcomings were as follows: first, their scales are small, for example, the average credit balance of large enterprises is RMB 200 million, while that of SMEs is RMB 8 million, accounting for 4% of that of large ones, and the bank spends more management resource on SMEs.Second, the risk of SMEs is high.The average credit default rates of SMEs is 3.98%, 2.77% higher than that of large ones.
But SMEs have their own advantages unmatched by large ones.First, single enterprise uses less credit resource, and their income are relatively high and they have lots of customers, which is in favor of banks to increase comprehensive income and expand customer base.Second, SMEs asset scales are very small and their risks are easy to be dispersed, which is in favor of banks to avoid concentrated risks.
Third, they grow well. With the unceasingly perfection of market economy system, SMEs governance structure, management level and credit awareness improve day by day, and some enterprises mastering core technology grow fast, which is in favor of banks to increase customer quality and optimize customer structure.
These characteristics determine that the banks must transform the development model that mainly depends on large customers as soon as possible, and the banks should also establish customer base in which large, medium and small enterprises are distributed proportionately.
He said, "To expand SMEs market, the important thing is that banks should have sound management and innovation capabilities." He also stressed that: the practice of Bank of China in recent years is successful; we cooperate with strategic investors, research and bring out a new model of "Bank of China Credit Factory" which is suitable for SMEs in China s market.
Compared with traditional credit models, six transformations are realized: firstly, transformation of customer assessment standard.We examine and evaluate financial indicators and non-financial information in an all-round way and stress profits offsetting risks and operating costs.Secondly, transformation of marketing mode.
We actively conduct market research and select target customers, as well as expand customers in batches.Thirdly, transformation of approval mechanism.Normalized and industrialized procedures are used in credit business application in order to improve the efficiency of professional approval. Fourthly, transformation of post-loan management.
We set an all-sided early warning index system for real-time supervision of enterprise's business activities.Fifthly, transformation of accountability mechanism.We stress accountability relief for duty fulfillment and accountability enquiry for dereliction of duty.Sixthly, transformation of enterprise credit management.
As for enterprises in temporary business trouble, we set a credit recovery period and help them to pass through.
He disclosed that currently "Bank of China Credit Factory" had been promoted and carried out in 27 provincial branches. Up to the end of 2010, our new model attracted almost 16,000 SMEs customers, the credit extension balance exceeded RMB 100 billion and the ratio of non-performing assets under credit extension was only 0.
16%. When relieving SMEs' financing problems, we also realized the objective of profits offsetting risks and costs and achieved better social and economic benefits.The new model of Bank of China has won recognition from people of all walks of life.In 2009, "Bank of China Credit Factory" won the award of "the Best SMEs Financing Scheme in China".
In 2010, Bank of China won 44 awards in terms of financial service for SMEs, and its customer satisfaction reached 94.3%.