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Mainland China Banking Survey 2020 Foreword Mainland2020 年中国银行业调查报告 China 2020 年 9 月 Bankingkpmg.com/cn Survey 2020 November 2020 kpmg.com/cn © 2020 KPMG Huazhen LLP, a People's Republic of China partnership, KPMG Advisory (China) Limited, a limited liability company in China, KPMG, a Macau partnership and KPMG, a Hong Kong partnership, are member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved. Printed in China. 1 Mainland China Banking Survey 2020 © 2020 KPMG Huazhen LLP, a People's Republic of China partnership, KPMG Advisory (China) Limited, a limited liability company in China, KPMG, a Macau partnership and KPMG, a Hong Kong partnership, are member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited 2 ("KPMG International"), a private English company limited by guarantee. All rights reserved. Printed in China. Foreword CONTENTS 01 Overview 6 02 Important topics 18 The currentcurrent reality - Six macro themes shaping the post-pandemic 19 banking industry - How small and medium-sized banks position 25 and perceive risk control transformation - Comprehensive credit risk management solutions 29 that strengthen the foundation of banking risk control - Using derivatives linked to LPRs to manage net 33 interest margins - Increasing revenue and reducing costs, and HR 37 challenges during the pandemic - Challenges in liquidity risk management during 41 pandemic - Financial and tax guidelines to help banks combat 45 COVID-19 Looking to the future 放眼未来 - Harnessing data talent to achieve digital transformation 49 - A vision for an intelligent, experience-oriented, omni- 53 channel digital transformation for banks - Comprehensive AI empowerment 59 03 Commercial banks’ financial summary 64 © 2020 KPMG Huazhen LLP, a People's Republic of China partnership, KPMG Advisory (China) Limited, a limited liability company in China, KPMG, a Macau partnership and KPMG, a Hong Kong partnership, are member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved. Printed in China. 3 Mainland China Banking Survey 2020 Foreword Simon Gleave Regional Head of Financial Services, KPMG Asia Pacific The COVID-19 outbreak in 2020 has had a far-reaching impact on the banking industry; and as assets and liabil- ities expand, the uncertainty and complexity of the global economy have cast a shadow over the industry’s devel- opment. On a more positive note, the pandemic has accelerated the industry’s digitalisation, as traditional offline banking institutions around the world quickly move online in the face of the pandemic. Customers are eager to use their mobile devices to embrace the many conveniences brought by online operations. Meanwhile, tradition- al financial institutions are working alongside tech giants to reinforce their technological capabilities and explore their roles and positions in the emerging financial ecosystem. As this wave of digitalisation takes hold, China’s banking industry should not only focus on breaking down its cur- rent limitations, but also aim to play a more significant role in assisting in the digitalisation of the country’s mar- ket economy. In addition to the traditional method of “creating new sources of income and reducing costs,” the banking industry in China should also aim to effectively control financial risks and encourage a rapid and strong rebound of the national economy. In this report, we will share our insights on six major themes that are shaping the post-pandemic banking indus- try, and we will provide some analysis of the industry from the perspective of regulatory changes and banking digitalisation. We sincerely hope that this report gives you a clearer picture of how China’s banking industry is faring now. © 2020 KPMG Huazhen LLP, a People's Republic of China partnership, KPMG Advisory (China) Limited, a limited liability company in China, KPMG, a Macau partnership and KPMG, a Hong Kong partnership, are member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited 4 ("KPMG International"), a private English company limited by guarantee. All rights reserved. Printed in China. Foreword Thomas Chan Head of Financial Services Assurance, KPMG China The impact of the COVID-19 pandemic is being felt in every aspect of people’s lives, and the economy has been hit hard. Faced with an uncertain economy and increasing financial risks, we need to deploy strategies to ensure the stability of financial institutions and the market as a whole. Thanks to the rising trend of financial globalisation in recent years, financial institutions that engage in different lines of business are becoming increasingly integrated, blurring the boundaries of various businesses. This trend has given rise to financial risks that span different institutions, sectors, markets and even regulatory frameworks; and these risks have put banks’ centralised risk control practices to the test. In China in particular, the financial industry has been confronted with the challenge of controlling the risks of consolidated subsidiaries (“consolidated risks”) in a centralised manner. The China Banking and Insurance Regulatory Commission (CBIRC) has issued regulations and guidelines in this regard and is conducting special on-going inspections of large financial groups in order to assess how they manage consolidated risks against eight criteria. Against this backdrop, financial groups need to think about how to achieve centralised risk management and promote business collaboration within their groups. As a professional services firm that has been serving the industry for decades, KPMG has taken the initiative to address these issues. To this end, we will focus our discussion on financial risk response, liquidity, comprehen- sive credit risk control, and digital transformation as we explore opportunities and challenges the industry might encounter in the future. Sam Shi Head of Banking, KPMG China The COVID-19 outbreak in 2020 has made the global economy more complex and presented difficulties for the traditional banking industry. Despite these challenges, China’s banking industry remained resilient and even made progress in its digital transformation journey during the year. In this report, we put forward new insights, approaches and solutions for banking transformation in view of the stricter regulatory environment from the per- spectives of risk control, tax treatment, internal staff structure and organisational structure. One noteworthy trend during the past year has been the effort made by traditional financial institutions to de- velop fintech. They have set up special innovation funds, opened fintech subsidiaries and formed cross-industry strategic partnerships to experiment with various approaches to fintech innovation. Banking fintech and the Internet are both developing at an unprecedented speed, and they are having a revolutionary impact on the operations of the traditional banking industry. On the other hand, as regulatory scrutiny increases, the industry is trying to figure out how to accelerate its development while also effectively controlling risks, and how to harness the power of cutting-edge technologies to achieve digital transformation. In this report, we analyse trends in the industry’s digital transformation based on our visits to leading fintech enterprises in China, and we draw insights from in-depth research into how technologies such as big data, artificial intelligence (AI), and cloud computing have been applied in the industry. We also provide banking clients with systematic strategies and services based on new service models, development strategies, technological changes and risk control solutions in order to help them seize opportunities, meet the challenges posed by fintech-driven digital transformation and succeed during challenging times. © 2020 KPMG Huazhen LLP, a People's Republic of China partnership, KPMG Advisory (China) Limited, a limited liability company in China, KPMG, a Macau partnership and KPMG, a Hong Kong partnership, are member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved. Printed in China. 5 Mainland China Banking Survey 2020 01 Overview I. Steady growth and smooth operations The year 2019 marked the 70th anniversary of the founding of the People’s Republic of China, and it was a critical year for the country’s efforts to build a moderately prosperous society and achieve the goal set for the first 100 years of development. China’s financial industry has stayed committed to the course of market-oriented reform to ensure continuous and robust economic development despite the changing environment within and outside of China. In 2019, China’s gross domestic product (GDP) reached a new high of over RMB 99 trillion and notched an annual growth rate of 6.1%, and national income grew at the same pace as economic growth. However, this growth trend was halted in 2020 as the COVID-19 outbreak disrupted the global economy and hit global trading and investment activities hard. The external uncertainties that resulted highlighted the risks and challenges faced by banks. To combat the pandemic, China
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