www.pwchk.com Chinese Bankers’ Survey 2017 Executive summary January 2018 January 2018 Chinese Bankers Survey 2017 PwC 2 Preface firewalls to mitigate risks right from the We are pleased to present the Chinese Bankers’ beginning or to prevent them from spreading. Survey 2017 report, prepared jointly by the China The regulatory environment has also been Banking Association (CBA) and PwC. Now in its shifting towards tougher supervision, as well as ninth year, the report tracks developments in the stricter compliance and accountability. The sector from the perspective of Chinese bankers. China Banking Regulatory Commission (CBRC) This year’s survey digs deep into the core issues has imposed a series of measures to tackle while maintaining a broad scope. Dr. Ba Shusong, irregularities in the sector by requiring banks to the Project Leader, together with the project team, strengthen self- inspections, conduct regulatory interviewed 14 senior bankers to get their insights examinations and introduce tougher penalties. into the sector. Seven of these bankers are at C-suite According to the survey, over 90% of level (Directors, Vice-presidents, or above). The respondents are strongly or very strongly aware interviews complement an online survey covering 31 of increasing pressure from the regulators. provinces in mainland China (excluding Hong Kong, Macau and Taiwan). With a total of 1,920 valid The Report of the 19th Party Congress argues responses collected over eight months, the survey that in order to build a modern economy, sampling process takes into account participants’ emphasis must be placed on developing the real geographical regions, grades, types of financial economy. In other words, effort should be made institution, and if their institution is listed on stock to deepen institutional reforms in the financial exchange(s) or privately held. In addition to an sector in order to better fuel growth. The survey increased sample size, the survey looks into hot reveals that, as a result of the government’s topics and challenges facing the sector through initiative to carry out national strategies with extensive studies. These efforts result in a broad new thinking and new technologies, small representation of China’s banking sector. businesses have become a higher priority for respondents among customer groups. Regarding 2017 was a critical year in which China continued to the opportunities brought by supply side push forward its reforms, the 19th National structural reforms, Chinese bankers are most Congress of the Chinese Communist Party was enthusiastic about the new markets created by held and the 13th Five-Year Plan entered its more advanced manufacturing and the new second year. The Report of the 19th Party demand driven by increased consumption. Congress highlighted the importance of Supply side structural reforms, carried out “improving the financial regulatory mainly through institutional and technological framework to forestall systemic financial innovation, are essential to create new demand risks”. Risk management and internal control and stimulate the economy, thus driving banks’ were two areas focused on in this survey. A growth. Another finding of the survey is that comparison of the survey findings from 2010 Chinese bankers are very supportive of green to 2017 reveals that “improving the capability industries and the ’Made in China 2025’ of risk management and control” has been put strategy. Nearly 80% of respondents believe the at the heart of the operations and strategies of main channel to contribute to the strategy is to Chinese banks over the past eight years. More provide comprehensive financial services, and to than 60% of respondents believe that credit adjust their products and services – as well as risk remains a major risk factor due to the their service standards, where necessary. As economic downturn in certain regions and many as 70% of respondents say they are willing industries, as well as slowing disposals of non- to extend credit and other support to the performing loans. At the same time, Chinese manufacturing sector to help it through bankers are putting more effort into diversified financial innovations in order to identifying and monitoring risks by facilitate the sector’s restructure and achieve strengthening pre-loan reviews, monitoring quality and efficiency gains. loans that have been granted, and establishing Chinese Bankers Survey 2017 3 The survey also highlights the rapid development of for a New Era”. They believe the sector will play an FinTech as an emerging business model. Powered ever-greater role in developments such as the Belt by technologies such as the Internet, data analytics, and Road Initiative and in Chinese companies’ cloud computing and artificial intelligence (AI), overseas expansion. FinTech is helping banks to engage in more targeted marketing activities and to optimise customer We would like to take this opportunity to thank all experience, as well as to improve risk management those who participated in the survey. They spared and compliance capabilities. More specifically, time to complete questionnaires and talked to us, Chinese bankers are keeping a close eye on the sharing their valuable insights. We hope this report integration between technology and finance, as helps you better understand the developments in demonstrated by their increasing commitment to IT and prospects for China’s banking sector. Please do investment. Investment preferences vary according not hesitate to give us your feedback, so that we can to the type of bank. At the same time, most Chinese continue to improve the report in the future. bankers well understand the risks that can arise from FinTech, especially technological risk and the For more information or enquiries, please contact risks arising from peer-to-peer (P2P) lending. the CBA, PwC or the Project Leader. Chinese bankers cite insufficient integration of internal data, limited external data and a shortage of PAN Guangwei talent as the main obstacles to applying technology Executive Vice President, such as data analytics and AI, although efforts have China Banking Association been made to integrate traditional risk control with FinTech. On the plus side, Chinese bankers remain positive about FinTech’s development prospects. David WU They accept that opportunities come with Partner, PwC China challenges, and believe that under the leadership of the Central Government and the CBRC, broader and deeper applications of FinTech will emerge. These Dr. BA Shusong will lead to new solutions for operations, data Project Leader integration and risk control. Finally, all Chinese bankers surveyed are confident December 2017, Beijing about “socialism with Chinese characteristics” and its economic impact. This confidence is built not only on the recent success of China’s banking sector – a robust system without obvious deficiencies when compared to its western counterparts. It is also due to a vibrant financial eco-system with great potential and emerging business models, many of which are world-leading. Chinese bankers have high hopes for the sector’s future development under “Xi Jinping Thought on Socialism with Chinese Characteristics Chinese Bankers Survey 2017 4 Participating Banks A total of 163 Chinese banking institutions participated in the online survey and interviews. A full list of participants is shown below: 1. Policy banks (3) 4. Foreign (joint venture) banks (15) China Development Bank Australia and New Zealand Banking Group (China) The Export-Import Bank of China Deutsche Bank (China) Agricultural Development Bank of China First Commercial Bank Bank of East Asia (China) 2. Large commercial banks (6) Fubon Bank Bank of China Taiwan Cooperative Bank Agricultural Bank of China Hang Seng Bank (China) Industrial and Commercial Bank of China OCBC Wing Hang Bank (China) China Construction Bank Bank of Tokyo-Mitsubishi UFJ (China) Bank of Communications Land Bank of Taiwan Postal Savings Bank of China Allied Commercial Bank Bank SinoPac (China) 3. Joint-stock commercial banks (12) Chang Hwa Bank China CITIC Bank Mega International Commercial Bank China Everbright Bank CTBC Bank Huaxia Bank China Minsheng Bank 5. City commercial banks (49) China Merchants Bank Baoshang Bank Industrial Bank Bank of Beijing China Guangfa Bank Bank of Dalian Ping An Bank Bank of Dongguan Shanghai Pudong Development Bank Ordos Bank Hengfeng Bank Bank of Fuxin China Zheshang Bank FuDian Bank China Bohai Bank Guangdong Nanyue Bank Chinese Bankers Survey 2017 5 Guangxi Beibu Gulf Bank Taian Bank Guilin Bank Bank of Tinajin Harbin Bank Weihai City Commercial Bank Bank of Handan Bank of Weifang Hankou Bank Bank of Wuhai Bank of Hangzhou Yantai Bank Bank of Hebei Zaozhuang Bank Huarong Xiangjiang Bank Chang’an Bank Huishang Bank Zhejiang Tailong Commercial Bank Bank of Jining Bank of Zhengzhou Bank of Jiangsu Zhongyuan Bank Jiangxi Bank Bank of Chongqing Bank of China Travel Service Jiaozuo Jinshang Bank 6. Rural financial institutions (109) Bank of Jiujiang Lixin Rural Commercial Bank Laishang Bank Ma’anshan Rural Commercial Bank Bank of Lanzhou Qianshan Rural Commercial Bank Bank of Liaoyang Shexian Rural Commercial Bank Longjiang Bank Pingba Rural Credit Union Bank of Luoyang Yaodu Bank Bank of Inner Mongolia Cangwu shentong county Bank Bank of Ningbo Cenxi Beibu Gulf County Bank Bank of Panjin Chaling SPDB County Bank Bank of Pingdingshan Cilihu Rural Commercial County Bank Qilu Bank Danzai Rural Credit Union Bank of Qinghai Daozhen Rural Credit Union