Banking Supervision in China HONG Peili Deputy DirectorGeneral

Banking Supervision in China HONG Peili Deputy Director-General China Banking Regulatory Commission Shanghai Office May 2005, Shanghai CBRC

Contents • Part Ⅰ Banking Supervisory Framework in China • Part Ⅱ Supervisory Concepts of CBRC and the Related Measures to Enhance Supervision • Part Ⅲ Push ahead Opening-up Process CBRC 2

Part Ⅰ Banking Supervisory Framework in China • The Establishment of CBRC • The Main Tasks That CBRC Has Been Engaging in • Overview of CBRC Shanghai Office CBRC 3

Part Ⅰ Banking Supervisory Framework in China The Establishment of CBRC • On April 28, 2003, CBRC was established under the “Decision over the Restructuring of the State Council” issued in the First Session of the 10 th NPC Conference. • CBRC, affiliated directly to the State Council, takes the role of supervising all commercial banks, AMCs, trust and investment companies and other deposit-taking financial institutions——the functions were previously performed by PBo. C. CBRC 4

Part Ⅰ Banking Supervisory Framework in China The Main Tasks That CBRC Has Been Engaging in • Fostering a sound legal environment with fair competition • Reasonably streamline application procedures for new establishments and business • Improve the effectiveness of integrated supervision on an ongoing basis • Establish a forward-looking cooperative mechanism with other supervisory agencies both home and abroad • Improve the capability of CBRC supervisors by offering more training programs on new products and risks CBRC 5

Part Ⅰ Banking Supervisory Framework in China Overview of CBRC Shanghai Office • CBRC Shanghai Office, established in October, 2003, is designated with the responsibility to supervise all commercial banks, AMCs, trust and investment companies and other deposit-taking institutions in Shanghai. • In addition, Shanghai Office is responsible for offering support and guidance to Shanghai Banking Association so as to maintain a sound market order through a self-regulatory system. • By the end of 2004, the overall assets of Shanghai banking industry reached 2. 61 trillion RMB, counting for 8. 3% of the national whole. CBRC 6

Part Ⅱ Supervisory Concepts of CBRC and the Related Measures to Enhance Supervision • Supervisory Concepts of CBRC and Prudential Supervisory Approach • Supervisory Measures taken by CBRC Shanghai Office • Protect Rights and Interests of Financial Consumers CBRC 7

Part Ⅱ Supervisory Concepts of CBRC and the Related Measures to Enhance Supervision Supervisory Concepts of CBRC and Prudential Supervisory Approach • Since CBRC was established, we set 4 supervisory philosophies, 4 regulatory objectives and 6 supervisory and regulatory criteria. • CBRC, as the supervisor, adopts a prudential supervisory approach and requires banks to: – make accurate loan classification in line with the 5 -category classification system – draw adequate loss provisioning – ensure reliable profit-reporting – increase the Capital Adequacy Ratio of commercial banks to our supervisory requirement • Detailed steps to improve prudential supervision in the next 3 to 5 years： CBRC 8

Part Ⅱ Supervisory Concepts of CBRC and the Related Measures to Enhance Supervision Supervisory Measures taken by CBRC Shanghai Office • In line with the supervisory concepts adopted by CBRC, CBRC Shanghai Office stay focused on high-risky areas under the principle of risk-based supervision. – – – Standardize market entry procedure Keep focused on new products Improve the efficiency of off-site surveillance system Supervise each bank with its particular condition Implement rating systems such as ROCA, CAMELs and SOSA Rationally distribute supervisory resources and involve external auditor into our supervisory mechanism 9

Part Ⅱ Supervisory Concepts of CBRC and the Related Measures to Enhance Supervision Protect Rights and Interests of Financial Consumers • It’s CBRC’s main regulatory objective to protect the interests of depositors and financial consumers. • The hot line not only protect financial consumers’ legitimate rights and interests but also broadens our supervisory view. CBRC 10

Part Ⅲ Push ahead Opening-up Process • China’s WTO Commitment • China Honors Its WTO Commitment in Banking Sector • Overview of Foreign Banks’ Development in Shanghai CBRC 11

Part Ⅲ Push ahead Opening-up Process China’s WTO Commitment • According to China’s WTO commitment, China’s banking sector will be fully opened in a sequenced manner, which specifically is a 5 year timetable: – Gradually take away the geographical limits foreign banks to engage in RMB business in China. • Each year open more cities foreign banks to conduct RMB business – Allow eligible foreign banks to provide RMB services for Chinese enterprises. – Allow foreign banks to provide RMB services to Chinese citizens by the end of 2006. 12

Part Ⅲ Push ahead Opening-up Process China Honors Its WTO Commitment in Banking Sector • China accelerated the opening process faster than the original timetable. • By the end of 2004, there were over 200 operational entities of foreign banks in China. After China’s access into WTO, foreign banks are allowed to engage in more business. CBRC 13

Part Ⅲ Push ahead Opening-up Process Overview of Foreign Banks’ Development in Shanghai • Shanghai witnesses a grand gathering of foreign banks. • Foreign banks progress their business so rapidly in the local market. • CBRC forges ahead main reporting bank system throughout the nation. Shanghai Office takes a major role in this supervisory framework. • Foreign banks press ahead their business in an innovated way. CBRC 14

Thank you ! CBRC 15