Risk Management In Chinese Commercial Banks From The Perspective Of Social Resposnsibility

For a long time, China's commercial banks, especially state-owned ones,as important agencies shouldering social responsibilities, have contributed a lot to China's social and economic development. In recent years, China's commercial banks have basically completed shareholding reform, and some of them have gone public. In the new environment, how to assume social responsibilities and avoid mere pursuit of maximum profit while making endeavors to maximize shareholders'value and how to strengthen risk management and maintain healthy development while taking social responsibilities has become a new question for commercial banks.China is still at the early stage of market economy and research on social responsibilities for commercial banks has just started. In 2006, Shanghai Pudong Development Bank released a social responsibility report, the first of its kind by a domestic commercial bank. In 2007, Shanghai Banking Regulatory Commission launched the first guiding document in China–Guidelines for Corporate Social Responsibility of Banks and Financial Institutions in Shanghai. This indicates that the issue of social responsibility to be assumed by commercial banks has drawn the attention of the financial sector and higher regulatory authorities. Therefore, this article tries to analyze the necessity of risk management in commercial banks from the perspective of social responsibility. It is relevant and applicable for commercial banks to strengthen risk management so as to protect themselves and the general public against losses. The text consists of four sections.The first section is about basic theories and deals with the origin of the social responsibility theory and relevant definitions. Through case study on the performance of social responsibilities by commercial banks, it points out that commercial banks can achieve optimized benefits both socially and economically by taking on social responsibilities. The correlation between the performance of commercial banks and strengthening of risk management is identified in respect of consistency, inconsistency and coordination. Through comparing the education loan situation in China with Grameen Bank's experiences, it is concluded that there can be a balance between the commercial bank's performance of social responsibility and economic gains for risk management. Also discussed in the article are theories, including the Pareto Optimality, Market Failure and Government Failure, Information Asymmetry and related Adverse Selection and Moral Hazard theories risk management is based upon for commercial banks.The second section gives advanced experiences of commercial banks in risk management and relevant social responsibilities the banks are supposed to take on. Descriptions are also given on the characteristics, organizational structure, corporate governing structure, risk management system and regulations, risk-conscious culture and multiple external supervision and social responsibilities of Germany's banking system. A brief introduction is also given to HSBC's performance of social responsibilities and risk management framework and Grameen Bank's achievements in serving the general public, its unique risk management model and related revelations.The third section reviews the impact of the risk incidences in China's commercial banks on society. The first part gives some examples of losses suffered by some commercial banks before shareholding reform due to their over assumption of social responsibilities, and such losses have led directly to the bankruptcy of the Hainan Development Bank and the reorganization of the China Investment Bank. The second part deals with the hazards and adverse economic and societal impacts of disregard of social responsibilities and mere pursuit of profits by some commercial banks after shareholding reform. The risks in China's commercial banks and both internal and external factors are analyzed.The fourth section sets forth ideas of improving risk management in Chinese commercial banks and better performing their social responsibilities. Ideologically, the principles such as giving priority to comprehensive prevention measures, ensuring operating efficiency and rational decision making procedures should be followed. From the viewpoint of macro, external environment, efforts should be made to perfect the external supervision system, establish safeguarding regulations, give full play to the role of intermediate agencies, set up mechanisms for governments to deal with risks and crisis and for commercial banks to exit, and strengthen education and supervision of the general public. In the micro internal environment, attention should be paid to perfecting the governing structure of commercial banks, forming organizations for total risk management, fostering risk management culture, training risk management professionals, introducing advanced risk management technologies such as RAROC and enhancing quantitative management of risks.This article creatively brings forth the issue of risk management in commercial banks. Most previous studies dealt with impacts on company development. This article stresses the necessity of risk management in commercial banks from the perspective of social responsibility by analyzing the consistency, inconsistency and coordination between them and exploring the possibility of preventing companies and society from losses through risk management. This article also explores the banking and risk management systems in Germany, as well as the social responsibilities assumed by German state-owned banks and private banks to vulnerable social groups. It also studies HSBC's social responsibilities including the responsibility for environmental protection, as well as its risk management experience. A detailed description is made about Grameen Bank's great achievements in helping the farmers in rural areas to reduce poverty through risk management, which demonstrates the feasibility of coordination between the performance of social responsibilities and risk management in commercial banks and provides a role model for Chinese commercial banks to follow in order to enhance their governing tools.