Risks Analysis In Chinese Banking Industry

Banking risks have become an imperative and urgent issue in today's economic life as they not only restrain the sound development of the banking industry but also endanger the overall economic development and social stability. As a possibility of loss, the generation mechanism of banking risks is quite complex. Factors such as conducts of micro economic entities and macro environment may directly or indirectly lead to banking risks.I. The risks in Chinese banking industry are mainly generated from the process of the economic system transition. At present, the Chinese banking industry is facing the following risks:The first is credit risk, which primarily appears as continuous deterioration of credit assets and substantial increase of interest receivables in commercial banks. The second is market risk, which primarily appears as pricing incapability over derivatives in the initial stage of market risk control, scarce basic data for internal model, and penetrative influence from changes of international market. To eliminate market risks, the market-oriented interest rate formation mechanism and the RMB exchange rate regime need to be further completed.The third is operational risk, which primarily appears as the outdated conceptions, incomplete framework and unsound method used in operational risk management.The fourth is interest rate risk, which primarily appears as maturity mismatching, unreasonable yield curve, blind scale expansion of deposits, increase of recessive interest rate, incapability to recognize and manage interest rate risk, and shortage of talents in commercial banks.The fifth is liquidity risk, which primarily appears as the potential run-on-bank risk resulted from inadequate solvency ability.II. Currently, the risks in Chinese banking industry are caused by many complicated factors, including:1. The institutional defects of banks which, as determined by the particularity of the industry, are the very root causes for the existence of banking risks. Banks generally have a high liability ratio and earn profits through risk management. This determines that banks shall assume certain risks in the process of operation.2. The institutional defects. It hinders the former state-owned commercial banks from running business according to the principles of market economy, and affects the transition of operation system and the improvement of operating status.3. The systemic risks. The risks in an economic link may spread to and affect the whole industry through the effect of capital chain. 4. Excess competition inside the industry. It leads to extremely low risk premium and weak risk prevention capability of banks.5. Poor management and incompliant operation of banks.III. Solutions and suggestions on control of banking risks Risks in the Chinese banking industry allows for no ignorance. As the most complicated issue, risk prevention and elimination, especially the disposal of large-value non-performing assets, depends upon the further implementation of banking reform and the establishment and completion of a socialism market economy, and meanwhile, they provide preconditions for the advancement of reform. Thus, banks should take every possible measure to enhance risk management capability, improve external environment and strengthen supervision efforts, with a view to boosting fast and sound development of the Chinese banking industry.1. Promote internal reform and improve risk assistance ability. To achieve this goal, we should simplify the organizational structure, delegates the self-decision rights to banks, regulate the banking business operation, improve employee quality, increase the anti-corruption efforts and enhance risk management capability.2. Improve external economic environment and promote sound and steady development of the industry. To reach this goal, we should optimize the economic structure and enhance the vitality of enterprises; strengthen macro-economic control, fully engage in the international economic activities, reduce the influence from fluctuation in exchange rate and global economy, and boost rapid and sound development of economy by introducing international managerial expertise and foreign investment; and complete the financial market to ensure the banking industry gradually opens to the world amidst steady development.3. Improve the supervision ability and reinforce efforts of banking supervision. For this purpose, we should complete the supervision ability, enhance the supervision over and internal control of banks, and introduce new supervisory entities from the society.To sum up, since sound and steady development of the banking industry provides an essential precondition for sustainable and stable growth of the economy, we should draw lessons from the practice of international leading banks, and according to the actual economic features in China, develop and take effective measures to prevent and solve banking risks, so as to guarantee steady and sound development of Chinese banking industry.