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How to Keep the Performance of Banking Sector on Track and Focus on Its Core Business --Policy options on transformation of banking sector(No.61, 2017)

By Wang Gang, Research Team on “China’s Banking Sector Transformation during the 13th Five-Year Plan Period”, Research Institute of Finance, DRC

Research Report, No.61, 2017 (Total 5136) 2017-05-31

Abstract: How to keep the performance of banking sector on track and focus on its core business so as to avoid deviation from the real economy or excessive development is a major problem facing the current transformation and development of the banking sector. The research findings show that a number of problems exist in the process of transformation of the banking sector. First, capitals are flowing from the real economy to the virtual economy, thus causing the imbalance between excessive financial development and that of the real economy. Second, the transformation itself is facing a homogenous challenge. Third, the balance sheet is changing in structure, with the on-balance-sheet non-credit assets and the new off-balance-sheet businesses growing fast, the liability stability falling, and the mismatch degree for maturity of assets and liabilities rising. Fourth, the stakeholders still hold high expectations on returns and the incentive mechanism tend to serve short-term planning for development. Fifth, some financial innovations are made to become deviated from the original purpose. This paper holds that it is necessary to follow General Secretary Xi Jinping’s instructions on the relationship between finance and the real economy, and take multiple measures to make the financing sector perform on track. The banks need to modify the orientation of transformation, improve the performance evaluation system, strengthen the implementation of relevant principles and requirements, reinforce risk supervision and control, guide financial innovations, prudently advance operation of comprehensive businesses, and enhance the financial ecological environment.

Key words: real economy, banks, transformation, nature, main business