In Asia Risk’s award presentation ceremony held in Hong Kong recently, CCB was the only financial institution in China presented with the Best Financial Risk Management in China 2007 Award.  And this was the second time since 2005 it was awarded such a title.

The award of this title indicates that, after its shareholding reform and listing, CCB has significantly stepped up its risk management capabilities and is now leading other Chinese banks in this aspect.  This is attributable to the fact that, last year, it had achieved outstanding results in refining its risk management system, enhancing its asset quality, improving its risk management processes and upgrading its risk management techniques.

First, CCB had focussed on establishing and refining its risk management system.  Since last year, in order to deal with its long-existing problem of scattered management of risks, CCB has been carrying out explorations and trials in reforming its risk management system.  One result is that, on top of the existing tier management system, it is now implementing centralised and vertical management of risk.  Another result is that, in credit extension, a mechanism in which risk managers and accounts managers are working in parallel has been installed.  This year, further refinements in risk management organisation structures in branches of different tiers, overseas branches and in various main business lines have been made and a comprehensive risk management system covering credit risk, market risk and operational risk has taken shape.

Second, it has been driving for process reengineering and optimisation relentlessly.  With the help of Bank of America, it has adopted the Six Sigma Methodology in process improvement and has succeeded in identifying the ideal risk control points and the best control methods.  The optimisation project for its residential mortgage loan process started last year results not only in an enhancement in its risk control capability, but also in significant improvement in its service quality and efficiency: in the pilot branches, the average time for processing a residential mortgage loan application has been reduced from almost 20 days to about 9 days.  The success of the retail branch transformation project is equally significant.  For example, in the pilot branches, the proportion of customers whose queuing time is less than 10 minutes has increased by 52%.  Meanwhile, customer satisfaction has significantly increased, so much so that in the pilot branches, average daily sales have increased by 60%.  Currently, almost 1,500 retail branches have undergone transformation and their service quality and efficiency are receiving full approval from all quarters of society.

Third, it has redoubled efforts in developing and applying technical risk measurement tools.  Since last year, CCB has started assigning personnel to implement the New Basel Capital Accord and has quickened its development of risk measurement tools and systems.  So far, milestone achievements have been obtained in various projects including credit rating of corporate exposures, development of rating card for retail exposures, credit rating of small enterprises, 12-grade categorisation of credit assets and risk monitoring of credit extension, etc.  In the area of innovation of risk portfolio management tools, beginning this year, CCB has begun using the internationally more advanced “Asset Volatility Method” to replace the elementary “Coefficient Method” in the measurement of economic capital.  In addition, it has become the first Chinese bank to adopt an industry risk quota management scheme.  Thus a framework based on the two dimensions of economic capital and risk quota has been set up for the restriction and adjustment of total asset and industrial structure.  Thus, advancement in technical risk management tools has become an important engine for CCB to enhance its operational efficiency.

Fourth, it has implemented structural adjustments and strengthened its risk management.  While raising steadily its risk management capability, CCB has been conscientiously implementing the State’s macro-economic control policy by making active adjustments in its customer composition, industry composition, product composition and the geographic mix, thereby ensuring sustainable development of its business.  In accordance with the State’s macro-economic policy, CCB has in the past year redoubled its efforts in the research, formulation, enforcement and monitoring of guidelines for credit approval and industrial policy bottom-lines.  It has speeded up its retreat from dealing with industries with over-capacity or potential over-capacity as well as those which are high-energy consuming and high-polluting.  It has also strengthened its economic capital configuration and management of industry risk quota and has fortified risk monitoring for key industries, key customers, key geographic regions and key business areas.  This way, it has achieved continuous adjustment and improvement of its business structure.

At the same time, it has implemented a number of effective measures to facilitate the continual improvement of asset quality.  To strengthen efforts in the writing off and handling of non-performing loans as well as to facilitate the continual improvement of asset quality, CCB headquarters and its branches are now responsible for the direct monitoring and risk handling of the top 10 concerned customers and the top 10 customers with non-performing loans under their respective jurisdictions.  As at the end of the third quarter of 2007, CCB's domestic balance of non-performing loans was 92,444 million yuan, which represented a drop of 1,955 million yuan from the beginning of the year; its non-performing loan ratio was 2.83%, a lowering of 0.46% from the start of the year, while its provision coverage rate had reached 97.01%.

With increase in its risk management capability, CCB has been able to achieve steady development in all areas of its business and obtain approval and commendation from investors and society alike.  As at the end of the third quarter of 2007, CCB’s net profit of 57,101 million yuan and capital adequacy ratio of 12.53% were both the highest among all Chinese banks.

Asia Risk magazine is an international medium specialised in reporting on the financial risk management business and the derivative market.  It has considerable influence in the financial risk management area in Asia.