How should banks themselves handle the three principles?

On the "Three Natures" of Commercial Bank Operations and Their Balance (2008-04-11 08:52:31)\x0d\ (Published in "Financial Economics" Issue 12, 1995, and won the " 3351" Financial Quality Engineering Essay Competition First Prize) \x0d\\x0d\ Security, liquidity and profitability are the basic principles of commercial bank operations, and no country is an exception. How to understand the "three natures" and handle the relationship between them is a permanent research topic for banks. In our country, the transformation of several major professional banks into commercial banks has just begun, and this can be said to be a new topic being studied. \x0d\\x0d\Safety - the basis of bank operations\x0d\\x0d\ 1. The banking industry has high operating risks\x0d\\x0d\First, banks are special enterprises that engage in currency and credit business, and are different from general industrial and commercial enterprises. In comparison, its relationship with various industries in society is closer and more extensive. The development and changes of the micro-economy directly affect the operating conditions of the banking industry. \x0d\\x0d\Second, the special commodity operated by banks - currency, is affected by the economic and monetary policies of the government or central bank, that is, banks are also affected by macroeconomic regulation. \x0d\\x0d\Thirdly, after the reform of the fiscal, taxation and accounting systems, measures to protect banks were cancelled. Specifically, it is reflected in the following aspects: the provisions on pre-tax loan repayment of state-owned enterprises have been cancelled; when an enterprise goes bankrupt and pays off debts, banks and other creditors are on the same footing. Debts after enterprise bankruptcy shall be paid off in the order of internal employee debts - national debts - other debts. When an enterprise is unable to repay its debts to the bank, it will be repaid together with other debts. When it is unable to repay, it will be repaid according to the proportion of the loan to the total debt. Therefore, the risk of bank credit assets has increased. \x0d\\x0d\ Fourth, with the coexistence of various economic sectors, bank lending objects have changed from single state-owned and collective enterprises to state-owned enterprises, collective enterprises, private enterprises, Sino-foreign joint ventures, etc. The complexity of the objects will also Increase the risk of credit assets. \x0d\\x0d\ 2. The repayment of deposits is "rigid" \x0d\\x0d\ As we all know, bank funds mainly come from customers' deposits. Based on customers' trust in the bank, if the bank cannot guarantee the payment of the principal and interest of the deposit, it will There may be a risk of depositors running out of cash and banks closing. Generally, when a company is unable to repay its debt when it matures, the creditor can also apply for a delay. For example, the company's loan can be extended, but the bank's repayment of deposits is "rigid" and must unconditionally pay the principal and interest to the depositor when it matures. \x0d\\x0d\The above two points illustrate that the operating risks of the banking industry are greater than those of ordinary enterprises, and the repayment of debts is "rigid", so safety must be regarded as the basis of its operations. \x0d\\x0d\Bank operating risks come from many parties and are ever-changing. From the perspective of the source and application of credit funds, there are mainly deposit risks and loan risks. The deposit risk is that the bank lends out of proportion, has insufficient reserves, and cannot pay withdrawals at any time and absorb deposits smoothly. Loan risks are manifested in lax loan review or sharp decline in corporate performance, overdue loans, sluggishness, and inability to recover loan principal and interest in a timely manner. \x0d\\x0d\Comparing the two types of risks, loan risk is a substantial risk. Difficulties in deposit payment may be caused by technical errors in bank allocation of funds. As long as the bank arranges funds promptly, flexibly, and organizes funds, such payment difficulties can be overcome. Once loan risks occur, they cannot be solved internally by the bank. Failure to recover the principal and interest of the loan in a timely manner will cause substantial rather than technical difficulties in deposit payment, and will also leave the bank with no funds to pay operating expenses. When the loan risk reaches a certain level, it will not only cause the bank itself to fail, but will also affect the normal order of the entire social and economic life. Therefore, safety is the basis of bank operations, and basic protection relies on the prevention of loan risks. \x0d\\x0d\Any loan has risks, it’s just that the procedures are different. However, in order to fulfill its function of financing funds, guarantee the interest of depositors, pay operation and management expenses, and achieve profit targets, banks must lend money to enterprises. In other words, banks know that loans are risky, but they cannot help but lend money. This requires banks to actively prevent risks and minimize loan risk procedures. \x0d\\x0d\The factors that affect the size of loan risks mainly include three aspects: loan method, loan object, and the form of the loan, that is, the management after the loan is issued.

At the beginning of loan disbursement, banks have relatively greater autonomy and less difficulty in selecting loan methods (such as credit, guarantee, and mortgage forms), but the evaluation, review, and selection of loan objects are more difficult. Even if the original assessment review is completely correct, the company will undergo major or minor changes under the influence of the market economy. \x0d\\x0d\ How to prevent loan risks, my country's Bank of Communications has successful experience for reference. The main contents are as follows: \x0d\\x0d\ First, clarify the responsibilities of all parties, focusing on the responsibilities of the loan officer. The loan officer Be responsible for the safety of the loan. \x0d\\x0d\Second, improve the internal control mechanism and improve the separation system of loan approval based on graded loan approval. \x0d\\x0d\Third, strengthen the basic work of loan officers, mainly data accumulation and the "three checks" system, and do a good job in project evaluation for fixed asset loans. \x0d\\x0d\ Fourth, compress credit lending and promote mortgage, guarantee and discount lending. \x0d\\x0d\Fifth, calculate the risk of the loan based on the loan method coefficient, credit coefficient and form coefficient, and implement loan risk management. \x0d\\x0d\ Sixth, implement daily supervision of credit risk asset quality to achieve: correct analysis, gradual review, ledger registration, account reflection, strict audit, statistical analysis, collection handling, reward and punishment assessment. \x0d\\x0d\Seventh, strictly implement the general principles of credit and comprehensively standardize credit behavior. \x0d\\x0d\In recent years, the central bank and various professional banks have successively introduced asset-liability ratio management methods and set up a series of indicators and standards to strengthen risk resistance and prevent risks from aspects such as asset-liability structure and credit asset quality. Now the "Law of the People's Republic of China on Commercial Banks" has been promulgated, which will come into effect on July 1, 1995. The main methods are:\x0d\\x0d\1. Use capital adequacy ratio as an important criterion for whether a bank is operating steadily. \x0d\\x0d\According to the "Basel Accord", the People's Bank of China requires that the ratio of the total capital of my country's commercial banks to the total risk assets shall not be less than 8%, of which the core capital shall not be less than 4%. The total assets control replaces the loan size control in the past. The specific method is to first divide bank capital into level one and level two according to the liquidity of capital, assess the total capital, and then determine the total amount of risk assets based on the capital adequacy ratio. For example, if the total capital of a commercial bank is 1 billion yuan and the required capital adequacy ratio is 8%, then the total risk assets will be limited to 12.5 billion yuan. (10÷8%), the central bank regards the total risk assets of 12.5 billion yuan as the standard value for monitoring the soundness of banks. Commercial banks mainly achieve capital adequacy standards by reducing the risk of credit assets. \x0d\\x0d\2. Use credit asset ratio and quality standards to prevent risks and ensure safe operations. \x0d\\x0d\The specific methods are: (1) If the risk level calculated by the risk weight value of the loan object is greater than 60% based on the loan method, the loan will generally not be granted. (2) The balance of loans to a certain enterprise shall not exceed 60% of the remaining assets of the enterprise. (3) The balance of a bank's loans to the same enterprise shall not exceed 10% of the bank's own funds, and the total amount of loans to the ten largest enterprises shall not exceed half of the bank's total capital. (4) The sum of overdue loan balances and various loan balances shall not exceed 8%, sluggish loans shall not exceed 5%, and bad debt loans shall not exceed 2%. (5) The proportion of fixed asset loans in all loans cannot be higher than 15%. (6) The bank's short payment and wrong account losses should be controlled within three ten thousandths of the business volume. \x0d\\x0d\The standard values ??of the above major proportions are all relative interval values. During actual monitoring and operation, the current financial external environment and external conditions should be combined with flexible control to achieve the purpose of safe operation. \x0d\\x0d\Liquidity - the leverage of bank operations\x0d\\x0d\Liquidity is a necessary means to achieve security, and it is also a balancing lever between profitability and security. Liquidity includes two aspects: first, sufficient funds to meet the payment of deposits; second, to meet the normal loan needs of the enterprise. Satisfying deposit payments in liquidity focuses on the reasonable dispatch of credit funds. Sometimes, even if a bank has sufficient financial strength and low loan risks, it is unreasonable in the use of funds. For example, a large amount of short-term deposits are used for long-term loans, resulting in the bank not having enough liquidated assets to pay depositors' withdrawals at maturity. This kind of payment difficulty may cause "Heiyu bankruptcy" for banks.

\x0d\\x0d\When a general enterprise encounters difficulties in paying funds, such as being unable to repay the principal and interest of the loan when due, it can still negotiate with the creditor to extend the repayment within a certain period; the bank must unconditionally guarantee the repayment of the debt. If the bank does not guarantee cash withdrawals, once the news gets out, there will be a run on the bank. Something like this happened abroad: a few pedestrians gathered under the roof of a bank to take shelter in the rain, and were mistakenly informed that the bank could not guarantee cash withdrawals. As a result, depositors cashed their deposits one after another, forcing the bank to close. \x0d\\x0d\Banks concentrate large and dispersed funds in society and must be fully, reasonably and effectively used in the production and operation process of enterprises. This is not only the need to promote the development of the national economy, but also the need to realize the bank’s operating functions and goals. . In fact, the two contents of liquidity are determined by the principles of safety and profitability, so liquidity is the lever to balance the "three properties". \x0d\\x0d\The degree of liquidity guarantee is mainly assessed by the bank itself through indicators such as the deposit-to-loan ratio. In terms of deposit ratio, the People's Bank of China stipulates that commercial banks first require that the ratio of various loans to deposits should be controlled within 75% from an incremental perspective. This is because several professional banks currently have heavy historical burdens. , in the future, it will gradually transition to the assessment of stock, control the ratio of deposits and loans, and actually use the source of funds to restrict the use of funds. If it is used beyond the proportion, it will inevitably cause difficulties in deposit payment; Article 39 of the Commercial Bank Law also stipulates that the difference between the loan balance and the deposit balance The proportion shall not exceed 75%. It also stipulates that the ratio of the balance of current assets to the balance of current liabilities shall not be less than 25%. Another indicator is that medium-term and long-term loans shall not exceed 120% of medium- and long-term deposits. Customers are commercial banks who ensure liquidity through the use of their own funds. Banks adhere to the principle of separate management of long-term loans and short-term loans for corporate loans. The bank's loan officer should conduct an in-depth analysis of the company's current ratio, quick ratio, accounts receivable turnover rate, inventory turnover rate; asset profitability and other financial Indicators examine the short-term and long-term repayment capabilities of enterprises and ensure the liquidity of bank credit assets. A major problem that enterprises generally face at present is the shortage of funds. According to analysis, the reason for this situation is not the reduction of bank loans. The main reason is that the output value of enterprises has grown beyond the normal, and output value and efficiency are not accompanied by development. Therefore, the liquidity of bank funds depends largely on the liquidity of corporate funds. \x0d\\x0d\Profitability - the goal of bank operations\x0d\\x0d\Commercial banks regard the pursuit of maximum profits as their business goals and internal motivation. Profitability is also the result of safe and liquid operations. \x0d\\x0d\Only by maintaining ideal profitability levels can banks consolidate their credibility, enhance their strength, and improve their competitiveness. \x0d\\x0d\The profitability level of commercial banks has an impact on the micro-economy. Driven by profitability, banks are committed to loan security and higher returns. Funds flow to enterprises with good production and operation benefits, supporting enterprises to create more benefits. At the same time, banks' higher interest rates put capital cost pressure on industrial and commercial enterprises, forcing them to Enterprises save money and reduce capital costs. \x0d\\x0d\The performance of commercial banks also affects the development of the entire macro economy. First of all, banks, as enterprises, form part of the overall benefits of the national economy; secondly, commercial banks, as special enterprises, have financial ties connecting thousands of households. The weakening of bank benefits means that the ability to raise and redistribute funds in the process of social reproduction is weakened, resulting in industrial and commercial It is difficult for enterprises to start up and operate funds, thus affecting the stable and coordinated development of the entire national economy. If a bank's operating losses are such that it cannot guarantee the payment of deposits, it will only bring chaos and instability to social and economic life. \x0d\\x0d\The higher profitability level of commercial banks will increase customers' credit towards the bank, thereby increasing deposits. It can also improve the credibility of the central bank, thus reducing overly strict supervision and excessive intervention. \x0d\\x0d\Under the conditions of high profitability, commercial banks can recruit and retain a group of smart and capable professionals with high salaries, generous benefits, and excellent working environment. Preventing brain drain also enables banks to regularly update equipment and use advanced technologies and methods to improve work efficiency. \x0d\\x0d\ Evaluation and assessment profitability indicators are divided into two categories: operating profitability indicators that are examined as a whole, and project profitability indicators that are analyzed individually. \x0d\\x0d\ my country's Bank of Communications has set several indicators to assess profitability: total profit, asset profitability, capital profitability, interest recovery rate, and per capita profit.

The main indicators are asset profitability and capital profitability. In terms of asset profitability, assets include the ratio of profitable and non-profit assets, and net income includes factors such as deposit size, deposit and loan interest rate spreads, management fees, and taxes. Therefore, this indicator reflects the overall profitability of assets and represents the bank's operating level to a large extent. \x0d\\x0d\Balance the "Three Natures" - Difficulties in Bank Operations\x0d\\x0d\The three operating principles of commercial banks, individually, are necessary and reasonable, and have their own special requirements. In practical application, the "three natures" often restrain and influence each other. For example: Cash, a highly safe asset, has high liquidity but poor profitability. Loans are highly profitable assets that are illiquid but risky. Therefore, correctly handling the relationship between the "three natures" and choosing an appropriate balance point among the "three natures" are the difficulties in bank operations. \x0d\\x0d\If you focus too much on a certain principle, you will inevitably sacrifice other principles, thus affecting the optimization of the overall goal. In recent years, some banks have only pursued profitability while ignoring safety and liquidity. If institutions are set up indiscriminately and customers are randomly solicited, a company can open accounts in several banks at the same time, so that regardless of the company's operating conditions, several banks will lend money at the same time. As a result, a large number of loans cannot be recovered, becoming sluggish and precipitating funds; Banks engage in interest rate wars, causing large-scale transfers of deposits within the financial system, indiscriminately occupying inter-bank exchange differences, indiscriminate lending, and using credit funds to speculate in stocks and real estate in coastal areas, causing financial difficulties in the mainland and disrupting my country's financial order. The above situation is caused by the banking industry's inability to correctly balance the relationship between the "three natures", which ultimately forced the central bank to implement comprehensive rectification. The mutually restrictive and contradictory relationships among the "three natures" have made bank operations more difficult. The basic method to solve this problem is: "total balance and symmetrical management."\x0d\\x0d\Restricting the use of funds by the source of funds is the guiding ideology of total balance. The specific contents include: (1) Balance of liabilities: maintaining an appropriate ratio between long-term liabilities and short-term liabilities, deposit liabilities and other liabilities. (2) Balance of assets: Maintain an appropriate ratio between long-term assets and short-term assets, credit assets and other assets. (3) Total balance of assets and liabilities: Assets and liabilities should be based on a dynamic balance based on reasonable economic growth - a positive balance, which not only insists on restricting the use of funds by the source of funds. We will act within our capabilities to prevent "overload" operations and ensure the safety and liquidity of the bank; we will also actively "find rice for the pot" to expand the scale of operations and obtain reasonable profits. \x0d\\x0d\ "Symmetric management" is based on the principle of symmetry between assets and liabilities to coordinate the contradictions among the "three natures". The content of symmetrical management includes: \x0d\\x0d\ - Scale symmetry, that is, the scale of assets and the scale of liabilities are symmetrical and balanced. \x0d\\x0d\——The repayment period is symmetrical, and the repayment period of assets and the repayment period of liabilities maintain a certain degree of symmetry. \x0d\\x0d\ - The structure is symmetrical, and various types of liabilities are symmetrical to the corresponding asset types. However, the symmetry mentioned above is not absolute. There can be a gap. The bank bears greater risks for this gap, but if managed properly, it will bring more profits to the bank. \x0d\\x0d\The mutual influence and interconnection between the "three natures" create conditions and possibilities for balanced and coordinated relationships. \x0d\\x0d\ From the perspective of the bank's long-term operations: First, long-term and stable operations may gain the trust of customers, establish higher credibility, and create a good environment for increasing profits. Only by ensuring the safety and integrity of funds can we further talk about liquidity and profitability. Second, reasonable dispatch of assets. Maintaining sufficient solvency can strengthen and consolidate the foundation of the business and strive for more profit opportunities. Only by ensuring the normal flow of credit funds can the stability of the bank's credit intermediary status be ensured. Third, continuously increasing profits is the real source to compensate for risk losses and ensure safety and liquidity. \x0d\\x0d\In specific business operations, banks have sufficient funding sources, strong borrowing needs, and very urgent security and liquidity requirements, so they can focus on profitability requirements; on the contrary, during economic recession and economic crisis, they focus on In order to maintain safety and liquidity, obtaining profits should be placed in a secondary position. When the central bank loosens money, it can give more consideration to profitability; when it tightens money, it can give more consideration to liquidity.

When commercial banks have more liquid assets, they try to change the original asset structure and focus on increasing profits; when they have more long-term loans and less current assets, they give more consideration to liquidity. \x0d\\x0d\ "Three natures" management is a common task for the entire commercial bank. The president should be fully responsible for this, and all functional departments should divide their work and cooperate. For example, the liquidity management of fund utilization is mainly based on the planning department; the quality and safety management of loans is mainly based on the credit department; the analysis of capital costs and profits, that is, profitability, is mainly supervised by the accounting department; the supervision of the authenticity of the "three properties" Mainly the audit department. \x0d\\x0d\In short, commercial banks should take the "three characteristics" as their operating principles, switch the "equilibrium point" at any time, achieve a dynamic balance between the three, and achieve optimal profitability on the premise of security and liquidity. level.