At the Industrial Bank's 2005 Working Conference of Retail Business, the management of the Bank established the basic idea of vigorously promoting the structural reform of retail business.“Great development calls for great measures.” The director of the management head office for retail banking at the Industrial Bank told Chinese Business News.
Since then, retail banking in the Industrial Bank has undergone a series of bold reforms.
Aiming for divisionalization, a management head office for retail banking was set up at Industrial Bank Headquarters. Pilot reforms with retail divisions were carried out in eight branches. Meanwhile, a matrix management mode which combined product line management and regional branch management was introduced.
Within just three years, reforms in the framework and system of retail banking have been met with optimized processes and rapidly enhanced services. One obvious change is that the bank has tightened risk control without compromising its attempts to innovate products and services in various fields. This excellent performance has caught the attention of a number of industry insiders.
A set of recent figures reflects the Bank's sound trend of development: in the first half of 2008, the retail business of the Industrial Bank brought in interest revenue from loans of RMB 4.555 billion Yuan, representing a 106% increase over the previous year. It accounted for 28.99% of the overall interest income of the Bank, representing a 6.06% increase over the beginning of the year. Retail business also achieved intermediary business revenue of RMB 306 million Yuan, representing a 58.55% growth over the previous year and accounting for 16.95% of total revenue from intermediary business in the Bank.
A Fine Shift
“A truly outstanding commercial bank is only so when it has excellent retail banking”. A related head at the Industrial Bank told us. With the increasing market-orientation and integration of finance, the retail finance market will maintain fast growth. Areas of rapidly growing demand such as mortgage loans, credit cards and personal finance will present commercial banks with both opportunities and challenges in respect to the transformation of services and the optimization of income structures.
After carefully weighing up the current situation, the Industrial Bank made a major proposal of promoting the transformation of business development modes and profit modes in 2004. As a “strategic business that can improve the momentum of growth, spread risks and realize sustainable development”, retail business couldn't shrink away its purpose of achieving these two transformations
However, the Industrial Bank's retail banking at the time was small in scope, weak in foundation and relatively backward in terms of infrastructure construction. “Great development calls for great measures.” The Industrial Bank resolutely chose the reforming of the organization and management system of retail business and establishing top-down divisionalization as the centerpiece of its “great measures'. It preliminarily defined the retail business division as an operating body with relatively independent accounting under the leadership of bank headquarters, conducting top-down operation and management of the Bank's retail business and marketing teams in a matrix management mode which combines product line management and regional branch management.
In 2005, the Bank held a Working Conference of Retail Business in the city of Dongguan at which the management of the Industrial Bank established a “two-step” approach for vigorously promoting the structural reform of retail business.
The first step was that a management head office for retail business was to be established at the headquarters of the Industrial Bank in the aim of divisionalization. Furthermore, a comparatively unified and sound service system of retail business in the Bank was to be established and pilot reforms with retail divisions at eight branches launched while the organizational structure of retail business in branches was standardized and improved.
The second step was to link the management system of retail business at the headquarters office with the marketing service system of the branches when the conditions were ripe so as to achieve the top down operation and management by the division and realize independent operation and unified management in a real sense.
“Through step-by-step implementation and pilot reform, the possible adverse effects and the tremendous impact that would be entailed in an out system reform were able to be avoided and a replicable template was thus created for retail division reform throughout the entire Bank.” said the head of the management head office for retail banking at the Industrial Bank.
The outcome of the pilot reform was significantly notable. At present, a preliminary structure of professional operation has been established for the retail banking system of the Industrial Bank. At headquarters, a management head office for retail banking has been founded which is responsible for the operational management and business expansion of retail work in the whole Bank. In the piloted branches and their subordinate institutions, independent management departments for retail business have also been established. Major functional departments internally set up have essentially been constructed that include channel service, product management, financing centers, marketing, retail credit and risk management. Functional division is clearer and more specific than it was before the reform.
It is understood that retail business divisions on trial at branches are responsible for the centralized operation and management of retail work in their jurisdiction, and they are entitled to the rights, to a certain degree, of personnel recommendation, credit approval and formulating policies on performance assessment. It applies direct management of the retail business in the branch and sub-branches. With enhancement in management and smoother transmission mechanisms, a management mode that meets the requirements of business development has begun to take shape. It has led to further increases in work efficiency.
Focus on Risk Management
While striving to develop retail business, the Industrial Bank has also established a complete system for legitimate operation and risk control.
Retail credit as an example, in order to guard against credit risk, the Industrial Bank has strengthened monitoring on the authenticity of transactions and the examination of borrowers and mortgages. It has placed a focus on the comprehensive management of money flows. Posts for credit investigation and appraisal were especially established, conducting independent judgment on primary and secondary repayment sources. To strengthen the controls on operational risks and compliance risks, the Bank established retail credit centers in all of its branches, which carry out centralized operation of retail credit business and enhance the process management and risk monitoring at all posts in retail credit, thus forming a good early warning system. Moreover, an accredit system composed of personnel in risk and credit approval has been established with the purpose of establishing effective checks and balances between departments and strictly guarding against operational risks. In order to avoid regional risks, prompt changes to regional policies are made based on changes in the trends of housing prices in various regions to guarantee a more reasonable regional structure of loans. Faced with a macro policy environment characterized by a credit crunch, the management head office for retail banking conducts pressure tests for existent personal loans and analyses the correlation between housing price changes and non-performing loans. Related contingency plans for risk settlement have been formulated based on different circumstances.
Furthermore, the chief of the management head office for retail banking at the Bank pointed out that the management and control of risks from the market was also very important. When pricing management for product interest rates is strengthened, a product access system has to be established and improved so as to enhance category management and credit management of products.
Regarding this, he elaborated further. First of all, at the market level, the Industrial Bank always bases its product innovation on the needs of clients and ensures that there is sufficient space in the market for innovative products. For example, measures that are taken to effectively control the market risks of newly innovated products include strengthening preliminary market research and performing sound feasibility studies by a number of departments in collaboration. For products with more substantial risk, local pilot schemes are adopted before they are launched comprehensively. For existing products, based on close tracking of the trends on the market, enhanced management and adjustments are made. Products whose risk has increased due to changes on the market may be withdrawn from the market.
On the other hand, at the operational level, the management head office for retail banking in the Industrial Bank guards against operational risks mainly from three aspects: firstly, a series of supporting rules and regulations, ranging from management measures, routine practice and system contingency plans have been introduced; secondly, before a new product of high risk is launched, adequate training for staff is provided to standardize operations; and thirdly, supervision measures, including spot checks, background monitoring and post-checks are conducted to improve the operational abilities of staff.
Of course, system establishment cannot be ignored. While strengthening the normalization of system development and realizing the security and maintainability of the system from the source, the management head office for retail banking in the Bank has reinforced and improved the operational management and security of the system.
It is understood that the general office of the Industrial Bank, based on the needs of business growth, has established system operation centers in both Shanghai and Fuzhou to ensure a timely responses to system malfunctions and the rapid restoration of the system. Technological innovation has allowed for the realization of backup mechanisms for important systems, which can achieve timely restoration by means of technological support systems including dual-computer cold backup, hot backup, intra-city disaster backup and inter-city disaster backup.
Numerous Product Innovations
The ability to innovate is yet another engine powering the sustained development of a commercial bank. Through a great number of diversified product innovations, the Industrial Bank has demonstrated its capacity for innovation and pragmatism over recent years.
“Carrying out category management of clients, expanding value-added services, meeting clients' demands for differentiated, personalized and diversified services.” The demands of clients are always the core of retail banking in the Industrial Bank, this is the case in product design, development, marketing, management and elsewhere.
To better meet clients' demands, the Industrial Bank has optimized product creation, introduction, release and management in retail banking. Several financing product brands enjoying high exposure in the market have been developed. They include five series: “Everyday Gain”, “Special Financing A+3 Plan”, “Super Gain” structural financing products, “Global Financing” entrusted overseas products and “Smooth Transfer” financing products for foreign currency. These products meet the diversified risk preferences of clients and constitute a relatively complete product chain ranging from low risk to high risk.
“Everyday Gain” is a financing product targeted at steady clients. It is a series of products for uninterrupted low-risk investment and financing in RMB throughout the year offered by the Industrial Bank and is the first of its kind in the industry. The series covers products such as cash management, defined fund investment and bond-and note-type RMB financing. It maintains the liquidity and high yield rate of funds whilst providing a high degree of security for the principal funds.
The Industrial Bank has also launched “Special Financing A+3 Plan”---a trust-bound financing product for effective credit enhancement which is guaranteed by a commercial bank and comes with a performance guarantee from an insurance company. The product is aimed at clients that posses a certain degree of risk tolerance. Financing clients, by selecting these financing products, put their funds into a trust program which has quality credit assets of the Industrial Bank. The Industrial Bank monitors the safety of credit assets and provides enhancement modes. Thus, the investment risks of the product are effectively controlled.
“Super Gain” series is a typical structural financing product, mainly involving the RMB structural products of embedded financial derivatives. Product yields are tagged to prices of various financial commodities (such as exchange rates, interest rates, forward prices, performance of stock index), agricultural product prices, environmental resources index and the like on international financial market. In 2006, “Domestic Currency Value-Up” and “Olympics Sharing Scheme” were launched by the Industrial Bank, the former being linked to change intervals of exchange rate while the latter to stock price performance of Olympic sponsors. Both have achieved outstanding results.
“Global Financing” is a product for entrusted overseas financial management, which uses RMB capital raised to invest in overseas financial products after changing the capital into foreign currency by means of foreign exchange purchase. To avoid exchange rate risks for clients, the Industrial Bank offers long-term exchange settlement for RMB financing capital.
“Smooth Transfer”, mainly through investing client funds into the markets of inter-bank borrowing and foreign exchange bonds, or by means of exchanging or purchasing options, is a product which provides clients fixed prospective returns or structurally-floating returns.
In recent years, the Industrial Bank has vigorously developed agency services for financing products on the basis of client demands. By selling the products of financial institutions such as security, funds and insurance companies and expanding businesses like third-party deposit and management, the Bank has established in-depth relationships with a number of quality financial institutions. At present, consignment business launched by the Industrial Bank has expanded from over 50 products from around ten fund companies to the current 105 fund products from 25 fund companies. Product categories cover areas such as monetary funds, equity funds, hybrid funds and bond funds. There has been a qualitative leap in terms of both the variety and quantity of products following reform.
Furthermore, Industrial Bank took the initiative in launching the “Unionpay Master” on-line fund supermarket. Featuring low rates and easy transaction, the service has developed with rapid momentum. So far, it has established cooperation in on-line consignment with over 70 quality open-end funds under more than 20 fund companies, including Xingye, Harvest , China International, Fortis Haitong, and China Southern. The Bank has become a mainstream brand for on-line fund trading in China .
（Wang Chunxia, Chinese Business News, July 30, 2008）