Reporter: Yang Bo Source: China Business News April 10, 2013
Abstract The custody scale of Industrial Bank (IB) grew from RMB 227.149 billion in 2010 to RMB 1628.255 billion in 2012, a nearly 8-fold increase in three years, ranking No.1 among similar joint-stock banks. This is the report card of IB in the business of assets custody.
The custody scale of Industrial Bank (IB) grew from RMB 227.149 billion in 2010 to RMB 1628.255 billion in 2012, a nearly 8-fold increase in three years, ranking No. 1 among similar joint-stock banks. This is the report card of IB in the business of assets custody.
While witnessing business development at a fast rate, IB has won many awards in succession such as the “Custody Bank with the Best Cooperation Value” and the “Best Assets Custody Bank”, showcasing its market position and influence in the area of assets custody.
What on earth made IB keep such significant growth in its assets custody business in recent years? With the question, the reporter of China Business News (CBN) made an exclusive interview with Wu Ruoman, General Manager of the Assets Custody Department of IB, in Shanghai at the beginning of 2013 spring.
On a Road with Differentiated Characteristics
CBN: In recent years, the assets custody business of the banking industry witnessed frog-leap development, with the total assets custody scale rocketing to RMB 14.15 trillion in 2011 from RMB 3.75 trillion in 2009. All banks develop the business of assets custody as a strategic one. In your opinion, what are the main reasons?
Wu Ruoman: The development of assets custody business is an unavoidable trend. It has become a very important intermediate business in the financial market due to its “independent, safe and specialized” features.
For commercial banks, the steady development of capital market generates various investment and wealth management businesses, which bring new development opportunities for their assets custody business. Meanwhile, in the process of financial disintermediation and acceleration of market-oriented interest rates, all banks are in urgent need of transforming their profiting model. As the business of assets custody occupies no capital and boasts significant integrated gains, it can actively facilitate commercial banks to transform onto a road of green development featuring “low capital consumption and sustained growth”.
The assets custody business of the entire banking industry kept growing quickly at the rate of 55.61% on average annually from 2009 to 2011. The custody fee incomes become an emerging and steady source of intermediate business incomes. In addition, under the circumstance of hard restriction to capital, assets custody can bring steady fund deposit and boost the development of a number of businesses such as settlement, foreign exchange sale and purchase and product sale, with significant integrated gains.
CBN: Then, what are the core reasons that IB could stand out amid such furious competition and keep rapid development?
Wu Ruoman: In confrontation with the problem of highly homogenized custody business, the market positioning of our bank is always to stick to the road with differentiated characteristics. Such differentiation can be seen not only in the selection of products, but also in our services. Over these years, we insisted on building a professional research team to catch the financial tendency on a real-time basis, studying the changes in policies and making judgment over the business development direction. It is based on these research fruits that our bank concentrated the major targets of custody onto the trust businesses and securities platform businesses in recent years and built them into our leading products. By the end of 2012, our custody scale under trust plan hit RMB 47 million and that under brokerage assets management plan RMB 43 million, both ranking No. 1 in the market. In the meantime, in the aspect of service, we also adhered to joint innovation with customers, providing customized professional services to customers.
With the two years' practice, it is based on our appropriate market positioning and development concept, in addition to the strong support given by the whole bank in the aspects of personnel and resources allocation, that we kept a good development momentum and attained an advantageous market position in the field of assets custody business.
Leading-edge Innovative Service
CBN: Indeed, to set a target market accurately is of crucial importance to grasp the market opportunities. However, if the follow-up service cannot catch up, the first-chance advantages may be duplicated and overrun by competitors. Could you tell us the specific ideas and measures of IB in the aspect?
Wu Ruoman: Apart from accurate positioning, it still needs sustained innovation to lead the market. Only making continuous innovation and going closer to customers can we provide more services of better quality. Therefore, innovative service must have a leading edge.
In recent years, IB insisted on promoting efficient and superior services with innovative products. Up to now, the bank has took the lead to achieve many “innovations” involving many aspects including brokerage financing securities, stock index futures products, rating fund, and installment-based collective wealth management, etc. Meanwhile, we also made great efforts in extending business channels, constructing superior service-sharing platforms for customers, and seeking common development with customers. We were even willing take more time to encourage and support customers to practice their innovative ideas and provide professional and superior technical and business support for such practices.
Based on such concept, we have benefited ourselves a lot in the process of business development. Let's take the business of brokerage assets management as an example. In 2009, the business of brokerage assets management was mainly conventional investment. Then, as such custody business was characterized by small scale, low rate and a large variety of individualized demands, most custodian banks might be unwilling to accept it. Nonetheless, we were willing to handle the business in cooperation with brokerages, thus building a good cooperation base. At the beginning of 2012, based on the new trend in the innovative development of brokerage assets management, we actively cooperated with brokerages in preparing the relevant supporting works such as trading model and risk control operation, building the basis for grasping the market opportunity. In October 2012, the regulatory authority issued the new regulations on brokerage assets management, and hence, brokerages entered into the age of general assets management. Thanks to our sufficient preparation, the fast development of brokerage assets management also became a great opportunity of our bank to develop assets management business. By now, IB has established cooperation with more than 60 brokerages, with the custody scale of brokerage assets management products ranking first among all custodian banks.
CBN: It is reported that IB obtained the qualification for QFII custody business at the end of last year. Then, in carrying out the new business, which preparations has IB made?
Wu Ruoman: In obtaining the qualification for QFII custody, IB didn't take a leading position across the whole industry, but in the process of business development over these years, in order to better perform our custody obligations and improve our customer service, we made great improvement in the aspects of personnel and system. In fact, we have possessed professional capability to carry out QFII business in the process. For instance, we have made full preparation in personnel reserve, building a professional team and requiring the team members to obtain the corresponding practicing qualifications, and improving the professional accomplishment and specialized skills of business personnel in an all-sided manner. We have established the centralized risk control model matching the operation model of assets custody business, enabling the requirements of risk control to be implemented effectively in the whole course of custody business. While building our own strength, we have also gone abroad actively, carrying out close exchanges with famous assets custody banks abroad, including State Street, HSBC Bank, Citibank and BBH, organizing professional knowledge and business training, and introducing advanced international business experience to improve our business system.
Protection by Risk Management and Customer Satisfaction
CBN: It is said that the custody business volume of IB kept creating new record in the recent two years. While keeping business growth at a rocketing speed, how did IB balance the relation between scale growth and risk management?
Wu Ruoman: While registering a high growth rate of business scale, we also realized that, though the development in scale was very important, risk control and customer satisfaction were more important indexes for us to assess our performance. How to ensure risk management and guarantee customer satisfaction in the process of fast development was a key area of our attention.
In terms of risk management, we started by preventing compliance risks and operation risks. In terms of compliance, we established special audit and supervision office for risk control and compliance examination in our department, building an internal control mechanism with clear structure and effective control. During the examination of contract texts, all the contracts about custody business were examined by competent legal professionals to protect the interests of investors and the benefits and rights of custodian banks. In avoid operation risks, we have established unified and normative standardized work process and fast response mechanism against special events that may occur during operation, so as to ensure that problems can solved quickly after the occurrence of special events and the leaks and system gaps in process or management due to business development and circumstance changes in a timely manner after the events. Meanwhile, we have also strengthened the linkage between headquarters and branches and attached great importance to the effective guidance, management and supervision of branches' custody businesses. We carried out investigation and inspection over the development of assets custody business by all branches and organized post training for operators of branches to ensure that the custody business across the bank could be carried out in a lawful and compliant manner.
What is satisfying to us is that we have not encountered any dispute over contract or agreement over management and operation of custody business nor a lawsuit or arbitration case related to custody business since we started to carry out custody business.
CBN: Could you tell us the specific measures of IB in achieving customer satisfaction?
Wu Ruoman: In fact, for the understanding of service quality, we believe that it lies not only in zero error operation, but more in the service efficiency and user's experience.
In order to ensure that customers can have good service experience, we have also carried out classified business management and simplified the business process based on intensifying audit control over internal risks, so as to improve the operation efficiency and further guarantee the interests of customers and investors. In the meantime, we attached great importance to technological input and improved our service capacity with technical strength. We have about three new projects for development and implementation each year. Considering the increasing business volume, we laid stress on improving the automation level of system in all links and took the measures such as launching or putting an end to products in batches, automatic entry of electronic data, electronic account checking in batches, transmitting customer's statements in a linked way, and effective combination of system with operators, so as to ensure the smooth handling of business. Now, we have launched the new generation of custody system for operation and built a professional all-course handling system for all assets in conformity with the regulatory requirements and market rules. Thus, we further improved our professional service capability of custody business at the backstage, providing technical guarantee for constant product innovation.