June 26, 2013 Source: Shanghai Securities News Reporter: Gao Xiang
For Industrial Bank (IB), corporate finance is not focus of attention of public opinions. Yet, the bank launched its reform in corporate finance lines quietly in July 2011, and now, two years have passed.
IB indicated to the reporter of Shanghai Securities News that reform had laid stress on the role of business lines, and a matrix management system “combining blocks and strips” had already been formed. Meanwhile, with the support of adjustment to HR construction, corporate customer managers could apply for establishing business departments to get separated from the physical outlets, which has helped to increase the vitality of corporate business.
Within less than two years, the bonus released by the reform of corporate finance lines can be seen in the data. IB rises to the third place among joint-stock banks in term of market proportion of corporate deposits, with customer base keeping growing. In the meantime, IB, making use of its multi-license advantage, has business lines coordinated in a mutual manner, and in the perspective of serving as a CFO for customers, the bank can also design a package of financing solutions in addition to conventional credit. In this way, funds can flow into real economy enterprises by way of different businesses, and hence, the bank can obtain incomes in multiple ways.
Adopting the Management Model “Combining Strips and Blocks”
Before the reform, the corporate finance business of IB laid more stress on the role of braches. With priority being given to “blocks”, the business lines only played a limited role. With a relatively conventional model, the organizational structure featured a heavy administrative tint and business departments had insufficient coordination. The outlets of sub-braches engaged in both corporate and retailing businesses.
At the end of 2011, IB established the Corporate Finance Headquarters, responsible for the business operation and management of the whole bank's corporate finance business. Nine first-tier departments were set up in the headquarters, and they are respectively: Management Department of Corporate Finance Business, Marketing Management Department, Risk Management Department, Investment Banking Department, Trade Financing Department, Cash Management Department, Sustainable Finance Department, Small-sized Enterprises Department, and Institutional Business Department.
The reform of corporate finance lines, IB told the reporter of Shanghai Securities News, made breakthrough from the construction of organizational system and human resources.
From the perspective of organizational system, the reform has given prominence to the role of business lines and combined the “blocks” at the level of branch and “strips” at the level of business line, thus forming a matrix management system “combining blocks and strips”. In terms of business line, the bank established a four-level framework covering “Corporate Finance Headquarters under the Head Office - Corporate Finance Headquarters under each branch – Business Headquarters – Business Department”.
Qiu Guanhua, a banking analyst of Guotai Junan Securities, believes that, in terms of HR construction and incentive, the corporate customer managers who used to work at sub-branches can apply to establish business departments if they have enough customer resources, and the treatment is equivalent to that of a sub-branch's president. Thus, they can be relieved from the restrictions of physical outlets (sub-branches). There is a half-year period of probation for a newly-established business department. If it reaches the given standard, the department will be deemed as a qualified one. If it fails to reach the given standard, another half year will be given as the warning period for the department to formulate new objectives and plans. If it fails to reach the given standard again, the department should secede. By the end of this first quarter, the up-to-standard rate of business departments reached 67.5%.
After the accumulated customer resources of a business department reach a level, it can apply to establish a business headquarters. In this regard, Chen Xi, an analyst of Central China Securities analyzes that the rank and treatment of business headquarters are equivalent to branch leaders and this is a measure changing the administration-based HR management model, getting through the post promotion channels of employees and significantly mobilizing the enthusiasm of customer managers.
Different from the department-based reform, this reform of corporate finance business lines does not take out the “strips” thoroughly. For this point, Tang Yayun, an analyst of Northeast Securities believes that such reform is practical and it can better combine the attributes of business lines and regional features of branches. Of course, specialization should be intensified in some areas and industries.
By the end of the first quarter of 2013, as indicated by IB, 97 business headquarters have been established at the branch level by the bank, and the number of business departments have reached 1,230, up by 44% over the same period of last year, an increase of 379. In the same period, the bank only had more than 700 physical outlets.
The risk control systems are also different before and after the reform. Before the reform, all businesses should all be approved by the Risk Examination Department. Risk managers would not participate in project development but only be responsible for examination and approval at the backstage. Additionally, there were only limited assessment indexes. After the reform, specialized examination is implemented, with risk control being embedded into business lines, risk directors assigned inside specialized business lines, and risk windows embedded into corporate business line, investment banking, trade finance and small-sized enterprises department.
Risk managers are moved forward from the backstage, getting fully involved into process from due diligence. This act not only improves the efficiency of examination and approval, but also enables flexible adjustment to risk policies.
Positioning Itself as a “Shadow CFO” of Customers
The bonus released by the reform of corporate finance lines has be seen in the data.
In 2012, the bank's stock market proportion of corporate deposits increased by 0.48% over the beginning of this year, and continued to rise by 0.16% in the first quarter of 2013. By the end of the first quarter, with its market proportion of corporate deposits reaching 3.03%, the bank ranked No.3 in the market ranking of similar joint-stock banks, up by 2 positions.
Nonetheless, compared with the rise of rank in the industry, what's more noteworthy is that IB can provide diversified financing for customers with the businesses under the pattern of “one body with two wings” in a better way and inject funds into real economy enterprises in different forms.
The so-called “one body” refers to the conventional credit businesses. The “two wings” first refer to the non-credit businesses including investment banking, financial lease and structure financing; second, the payment and settlement businesses covering supply chain and cash management. Taking the conventional credit as the base, the bank adopt the strategy of “breaking through with investment banking, following up with trade financing, and consolidating with cash” to design a package of financing solutions for customers.
The investigation report of GF Securities shows that, by the end of this first quarter, the total financing volume provided by IB's corporate finance team to customers reached RMB 2.2 trillion, of which on-sheet credit accounted for only 44%, off-sheet credit 25%, and the investment banking businesses including financing tools up to 30%.
No matter institutional business or corporate finance, Qiu Guanhua believes, is only an external expression form of business, but reflects the strategic positioning of IB behind, namely the “shadow CFO” of customers. In the perspective of serving as a CFO for customers, IB, holding the investment banking oriented service thought, provides one-stop packaged financial solutions for customers by utilizing multiple financial licenses in an all-round way, and earn proceeds with professional services.
In the future, will IB continue intensifying the matrix management model “combining stripes and blocks”, or give further prominence to the role of “stripes”? In this regard, IB does not set a fixed objective, but only indicates that the reform of corporate finance is a systemic project and will generally be pushed forward in four directions – “diversified fund-raising, multiplied financing, modernized payment and settlement, and multiple financial incomes”.