In a recent report, BearingPoint has cited five areas of improvement for China’s banks. Financial reporting and risk, product development, digitization, delivery systems, and management development will become increasingly important as these institutions “emerge on the financial services world stage,” says BaringPoint.
“China’s banks are poised to potentially become some of the most influential financial institutions in the world over the next 10 years, but they first need to address fundamental management issues,” said Christopher Formant, executive vice president, Global Financial Services. “Of primary importance for China’s banks is the need to enhance their ability to manage risk. The banks can become more transparent and granular by not only investing in the appropriate technology, but also by investing in the development of their peoples’ capabilities, especially in such areas as leadership development, governance training and credit and risk management.”
BaringPoint believes that financial reporting and risk will enhance the focus on balance sheet transparency, development and installation of enhanced operating controls and risk management, as well as credit risk in order to meet global standards. In addition, develop processes for resolving the non-performing loans that have accumulated within the banking system, which will become increasingly important as they raise capital on global exchanges.
Chinese banks should also design and develop new products for the burgeoning middle class and the emerging affluent classes of China’s society, such as new payments and customized lending services, according to the company. Key to this will be the development of consumer credit services to arrange for effective distribution of products to the mass market. The focus should also be on developing products and services that can generate service fee revenue, which are currently less than 5% of current earnings.
The third key area, digitization, points out the importance of tools like Business Process Management (BPM) to digitize data and eliminate paper-based processes. China’s banks could potentially leapfrog western banks in the use of digital tools.
Banks should move towards enterprise applications for support functions and modernize delivery and payment processing systems by creating regional centers for clearance and settlement, according to the consultants. The focus will need to be on using technology to deploy Internet-based products and services to consumers and small business customers.
And finally, banks should focus one management development. “Cultivate the leaders of tomorrow by providing training in governance and compliance issues, as well as consider tours of duty into major global financial centers to deepen key functional and managerial skills,” says BaringPoint.