Uniform financial standards to cut risks
Globally standardized financial risk management has become more important for financial services firms as China accelerates its opening-up efforts, and the country’s banking and financial systems look to remain resilient from the COVID-19 pandemic, said the chief executive of a leading global association of risk managers.
“I don’t believe that there is as much risk of a financial meltdown in the Chinese marketplace as there might be in different parts of the globe,” Richard Apostolik, president and chief executive officer of the Global Association of Risk Professionals, told China Daily in an exclusive interview.
It will be important for Chinese banking institutions, however, to address credit and liquidity risk issues in the coming months, as their lending has increased quickly to support enterprises, especially smaller businesses, to tackle shocks related to the novel coronavirus pandemic, he said.
According to Apostolik, nonperforming loans, rising leverage levels, and the efficiency of financing to small and medium-sized enterprises are the other concerns for financial regulators.
A senior Chinese central bank official recently warned that one of the potential risks in the financial system may be the deterioration of banks’ asset quality, and measures may be needed to prevent systemic risks and improve the efficiency of financial resource allocation to small and medium-sized enterprises.
As global financial markets become more interconnected, there is no singular banking institution that can deal with all of the issues within the local financial sector. Meanwhile, China’s financial markets have become more open to international standards. This requires local financial institutions to understand how the rest of the world manages financial risks, said Apostolik.
“As China continues to open its economy and its financial services sector, foreign institutions will be excited about the possibility of being able to conduct business in the Chinese marketplace,” he said.
To attract more foreign companies to operate in the domestic market, the country may need to help institutions better understand how the economic system works, such as its fiscal and monetary policies, as well as the regulatory environment. “A better understanding of this environment will help risk managers to prepare for the challenges,” he said, adding there has been growing need from Asia, particularly China, for learning financial risk management that is being used around the world.
The Chinese government has been supportive by ensuring people who work in financial services can learn about global standards through education. It is important for people to have skills and knowledge about financial risk sets to compete on a global basis as the market opens, Apostolik said.
Beside banking institutions, fintech companies have emerged in China during the past few years, and a number of them are now getting involved in making loans using their own balance sheets. “But it’s important that financial regulators understand the effect of their activities on the economy as a whole,” the CEO said.