Top billing for corporate governance

The nation will come out with more effective measures to promote the corporate governance of financial institutions, a top banking and insurance regulatory official said on Friday.

Financial regulators will evaluate the soundness and effectiveness of corporate governance of banking and insurance institutions, especially small and medium-sized ones, on a regular basis and take strong measures in a timely manner to correct behavior that has seriously damaged the interests of these financial institutions, said Guo Shuqing, Party secretary of the People’s Bank of China, the central bank, and chairman of the China Banking and Insurance Regulatory Commission.

The regulator will strengthen regulations on shareholder behavior, particularly those related to management control of banking and insurance institutions. Stern action will be taken against those found guilty of withholding the mandatory information and they may be forced to cede their shares in the company or face curbs on their shareholder rights, Guo wrote in an opinion piece published in the Economic Daily on Friday.

Financial regulators will seriously conduct reforms of financial institutions, including city commercial banks, rural commercial banks and rural credit unions, and rectify their irregular activities through cooperation with various levels of the local government.

Under the premise that overall stability in the equity structure will be maintained, financial institutions should keep optimizing their shareholding structure and introduce strategic shareholders, which not only have abundant capital and rich management experience but also emphasize long-term development of a financial institution.

Apart from disposing of noncompliant equities in an orderly manner, financial regulators and institutions should also strictly regulate related party transactions and curb controlling shareholders’ behavior to prevent them from improperly intervening in financial institutions’ business operations and violating the interests of small and medium shareholders, Guo said.

China has over 4,000 small and medium-sized banks, with total assets of about 77 trillion yuan ($10.9 trillion). These banks have limitations in management capacity, and their targeted clients are usually micro, small and medium-sized enterprises. Small and mediumsized banks were noticeably affected by the novel coronavirus pandemic this year, said Cao Yu, vice-chairman of the CBIRC, at a news conference on April 22.

The CBIRC has deepened reforms of small and medium-sized banks in the last few years. Part of the goal behind the move was to prevent and mitigate financial risks. The regulator has dealt with, and will continue to handle, high-risk financial institutions in accordance with the relevant laws and regulations.

Bank of Jinzhou Co Ltd, a troubled city commercial lender whose risks were exposed last year, published its delayed 2019 results on June 26. It posted a narrower net loss of 1.11 billion yuan last year, compared with a loss of 4.54 billion yuan in 2018.

After undergoing restructuring and risk disposal, the bank said on March 10 that it would replenish its tier-1 capital by raising 12.09 billion yuan via a share sale to two Statebacked companies. The bank will also dispose of certain assets with a book value of 150 billion yuan and subscribe to a 75 billion yuan debt instrument.

Once all these actions are completed, its nonperforming loan ratio will drop to 1.95 percent from 7.7 percent at the end of 2019. Its core tier-1 capital adequacy ratio will increase from 5.15 percent to 8.85 percent, the bank said in its results announcement.