Shen Bingxi: The Future Investment Direction Of Bank Financing Subsidiaries Will Still Be Fixed Income

In 2020, China's capital market will be established in 30 years. In the thirtieth year, China's asset management industry is also ushering in new variables and development opportunities.

Not long ago, Shen Bingxi, the external supervisor of industrial and Commercial Bank of China and inspector of the former financial market department of the people's Bank of China, delivered a keynote speech entitled "bank financing subsidiary: mission, characteristics and prospects" at the annual meeting of the southern finance and Economics International Forum 2020.

Shen Bingxi introduced the present situation and future prospect of the bank financial management subsidiary from three aspects: the mission of the bank financial management subsidiary, the characteristics of the bank financial management subsidiary, and the prospect of the bank financial management subsidiary.

Recently, the 21st century economic reporter interviewed Shen Bingxi again. As a promoter and witness of the development of China's financial market, Shen Bingxi reviewed the hard starting process of capital bonds and asset securitization of Bank of China, and made a more detailed analysis of the development trend of bank financing subsidiaries.

Recalling the start of bank capital bonds and Asset Securitization

21st century: you have worked for the people's Bank of China for a long time and participated in the formulation of capital market policies. What is the most impressive history of the birth of the policy?

Shen Bingxi: it has been more than 40 years since the reform of China's financial system. The development of China's capital market is a little later, but it has been more than 30 years from the most primary form.

I entered the people's Bank of China in 1990, when the stock market and the bond market took shape. The capital market has a development process. As far as the bond market is concerned, at first enterprises issue bonds, and then banks also issue bonds for capital supplement, from the initial subordinated debt to the later secondary capital debt, primary capital bond and perpetual bond.

What impresses me is the issuance of subprime bonds around 2005. The two banks that issued the first and second capital bonds were Bank of China and China Construction Bank. At that time, the two banks were going to carry out shareholding system reform and listing. Central Huijin Company, on behalf of the state, injected US $45 billion as the core capital (equity) to meet the regulatory requirement that the core capital should not be less than 4%.

However, it is still a little difficult to meet the regulatory requirement that the capital adequacy ratio should not be lower than 8%. So at that time, the two of them had to issue 100 billion yuan of subordinated debt to supplement the subsidiary capital. This practice is relatively common in foreign countries, but it has never been done in China, and there are no relevant laws and regulations.

Therefore, it is necessary to draw lessons from international experience and formulate relevant rules in combination with China's national conditions. At the same time, we should also publicize to investors to form a market consensus. At that time, we did the corresponding work according to this idea and launched the subordinated debt.

After 2008, due to the global financial crisis, the requirement of capital adequacy ratio has been raised. Originally, it was 8%. Later, general banks required no less than 10.5%, and systemically important banks such as the big four banks required no less than 11.5%. However, with the expansion of commercial banks' assets, the demand for supplementary capital is increasing.

There are many ways to increase capital, and increasing share capital is the main way. However, there are many considerations for increasing the share capital, including whether the old shareholders of the bank are willing to reduce the share ratio, and the possible difficulties in financing in the stock market. Therefore, in the later stage, many banks either raise capital through preferred shares or issue subordinated bonds.

However, after 2008, it is no longer possible to issue subordinated debt to supplement subsidiary capital according to the previous prevailing rules. Later, the G20 regulation on financial regulation not only increased the capital adequacy ratio, but also stipulated that the long-term bonds as subsidiary capital must have stronger capital attributes and higher requirements than before.

Among them, the most important one is that the capital bonds issued by banks must absorb part of the losses under specific circumstances. In the past, the subordinated debt was only paid in a later order when the bank went bankrupt. If the bank did not go bankrupt, whether it was unable to pay the interest on time or the principal on schedule, the value of the subordinated debt would not be lost. In fact, it is no different from ordinary bonds. This shows that the capital attribute of subordinated debt is relatively weak.

Therefore, after 2009, G20 stipulated that bonds that can be used to compensate bank capital must have the function of compensating losses under specific conditions. Later, the market developed secondary capital bonds to supplement supplementary capital, and then developed tier one capital bonds to supplement the non core capital of tier one capital. There is a common feature of primary and secondary capital bonds, that is to absorb part of the loss, so the capital attribute is relatively strong. The difference between the two is that secondary capital bonds have a fixed term, while tier one capital bonds do not.

On this basis, we developed the perpetual bond, which means that it has no term at all and exists forever. It is also a kind of primary capital debt in essence, but its capital attribute is stronger. These were developed around 2010.

In 2007, Industrial Bank of China began to study mixed capital bonds, which can absorb a little loss. Its nature is similar to that of secondary capital bonds, but it is weaker than secondary capital bonds. Therefore, in a sense, the mixed capital bond has made a preliminary exploration for the development of secondary capital debt.

This was actually very difficult at that time, because mixed capital bonds involved the problem of absorbing losses under specific circumstances, which was never encountered in the market, and the issuance of such bonds by banks required the joint approval of the CBRC and the people's Bank of China. As we all know, banks, as financial institutions, are supervised by the China Banking Regulatory Commission (CBRC), while bonds issued in the inter-bank bond market are managed by the people's Bank of China. Therefore, the two departments did a lot of research and coordination work at that time, which lasted for more than half a year.

21st century: in addition to bank capital bonds, what other policies were born that you remember deeply?

Shen Bingxi: during my working in the people's Bank of China, asset securitization was also an innovative work I experienced. I took over the work of asset securitization since 2004. There are many stories in the process of promoting research and development, which are very difficult and involve a wide range of aspects.

Asset securitization is different from bonds. After all, the bond market has a long history and asset securitization is brand new. Therefore, we need to do a lot of research and pilot projects.

The people's Bank of China has done some research as early as 2000, but it has been put on the agenda of the people's Bank of China until the promulgation of the "nine articles of the state" in the capital market in 2004. At that time, the people's Bank of China proposed to carry out the pilot project of asset securitization. However, there were still many disagreements in the society. According to the instructions of the leaders of the State Council, the people's Bank of China held a large-scale Symposium of relevant departments and experts to listen to the opinions of relevant departments and experts.

At that time, more than a dozen experts and professors from relevant departments of the Central Committee and the State Council as well as universities and colleges attended the symposium. In the end, we reached a consensus that we should try and prepare to do this. Later, these opinions were reported to the State Council, and in April 2005, the State Council approved the pilot project.

As the pilot project of asset securitization involves all aspects, at that time, according to the instructions of leading comrades of the State Council, an "asset securitization group" led by the people's Bank of China and participated by 10 ministries and commissions was established. President Zhou Xiaochuan was the group leader, and an office was set up below to take charge of daily work.

This matter involves too many aspects, and we do not have any domestic legal support. So we first worked out some measures. Fortunately, the two pilot units were CCB and CDB. China Construction Bank is mainly engaged in the securitization of housing mortgage loans (MBS), while China Development Bank is mainly engaged in the securitization of general credit assets (ABS). Among them, one of the CCB's teams was a person who had worked in Fannie Mae in the United States and provided a lot of technical support.

Later, the method was worked out and the plan was worked out. We should be ready to issue it. In the process of issuing, I also encountered many difficulties. What impressed me most was a tax issue.

According to the common practice of securitization in the world, the principle of tax neutrality is implemented, that is, no tax will be increased due to securitization, because securitization will increase intermediate links. If one link pays taxes, the cost will increase after tax increase, and securitization will be difficult to do. However, the relevant departments still have different opinions on how to implement the tax neutrality principle. After repeated coordination, the tax finally gave an opinion of not repeating taxation during the pilot period of asset securitization, which ensured the smooth progress of the pilot project.

For example, MBS also involves the change of collateral ownership, so it is more complicated. Before securitization, the collateral is mortgaged to the bank. After securitization, the collateral is not given to the bank, but transferred to the special purpose vehicle (SPV). Because this part of the mortgage securitization, in the future, if the mortgage can not be paid back, the collateral will be realized, and the money realized will be taken into the asset pool.

The change of mortgage right needs to be registered in the real estate management department. According to the regulations, registration must be done by each household. This will take a lot of time, because there are a lot of housing mortgage loans. In order to solve this problem, the Ministry of construction has issued a notice to allow the housing management department to process the change registration in batches.

However, after the notice was issued, it was not adopted in some places. I remember that a batch of mortgage loans in the MBS of China Construction Bank were in a southern city, and the Housing Administration Bureau of this city was not willing to deal with them in batches because they had to register one by one according to local laws and regulations. After the coordination of various parties, they agreed to deal with the problem in batches in the name of supporting the reform pilot.

At that time, I felt that the pilot project was too difficult because it involved too many aspects and there were too many relations to coordinate. Of course, these difficulties were gradually solved and the pilot project was successfully carried out. After wading out these roads in front of us, things in the back will be easier to handle.

The rules of asset securitization should be further clarified

21st century: in 2016, you mentioned that China's asset securitization needs to create some conditions for its maturity, and it should focus on solving several problems, such as properly handling the relationship between credit asset securitization and enterprise asset securitization, especially the ownership and policy issues of asset securitization in the middle zone, and the securitization difficulties of small institutions The effective systems and methods should be transformed into laws and regulations through legislation as soon as possible. Now, four years later, what problems have been solved?

Shen Bingxi: these problems mentioned above are being solved, but they can not be said to have been solved. For example, there are no laws and regulations on asset securitization, and the difficulties of asset securitization of small institutions have not been fully solved.

Let's focus on the first question.

Now our understanding of asset securitization is different from that when we started the pilot project. During the pilot project, many people thought that asset securitization was similar to issuing bonds. Now we all know that there is a big difference between the two. Even from the perspective of financing, asset securitization is based on the credit and value of assets, while bond issuance is based on the credit of issuers.

But at present, we do not have a clear understanding of all the problems of asset securitization. For example, as for the relationship between credit asset securitization and enterprise asset securitization, we all know that they are different, because their regulatory authorities are different. The securitization of credit assets shall be supervised by the people's Bank of China and the China Banking and Insurance Regulatory Commission, while the securitization of enterprise assets shall be supervised by the CSRC. But what is the difference between them? Is it because of the different underlying assets of securitization or the different originators of securitization? If the underlying assets are different, what are the differences? People's understanding of these issues may not be so clear.

If the understanding of these problems is not clear, there may be loopholes in supervision and mistakes in actual operation. The "Huabei" ABS can make the leverage ratio very high. To some extent, it makes use of the fuzzy understanding on this issue.

The fundamental difference between credit asset securitization and enterprise asset securitization lies in the difference of their basic assets. The former is credit assets, and the latter is non credit assets of industrial and commercial enterprises. There is a certain relationship between assets and the institutions that own these assets. Credit assets are generally owned by banks and other financial institutions, while enterprise assets are generally owned by industrial and commercial enterprises.

But there are also exceptions. Some enterprises that are not included in the scope of financial institutions, such as small loan companies, whose assets are also credit assets. But because it is not a financial institution, the securitization of its assets takes the way of enterprise asset securitization. In fact, it is unreasonable to classify the ownership of two different types of asset securitization according to the identity of asset owners.

As we know, the basic assets of asset securitization of enterprises are usually charging rights, accounts receivable and other assets, that is, the income right of assets, and generally does not include the original assets that generate these income. For example, the securitization of toll rights for roads and bridges does not take into account the value of roads and bridges themselves.

The basic asset of credit asset securitization is credit asset, which is securitized with interest and capital, so its amount is larger. Because of this, the supervision of credit asset securitization is more strict.

The main investment object of bank financing subsidiary is still fixed income

21st century: bank financing subsidiary is an area of great concern to you. What is the position of the financial management subsidiary of the bank in the whole asset management industry? What are the advantages of dislocation competition?

Shen Bingxi: I think the positioning of the bank's financial management subsidiary is relatively clear.

It can be said from two aspects.

On the one hand, from the macro level, the financial management subsidiary is a special department of the asset management business of commercial banks, and also an integral part of the entire asset management or wealth management; from the micro level, that is to say, for commercial banks, the financial management subsidiary is actually a form of comprehensive operation through collectivization, because there are a large number of non bank main businesses Business is done through the establishment of subsidiaries, not only financial management, but also other funds and insurance.

On the other hand, the financial management subsidiary of a bank conducts asset management or wealth management for investors with stable income but conservative or stable risk preference.

Commercial banks used to do financial services. From the perspective of customer objects, there is no big difference between the original and the present. A very important difference is that the financial management subsidiary is an independent legal entity, which is originally a department. In this way, the business scope of the financial management subsidiary is much wider than before.

For example, the funds of the financial management subsidiary can be invested in fixed income products, as well as equity and equity products. But in the asset management department of the bank, because it is the business of commercial banks, strictly speaking, it can not invest in equity products.

Therefore, the advantages of financial management subsidiary lie in its wider service range, stronger flexibility, stronger autonomy in capital application, and easier consideration of risk, profitability and security. Of course, the original channel advantages and customer advantages are still there.

21st century: some institutions believe that the urgent task for banks and financial management subsidiaries is to complete the net value transformation and non-standard asset disposal during the transition period of the new asset management regulations. What do you think of this issue?

Shen Bingxi: the management of net value and the disposal of non-standard assets must be done in accordance with the new regulations on asset management. On the whole, it is indeed a top priority.

However, as for a bank's financial management subsidiary, it also depends on its previous financial management business and the way it handles the original financial assets. If the financial management business was not done much in the past, and the newly established financial management subsidiary undertook little original financial assets, the net value management and non-standard asset disposal would not be the top priority. The top priority of these financial subsidiaries should be how to vigorously expand financial services.

In the past, some banks have carried out more wealth management business, and the task of net value management and non-standard asset disposal is relatively heavy, but it is not necessarily the top priority of financial management subsidiaries. Because some banks take transitional measures, that is, while setting up financial management subsidiaries, they still retain the original asset management department, which will dispose of the original financial assets, and then cancel the asset management department after the disposal task is completed. From scratch, the newly established financial management subsidiary naturally has no task of disposing non-standard assets, and the net value management is only a prescribed action. There is no trouble and there is no urgency.

Only those banks that have done a lot in the original financial management business and transferred all the original financial management business and financial assets into the financial management subsidiary after the establishment of the financial management subsidiary, the top priority of the financial management subsidiary is the net value management and non-standard asset disposal. Because the original burden is relatively large, and it must be done according to the new regulations, there will be a certain degree of difficulty.

Because the net value management is proposed in the new asset regulations, and many banks that originally do this business do not have such experience, it may be difficult to explain to customers and dispose of non-standard assets in a short time. In this sense, this is indeed a top priority.

The competition of bank financing subsidiary is "dragon and tiger fight", which is market-oriented competition

21st century: from the perspective of an industry structure of bank financial management subsidiaries, the first situation is that at present, more than 2000 products have been issued, of which nearly 80% are issued by the four state-owned banks; the second is that from the perspective of the 17 financial management subsidiaries of banks that announced their earnings in the first half of this year, China Merchants Bank has the highest rate of return, about 10%, accounting for the profits of the whole industry Half of it. What do you think of the future competitive pattern of this industry?

Shen Bingxi: I don't think it is necessary to set up financial management subsidiaries generally.

First, it is conditional for commercial banks to set up financial management subsidiaries. If the business scale is relatively large, it needs to have certain brand advantages. If a small bank wants to do financial management business through its subsidiaries, the cost will be very high. It may be better to set up an asset management department in the bank. If the reputation, reputation and brand are not good, the market will not recognize you, so it is impossible to set up a financial subsidiary. It is also easy to understand that the four major banks have a large volume, many outlets and a large number of products issued by financial subsidiaries. Even if there is no financial subsidiary, the number of their original financial products is very large.

Second, from the current point of view, the four major banks have more products, but after the establishment of financial subsidiaries, their own competition is very fierce. In fact, it's all dragon and tiger fights. Finally, it depends on whose skills are high, the level is high, and the competitiveness is strong. This is the result of marketization, not that banks must be powerful if they are big. Therefore, even the financial subsidiaries of the four major banks should have a sense of hardship and competition.

21st century: the license advantages of bank financing subsidiaries have been repeatedly mentioned by all parties, such as wider investment scope, more relaxed liquidity supervision, etc. is the license advantage of bank financing subsidiaries temporary or long-term?

Shen Bingxi: the advantages of license plate exist comparatively. At the bank level, compared with the original asset management department of the bank, the current financial management subsidiary has the advantage of license plate, because with the license plate, it is more flexible and independent in operation, and has this advantage.

If compared with some other asset management institutions, I don't think it is possible for the bank's financial management subsidiaries to have license advantages. At present, there are many types of institutions engaged in asset management business. They all have their own specific licenses. Do they also have license advantages?

In fact, banks have set up some funds, insurance and other subsidiaries, and they are also doing some asset management business. Of course, these subsidiaries also have licenses and are subject to corresponding supervision. Isn't that a license advantage? In fact, different organizations have different business areas, and it is impossible to make a simple comparison between them. And the same business should be bound by the same rules and operate according to the same rules.

The new regulation of asset management has been demonstrated. At present, there are no uniform laws and regulations for bank financial management or other financial management. Some regulatory differences behind the license plate may reflect the advantages of license plate. However, with the unification of business supervision standards in the future, the so-called license advantage will be lost. Now, it is actually moving in this direction.

If the license advantage of the financial management subsidiary is understood as having this license, it is another matter. Financial business is a franchise business, not only financial management, but also other financial businesses. Without a license plate, we can't do it. With the license of financial management subsidiary, it means that it has been granted a license, and at the same time, it must be subject to strict supervision. Rights and obligations are equal.

To change "banks are too big and investment banks are too small" is for more financing channels

21st century: there is a view that China's capital market is "too big for banks and too small for investment banks". What do you think of it?

Shen Bingxi: to say that banks are too big and investment banks are too small may mainly mean that the proportion of indirect financing in China is too large and that of direct financing is too small, because banks are the undertakers of indirect financing and investment banks are the undertakers of direct financing. However, strictly speaking, the two can not be equated, because now banks also do some investment banking business. The banks are too big and the investment banks are too small, which is formed by history. Originally, there was no investment bank, but after decades of development, investment banks also have. Although it is still relatively small, it has also made great progress.

Looking to the future, I think the situation that investment banks are too small and the proportion of direct financing is too low should be changed. This is because developing the capital market and increasing the proportion of direct financing will not only help enterprises obtain long-term development funds more conveniently and economically, but also help prevent and control credit risks and stabilize the financial system.

However, the proportion of direct financing and indirect financing is better, which needs to consider many factors. Among them, there are two important points. One is to consider our credit culture. Different credit culture and traditional habits of different countries often affect the proportion of direct financing and indirect financing. The United States focuses on direct financing, and the proportion of indirect financing in European countries is higher than that in the United States, which is related to their credit culture and traditional habits. China's cultural tradition also pays more attention to indirect financing, and private lending also requires an intermediary. Second, we should consider the level of marketization. Direct financing has higher requirements on the level of marketization, the ability of investors to control risks and bear risks, and the quality of social intermediary organizations. At present, China's conditions in these areas need to be improved. Therefore, it is impossible for us to raise the proportion of direct financing to a high level. The purpose of changing the proportion of the two financing methods is to provide more and more economic financing channels for enterprises, so that finance can better serve the real economy, rather than change for the sake of change.

Changing the situation that the proportion of direct financing is too low and the proportion of indirect financing is too high is related to changing the situation that investment banks are too small and banks are too large, but they can not be completely equivalent. Because investment banking business and investment banking are not the same thing. To expand investment banking business includes developing investment banks as well as some investment banking businesses. Now there are investment banking departments in so many banks.

21st century: how do you look at the corporate governance of listed banks and what aspects can be improved in the future?

Shen Bingxi: I think the level of corporate governance of big banks is relatively high. At least, these banks do not cheat.

As far as I know, the phenomenon of fraud in listed companies exists. The so-called fraud includes statements and performance disclosed before listing, as well as financial fraud after listing. I used to be a director of ABC and now I am a supervisor of ICBC. From my own experience, whether it is ICBC or ABC, there is no problem of falsification in various statements and information disclosed.

The second is that after the reform of the bank in accordance with the shareholding system, the organization is relatively sound, and the operation of corporate governance is relatively standardized. The supervision of banks in several aspects is quite severe, including the supervision of major shareholders, the Ministry of finance, Huijin and social security. I think this may also be an important reason for the relatively standardized behavior of banks.

The directors, supervisors and senior executives of these large banks have relatively high overall quality and perform their duties in a proper way. Because I have contact with many independent directors during my time as a director, I also have contact with many external supervisors when I am a supervisor. Some of them also serve as independent directors or external supervisors of several listed companies. They compare with each other and think that the corporate governance of big banks is still not good Wrong.

I feel it myself. When the board of directors makes decisions on some major issues, they often communicate and discuss repeatedly, listen to opinions widely, and strictly abide by the prescribed procedures.

Of course, China's corporate governance is gradually improving, and there may be some imperfections in these large institutions. For example, the decision-making of the board of directors, which are major issues and which are general issues, are relatively principled, but the specific implementation requires a correct judgment. If something that is not very important is brought to the board of directors for discussion, it will reduce efficiency and is not conducive to playing the role of the management; on the contrary, if some important issues are really not discussed by the board of directors, it will not work. This needs to be explored step by step in practice. Generally speaking, I think the corporate governance level of big banks is good.

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