Executive: Banks should be more discerning when they adopt new solutions

Banks should wait until the most up-to-date technologies become mature and stabilized before using them rather than trying to be pioneers of new technologies, a financial sector executive said.

"Bankers should be natural-born conservatives. The eternal theme of the financial sector is not innovation, but the prevention and control of risks," said Zheng Zhiying, chairman of Bank of Handan Co Ltd, a regional joint-stock commercial lender in Hebei province.

Zheng said China should take a prudential, rather than radical, attitude toward internet finance.

"There are always elderly people and people negatively affected by the digital divide. When a new type of business emerges, bankers should not enter the business in a hurry. We'd better wait for a few years until the business has been tested by the economic cycle. In this way, we will lower our trial-and-error costs and learn from others' mistakes," he said.

China is working to mitigate financial risks posed by internet businesses, said Pan Gongsheng, deputy governor of the People's Bank of China, the nation's central bank, in a Financial Times opinion piece published on Jan 27.

"China is trying to strike a balance between encouraging fintech development and preventing financial risks via prudent regulation," Pan said.

Bank of Handan conducted research into the granting of micro credit by small and medium-sized banks based on data mining－that is to say, digging into client data to distinguish good clients from not so good ones.

The study produced valuable results but the bank is reluctant to publicize its research findings for fear that some clients may intentionally generate false data.

"We are active in terms of fintech research and development but prudent in terms of applying new technologies," Zheng said.

Over 75 percent of its new clients have never received bank loans before. The bank mainly relied on offline investigations to learn about clients and make lending decisions.

"Banks cannot serve all business clients. Instead, we are only capable of serving a portion of them, that is to say, the clients whose loan demand ranges from 1 million yuan ($153,900) to 1 billion yuan.

"The clients whose loan demand is less than 1 million yuan or even less than 500,000 yuan are not ideal for banks. If we use staff to conduct due diligence on customers, costs will be too high. But if we try to understand these small clients solely through technical means, we'll find it hard to control lending risks," he said.

Although microloans have helped promote consumption to some extent by allowing low-income consumers and students to buy now and pay later, they also amplified financial risks.

"Commercial banks should pursue a low-risk strategy. If we offer loans at a lending rate of 18 percent to make up for loan impairment losses while our nonperforming loan ratios are between 3 percent and 5 percent, we are actually fostering a group of borrowers who think they can default on loans because banks will use high lending rates to compensate for losses. This will damage the credit culture of banks," he said.

By the end of 2020, Bank of Handan's NPL ratio was 1.9 percent. Its NPL ratio of inclusive loans to micro and small businesses, which means loans to small businesses whose total credit lines are up to 10 million yuan per borrower, was 4.88 percent, he said. The number met the regulatory requirement for a bank's NPL ratio of inclusive loans to small businesses, which can be at most 3 percentage points higher than its NPL ratio for total loans.

To create a distinctive feature of services and better serve its clients, the bank provided cash deposit and withdrawal services as well as customer repayment services in the evening at one branch in each of the following cities in Hebei province－Handan, Shijiazhuang, Baoding and Qinhuangdao.

As the upper limit on ATM cash withdrawal is 20,000 yuan per day per debit card, a client must go to a bank counter to withdraw larger amounts.

The bank has provided evening service since November 2012. It now attracts cash deposits of 3 million yuan on a typical evening, mainly from clients such as the owners of supermarkets, shopping malls and gas stations, and night market vendors.

The evening service brought massive deposits to the bank and helped it improve customer retention rates, Zheng said.