By Guo Tianyong (China Daily)
Updated: 2007-07-30 10:33

Here is a top opportunity for city commercial banks. If they adjust their lending policy and offer a larger part of their excessive liquidity to small and middle-sized businesses, they would not only ease the thirst for capital, but also reduce liquidity.

It is also a responsibility of the city commercial banks to offer a lending hand to small and middle-sized businesses.

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Concerned about the risks facing urban credit cooperatives, the central government began consolidating them into city commercial banks in the late 1990s. Hence, these banks have inherited the mission of the urban credit cooperatives: to serve small and medium-sized businesses and promote local economic development.

Even after going public, such a mission should not be abandoned by these banks.

They must also pay special attention to balancing liquidity and profitability.

On the one hand, they must keep a proper level of liquidity for officially required reserves and payments and on the other, they should also pump their money into multiple channels to diversify risks and improve profitability. The channels include mutual funds, insurance, bonds, gold and equity.

By making full use of these channels, the banks could reap good rewards from deposit accounts.

Meanwhile, they should also employ modern technology and managerial experience to refine their strategy in liquidity management.

As small and middle-sized businesses usually involve bigger risks and uncertainties than large companies, a risk pricing and risk control system is also indispensable for all city commercial banks.

The system should include risk appraisal, a database for risk information, and surveillance on outstanding loans

With such a well-established risk control system, city commercial banks may be able reduce their bad debts and stand firmly in the financial market against the State-owned banks, the larger shareholding commercial banks and foreign banks.

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