Banks' responsibilities

Core values of social progress and sustainability should be promoted in their strategies for going overseas

International disputes and conflicts have occurred frequently in recent years as more Chinese corporations actively carry out transnational strategies. For Chinese commercial banks overseas, some of the conflicts have been caused by their lack of understanding of the importance of fulfilling their social responsibilities.

Corporate social responsibility is an important part of the development strategies of multinational corporations. Transnational commercial banks not only provide valued-added financial services for the public, they also have a unique function in regulating resources, acting as one of the driving forces of local economies. But for a long time, the financial community in China has not attached enough importance to CSR, which has made it difficult for Chinese commercial banks to fully integrate into the international financial market.

Social responsibility usually progresses with a bank's development level. There is a big gap in the comprehensive strength between the leading world banks and their Chinese counterparts, therefore, much needs to be done to improve Chinese banks' understanding and performance of CSR.

Except for a few banks, the CSR planning in Chinese commercial banks is only in a nascent stage and the top management's participation in CSR is not adequate. Therefore, the core values of CSR cannot be transmitted effectively to their branches.

Also the external guidance and supervision need to be strengthened. There has been increasing concern about the social issues brought by economic development in China, and banking regulators are paying more attention to the promotion of CSR, introducing rules such as the Guidelines on Corporate Social Responsibility Performance for Chinese Commercial Banks in 2008 and the Green Credit Guidelines last year. However, compared with developed countries, the banking industry in China lacks systematic laws and regulations defining rights and obligations.

Instead of performing social responsibility in simple ways, such as poverty alleviation and disaster aid, Chinese banks should use financial innovations in performing their CSR. For example, many developed countries have introduced reverse mortgages, which enable the elderly to use their homes as pledges for consumer loans. This allows them to keep the rights to their property while accessing extra funds for daily life. So it is actually a new type of financial product to relieve the pressure on the aged.

In the globalization process, Chinese commercial banks should focus their resources on those projects that contribute more to local environmental protection and social progress. Green credit, which includes all products and services that promote sustainable development, is another development opportunity for Chinese banks.

Technological progress together with new industrial development always boosts the economy. As new energy technology is now leading the next economic boom, research and development in new energy provides Chinese banks with the opportunity to stand with other international banks on the same starting line.

In order to realize a win-win situation, a few leading Chinese banks have implemented a comprehensive CSR strategy in their going-out.

First, they fill up the financing gap in host countries with prompt credit aid.

Second, they realize localization by cultivating local talent to increase tax payments and the employment rate. For instance the overseas branches of Bank of China hired 28,000 local employees between 2006 and 2010. In 2009, $10.6 billion local taxes were paid by China-invested enterprises overseas and 438,000 employees were hired from local communities.

Third, they provide integrated financial services for infrastructure projects, like transportation, water supply and drainage projects, which can largely improve the local conditions. Incomplete statistics show that in Africa, China-invested enterprises supported by Chinese commercial banks have constructed 70 million square meters of housing, 60,000 kilometers of roads and around 3.5 million kilowatts of installed capacity in power stations.

Undertaking social responsibility should be one of the core values in good corporate governance, and Chinese commercial banks need to realize their ethical responsibilities in the globalization process. In recent years, especially after the international financial crisis in 2009, the question of how to make the right strategic decisions to ensure stable operation is quite essential to all financial institutions.

To be more specific, first of all, the decision-making by the corporate board should be based on supporting the real economy and pursuing sustainable development, rather than excessively emphasizing short-term profits. Then, the organizational structure and obligation boundary in corporate governance should be clearly defined to improve the efficiency of the implemented CSR plan. Finally, Chinese commercial banks should be more creative by combining Chinese characteristics with global standards in corporate governance. For example, banks should pay attention to the responsibility of protecting their clients and employees, according to the concept of stakeholder lately defined by the Basel Committee on Banking Supervision.

Generally speaking, banks' social responsibility is not limited to contributing to the government tax revenues and doing charitable acts. Its core value is providing professional services to promote social progress and welfare and better protect the environment.

Chinese commercial banks should highlight CSR in their daily operations and corporate culture, taking into consideration all parties' interests. For the banking industry in China, good CSR performance can help them build a better environment for development. Regulators should introduce all necessary regulations and set up a CSR index for public supervision of banks. The banks should also push forward their transnational strategies by integrating with international principles.

Improving the image of Chinese commercial banks will be beneficial for the future of China's banking industry globally. But they can realize sustainable progress if they take CSR and sustainable development as their core values.

The author is a senior manager with Bank of China.

(China Daily 02/04/2013 page9)