A commercial bank should explore equity incentive plan and other medium to long-term incentives so as to conform the personal interests of senior management staff to the bank's medium to long-term growth target, said Shang Fulin, Chairman of China Banking Regulatory Commission (CBRC) in the 13th general meeting of China Banking Association (CBA) on September 16. It was the first time he had publicly supported banks to introduce equity incentive.
Shang noted that the banking reforms in the past decade were focused upon restructuring each banking institution into a joint-stock firm, and so far 80 to 90 percent of China's banks have completed this task. Now corporate governance should take the center stage. In other words, banks should endeavor to design checks and balances that help ensure sound decision-making and steady management. It is also very important to have in place a power-sharing system among shareholders that not only prevents dictatorship of the leading shareholder but also avoids the insider-control problem due to spreading the shares too thinly.
It would be better if banks isolate the wealth management services from other businesses, manage the fund-raising, investment, and risk exposure up to the highest standards, and forbids any kind of profit-sharing or bailout. Credit asset securitization should become a normalized arrangement to speed up the disposal of non-performing assets, provided that it involves actual risk transfer and any retained risk must be covered by provisions.
Shang further listed six aspects for deepening the banking reforms, including corporate governance, competitive differentiation, integrated operations, financial product innovations, consolidated Supervision, and information disclosure.
Innovations can be carried out in the credit, wealth management, agent, and negotiable securities investment businesses, but the bank should not take more risks than it can bear, and all parties involved must be held accountable.
Shang pointed out that the services and products offered by the banks remain very similar. To solve this problem, each institution must have a unique strategy, set up a distinct network, and strengthen the intesnive management of the group.