By Zhu Qiwen (China Daily)
Updated: 2008-03-03 13:57

The combined non-performing loan ratio of China's five largest banks rose from 7.83 to 8.05 in the fourth quarter last year, reversing the decade-long trend of improving credit quality. Though the rise in the bad loan ratio was largely due to the erosion of asset quality of the Agricultural Bank of China at the end of last year, the ongoing monetary tightening will surely have a far-reaching impact on the whole sector.

Domestically, those banks whose performance depends heavily on loans for industrial investment are likely to be hit hard this year. Internationally, the US slowdown will affect China's exports and thus those domestic lenders behind them.

Domestic banks' focus on the Chinese economy has proved a big plus for their growth over the past years. However, as the country shifts away from its dependence on investment and export for economic growth, Chinese banks should also adjust their business structure to better serve domestic consumers. If the country boosts domestic consumption into a major growth engine, consumers' demand for financial services will also grow by multiple folds.

But the current low customer satisfaction of most domestic banks, as the ATM case indicates, remains a key weak point they must address.

It is true that Chinese banks will face more and more risks ranging from technical faults and moral hazards to financial crisis. Any effort to enhance banks' risk management will be more than needed.

Nevertheless, more fundamental than risk management for the industry is the public's trust and support. Chinese consumers' loyalty is a strong point domestic banks must gain.

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