Opinion

Five keys to successful banks

By Xiao Gang (China Daily)
Updated: 2010-08-06 14:04

The global financial crisis has apparently brought dramatic changes that will impact the banking industry. Three characteristics define the new era that bankers have entered.

First, banks have to maintain their profitability in the coming low-growth economic environment. Recent developments in developed and emerging economies both have shown that there are many uncertainties in the road to recovery from recession, and that different countries face different problems.

Some countries have to control their budget deficits and government debts but cannot for fear of delaying the recovery. Others are considering withdrawing their loose monetary policies in order to prevent asset bubbles and to control inflation. But at the same time, they are worried that too early a withdrawal may deal a heavy blow to the ongoing economic growth or even lead to a dreaded double-dip recession.

Despite mixed forecasts for the world economy and controversies in policymaking, common sense suggests that the world economy is almost certainly facing a prolonged period of low-growth, implying that the period of high profitability for the banking industry may be nearing its end.

Second, banks must develop their business further amid structural rebalancing and economic reforms. There is little doubt that the world economy can no longer revert to the expansionary model of the pre-crisis period. Neither over-consumption nor over-saving would be enough to stimulate the economy and keep it on a healthy, sustainable path.

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Taxpayers are getting increasingly dissatisfied with public utilities, and policymakers are focusing more on resolving social problems rather than on economic growth. And more and more policymakers' agenda are according priority to education, employment, housing, pension and healthcare. All these will give rise to many new requirements for customers and provide the banking industry with huge potential for profitable business transformation.

Third, banks now have to establish a framework for managing the rising regulator burden while conducting their business. The magnitude of the government response to the global financial crisis will leave fundamental and long-lasting effects on banks everywhere. More stringent capital and liquid assets standards could place greater burden on banks' returns to their investors. Tougher rules on banks in the post-crisis period, which were sometimes decided on the basis of compromises between the regulators and bankers, could turn the banking industry into a less innovative sector.