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Chinese banks fortifying risk management

Carol Ko | Aug. 28, 2008
Chinese banks are now reinvesting in their back offices, by adopting better risk management practices, as well as dealing with compliance.
In a recent interview with a Gartner analyst, I learned that Chinese banks are now reinvesting in their back offices, by adopting better risk management practices, as well as dealing with compliance.

Christophe Uzureau, research director of the banking segment at Gartner, told me its important to note the different levels of maturity of IT services across Asia, in terms of how banks use IT applications.

With the credit crunch and effects of the sub prime crisis rippling across Asia, Uzureau said that banks in China were realizing the need to invest in risk management, and were dealing with compliance, based on better accounting systems, and preparing themselves for Basel II.

Uzureau had recently spent some time in Shanghai networking with bankers, and said he noticed that some banks in China are trying to reinvest in their back offices, and to improve the prosperity of some of the processes of their banking operations.

The bank regulators in China -- The Peoples Bank of China and the China Regulatory Banking Commission -- are quite keen for banks to improve their compliance and risk management practices,said Uzureau.

In terms of IT investment, clearly, risk management is a priority in China for front clients because Chinese banks have to deal with the lack of credit information in the market.

Most Chinese banks do not yet have any central database, providing crucial information on the credit wealthiness of small-medium businesses, according to Uzureau. And this poses a difficulty, as The Peoples Bank of China works on credit recalls, from small-medium businesses and from consumers.

The reason for the absence of a central database, according to Uzureau, is the inadequacy of historic data, which is difficult to collect in the first place, and is definitely not something that can happen overnight. Thus, these banks in China are investing in their own credit analytical tools. With better analytics, banks can better understand the credit-worthiness of their customers.

Uzureau foresees that there will be some important investment on the IT side in Chinese banks, as they develop a more scientific approach in risk management, to derive a better understanding of credit risks and channel integration, for instance. The bottom line is still with risk management placed in a high priority, such as compliance requirements. As a regulator of Chinese banks and an important driver of the market, The Peoples Bank of China is already adopting better risk management practices and is progressively looking into Basel II requirements, said Uzureau.

Carol Ko is the Deputy Editor of MIS Asia and is chiefly responsible for covering stories of CIOs and senior IT managers in North Asia. 


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