1. The impact of RMB appreciation on the assets and liabilities of commercial banks
RMB appreciation directly affects the changes in the value of assets and liabilities denominated in US dollars. The larger the dollar position a bank earns, the greater its negative impact. The appreciation of the RMB will further aggravate the tight source of foreign exchange funds and strong demand of commercial banks, and there will be certain hidden risks of foreign exchange liquidity in the medium and long term. On the one hand, the growth rate of foreign exchange deposits of commercial banks has slowed down in recent years, especially the gradual decline of foreign exchange savings deposits. As of the end of June 2005, the balance of foreign exchange deposits in my country's financial institutions was US$165.286 billion. After the exchange rate adjustment, the balance of my country's foreign exchange deposits continued to decline, falling to US$158.9 billion by the end of March 2006. On the other hand, since financing costs can be reduced by borrowing foreign exchange loans and converting them into RMB for use, demand for foreign exchange loans is strong and loan balances are rising rapidly. The simultaneous effects of the two aspects have caused the foreign exchange deposit-to-loan ratio of commercial banks to continue to rise, even exceeding the warning line set by the central bank that the foreign exchange deposit-to-loan ratio should not exceed 85%. Moreover, from the perspective of loan terms, the proportion of medium and long-term foreign exchange loans in all foreign exchange loans increased from 41.50% at the end of June 2005 to 46.42% at the end of March 2006, while short-term loans decreased from 33.07% to 29.96%. This forms The foreign exchange assets of banks are concentrated in loans, and the loan terms are mainly medium and long-term loans, resulting in an increase in the liquidity risk of foreign exchange assets of financial institutions. In the next stage, commercial banks will face greater challenges of exchange rate risk and liquidity risk in the field of foreign exchange.
The continued slight appreciation of the RMB has strengthened the public's expectations for the continued appreciation of the RMB. Foreign exchange savings deposits may further decline. In order to curb the downward trend of foreign exchange savings deposits, commercial banks have launched policies related to interest rates or other basic assets. However, judging from the foreign exchange financial products launched by Chinese and foreign banks, there are two major flaws: first, most buyers do not have the right to terminate early; second, the product design is mainly related to the interest rate and exchange rate of foreign currencies, gold prices, oil prices, etc. There is a lack of products linked to the RMB exchange rate. Even if the annual rate of return of foreign exchange financial products reaches 5%, if the RMB appreciates to a large extent, the actual rate of return will be greatly reduced or even suffer a loss. In the future, foreign exchange wealth management products will become an important means for commercial banks to stabilize their foreign exchange savings deposits. In this regard, competition among commercial banks will become more intense.
2. The impact of RMB appreciation on international settlement business
International settlement business is an important source of income for my country’s commercial banks. RMB appreciation has a certain impact on the international settlement business of my country’s commercial banks. However, according to our analysis, the impact is not very large, and it even promotes the international settlement business of commercial banks. For industries involved in import and export, the appreciation of the RMB is equivalent to increasing export prices, reducing the competitiveness of exports, reducing the cost pressure of rising prices of imported raw materials, etc. The appreciation of the RMB will encourage imports and inhibit exports. However, since the appreciation of the RMB is relatively small, the external competitiveness of my country's export products is still very high. A small and moderate appreciation of the RMB will have little effect on inhibiting exports. Specifically, after the RMB exchange rate reform, the exchange rate's regulatory role in trade balance gradually began to play. After August 2005, the import growth jumped from the previous rate of about 10% to more than 20%, which was in line with the export growth. The gap in growth rates has narrowed rapidly. Even in the last two months of 2005, the growth rate of imports exceeded that of exports. In February this year, the growth rate of imports was also higher than that of exports. Then in March and April, exports still grew faster than imports. From January to April this year, Monthly exports reached US$274.23 billion, a year-on-year increase of 25.8%; imports were US$240.48 billion, a year-on-year increase of 22.1%; the import and export surplus was US$33.75 billion, a year-on-year increase of 61.4%. In addition, as part of a series of reform measures, changes in the RMB exchange rate At the same time, there may be other policies accompanying it, which makes the impact of exchange rate changes themselves less obvious. Although RMB appreciation will have a great impact on related industries, it will have little impact on the import and export international settlement business of commercial banks, at least for now. In the long run, as long as my country's total import and export value does not decrease, the international settlement business of commercial banks will not be greatly affected. The only difference is that the business volume of export settlement business and import settlement business will change accordingly. Export settlement business may decrease while import settlement business may increase.
3. The impact of RMB appreciation on foreign exchange capital business
The impact of RMB appreciation on the foreign exchange capital business of commercial banks is twofold. First of all, as the slight appreciation of the RMB leads to stronger appreciation expectations, more foreign exchange funds may choose to settle foreign exchange, which will have an adverse impact on the development of foreign exchange financial products and other foreign exchange derivatives businesses of commercial banks. At the same time, we see that the awareness of exchange rate risks among import and export enterprises will increase significantly, and they will proactively take measures to avoid exchange rate risks. For example, foreign trade enterprises will more actively use forward foreign exchange settlement and sales to meet their own needs. These are Commercial banks' expansion of intermediary business income creates huge market space. The reform of my country's exchange rate system will further promote innovation in the foreign exchange market.
From the perspective of "innovation demand", frequent exchange rate fluctuations will generate more investment and value preservation needs. From the perspective of "innovative supply", as a supporting measure for RMB appreciation, in May 2005, the inter-bank foreign exchange market launched trading services between eight foreign currency pairs. In August, the scope of banks and funds that can engage in forward foreign exchange settlement and sales business was further expanded, and swaps between banks and enterprises and forward and swap businesses in the inter-bank foreign exchange market were launched, allowing commercial banks to provide services to all parties. provide customers with more and better risk management tools. The increase in innovation demand and innovation supply will make transactions in the foreign exchange market more active and bring more opportunities to commercial banks to develop new foreign exchange capital businesses.
4. The impact of RMB appreciation on the credit business of commercial banks
After the reform of the exchange rate system, the RMB appreciated slightly, which caused a certain degree of change in the prosperity of some domestic industries and enterprises. This will accordingly affect the quality of credit assets of commercial banks in these industries. RMB appreciation mainly has an adverse impact on three types of industries: first, industries with a large proportion of exports, including textiles, electronics, home appliances, medicine, shipbuilding and other industries; second, import substitution industries, mainly petrochemical downstream products; third, products The internationally priced raw material industry includes the bulk raw material sales industry priced in US dollars such as alumina, ores and non-ferrous metals. If the RMB appreciates further in the medium to long term, the scope of industries that will be adversely affected will further expand and the degree of impact will become more significant. For industries adversely affected by the appreciation of the RMB, they may face a decline in profitability and solvency, which increases the risk of banks lending in related industries and will inevitably prompt commercial banks to re-examine their related credit businesses.
The industries that benefit from the appreciation of the RMB are mainly industries with high foreign debt and imported raw materials, including papermaking, aviation, oil refining, automobiles, steel, etc. After a slight appreciation of the RMB, its income will basically not be negatively affected, while the amount of its foreign exchange expenditures converted into RMB will be reduced. Of course, if the further appreciation of the RMB has a significant inhibitory effect on the prosperity of the entire national economy, the benefits of these industries will also be reduced, or even have a negative impact.
Generally speaking, relatively few industries have significantly benefited from the appreciation of the RMB. For commercial banks, the proportion of credit granted to the above-mentioned industries is relatively high, about 30%-45%. Therefore, the reform of the exchange rate system will have an impact on the credit business of commercial banks.
5. Impact of RMB appreciation on other aspects of commercial banks
(1) RMB appreciation will cause a slight decrease in the capital adequacy ratio of commercial banks
RMB slightly The impact of the increase in the capital adequacy ratio of commercial banks mainly includes two aspects: first, the depreciation of foreign currency assets leads to a decrease in capital; second, the increase in exchange rate risks increases the market risk of derivative products, thereby expanding the total amount of risk assets. Generally speaking, since the weight of foreign exchange owners' equity in the total owners' equity of my country's commercial banks is higher than the weight of foreign exchange risk assets in the total risk assets, RMB appreciation will cause the reduction in the capital of commercial banks converted into RMB to be greater than that of other foreign exchange risk assets. The reduction in risk assets converted into RMB resulted in a slight decrease in the capital adequacy ratio of commercial banks. According to the data at the end of June 2005, after a rough calculation of the RMB appreciation of 2.1%, the overall capital adequacy ratio of my country's commercial banks dropped by approximately 0.1 percentage point. Specific to each commercial bank, when the risk weight structure of RMB risk assets and foreign currency risk assets is the same, it depends on the proportion of its foreign exchange assets in total assets and the proportion of foreign exchange equity in owner's equity. The higher the former proportion, The lower the latter proportion, the smaller the decline in the bank's capital adequacy ratio calculated in RMB due to RMB appreciation.
(2) The appreciation of the RMB has also had an impact on the accounting statements of commercial banks
According to the "Accounting System for Financial Enterprises", commercial banks must calculate the assets and liabilities items in the accounting statements according to the period-end Conversion of exchange rate The slight appreciation of RMB will reduce the absolute amount of commercial bank assets converted into RMB. At the same time, since equity items are converted according to the historical exchange rate, this will have a certain impact on the accounting statements of commercial banks. Of course, due to different accounting treatments, the impact of the appreciation reflected on the statements on net profits will also be different. Shanghai Pudong Development Bank, Hua Xia Bank and Shenzhen Development Bank directly include exchange gains and losses into current profits and losses, while China Merchants Bank and Minsheng Bank deduct shareholder equity through the "Capital Reserve-Foreign Currency Translation Difference" account, which does not affect current profits and losses, so the appreciation has a negative impact on China Merchants Bank and Minsheng Bank. The bank's impact is not directly reflected in statements.
6. Strategies for commercial banks to respond to RMB appreciation
In summary, RMB appreciation has a broad, long-term and far-reaching impact on commercial banks. In the short term, the impact on commercial banks is slightly more harmful than beneficial, and the overall impact is limited. In the long run, opportunities and challenges will coexist. Commercial banks will face a more changing environment, and more new demands, new markets and new tools will also emerge. Based on the judgment of the current situation and future development trends, we put forward some suggestions to provide some reference for commercial banks to face the challenges.
Gradually adjust your asset and liability structure. Increase US dollar liabilities and reduce US dollar assets. In addition, since the Hong Kong dollar adopts a linked exchange rate system pegged to the US dollar, Hong Kong dollar assets should be reduced accordingly and Hong Kong dollar liabilities should be reduced.
At the same time, in response to the unfavorable situation of declining foreign exchange deposits, we can stabilize foreign exchange savings by vigorously developing dual-currency card and international card products as well as foreign exchange financial products that meet customer needs. At the same time, we can provide high-quality and efficient foreign exchange management services for high-end corporate customers to stabilize corporate foreign exchange deposits. Proactively manage foreign exchange loans and effectively manage risks through swaps, asset securitization, etc.
Vigorously develop international settlement business on the premise of ensuring liquidity and effectively controlling exchange risks, adopting different marketing measures for different industries affected by changes in the exchange rate system, vigorously promoting forward foreign exchange settlement and sales business, and appropriately Develop forfaiting, factoring, etc., and vigorously develop financing business under trade based on the characteristics of international settlement. At the same time, a reasonable foreign exchange asset and liability structure, term structure and currency structure must be maintained.
Vigorously improve the risk management capabilities, product innovation capabilities, marketing capabilities and transaction profitability of the foreign exchange capital business. Commercial banks should speed up the innovation of foreign exchange financial products and focus on developing products with short term, high returns and strong flexibility. At the same time, we introduce talents to improve our trading capabilities and profitability, and integrate the risk management of foreign currency capital transactions into a comprehensive risk management system.
Improve the foreign exchange risk management system as soon as possible. Commercial banks should carefully evaluate their own foreign exchange risk management status, actively improve the foreign exchange risk management system, introduce and train professionals in the fields of foreign exchange business and foreign exchange risk management, and strengthen internal audits of foreign exchange business and foreign exchange risks. At the same time, new tools in the foreign exchange market such as forwards and swaps are used to effectively manage risks.
Optimize the industry structure and customer structure of credit business. First of all, the control of credit risks caused by appreciation must be incorporated into the overall process of bank-wide credit management. Secondly, when determining the industry structure adjustment targets for credit business, we must fully consider the different impacts of appreciation on various industries. Third, starting from analyzing the currency matching of corporate assets and liabilities and income and expenses, the pricing power of raw materials and products, and changes in the prosperity of upstream and downstream companies, analyze the impact of RMB appreciation on customer operations and commercial banks, and adjust credit business customer structure.
Improve the monitoring and adjustment mechanisms for capital adequacy. Facing the long-term trend of further appreciation of the RMB and intensified exchange rate fluctuations, commercial banks should improve the monitoring and adjustment mechanisms for capital adequacy, consider the impact of exchange rate changes when raising and using capital, maintain appropriate capital adequacy levels, and promote funding maturity Optimization of structure, currency structure and business structure.