The way out of the difficulties of differentiated competition among small and medium-sized rural banks

Moderator Xu Chunpei

Guests

Zeng Gang is deputy director of the National Finance and Development Laboratory

Wang Yunbin Secretary of the Party Committee and Chairman of the Board of Directors of Shandong Hedong Rural Commercial Bank

Shu Hongquan Secretary of the Party Committee and Chairman of the Board of Directors of Jiangxi Gao'an Rural Commercial Bank

Jia Yungui Secretary of the Party Committee and Chairman of the Board of Directors of Guangxi Rongshui Rural Commercial Bank

In the general trend of digital transformation, the impact of information technology applications on the banking industry is increasing, and rural small and medium-sized banks are facing unprecedented challenges and competitive changes. In terms of information technology application, risk control, capital, customers, cross-industry and other aspects, rural small and medium-sized banks have obvious disadvantages compared with large banks. However, rural small and medium-sized banks have their own unique endowments and differentiated advantages, such as long-term deep ploughing of the local "three rural" and small and micro markets of human relations and geographical advantages, small legal persons quickly adapt to market demand "small ship good turn" flexibility advantages, etc. In the process of rural revitalization and the implementation of the agricultural and rural priority development strategy, rural small and medium-sized banks can only avoid their own disadvantages, give play to their unique advantages, implement differentiated competition strategies, and successfully build a "community of customer destiny" in order to win development and win the future.

Observation: Digital transformation reshapes the competitive landscape of rural finance

Rural Finance Herald: The application of information technology has accelerated the digital transformation of the banking industry, and small and medium-sized banks in rural areas are facing new challenges and changes in competition. Overall, what is the situation?

Zeng Gang: Digital transformation is a major trend in the entire economy and society, and the application of information technology is the first to bear the brunt of the impact on the banking industry, especially the arrival of the epidemic has accelerated the digital transformation of banks. In recent years, large banks have continued to invest a lot of money in the development and application of financial technology, while small and medium-sized banks in rural areas have been slower in the process of digital construction due to their limited resources. Of course, because banks of different sizes have different capabilities, customer composition, and business development, the goals and paths of digital transformation are not the same.

Rural Finance Herald: Specifically, what are the disadvantages or difficulties of small and medium-sized rural banks rooted in the "three rural areas" compared with large banks and financial institutions positioned in cities?

Zeng Gang: With the continuous advancement of economic restructuring and interest rate marketization, the net interest margin level of the banking industry has continued to narrow, and the overall scale and profit growth rate have slowed down significantly. It should be said that changes in the operating environment will have an impact on all types of banks, but compared with national banks, the challenges faced by small and medium-sized rural banks are more severe, and their own problems such as vague development positioning, single business structure, and weak digital capabilities have also limited the improvement of competitiveness. In recent years, the acceleration of economic digitalization and the development of Internet finance and financial technology have continuously promoted the migration of banking business to online, and this trend has been further strengthened after the outbreak of the new crown pneumonia epidemic. To adapt to the online and digital trend of customer needs, banks must accelerate the pace of their own digital transformation. However, digital transformation not only requires banks to pay attention to it at the strategic level, but also needs enough talent and technical reserves to promote the implementation of transformation work. Rural small and medium-sized banks are rooted in the development of a certain region, the scale of institutional funds is small, the reserves of talents and scientific and technological capabilities and the ability to invest resources in related fields are far behind those of large banks, and in the context of the intensification of digital transformation challenges, the long-term competitiveness of rural small and medium-sized banks for the future is not optimistic.

Shu Hongquan: The most obvious disadvantage of rural commercial banks is that the service area is limited to the local area, the business is single, and most of the income is still the traditional deposit and loan business interest rate difference income. Second, the risk is higher. The "three rural areas" and small and micro enterprises served by rural commercial banks belong to weak industries, which are greatly affected by natural disasters, individual life cycles and competition in the same industry, and have weak risk resistance. Third, there is a lack of human resources. Most of the outlets of rural commercial banks are located in rural areas and townships, which are less attractive to high-quality talents, and there are fewer talents who are truly proficient in business and have pioneering spirit among employees. Fourth, the strength of financial technology is weak, and the road to digital transformation is extremely difficult.

Jia Yungui: At present, there are still obvious shortcomings in corporate governance, risk control, and business structure of rural commercial banks. Modern financial services increasingly rely on information and digital technologies, while rural commercial banks have a weaker financial digital foundation to support rural revitalization.

Wang Yunbin: Rural Commercial Bank itself still has shortcomings in improving corporate governance, improving internal control mechanisms, stimulating internal vitality, enhancing the "four self" capabilities, and promoting sustained and healthy development, which need to be paid close attention to and targeted measures to be taken to solve them.

Rural Finance Herald: What is the biggest dilemma facing small and medium-sized rural banks at present? What are the policy recommendations?

Zeng Gang: At present, the improvement of the risk compensation ability of small and medium-sized banks in rural areas is facing no small obstacle. One is the limitation of profitability. Rural small and medium-sized banks have a single debt structure and high costs, and in the process of financial concessions to the real economy, the impact is significantly greater than that of large banks, and the net interest margin has fallen even more, which has aggravated the disadvantageous position of rural small and medium-sized banks in competition. Second, credit risk has intensified. The main service objects of rural small and medium-sized banks are small and micro and "three rural" customers, and this customer structure also determines that the credit risk they face is higher than that of large banks. In the past two years, the epidemic has had a greater impact on small and medium-sized enterprises and service industries, and the credit risk faced by small and medium-sized banks in rural areas has shown a further upward trend at present and in the future. In view of this, it is recommended to moderately reduce the debt cost of rural small and medium-sized banks, on the one hand, we can consider moderately reducing the benchmark interest rate of deposits; on the other hand, we can provide low-cost funds to rural small and medium-sized banks through refinancing and rediscounting.

Disorderly market competition has led to an intensification of the plight of small and medium-sized banks in rural areas. In recent years, under the guidance of national policies, large commercial banks have increased the expansion of inclusive financial business, continuously increased the intensity of loans to small and micro enterprises and private enterprises, and sunk to the existing customer base of rural small and medium-sized banks. Due to the diversified debt structure and low cost of large banks, coupled with higher operating efficiency, large commercial banks have obvious advantages in pricing when competing for high-quality customers of the same customer group, especially rural small and medium-sized banks, which leads to the crowding out of high-quality customers of rural small and medium-sized banks. The downward trend of high-quality customer pricing will inevitably lead to the downward trend of other customer pricing, which in turn will have a huge impact on the overall profitability of rural small and medium-sized banks. Based on this, efforts should be made to regulate the competitive order of the banking market. It is necessary for regulators to regulate the competition and pricing of inclusive financial markets, and while guiding the financing interest rate of the real economy downward, they should still consider reasonable cost factors and avoid malicious loan pricing that is significantly lower than a reasonable level.

Self-observation: Comparison of the advantages and disadvantages of small and medium-sized rural banks

Rural Finance Guide: In the process of serving the "three rural areas" and rural revitalization, what are the shortcomings of rural small and medium-sized banks, and what are the "pain points" and "blockages"?

Shu Hongquan: The difficulties and "pain points" and "blockages" faced by rural commercial banks are the intensification of competition in the same industry. The services of various banks continue to sink, competing with rural commercial banks for county and rural markets. Second, the pressure on operation has increased. The interest margin between deposits and loans of rural commercial banks has further narrowed, and it is facing greater operational pressure. Third, the ability to replenish capital is weak and the ability to resist risks is insufficient. Due to regulatory ratings and other restrictions, most rural commercial banks cannot supplement their capital through bond issuance and other means, and can only be achieved through capital increase and share expansion, but it is difficult to increase capital and expand shares, and the capital strength restricts the ability of rural commercial banks to serve rural revitalization. Fourth, long-term risk control is under pressure. The market and customer positioning of rural commercial banks generally face high costs, high risks and low returns, and some industries affected by the epidemic are affected, and asset quality is facing downward migration pressure. Fifth, the ability to obtain customers needs to be improved. Affected by its own technology, data, talents and other inferior factors, there is a big gap between the big data analysis capabilities of rural commercial banks and advanced banks, and its competitiveness in terms of data acquisition and analysis application capabilities, product innovation and expansion of households is weak.

Wang Yunbin: In recent years, the outflow of rural talents, the outflow of young people going out to work, the customer structure of rural commercial banks has undergone great changes, facing problems such as the age of customers and the urgent need to adjust the customer structure. At the same time, under the wave of digitalization, bank customers have undergone online transfer, and the advantages of rural commercial banks such as familiar offline customers, a large number of outlets, and a short decision-making chain have been impacted. In the problem of digital transformation, the biggest difficulty is how to combine the personalized needs of standardized products and services, how to build new operating methods and risk management models, etc.

Rural Finance Guide: Compared with other large banks and banks positioning urban markets, what are the most obvious advantages of rural commercial banks and rural credit cooperatives rooted in the "three rural areas"?

Jia Yungui: The most important endowment advantage of rural commercial banks lies in the geographical advantages of people. The development of the past 70 years has a deep historical precipitation, has long been supported by local governments and the recognition of all parties in society, has a deep cultural foundation, customer base and emotional foundation, is a real "local bank", "local people's own bank", is the "host bank" of rural revitalization. In addition, rural commercial banks also have the advantages of financial strength and decision-making efficiency. In particular, county-level rural commercial banks are generally the financial institutions with the strongest local financial strength, the largest number of institutional outlets and employees, the largest tax contribution, and the widest service scope, and are the main force of local finance. At the same time, as a local legal entity, the short decision-making chain and operational autonomy are the biggest advantages, and it is the core competitiveness of rural commercial banks as small banks.

Shu Hongquan: The advantages of rural commercial banks are mainly reflected in three aspects, one is the advantage of localization. Rural commercial banks have long been based on the rural financial market, active in the grass-roots rural areas of the county, and have more, broader and deeper connections with the local area than other financial institutions, which can be described as a local "grassroots bank". The second is the advantage of outlets. The various agriculture-related financial businesses of rural commercial banks started earlier, with many outlets and a wide range of services, and have been "deeply cultivated and meticulously cultivated" in the field of "three rural areas" for many years, and have a stable customer base. The third is the advantage of a short decision-making chain. Rural commercial banks have few management levels and flexible operation methods, and based on geographical advantages, they have accumulated a large amount of customer credit information in peacetime, and can make rapid decisions and flexible disposal of customer needs.

Wang Yunbin: Rural commercial banks have three obvious advantages: First, they have long-term market advantages of cultivating the "three rural areas" and having profound roots. Rural commercial banks have long been rooted in the local market, deeply rooted in rural finance, familiar with customers, small service radius, flexible operating mechanism, and play an irreplaceable role in helping the economic development of the county. The second is the advantage of a hard-working, hard-working and hard-working workforce, with a large number of employees and business outlets throughout the townships. The third is the system advantage of "small legal person and large platform", which not only maintains the flexibility of the operation decision-making of rural commercial banks, but also obtains strong support for science and technology, products, talents, management, funds, etc., and is in a favorable position in the competition in the same industry.

Rural Finance Guide: The market positioning and service customers of small and medium-sized rural banks are destined to develop retail finance that is scattered and small. Please talk about the characteristics of their respective clients, the composition of their groups and the status of their financial services.

Wang Yunbin: The customers under the jurisdiction of Hedong Rural Commercial Bank are mainly farmers, community residents, individual industrial and commercial households, small and micro business owners, and small and medium-sized enterprises. The capital demand is mainly for operating loans used to meet production and operation and consumer loans for meeting the daily life consumption of the people under its jurisdiction. As of the end of 2021, the balance of physical loans of Hedong Rural Commercial Bank was 10.025 billion yuan, the number of loan households was 22,263, and the average loan balance of households was 450,300 yuan.

Jia Yungui: The customers under the jurisdiction of Rongshui Rural Commercial Bank are mainly farmers, community residents, individual industrial and commercial households, small and micro business owners, and small and medium-sized enterprises. The capital demand is mainly used for consumer loans to meet the daily life consumption of the people in the jurisdiction and operating loans to meet the needs of production and operation. As of the end of 2021, the balance of loans in the bank's entities was 6.467 billion yuan, the number of loan households was 24,720 households, and the average loan balance of households was 261,600 yuan; of which the balance of agriculture-related loans was 5.494 billion yuan and the balance of inclusive small and micro enterprise loans was 1.552 billion yuan.

Breaking the game: the way out of the difficulties of differentiated competition

Rural Finance Herald: How can small and medium-sized rural banks make full use of their strengths and avoid their weaknesses, give full play to their own advantages in supporting rural revitalization, implement dislocation competition, and make great achievements and contributions in supporting the priority development of agriculture and rural areas?

Jia Yungui: Taking Rongshui Rural Commercial Bank as an example, we have continuously optimized and improved the inclusive financial service system with full coverage at the county, township and village levels, developed and launched an agriculture-related information management system, and can complete a loan business in 8 minutes; in 20 townships and towns in the county, business outlets have been set up, 27 outlets have been installed, 73 self-service equipment for external services have been installed, and 167 "financial comprehensive service stations" have been opened, achieving full coverage of administrative villages in the county, so that villagers can enjoy convenient financial services without leaving the "village"; The "10,000 Rural Credit Party Members Entering Ten Thousand Villages" project has been fully rolled out in 20 townships and towns in the county, and a strategic cooperation agreement has been signed, focusing on building 24 financial pioneer demonstration villages to achieve the organic integration of financial resources of rural commercial banks and the strategy of rural revitalization. In addition, innovative service methods, agriculture-related information management system can handle loan business anytime and anywhere, loan officers get rid of the shackles of physical outlets, at any time, any place can solve the urgent need for qualified customers. At present, the agriculture-related information management system has issued a total of 2,070 loans in less than half a year, with an amount of 99.38 million yuan.

Wang Yunbin: In recent years, Hedong Rural Commercial Bank has given full play to its own advantages, innovated credit products, served rural revitalization, and successively innovated and launched loan products such as "Yimeng Hardware Sequence Loan", "Yimeng Hui Steel Sequence Loan", "Credit Sequence Loan" and "Rural Revitalization Sequence Loan". In terms of doing a good job in the "agriculture" word article, the first is to strengthen the cooperation and docking of departments and bureaus, establish a hierarchical docking mechanism, and innovate and promote the cooperative service model; the second is to select outstanding cadres to hang posts in townships, towns, and villages, and continue to strengthen the talent and intellectual support for rural revitalization; the third is to establish a financial counseling team, take the initiative to dock service objects, and formulate and implement financial service plans "one-on-one"; fourth, comprehensively implement the system of regular offices for customer managers in villages, and provide fixed-point and regular service in villages; fifth, improve the service functions of rural financial agencies, and actively explore "agricultural and financial personnel +" Service model, through party building, express delivery, agricultural materials, retail, police and other models, to open up a new pattern of diversified marketing services; sixth, take the initiative to dock with the first secretary of the village, science and technology commissioners and other professional teams, increase special credit support; seventh, build a provincial, municipal and county three-level "financial services rural revitalization strategy model village", with points and areas, radiation around, improve the quality and efficiency of rural revitalization services.

Shu Hongquan: Relying on the characteristics of the industry, Gao'an Rural Commercial Bank has launched the model of "rural commercial bank + local government + cooperative + member + agricultural business entity" through the recommendation of the county agricultural and rural bureau, with cooperatives and agricultural operators as the main body, to improve the quality and efficiency of rural revitalization. For example, in cooperation with the Gao'an Xingwang Agricultural Professional Cooperative, it has provided guarantee services for the loans of members 576 times, helped the members obtain loans of 234 million yuan, and returned all of them in full on schedule, which has led to the development and production of more than 1,000 farmers in total, and each household has increased its income by more than 5,000 yuan per year, which has promoted the "three wins" of banks, governments and enterprises.

Rural Finance Herald: How can rural small and medium-sized banks create their own differentiated advantages in digital transformation?

Zeng Gang: In essence, rural small and medium-sized banks should give full play to the advantages of territorial resource endowments, and on the basis of deep local cultivation, take data insights and intelligent technology as the starting point, and create differentiated advantages around customer groups, products and services.

The first is to make the business online. Accelerate online and data-based business, strengthen online self-service, remote manual services, optimize customer online business handling processes, effectively reduce labor costs and improve service experience, accelerate online and offline integration, expand data source entrances, accelerate the transformation and upgrading of the channel system, and provide customers and employees with online channels and tools.

The second is digital assetization. Continue to promote data governance, lay a solid data foundation, and build the core assets of the bank's digitalization. Build a data middle office, provide unified data applications around business needs, and effectively promote the realization of data asset value. Deepen digital capacity building including digital products, digital applications, digital marketing, digital risk control, digital management, etc.

The third is operational intelligence. Through intelligent operation, we can gain insight into customer needs, create high-quality services, further reduce costs and increase efficiency, and use artificial intelligence and big data to improve customer service capabilities and risk prevention and control intelligence, so as to realize customer life cycle operation and management.

The fourth is the openness of the platform. Through information sharing, channel exchange, platform interoperability and other ways to jointly build a variety of agriculture-related application scenarios with various external institutions, such as agricultural production supply and marketing scenarios, agriculture-related agent payment scenarios, rural life consumption scenarios, financial financial service scenarios, and establish a closed loop of production, supply and marketing, and finance. Cooperate with agriculture-related e-commerce platforms, leading agricultural enterprises, supply and marketing cooperatives, agricultural material chain stores, etc., embed financial services into all aspects of the production, circulation and consumption of agricultural materials and agricultural products, and open up the agricultural production chain, supply and marketing chain, and consumption chain; promote the migration of agency projects such as agriculture-related subsidies, water and electricity, communication fees, rural pensions, and rural medical care to the rural financial Internet service platform to achieve online one-stop payment; take advantage of the advantages of wide bank network coverage and good brand image to online shopping, consumption, entertainment, rural tourism, Diversified service content such as leisure is integrated into the rural financial service platform, opening up the channel of "industrial products going to the countryside" and "agricultural products entering the city"; according to the characteristics of the rural investment and financial management market and the operation and use habits of farmers, design flexible and diverse, customer experience, low starting point and low risk huinong investment and wealth management products, and provide "anytime, on demand and safe" financial and financial management services for agricultural business entities and farmers.

Rural Finance Herald: How can small and medium-sized banks in rural areas give full play to their unique advantages, implement the strategy of differentiated competition, and better serve rural revitalization and the priority development of agriculture and rural areas?

Zeng Gang: Rural small and medium-sized banks should return to their roots, adhere to their main business, intensively cultivate the rural market, and clarify the focus of business development. First, we must focus on supporting the development of modern agriculture, vigorously support new subjects, new industries, and new formats, support the innovative development of new agricultural business entities, and better drive the organic connection between small farmers and modern agriculture. Second, we must promote the development of the county tourism industry, combine regional resources, culture and industrial differences, vigorously support rural tourism projects such as leisure and sightseeing agriculture, and promote the development of the rural tourism industry. Third, we must actively support the construction of rural infrastructure and ecological environment. By carrying out targeted product and service innovation around the above key areas, realizing the effective docking of supply and demand, and developing financial products and services covering various forms such as industrial chain financing, risk management, and capitalization operation according to the differentiated needs of different stages of economic development in various regions, rural small and medium-sized banks will be able to create their own differentiated advantages.

On the basis of clarifying the focus of business development, rural small and medium-sized banks should also give full play to the comparative advantages of deep ploughing in the local area, establish and improve various work mechanisms, and comprehensively enhance the ability of financial services to revitalize the countryside. Strengthen planning and docking with local governments, and make use of the advantages of local legal persons, take the initiative to dock with local governments and agriculture-related departments, explore the establishment of communication and cooperation mechanisms between banks and governments and banks and enterprises, and fully grasp information such as leading agricultural industrialization enterprises, consortiums, demonstration bases, characteristic villages and towns, "Internet + agriculture" and the reform of ownership, qualification rights, and use rights of rural homesteads in the jurisdiction. At the same time, the classification adopts financial service countermeasures, strengthens the innovation and research and development of characteristic and differentiated products, and synchronizes with the implementation of the rural revitalization strategy.