Wang Tianyu, a deputy to the National People's Congress, made three proposals for small and medium-sized banks: replenishing capital, reducing taxes and fees, and bad disposal

In recent years, the risk of small and medium-sized banks has attracted high attention. The 2021 Government Work Report mentions: "Continue to supplement the capital of small and medium-sized banks through multiple channels and strengthen corporate governance." ”

At this year's two sessions, Wang Tianyu, deputy to the National People's Congress and chairman of the Board of Directors of the Bank of Zhengzhou, as a representative of the City Commercial Bank, submitted three proposals for small and medium-sized banks, namely, to speed up the disposal of non-performing assets of small and medium-sized banks, to support small and medium-sized banks to replenish capital through multiple channels, and to reduce taxes and fees on small and medium-sized banks.

In terms of capital replenishment, Deputy Wang Tianyu called for the large number of small and medium-sized banks, facing different pressures of capital replenishment, different degrees of risk exposure, and the need to adopt differentiated and multi-channel capital replenishment methods.

He also believes that during the epidemic period, small and medium-sized banks have led to greater pressure on their own operations due to social fee reductions, and some of the tax reduction policies that are conducive to the development of small and medium-sized banks have expired. Therefore, it is suggested that while small and medium-sized banks vigorously reduce fees and profits for small and micro enterprises, the relevant departments should be able to reduce their tax levels, and can reduce or reduce the deposit insurance rate standards of small and medium-sized banks in stages.

<h4>Capital replenishment pressure and suggestions for small and medium-sized banks </h4>

In the view of Deputy Wang Tianyu, in recent years, the channels for capital replenishment of small and medium-sized banks have been broadened, and the pressure on capital replenishment has been alleviated to a certain extent. However, the long-term mechanism for capital replenishment of small and medium-sized banks has not yet been fully established, the new institutional arrangements are not perfect, and they are still limited by many factors, and the problem of capital replenishment has not been fundamentally solved.

(a) Narrowing of the route to replenish capital through profit retention

First, the growth rate of net profit has slowed down. Since 2020, the COVID-19 pandemic has brought great challenges to economic development, and small and medium-sized banks have increased their credit investment and capital consumption has increased rapidly. However, the growth rate of net profit is lower than the growth rate of total assets, and profit retention is not enough to make up for the capital gap. At the same time, the in-depth promotion of interest rate marketization reform and the implementation of the central decision-making and deployment of fee reduction and profit reduction have led to a narrowing trend in the net interest margin of small and medium-sized banks.

Second, non-performing assets continue to erode profit retention. Affected by the economic downturn and the new crown pneumonia epidemic, the risks of enterprises have been continuously exposed, the non-performing loans of small and medium-sized banks have doubled, the pressure of credit risk management has increased, the provision provision has increased, and the scale of disposal and write-off of non-performing assets has increased, which has aggravated the erosion of profits.

(2) The external capital replenishment channels of small and medium-sized banks are restricted

First, the core Tier 1 capital replenishment instrument is single and inefficient. Core Tier 1 capital is the most important capital level of banks, and it is also the capital level that small and medium-sized banks need to be replenished most urgently, but there are fewer channels for replenishment. Additional issuance is a common way for small and medium-sized banks to replenish capital, but in the current economic context, additional issuance is facing difficulties in finding qualified investors. The current period of convertible bonds is reflected in the form of creditor's rights, which can be converted into shares after about a fixed period, with low coupon rates, small cash payment pressure, and can give full play to financial leverage; however, convertible bonds cannot directly replenish the core Tier 1 capital, and usually enter the conversion period 6 months after the completion of the issuance, which is suitable for small and medium-sized banks with little core Tier 1 capital pressure at present. Even if the core Tier 1 capital of small and medium-sized banks can be supplemented by local government special bonds, there are still problems such as the low efficiency of the supplementary capital of convertible bonds, and the issuance cost of local special bonds may not match the income of convertible bonds.

Second, the role of other capital replenishment tools is limited. The asset quality and operating level of small and medium-sized banks are uneven, and the capital instruments that can be used are limited. In 2019, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission jointly issued a document to delete the requirement that unlisted banks issuing preferred shares should apply for public transfer of shares listed on the national SME share transfer system, opening up a new channel for small and medium-sized banks to replenish capital, but this method of capital replenishment still needs to be concretely practiced. The issuance procedures of perpetual bonds and secondary bonds are simple and the cost is low, and it is the choice of more small and medium-sized banks in the case of urgent need to fill the capital gap and improve the capital adequacy ratio, but there are still many small and medium-sized banks that do not meet the issuance conditions or have problems with issuance difficulties.

Regarding the capital replenishment of small and medium-sized banks, Deputy Wang Tianyu put forward the following suggestions:

Differentiated supervision of the issuance of capital supplementary instruments by small and medium-sized banks. The large number of small and medium-sized banks is facing different capital replenishment pressures and different risk exposures, and it is necessary to adopt differentiated and multi-channel capital replenishment methods. Most regulatory policies and access standards are "one-size-fits-all", resulting in some small and medium-sized banks facing access difficulties in capital replenishment. First, it is recommended to comprehensively consider indicators such as asset scale and profitability, and further refine the classification of small and medium-sized banks. The second is to suggest that for the same capital supplementary tool, different issuance standards and approval requirements should be set for small and medium-sized banks in different categories, and more specific and more applicable operating rules for small and medium-sized banks should be introduced.

In terms of capital replenishment tools, Deputy Wang Tianyu believes that further optimization is needed. For example, the conditions for eligible entities of perpetual bonds that can be operated on CBS will be further relaxed, so that most small and medium-sized banks can meet the access conditions. Appropriately increase the restrictive proportion of self-operated capital supplementary bonds of small and medium-sized banks, and expand the investment entities and investment scale of capital supplementary bonds of small and medium-sized banks. Improve the market arrangements for small and medium-sized banks to issue convertible bonds. Support small and medium-sized banks to reduce risk-weighted assets through asset securitization.

Last year, a total of 200 billion yuan of local bonds were issued across the country to supplement bank capital. Wang Tianyu called for expanding the scale of local bond issuance this year, solving the capital problem of small and medium-sized banks, and helping small and medium-sized banks quickly resolve risk burdens. At the same time, it is necessary to balance the allocation of local bond issuance scale, and it is not recommended to only supplement rural commercial banks with higher risks, and urban commercial banks that have the ability to support private, small and micro enterprises and have controllable risks should also give a certain amount of support.

<h4>Improve the efficiency of disposal of non-performing assets</h4>

In 2020, banking financial institutions disposed of a total of 3.02 trillion yuan of non-performing assets, and the scale of disposal of non-performing loans from 2017 to 2020 exceeded the sum of the previous 12 years.

Deputy Wang Tianyu held that small and medium-sized banks (urban commercial banks and rural financial institutions) have taken serving the local economy, serving small and micro enterprises, and serving urban and rural residents as their own positioning, subject to regional economic development and affected by their own scale and capital strength, and there has been a trend of declining profitability and a significant increase in the scale of non-performing assets. As of the end of 2020, the provision coverage ratio of urban commercial banks and rural commercial banks was 189.77% and 122.19% respectively, which was lower than the 215.03% of the five state-owned banks and 196.90% of joint-stock commercial banks. The balance of non-performing loans of urban commercial banks and rural commercial banks was 366 billion yuan and 712.7 billion yuan respectively, and the non-performing loan ratio was 1.81% and 3.88% respectively, which was much higher than the overall level of state-owned banks, joint-stock banks and commercial banks.

Deputy Wang Tianyu said that the disposal methods of small and medium-sized banks in disposing of non-performing loans mainly include collection, litigation, write-off, and forwarding, and batch transfers are the most common, and cash collection is more difficult; however, the supply of non-performing assets exceeds demand, and the discount of asset packages is serious. At the same time, the "Pilot Implementation Plan for the Transfer of Non-Performing Loans of Banks" recently issued by the Banking and Insurance Regulatory Commission stipulates that personal loans such as personal housing mortgage loans, personal consumption collateral loans, personal business mortgage loans, and automobile consumption loans are not allowed to be transferred in bulk to the outside world. As the main way for commercial banks to dispose of non-performing loans, judicial disposal has the phenomenon of difficulty in filing a case, litigation and enforcement, and there are many problems such as long litigation cycle and low debt repayment ratio, which affect the disposal efficiency and adversely affect the realization of the final value of non-performing assets.

In order to promote the disposal of non-performing assets of small and medium-sized banks, Deputy Wang Tianyu suggested that the channels for the disposal of non-performing assets should be broadened. Relax market-oriented access standards for the disposal of non-performing assets. It is recommended to adjust the business scope and business model of local asset management companies to allow them to carry out business across regions; allow qualified non-licensed asset management companies to undertake non-performing asset packages of commercial banks; actively carry out cross-border transfer of non-performing assets, and introduce foreign capital to participate in the disposal of non-performing assets.

He also suggested that the regulatory authorities guide small and medium-sized banks to participate in the disposal of non-performing assets in a market-oriented manner, reduce the entry threshold for securitization of non-performing assets, and promote the issuance of safe, separable, tradable, repurchaseable and disposable non-performing asset securities certificates by small and medium-sized banks.

The pilot banks for the transfer of non-performing loans have been extended to small and medium-sized banks to alleviate the pressure on their disposal of non-performing loans and accelerate the realization of asset value; it is recommended to allow the batch transfer of personal loans such as personal housing mortgage loans, personal consumption collateral loans, personal operating mortgage loans, and automobile consumption loans to improve the efficiency of disposal of non-performing loans.

At the same time, Deputy Wang Tianyu also suggested that the reform of the financial legal system should be promoted and the efficiency of judicial proceedings for the disposal of non-performing assets should be improved. Specifically, it includes promulgating relevant legal provisions and judicial interpretations on the trial and enforcement of financial cases, improving enforcement standards, simplifying litigation procedures, and shortening the period of trial and enforcement of cases.

He also suggested that the regulatory authorities or industry associations should take the lead in building a national unified standard platform for the disposal of non-performing assets on the Internet, and build it into a comprehensive platform for the disposal of non-performing assets, information release, and transaction matching, so as to turn non-performing assets into treasures; improve the transparency of the target assets and the standardization of disclosure information, ensure the transparency and reliability of platform transactions, and improve the transaction efficiency of non-performing assets.

<h4>Reduce taxes and fees on small and medium-sized banks </h4>

Deputy Wang Tianyu also believes that at present, small and micro enterprises are facing greater difficulties in operation, and risks are constantly exposed. Small and medium-sized banks are the main force serving small and micro enterprises, development has been significantly affected, profitability has declined, capital replenishment pressure is greater, the scale of non-performing assets has risen significantly, and business development is facing some difficulties.

In his view, small and medium-sized banks have led to greater pressure on their own operations due to social fee reductions. Secondly, some of the tax reduction policies that are conducive to the development of small and medium-sized banks have expired. Therefore, it is suggested that while small and medium-sized banks vigorously reduce fees and profits for small and micro enterprises, the relevant departments should be able to reduce their tax levels.

Deputy Wang Tianyu called for the continuation of the VAT exemption policy for small enterprises, micro enterprises and individual industrial and commercial households in Circular Cai Shui (2018) No. 91, which was extended to 31 December 2023. Fiscal taxation (2017) No. 77 document continues to exempt financial institutions from stamp duty on loan contracts signed between financial institutions and small enterprises and micro enterprises until 31 December 2023. Continue to implement Cai Shui (2018) No. 164 Circular 164 annual one-time bonus is not incorporated into the comprehensive income tax collection preferential policy until December 31, 2024.

In addition, he also suggested that the deposit insurance rate of small and medium-sized banks should be reduced or reduced in stages. The People's Bank of China implements differentiated deposit insurance rates for commercial banks, which are divided into eight grades, and the rates range from 2-16 per 10,000. Affected by their customer base structure and operation and management level, small and medium-sized banks have a low rating rating, so the deposit insurance rate is also higher, which has become an important cost expenditure for them.

In order to improve the ability of small and medium-sized banks to serve the local real economy and consider the actual rates of small and medium-sized banks, Deputy Wang Tianyu suggested that the rate standards of small and medium-sized banks be reduced or reduced in stages, and the deposit insurance rates should be dynamically adjusted according to the operating conditions of each bank.

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