Winning by Quality to Promote Transformation
Since 2011, the Xiangyang branch of the Agricultural Bank of China in Hubei Province has actively adapted to new requirements for credit operation and management. Throughout the bank, they have promoted quality-based credit asset management, advancing the transformation of credit work and effectively enhancing the overall quality of credit assets. By the end of 2011, loans to strategic, high-efficiency, and high-quality customers accounted for 88.04%, an increase of 16.72 percentage points from the beginning of the year. This earned them full marks in the provincial branch's comprehensive performance evaluation. The proportion of high-quality legal entity customers was 93.17%, exceeding the provincial branch standard by 13.17 percentage points. They saved 11.03 million yuan in economic capital usage and increased economic value added by 9.29 million yuan.
Shifting the mode of credit development, implementing differentiated credit strategies, comprehensively accelerating the transformation of credit work, and effectively promoting the enhancement of the overall quality of credit assets throughout the bank.
Since the Agricultural Bank of China fully implemented the internal rating system for non-retail customers and the new economic capital measurement plan across the entire bank, how to adapt to the new requirements for credit operation and management has become a challenge facing grassroots employees of the Agricultural Bank of China. The Xiangyang branch's response is to transform the mode of credit business development and implement quality-based credit asset management.
In terms of customer credit orientation, the bank combined with the relevant policies proposed by the provincial branch to improve the quality of credit assets. Considering factors such as customer credit ratings, loan interest collection levels, and risk mitigation levels, they selected customers who reached "three highs" or "two highs" in three dimensions: credit rating, risk mitigation level, and interest collection level as their credit access standards. Customers were categorized into five types: strategic asset customers, high-efficiency asset customers, general asset customers, low-efficiency asset customers, and poor-quality asset customers to determine the quality categories of customers. At the same time, the bank formulated the "Xiangyang Branch 2011 Regional Credit Access and Management Policy Guidelines," establishing the customer access strategy of "selecting the strong among large and medium-sized enterprises," "choosing the excellent among small enterprises," and "coordinated development of large, medium, and small customers." This guides the entire bank to proactively adjust its credit customer selection preferences and actively market high-quality customers.
In terms of credit resource allocation, to ensure that limited credit resources are prioritized for high-quality customers' credit needs, the bank clearly defined the "three guarantees, three controls, and three compressions" credit resource allocation policy: guaranteeing credit funds demand for strategic asset customers, high-efficiency asset customers, and high-yield, low-risk individual customers; controlling general asset customers, bill discounting, and other personal loans except for ensuring high-quality personal loans; compressing low-efficiency asset customers, poor-quality asset customers, and non-performing loans. In terms of credit resource allocation methods, customers' credit demands were classified and queued monthly based on quality levels, promoting effective improvements in the bank's credit structure and quality structure.
In terms of differentiated credit strategies, the bank actively marketed high-quality legal entity customers with high credit ratings, high comprehensive returns, and high risk mitigation rates, moderately controlling long-term loans for legal entity customers whose economic capital return rates did not reach the average level of their region. For "three lows and one high" (low credit rating, low comprehensive yield rate, low risk mitigation degree, and high economic capital usage) customers, strictly control new credit extensions. Strictly determining the pricing level of credit business, adopting a "market agreed price" and "friendly negotiation" approach, primarily based on customer quality classification, actively negotiating with customers to establish a re-pricing mechanism. Striving to increase the customer's risk mitigation rate, when selecting credit investments, preferentially choosing collateral security methods with low economic capital usage and high credit quality, reducing general guarantees (excluding listed company guarantees), machinery equipment, trademark exclusive rights, mining rights, credit, mutual guarantees, multi-household joint guarantees, and other guarantee methods as much as possible. Reasonably setting loan term structures, considering the customer's operating cycle, expected cash flow, investment payback period, etc., reasonably setting loan terms to ensure loan terms match repayment funding sources.
In terms of credit customer classification management standards, the bank reasonably maintained the total loan amount for strategic asset customers, focusing on controlling the loan ratio of "long-term strategic asset customers." For high-efficiency asset customers, it actively increased the loan ratio, moderately controlling long-term loans for legal entity customers whose economic capital return rates did not reach the average level of their region, promoting incremental loans towards high-efficiency asset customers. It focused on controlling general asset customers and low-efficiency asset customers, formulating improvement measures and implementation schedules for each customer, guiding all branches to weaken their credit involvement in general asset customers and low-efficiency asset customers. Implementing credit exit for poor-quality asset customers, using the proportion of poor-quality asset customer loans for reverse assessment, promoting proactive exits of poor-quality asset customers. For off-balance sheet asset businesses, adjusting business operation methods, increasing business revenue through higher margin ratios and full pledged credit business under the condition of reducing economic capital usage.
In building a credit customer quality evaluation system, the bank established a working leadership group for improving credit asset quality led by the branch manager and deputy manager, with department heads as members. They set up an evaluation index system and formulated specialized assessment and evaluation methods. Considering factors such as the non-performing rate of newly issued loans over the past three years, the accuracy rate of identifying potential risk customers, and the marketing traction benefits of credit customers, the branch established a monthly analysis, monthly guidance, quarterly assessment, and quarterly notification system. They formulated special documents such as "Opinions on Implementing the Provincial Branch's Further Improvement of Credit Business Development Quality" and "Detailed Rules for the Assessment of Improving Credit Business Development Quality of Xiangyang Branch." Comprehensive training and guidance were provided to deputy managers, customer departments, and risk departments on improving credit asset quality, transmitting the "balance of capital, risk, and returns" development orientation through multiple channels and dimensions, enabling all personnel to deeply understand the connotation of credit customer quality evaluation. Simultaneously, monthly meetings of the leadership group for improving credit asset quality were held to analyze the current situation of improving credit asset quality, determine key areas for improvement, and conduct on-site performance guidance for key branches. Quarterly assessments and notifications were made on the improvement of credit business quality for all branches, effectively promoting the overall improvement of credit asset quality throughout the bank.
To accelerate the transformation of credit work, efforts need to be continued in areas such as assessment methods, customer structure, and policy direction.
Comprehensively align with quality operation assessment methods. Surrounding the new credit quality classification standards and assessment methods of the provincial branch, quickly clean up and classify the existing customer loans for the entire bank in 2012, clarify key areas for improvement, and formulate the 2012 annual credit quality operation assessment method. Compare the methods to identify weak links, key areas, and measures for improving credit quality, conducting targeted, multi-dimensional performance guidance on credit quality operations.
Focus on quality operation to select credit customers. Strictly follow the new non-retail customer credit rating methods and standards of the head office to carry out annual credit rating work for all legal entity customers, improving the accuracy of judging customer default probabilities. Adjust customer access thresholds according to the customer access thresholds and quality operation standards in performance evaluations, quantifying the access of each credit business. Strengthen the management of off-balance sheet business. Through means such as increasing fee levels and strengthening pricing management, improve the income level of contingent asset business; try to increase the margin ratio, clean up invalid economic capital usage caused by overdue letters of guarantee, etc., to reduce economic capital usage.
Fully leverage the guiding role of policy mechanisms. Around the comprehensive performance evaluation standards, incorporate the indicator systems related to the new internal credit rating system and new economic capital measurement plan of the head office into the unit's comprehensive performance evaluation indicators for assessment, such as credit quality, the proportion of high-quality legal entity customers, loan pricing, risk level evaluation, economic value added, economic capital usage, credit management, etc., guiding adjustments in business structure. According to the dual control requirements of credit scale and economic capital, new loan scales should comply with the economic capital limit allocation and the principle of "revenue, cost, risk" balance. Decompose the economic capital plan to the operating branch and department, and allocate it to each credit business. Conduct comprehensive accounting of revenue and contribution by operating branch and department, truly calculating costs and revenues item by item and evaluating contributions to the bank's performance appraisal item by item, promoting structural optimization of the industry in multiple dimensions such as region, customer, product, and term.
Improve the ability to manage credit asset quality. Transform the content and methods of review and approval. Under the premise of evaluating risks based on "policy, system, finance," choose the optimal credit solution according to the thinking of balancing "revenue, cost, risk," further improving the quality of review and approval. Through the review and approval process, transmit the concept of balancing "revenue, cost, risk" to the marketing phase, promoting the effective allocation of the entire bank's credit resources, adjustment and optimization of the credit structure, and gradual improvement of asset quality.
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