To establish a centralized and vertical risk management system to cover all kinds of risks in a commercial bank

To build up an efficient internal control and operation mechanism to balance risks and rewards and promote continuing and sound development of all business lines

Recently, China Construction Bank (CCB) has put Reform Scheme on Risk Management Mechanism into effect throughout the whole bank. This is one of important measures for CCB to make itself a world-class commercial bank, ensure the effective run of the corporate governance, improve the value creativeness of the bank, and enhance its core competitiveness.

It is reported that after CCB entered into its restructuring and listing, it had been committed to the establishment of a modern commercial bank’s system. CCB has obtained a dramatic improvement in corporate governance, risk management and asset quality, and in particular established the basic philosophy, organizational framework, scheme and system, and technologies and skills of risk management. So we could see that a full-range, scientific, independent and professional risk management system has been built up initially. Regulatory authorities have given full affirmation over CCB’s risk management. In recent-year annual evaluations organized by regulatory authorities, CCB always ranked top among all banks. Beginning in March of last year, CCB raised higher requirements over its risk management and established a special team to lead the changes of risk management system. CCB fully drew upon the advanced experiences and lessons from international top commercial banks and combined its own practical characteristics to successfully carry out the reform pilot projects of risk management in branches of Jiangsu, Hubei, Guangxi and Xiamen. Based on these pilot projects, CCB made sure its major method for transforming its risk management system. The objective of the reform should be: to establish a centralized and vertical risk management system to cover all kinds of risks in a commercial bank; and to build up an efficient internal control and operation mechanism to balance risks and rewards and promote continuing and sound development of all business lines. Its present and recent major tasks of reform are that, featured on vertical management, CCB shall build up a vertical risk management framework and comparatively independent reporting line to improve risk management mechanism; focused on parallel operation, CCB shall enhance its business operation efficiency to improve the effectiveness and independence of the risk management so that CCB can increase risk management and reward capabilities.

It is introduced that CCB will implement a centralized management across the whole bank in terms of risk management policies and rules, measurement and analysis, and risk control, during this reform of risk management. In light of the requirement of centralized management, CCB will phase in vertical risk management framework and reporting line. CCB’s head office will set up the position of Chief Risk Officer, tier-one branch Branch Risk Officer, tier-two branch Sub-branch Risk Officer, and risk mangers will be sent to lower level outlets. CCB will establish two reporting line with vertical reporting line as the main one and transverse line as the supplement one. Branch Risk Office shall be assigned by head office in a unified way. CCB will improve its business process and establish a parallel mechanism of risk management along with business process in accordance with customers needs to strengthen front, mid and back offices coordination and cooperation and increase working effectiveness and efficiency. In this way, CCB can further improve risk management systems in human resources administration, performance evaluation, assessment and approval, authorization management, to enhance related management process and business procedure and ensure the effective run of risk management mechanism.

CCB noted that through this reform, its risk management can realize 5 transformations: in terms of management philosophy, to change risk control as the main way into risk management to improve the capability of balancing risk and return; in terms of management model, to reform hierarchy management into centralized management to increase the enforcement ability via standardizing the risk management criteria and rules; in terms of management mechanism, to transform inter-department check as the base into cross-business-line check and self-check of all positions to build up an internal control and operation mechanism of a modern commercial bank; in terms of management approaches, to change the qualitative method into the combined qualitative and quantitative way to improve the professional, detailed and scientific level of risk management; in terms of management scope, to transform credit risk management as the main way into various risk managements with equal weight to perfect the full-range risk management system. In the coming two to three years, CCB’s risk management level will reach the level of international advanced banks via the efficient implementation of the reform.