Chen Zhongyang, an associate professor of finance at Renmin University of China in Beijing, said in a speech that the Chinese government wanted to have the shares of the biggest state-owned banks trade publicly on international exchanges someday. But he said that there was a broad awareness in Beijing that the banks had much work to do before then, including learning to assess risk better and improving the way they are managed.
Chinese banks have tried to allay fears by computerizing their operations, so that irregular lending patterns can be detected more quickly, and by requiring branches to get approval from headquarters for the largest loans.
But Frank Pi, a retired IBM and EDS manager now working in Beijing as a consultant to Chinese banks, expressed skepticism in an interview at the conference.
"What they did was spend an enormous amount on computers and software," Pi said. "But what do they do about their corporate governance? Nothing."
Yen Wei, Moody's vice president for Chinese banking and the main author of Friday's report, said that tighter controls on large loans were not much help, because they were easily eluded by breaking deals up into smaller pieces.
"You could have five different loans by five different companies, and all the money goes to the same person," Yen said.
The central government has given the Big Four banks more freedom to make their own lending decisions, and encouraged them to cut down on "policy loans" to politically favored projects and enterprises that make dubious economic sense.
But as Moody's noted in its report, those banks are typically owned by municipal governments, which impel them to make policy loans. If China raises loan interest rates and cuts deposit rates in an effort to brake the economy, Moody's said, the effect on bank lending may be the opposite of the one intended. With their profit margins widened by a rate move, the report said, "banks will be encouraged to lend more, and may end up lending to poorer-quality borrowers in search of liquidity."
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