- February 19, 2020
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Bank of Qingdao’s Guo: Corporate governance plays a vital role in banks’ development
Guo Shaoquan, chairman of Bank of Qingdao, speaks about the importance of corporate governance in banks, the local economy and development in rural areas in Shandong, China.
Guo Shaoquan has been Bank of Qingdao chairman since December 2016 and has been the bank’s executive chairman of the board since 2010. From December 1980 to April 2000, he worked at the Qingdao branch of China Construction Bank. He also worked at China Merchants Bank from April 2000 to November 2009, successively as head of the Qingdao branch and head of the Tianjin branch.
In this conversation, Guo Shaoquan shares his vision for the bank and the strategies applied to improve their services. He also talks about the important role played by corporate governance for Bank of Qingdao’s growth along with the green development initiatives supported by their institution.
Emmanuel Daniel (ED): I would like to understand a little bit more about how you are leading the Bank of Qingdao and the role it plays in the economy of Shandong province.
Guo Shaoquan (GS): Thank you for coming to Bank of Qingdao, and you are welcome to visit Bank of Qingdao more often.
I agree with you that wealth does not depend on how much money an individual has, but more importantly, how much good that net worth does for society – that is very important. But some people just want to see how much wealth they have and how high net worth they are.
Bank of Qingdao is a local commercial bank, and its scale, in terms of capital and assets, is not very high in China. I personally want to help turn Bank of Qingdao into a distinctive bank. To do that, we should first have a clear mind in our strategy – a vision.
In my many years of experience as a banker, I have found that running a distinctive bank is a product of continuous exploration as well as hard work. We have to work with professional individuals who are capable and who share the same vision in order to succeed. Take for instance, our young vice president Liu Peng, who was born in the 1980s and Secretary LV Lan from the Office of the China Merchants Bank.
Bank of Qingdao is very distinctive in that we value corporate governance. Many banks ignore corporate governance or do not value it, but we consider it as one of our key characteristics. I think this is very forward-looking. Corporate governance plays a vital role in the development of a bank, but many banks do not realise this.
If you check our shareholding structure, you will find it to be very distinctive as well. Our largest shareholder is Haier, but Haier only accounts for 18% of the bank’s shares. The second largest shareholder is Italy's S&P, which accounts for around 13%. The third largest shareholder is our local state-owned enterprise in Qingdao, accounting for about 12%.
This equity structure constitutes the basis of our very distinctive corporate governance. For example, the leader of Haier, Zhang Ruimin, said that they will support Bank of Qingdao instead of intervening with it. I was really moved by what he said. As a major shareholder, he held more than 70% equity at the beginning. From more than 70% to about 18% now, he never sent any manager to us.
ED: We have been checking the evolution of the Chinese banks from the beginning. There was a period where all the banks were quite determined to put in place their corporate governance structure. I have looked at your numbers and I have noticed that your non-performing loans and delinquency ratios are quite conservative, which is, to me, a good indication.
Today, the evaluation of banks has moved on to new agendas. The first agenda is how a bank is built into the rest of society through some digital platforms. Even though the bank is small, it can be very deeply involved end-to-end in the digital economy.
The second is we looked at the quality of your loans and your commitment to lend to sustainable business. Around the world today, there’s a commitment to lending to environmentally friendly businesses and not lending to businesses that destroy the environment.
The third thing we want to see is how deeply your bank has penetrated the local economy. Because China used to be externalising the economy but now it is internalising it. The relationship between the bank and the local government is very important.
The fourth thing we pay attention to is the Belt and Road Initiative. We want to learn its different contributions across different economies and value chains, and what the final results are. We have contact with some government agencies, including some major provincial banks, so we have some understanding of this part, but we are still in the learning process.
The fifth point is wealth management. As I’ve explained, the economy is now focusing on individuals who can make a big difference to society.
When you were explaining corporate governance, I realised that I almost take it as a given, because the CBRC (China Banking Regulatory Commission) is very, very strict.
GS: The five aspects you just talked about are those that are of great importance to China's finance and global finance.
We need a close and sustainable connection with local economy and society, especially local commercial banks like ours, which are subject to regional restrictions on supervision.
We are exploring new ways to deliver services to residents of our community and support development in rural areas.
As a local bank in Qingdao, we are thinking about this as a strategy. Maybe at the end of this year or the beginning of next year, we will have a distinctive two-pronged strategy. The first part would focus on community service. We’re exploring this; we have some ideas and a basic framework. This will not be a simple and traditional approach.
The second part is called, in the words of our central government, the construction of a new socialist countryside. China's rural areas have undergone tremendous changes. In the past, the countryside prioritised subsistence, so that people have enough to eat. Now, the countryside is rich.
We have two lines: one is for the citizens in the urban area, including wealth management, and the other is for the financial services of farmers. Financial services are most lacking in rural areas. We have signed nearly four or five hundred financial service stations in rural areas – that has had a good effect.
In the second part, traditional methods are not sustainable, so we must use scientific and technological means. We use digital, especially big data, to help citizens obtain more wealth. We are always pushing a mobile service called financial services. People can solve their basic financial services through mobile phone or iPad.
ED: I thought that Shandong is a very developed province. It is interesting that it’s got a very strong rural community.
GS: Yes, Shandong is also a big agricultural province. The next step is green, sustainable development and environmental protection. As our bank's credit, in addition to the development of some normal businesses, support for environmental protection and green is also a sustainable issue for banks. Two or three years ago, we were China's first wholesale bank for green bonds. Among all the banks, we were the first batch. There are only three banks in total. Bank of Qingdao is the only industrial and commercial bank, which indicates that we support environmental protection for green, environmental protection, and special finance. This is an attitude.
Therefore, we are now actively exploring a distinctive feature. For example, Qingdao is now focusing on green development centred on the ocean, the maritime sector. We fully support green development that is related to the ocean. We are constantly doing this work. This is a long-term process.
ED: As far as the maritime industry is concerned, Shandong's development is competitive all over the world.
GS: The Belt and Road Initiative mentioned earlier is a major feature of China. We are one of the earliest banks in China to initiate the establishment of the Belt and Road Financial Alliance.
ED: We are quite familiar with some city commercial banks that have gone out of the local area, such as Bank of Beijing or Bank of Shanghai. If it is the city businessmen who are out of their province, the cost is a big problem.
GS: I think it's relative. If it succeeds, or if it can be well integrated with the local area, the benefits will cover the costs.
However, I personally think that what’s most important is not how much market share you gain, but how to control risk. The nature of finance is still risk. The development of business in China is very promising, but the essence of finance is always risk.
ED: Does Bank of Qingdao have products based on the Belt and Road Initiative?
GS: In terms of construction, we base it on our own characteristics. For example, we just did business a few days ago. It is the first Chinese currency exchange business with Singapore. Our customer in Shandong has some business in Singapore. The Bank of Singapore has currency swaps with the People’s Bank of China. We have done this business, and now it is very successful. It is the first currency exchange between China and Singapore.
Shandong is a very important node of the Maritime Silk Road. We also have a node of the Silk Road on land. We are currently working with some countries in Central Asia, such as Kazakhstan. Many companies in Shandong operate there, but its currency is not a universal one, so we are helping them use RMB to transact. We may be able to talk about a few new transactions in the near future.
Although we have no outlets in this place, we can make use of the country's financial policies and the One Belt One Road policies, and we can make our own characteristics. For example, our next step could be cross-border trade and cross-border e-commerce. These markets are huge.
ED: How are you dealing with competition in Shandong? Because the big four banks are quite strong in Shandong. What is your market share of deposit in the entire Shandong Province?
GS: Our market share accounts for 2 to 3% of the entire Shandong, but our wealth management business may account for 1/3.
ED: Compared with the big four banks and some banks outside Shandong province, is your strategy conservative or offensive?
GS: I have been working for many years in large state-owned banks. I had been working in CCB for 20 years, and China Merchants Bank for 10 years. The Chinese market is large enough, and there is no problem in entering the banking sector. The most important thing is to find your position and make your own distinctive mark. We are neither offensive nor conservative, we are flexible.
I would like to use what Chairman Mao said to explain it. He asked a lot of military theorists what is the core of military. The theorists talked to him a lot. After listening, he said that if he can win, he will fight. If he can’t, he will run. That idea is in line with our strategy, we must face challenges steadfastly. It's hard for me to say whether we are conservative or offensive.