2022年1月29日

ICBC Chairman: Zero or negative interest rate policy increases market volatility and credit default probability

On March 20, Chen Siqing, chairman of the Industrial and Commercial Bank of China (ICBC), said at the China Development Forum in Beijing that the opening up of the financial industry has entered a new stage, whether from a macro or micro perspective.

Chen Siqing pointed out that financial risks in the current period appeared some new characteristics:

First, the joint risk management mechanism of finance is weakened. Since last year, all countries have taken the action of cutting interest rates for about 200 times, but the macro-economic policy coordination is limited. Although the loose monetary policy is helpful to solve the short-term liquidity crisis, it cannot fundamentally solve the problem of structural imbalance, and may induce a new round of asset bubbles. Current data from the international economy, especially from several large economies, illustrate this problem.

Second, the unconventional policy has formed the long-term potential impact. The short-term effect is effective, but the long-term potential negative impact should not be underestimated. Central banks in nearly 40 countries and regions have adopted zero or negative interest rate policies, distorting traditional resource allocation and investment valuation, and increasing market volatility and the probability of credit default.

Third, the high interconnectedness of financial risks has become more evident. In particular, with the rapid development of the digital economy, capital flows and information flows are connected to a wider range of networks, and the balance sheets of market players are highly interconnected. The possibility of financial risk spreading rapidly through the chains of the Internet is greatly increased. At the same time, affected by the epidemic and other factors, banks’ income on the asset side is on the decline, while the cost on the liability side is on the rise. The net interest margin continues to tighten, and the financial income growth slows down, which also adds to the pressure of capital supplement. Therefore, banks need to make greater efforts for sustainable development.

Finally, Chen Siqing proposed that a strong risk management system should be established to deal with the related risks caused by the spillover of risks, improve the ability of risk management, and adapt to the new pattern and innovation of financial opening up.

Leave a Reply

Your email address will not be published.

Scroll Up