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ICBC Streamlines to Win

01-28 14:29 Caijing
A practical approach for traditional banks to compete with Internet banking is to win back clients by delivering satisfactory and consistent user experiences throughout their massive networks.

By staff reporters Dong Yuxiao and You Xi

The Industrial and Commercial Bank of China (ICBC), the country’s largest commercial bank, is expected to launch a new round of organizational restructuring after the Spring Festival, which is a first since the bank’s reform of non-tradable shares that enabled its initial public offering (IPO) in 2006.

Under the new reform plan, ICBC headquarters (HQ) that currently consists of some 47 departments and administrative centers will be streamlined into four divisions, namely marketing, risk management, comprehensive management, and support, encompassing 26 first-tier departments, five second-tier ones, and three department administrative centers. Moreover, the number of profit centers will increase from nine to 11.

A first-tier department for “channel management” will be set up under the Comprehensive Management Division to manage both bank counters and self-service terminals, a function previously co-performed by ICBC HQ’s personal banking or human resource departments, and design the layout of electronic as well as physical channels. In addition, the new Channel Management Department will be responsible for operating electronic channels after the establishment of an e-banking profit center. This institutional arrangement is innovative among domestic banks.

“[The goal is] to integrate channels based on customer experience and demands,” said Zhuang Ruihao, President of A.T. Kearney Greater China. Zhuang contends that the importance a commercial bank attaches to channel management will determine how well it copes with competition from Internet banking.

Zhuang added that a practical approach for traditional banks to compete with Internet banking is to win back clients by delivering satisfactory and consistent user experiences throughout their massive networks.

According to the reform plan, the ICBC’s nine existing profit centers will be stripped of certain administrative functions so as to focus more on products. Two new profit centers, e-banking and bank card, will be formed in due time.

International experience indicates that setting up profit centers, or product line divisions, can help bloated commercial banks that operate in too many markets and offer too many products and services to cut lead times and improve management

efficiency as well as risk control.

“Profit centers, unless granted full autonomy, can hardly break away from their old administrative roles,” said Zhuang. This is a common problem for Chinese banks hoping to reform their profit centers.

ICBC, which has operated as a commercial bank since 1984, has so far undergone four rounds of organizational restructuring. The most recent round dates back to 2006, when the bank expanded its marketing department, strengthened risk management, and created a unified platform for capital operation.

Over the past couple of years, banks have come under mounting pressure to boost profits and improve the quality of their assets, as slowing growth, faster than expected progress in interest rate reform, and booming Internet finance have intensified competition.

Compared with its peers, ICBC has done a relatively good job in sticking to market-oriented reform. Other commercial banks in China can take a page or two from ICBC’s book when it comes to the direction of organizational restructuring and relevant practices.

However, some say it’s a mistake that ICBC failed to take the opportunity to downscale its headquarters in this restructuring. The issue is that only limited achievements can be made in streamlining ICBC’s bloated HQ and improving the bank’s efficiency. And this problem is not restricted to the state-owned bank with 20 trillion yuan on its balance sheet; rather, it has plagued major commercial banks in China for several decades, preventing them from making rapid responses and decisions in market competition.

Full article in Chinese:http://magazine.caijing.com.cn/2014-01-27/113867734.html

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