Chinese banks urged to enhance risk-based pricing competencies

This is so they can benefit from interest rate liberalisation.

According to Celent, over the past decade, China’s regulators have gradually liberalised the interest rates banks can charge. Risk-based pricing will become a core competency of banks in China and lead to more differentiated products and services, particularly for retail and small business customers.

Here's more from Celent:

Interest rate liberalisation will tend to squeeze margins at banks and increase their need for risk management. For banks with strong risk-based pricing competencies, liberalisation will also provide new business opportunities.

It will also cause greater interest rate fluctuations, thereby increasing interest rate risk in the banking industry and causing an increase in demand for interest rate risk instruments. To realise the opportunities in deregulated interest rates, banks are advised to enhance their risk-based pricing competencies, create online banking and social banking services, and develop more high-yield products.

“With interest rate liberalisation, a bank’s control over the cost of capital will be a reflection of its competitiveness. In this environment, banks will need to develop digital banking and social banking services to lower their costs in attracting deposits,” said Neil Katkov, PhD, Senior Vice President of Celent’s Asian Financial Services practice. 

“Interest rate liberalisation will intensify competition, narrowing the gap in interest spread, affecting the expansion of credit, increasing credit risks, and increasing the need for the development of value-added services,” he added.