ICBC President Liu Jun: Large commercial banks must take the lead in resolutely not engaging in "price wars"

"Currently, the focus of interest rate marketization reform has shifted from 'letting go' to 'shaping' and 'adjusting'. However, due to factors such as the insufficient pricing ability of financial institutions and irrational competition, the road ahead for interest rate marketization reform is still long." Liu Jun, Chairman of the Market Interest Rate Pricing Self-Discipline Mechanism and President of the Industrial and Commercial Bank of China (ICBC), stated in a signed article in China Finance magazine that the Market Interest Rate Pricing Self-Discipline Mechanism (hereinafter referred to as the "Interest Rate Self-Discipline Mechanism") will focus on deepening interest rate marketization reform to enhance the effectiveness of monetary policy; strengthen interest rate self-discipline management to maintain a fair and orderly market order; and reinforce the positioning of financial institutions to continuously enhance value creation capabilities.

Regarding the work of the interest rate self-discipline mechanism over the past year, Liu Jun summarized, "Many new changes have occurred, presenting numerous new phenomena." He cited examples such as the shift from primarily flexible coordination to a greater emphasis on regulating order, becoming a strong assistant for the People's Bank of China in implementing monetary policy. Additionally, the mechanism has transitioned from mainly operating behind the scenes to taking a more public role, frequently voicing opinions, coordinating market consensus, and continuously enhancing its seriousness and authority. Furthermore, the focus has shifted from daily self-discipline management to greater emphasis on mechanism construction, introducing innovative institutional measures, making self-discipline management more practical and effective.

At the same time, the interest rate self-discipline mechanism faces new situations and tasks. Liu Jun stated that due to the insufficient pricing ability of financial institutions and irrational competition, the road ahead for interest rate marketization reform is still long.

He further analyzed that irrational competition among financial institutions hinders the reasonable formation of interest rates. Financial institutions still generally have a "scale complex" and achieve scale expansion through "involution" and irrational competition, which weakens the transmission effect of interest rate policies, mainly reflected in the "rapid decline" of loan interest rates and the "inability to lower" deposit interest rates.

In addition, non-market factors restrict the adjustment of interest rates. Liu Jun cited examples such as the segmentation of financial markets caused by market immaturity, leading to certain distortions in the interest rate comparison relationships of different markets. Moreover, large clients generally sign long-term fixed-rate deposit service agreements with banks, and during the agreement period, new deposit business is not affected by interest rate adjustments, resulting in some clients executing interest rates higher than market levels. These non-market factors in the mechanism not only exacerbate banks' interest rate risks but also weaken the timeliness of interest rate adjustments.

The Central Economic Work Conference clearly proposed that a moderately loose monetary policy should be implemented by 2025. This not only means increasing the money supply but, more critically, establishing a transmission channel from "broad money" to "broad credit."

Liu Jun stated that the interest rate self-discipline mechanism will actively implement a moderately loose monetary policy, continuously deepen interest rate marketization reform, and enhance self-discipline work with a spirit of reform and innovation, promoting high-quality development and high-level self-discipline in the industry.

In focusing on strengthening interest rate self-discipline management and maintaining a fair and orderly market order, Liu Jun specifically mentioned that in response to the low-level "involution" problem in the banking industry, self-discipline management should be further strengthened, especially that large commercial banks should take the lead in resolutely avoiding "price wars."

"The root cause of excessive market competition lies in overly homogeneous services and insufficient differentiation." Liu Jun stated that to fundamentally solve the problem, the key is to enhance professional capabilities, creating value through services and relying on competitiveness to "make a living." We should rely on platforms such as the interest rate self-discipline mechanism to enhance communication and exchange among peers, strengthen the exploration and experience sharing of new models and new formats of financial services around major national strategies, key areas, and weak links, and promote the improvement of a multi-level financial service system to better meet the multi-level financial service needs of the real economy and the public.

Liu Jun stated that as the leading unit of the interest rate self-discipline mechanism, the Industrial and Commercial Bank of China (ICBC) will closely cooperate with the secretariat and various member units, play the role of a leading bank, actively convey and implement macro policy requirements, take the lead in setting a self-discipline example, and strictly implement the requirements of various self-discipline initiatives; from the perspective of market participants, collaborate with major member units to study and determine self-discipline plans for interest rates on loans, deposits, and other financial products, smooth the transmission mechanism of policy interest rates in different markets, maintain market competition order, and comprehensively promote the deep and practical market-oriented reform of interest rates with high-quality self-discipline, making greater contributions to building a strong financial nation and advancing Chinese-style modernization.

Author of this article: Chang Peiqi, Source: Shanghai Securities News · China Securities Network, Original title: "ICBC President Liu Jun: Large Commercial Banks Must Take the Lead in Resolutely Not Engaging in 'Price Wars'"

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