China on Wednesday unveiled strict new rules governing bankers’ pay that are designed to limit risk taking.
Payment of 40 percent or more of an executive’s salary must be delayed for a minimum of three years and could be withheld if their bank performs poorly, the China Banking Regulatory Commission said in a statement on its website.
This would ostensibly put China at the forefront of a global movement to use regulation of bankers’ pay as a way to control their firms’ investment behaviour.
The implications in China, though, are less significant, because bankers are, in effect, employees of the government in the largely state-owned banking system and their salaries are already significantly lower than their international peers’.
“This guideline aims to instruct commercial banks to learn lessons from the financial crisis and to improve their salary incentive mechanisms to avoid having bank staff taking risks due to improper incentives,” the banking regulator said.
Banks must consider a range of indicators, such as capital adequacy ratio, non-performing loan ratio and provisions for bad loans, when assessing their executives’ performance, the statement added.
In contrast to the risky market plays that have tempted global bankers, more pertinent in the case of China is the close relationship of bankers with government officials.
Investors are worried that a large portion of China’s 9.6 trillion yuan ($1.4trn) credit surge last year went to local governments with questionable ability to repay loans.