1. Ftp base interest rate curve
The market yield curve is generally selected for construction, the benchmark yield curve carries the risk characteristics of interest rates, is determined by the heavy-pricing slotting of interest-bearing asset-bearing liabilities, and the interest rate risk in the banking sector is transferred to the treasurer. In the construction of the ftp base interest rate curve for financial market operations, an interest rate curve of up to one month can be priced at shibor, a one-month to one-year interest rate curve can be priced at aaa. Credit risk premiums are measured by reference to the differences in commercial bank debt with the bank's rating。
2. Ftp strategic adjustments
The ftp strategic adjustment item complements the curve and pricing methodology by tailoring the specific characteristics of the operation to make the pricing of funds more in line with operational and in-line strategic orientations. The need for strategic business development or management is better met mainly by adding or reducing points to different financial market business products. A strategic differential curve carrying management features is designed to facilitate the restructuring of operations in line with the master bank's ftp performance command stick。
(iii) role of the ftp mechanism
1. Isolation of interest rate risk
The ftp mechanism could be established by centralizing the allocation of funds by professionals in the head office or in the negative sector, helping business sectors to emerge from cumbersome research on interest rate trends, contributing to a greater focus on credit risk and operational risk management, centralizing bank “interest rate risk” management and improving the quality and efficiency of bank risk management。
2. Fair assessment of performance
Given the fact that the ftp can provide financial costs or benefits for all operations, based on information on each business, the bank can measure its contribution to the overall profits of the line by product, institution, client or person, thereby making an objective and fair assessment of the operational contribution of the above dimensions and producing more equitable results。
3. Optimizing resource allocation
The objective of optimizing the allocation of bank resources is achieved by aligning the current development strategy and operational priorities with the ftp, directing the business sector to expand or withdraw from certain operations, allocating funds to high-profit products and lines of business in a timely manner。
Scientific sound pricing
The ftp, as a financial cost or gain, provides a “floor” for external pricing of asset operations and a “ceiling” for external pricing of liability operations, which, together with other costs and factors, can eventually determine their respective “transfer pricing”。
Ii. Analysis of the current situation of the financial markets of agribusiness banks
The growing importance of financial market operations as an effective growth point for the profits of agribusiness banks and the growing scale of their development have been accompanied by the failure of regulatory levels to meet business development needs and the urgent need to give new impetus to financial market operations through higher levels of regulation. In the wake of the chartered bank incident, the bank's financial market operations were able to go back to their roots and operate with caution, based on strong support for rural revitalization and a service economy, but there was still a long way to go on the path of efficiency enhancement and precision management. At present, the financial markets of agribusiness banks are not well qualified, and many institutions lack derivatives and treasuries, and therefore continue to be dominated by traditional businesses, with asset-type business varieties such as the deposit of business-like funds, buy-in-for-sale, disassembly, bond investments, joint-stock investments, specific-purpose carrier investments and paper discounts; and liability-type business varieties such as the deposit of business-like funds, buy-in, buy-in-out, trade-in, issuance of business-as-usual certificates and rediscounts。
Because of the large number and varying size of national agribusiness banks, there are significant differences in the way financial markets operate. Farmer banks with a more well-managed business system often have an independent financial market department or financial operations authority in the conduct of their operations, with financial market operations being subject to a hierarchy of approvals, and investment decision-making committees effectively controlling the direction of financial market operations. Smaller agribusiness banks would combine financial market operations with planned finance units, while less powerful agribusiness banks, which had a slower operating management system, would integrate financial market operations into the financial market departments of the provincial associations and would operate under one umbrella。
Iii. Inadequate implementation of the ftp mechanism in the financial market operations of agribusiness banks
(i) inadequate organizational structure
Farmer banks have been involved in inter-bank market operations for relatively short periods of time and lack of experience, mainly using traditional organizational structures in the management of financial market operations. This largely limits the sound and efficient development of financial market operations. As mentioned earlier, many institutions do not have separate financial market operations departments, and many do not have an independent career department in their organizational structure, which is managed by the same agency departments。
(ii) inadequate management mechanisms
Most of the banks ' ftp mechanisms are managed by a financial or negative sector, while others are more involved in the process by being evaluated. The strong professionalism of financial market operations, coupled with rapid market changes, the lack of such expertise in the agribusiness banking system itself and the lack of professional awareness of the business by management personnel, have made it difficult to find a balance between the limited capacity to use the ftp mechanism to test financial market operations and the existence of a playing field between the financial market sector and the appraisal sector. In practice, banks, although priced for financial market operations, are largely not specifically evaluated, resulting in a lack of depth and content of regulatory mechanisms and a failure to fully play their role in facilitating the development of financial market operations。
(iii) inadequate precision
The volume of financial market business data is high, the multidimensional analysis is high and the level of precision of bank management is required. Although the ftp mechanism has been introduced by our banks many years ago, due to the market environment, individual differences and the distribution of internal benefits, the level of ftp management has been uneven, and agricultural banks have more problems in this regard, more at the technical level, most of which are used only for profit and loss measurement by branch agencies and do not allow for more precise application of the dimensions associated with the characteristics of financial market operations。
(iv) inadequate implementation of comprehensive risk management
Most agribanks consider that the role of financial market operations is mainly to transfer the balance of funds, maintain good intra-business liquidity and have insufficient awareness of its role in optimizing asset structures, enhancing profitability and, indeed, improving asset pricing. The current practice of agribusiness banks to evaluate financial market operations, which is mostly based on the indicator of internal profits or net earnings, combined with rankings such as volume of transactions, lacks comprehensive risk management mechanisms and is not scientifically sound. At present, the business sector is occupying high levels of capital, not only with credit risk, operating risk, but also today, without major changes in a century, where the international and domestic macroeconomic situation is complex, with higher market risk and correspondingly higher capital requirements. At the same time, as the performance of financial market transactions and investments is heavily influenced by macro variables such as interest rates and exchange rates, the value created and the risks faced by the financial market sector will fluctuate。
Recommendations for improving the application of the ftp mechanism in the financial market operations of agribusiness banks
(i) optimization of the organizational structure and establishment of a dedicated department
Financial market operations require, more than other operations, forward thinking and professional research skills, and need to be managed professionally by specialized departments, with enhanced risk prevention and control. It should regulate corporate governance, clarify the scope of management of the financial, financial and operational lines, supervise the establishment of a dedicated financial market business unit, fully staffed with professionals, improve the “three lines of defence” and implement independent pre-, mid- and back-office management, as required by the circular on further deepening the management of banking market fragments。
(ii) enhanced global awareness and optimization of long-term effectiveness management mechanisms
The introduction of the ftp system reform is an important part of the comprehensive reforms that banks should undertake to market interest rates, and the financial market business sector should take a holistic approach, recognizing that bank reform is an urgent step towards maximizing bank benefits and reducing unnecessary reform resistance. The head office is to delegate pricing management to the asset and liabilities management committee, and in the day-to-day decision-making of the asset and liabilities management committee, the pricing management should regularly report on the implementation of internal and external pricing and analyse the reasonableness of internal pricing levels to support and advise senior management decision-making。
(iii) improved data management to provide a basis for pricing decisions
Agricultural banks need to invest more in scientific, technical and data resources for financial market operations, strengthen internal data accumulation, manage data needs and regularize, regularize and refine data analysis. The results of the data analysis should be integrated, mutually reinforcing and refined with operational planning and the ftp mechanism. The financial market sector should continuously improve the capacity of the data to support decision-making by aligning the data analysis and its own business plans with the relevant ftp decision-making by pricing authorities。
(iv) managing risk through ftp pricing to guide sustainable business development
A market-oriented approach to financial market operations by agribanks has been instrumental in promoting the ftp adjustment to guide product pricing, performance evaluation and resource inputs through a more sophisticated ftp mechanism. The use of the ftp mechanism for financial market operations should be considered with a degree of independence, with separate statistical analysis, correction of incentive policy bias and continuous improvement in the level of performance evaluation. For example, when the interest rate risk is higher, it may be appropriate to increase the strategic addition to the long-term bond type ftp in order to guide the business sector to reduce the long-term risk, and when the economy goes down, to increase the ftp price of non-financial corporate debt products, direct the business sector to reduce risk preferences, reduce the investment in couriers and further protect against credit risk. In addition, economic value added indicators could be introduced to enhance the scientific nature of pricing. The economic added value indicators can be used to assess the operating costs, expected losses and return requirements of the financial market business sector, to introduce the economic added value indicators into the ftp pricing mechanism, to establish a value-oriented performance evaluation and appraisal system, and to guide the conduct of the financial market sector and to stimulate its efforts to sustain the long-term growth of bank values。
Concluding remarks
As financial market operations return to their roots, there is a need for better integration of norms and development in the future, and to move forward firmly in line with the overall requirements of “positioning, strong foundations, risk-proofness, quality efficiency”, the ftp mechanism is an enabling instrument for the development process of financial market operations of agribusiness banks and a necessary option for the fine-tuning of financial market operations。
Author: guard zhu, general manager, office of the party committee and board of directors, rural bank of jiangsu-yang
