1. Opportunities brought by RMB internationalization to small and medium-sized commercial banks

(1) The internationalization of RMB will increase the spread income of small and medium-sized commercial banks.

Although China's large state-owned commercial banks have a full range of businesses and a large volume of business, due to the regulation and control of national policies, they often lack interest rate fluctuations and their business flexibility is also limited by policies. Compared with this, small and medium-sized commercial banks have a wider interest rate floating range and can allocate foreign exchange positions more flexibly. Therefore, in the process of deepening the internationalization of RMB, small and medium-sized commercial banks can obtain RMB deposits in the international market at a lower cost in the process of actively developing international operations, and then make RMB international investment or issue international loans with high returns, thus obtaining greater spread space. Under the background of RMB internationalization, if small and medium-sized commercial banks can actively carry out international business, the multiplier effect produced by the bank credit creation mechanism will make the initial RMB deposits and loans in the overseas system generate several times of derivative deposits and loans, and the resulting derivative spread income will further expand the spread income between deposits and loans.

(2) The internationalization of RMB is conducive to the increase of intermediary business income of small and medium-sized commercial banks.

In the process of RMB internationalization, China's small and medium-sized commercial banks can increase their intermediary business income by developing international settlement business, international card business and RMB fund custody business. Especially in the process of expanding RMB international settlement business, bank settlement accounts will get a lot of RMB retained funds, which will increase the bank's income and improve the overall liquidity compared with the rational use of funds. On the other hand, with the rapid development of RMB internationalization, overseas RMB securities financing is bound to increase. In the process of actively expanding overseas business, small and medium-sized commercial banks in China will be more efficient and cost-effective than foreign banks or financial institutions in underwriting and issuing RMB securities. In addition, small and medium-sized commercial banks can also use their flexibility and initiative to provide RMB-denominated financing brokerage business in domestic and international financial markets. The expansion of these businesses will increase the intermediary business income of small and medium-sized commercial banks in China to a certain extent.

Second, the challenges and countermeasures of RMB exchange rate changes to the exchange rate risk management of small and medium-sized commercial banks in China

(A) the impact on the capital adequacy ratio of small and medium-sized banks

The bank's capital adequacy ratio is to measure the level of commercial banks' resistance to risks caused by exchange rate fluctuations from the perspective of capital. The capital in China's banking system consists of local currency and foreign currency, of which foreign currency accounts for a very high proportion. Among them, domestic foreign currency capital basically has three components:

First, the foreign exchange capital formed by the state in the form of capital injection from foreign exchange reserves;

The second is to increase income through overseas IPOs;

The third is the foreign currency capital formed by overseas strategic investors subscribing for part of the equity.

Due to the fluctuation of RMB exchange rate, the foreign exchange funds of commercial banks are at risk of conversion. If the RMB exchange rate rises sharply, the total capital of commercial banks is likely to shrink sharply. According to the Basel Accord, the ratio of total capital of commercial banks to all weighted risk assets should be above 8%, and the ratio of core capital to risk assets should be above 4%. According to the information released by the People's Bank of China at the end of 2009, except for the four state-owned commercial banks, the capital adequacy ratio of many small and medium-sized commercial banks is close to or even lower than the regulatory red line.

(2) Risk brought by reputation loss and rising non-performing loan ratio.

The fluctuation of exchange rate will also cause translation risk to the foreign exchange income of bank customers, thus indirectly affecting the profitability and asset quality of banks. The fluctuation of exchange rate will increase the conversion risk of customers' operating accounts engaged in transnational trade, so that the funds in their operating accounts will fluctuate with the change of exchange rate, which will have an impact on customers' repayment ability and eventually increase the risk exposure of banks. According to past international experience, if the spread between local currency and foreign currency is large, many enterprises will choose to borrow foreign currency loans from banks to meet their local currency financing needs, which often has a great risk of currency mismatch. If other enterprises choose to borrow a large amount of foreign currency from banks, if the local currency exchange rate drops sharply, the foreign exchange losses and risks of these enterprises will be directly passed on to banks.

(3) Risks of foreign exchange wealth management business

With the increasing foreign economic and trade activities in China, the exchange rate risk of customers who are engaged in transnational trade and have foreign exchange receipts and payments is gradually increasing, so they need to manage their foreign currency assets more safely and efficiently through the bank's foreign exchange wealth management products. This increase in demand has increased the number, types and scale of foreign exchange business of banks. The emergence of wealth management products with foreign exchange as the subject matter, on the one hand, expands the trading of foreign exchange derivatives in China's banking industry, but on the other hand, it also increases the risk of foreign exchange trading in the market. Although these derivatives provide a hedging tool for foreign exchange-holding enterprises, they also become a speculative tool because of their unique leverage and virtuality, which makes the exchange rate risk management of small and medium-sized commercial banks face great challenges in the case of increasing RMB exchange rate fluctuation and the lack of pricing power of financial derivatives in China.

(D) Countermeasures of small and medium-sized commercial banks in the case of RMB exchange rate fluctuations

Facing the fluctuation of RMB exchange rate in the process of RMB internationalization, China's small and medium-sized banks need to strengthen their exchange rate risk management capabilities to cope with possible risks.

The promotion of risk management ability can mainly start from the following aspects:

First, strengthen the awareness of exchange rate risk management from the perspective of personnel mechanism, and vigorously introduce and train professionals. In the past, there was a big gap between small and medium-sized commercial banks and large state-owned commercial banks in terms of personnel quality and quantity. However, in recent years, due to the flexible internal management and incentive mechanism of small and medium-sized commercial banks, a large number of outstanding financial talents have been attracted to join. But at present, compared with large foreign commercial banks, the overall quality of financial talents in China is still backward. Therefore, in terms of personnel, not only small and medium-sized commercial banks in China need to invest more energy in introducing, cultivating and retaining a large number of financial talents for a long time, but the government should also actively encourage the cultivation and development of high-quality financial practitioners in China.

The second is to establish a complete exchange rate risk management system. Small and medium-sized commercial banks are inherently weak in their ability to resist risks because of their own capital and small scale. At the same time, they should always be alert to the emergence of loopholes and constantly update their management systems. Only in this way can efficiency and safety be organically combined.

Third, strengthen the innovation ability of financial derivatives and improve the pricing mechanism of financial derivatives. Due to the enhancement of the autonomy of banks and enterprises and the deepening of China's financial market opening to the outside world, enterprises have an increasing demand for various financial derivatives of banks. Whether a commercial bank has the ability to accurately price and control risks to the maximum extent when introducing derivatives such as forwards and swaps directly affects the safety, liquidity and efficiency of commercial banks. In exchange rate quotation, compared with large state-owned commercial banks, due to the policy guidance of the central government, China's small and medium-sized commercial banks have greater floating space and operational autonomy in exchange rate quotation and position regulation. Therefore, developing and perfecting the pricing mechanism of bank financial derivatives is the best choice for small and medium-sized commercial banks to make full use of their own advantages to control their own risks and compete with big banks.