Under the top-level design, strong policy guidance, coupled with the timely emergence of large AI models, has made digitalization a key strategic competition in China's banking industry. The market has even exclaimed that the era of "AI working for banks in all aspects" is coming.

In fact, the digitalization of China's financial industry has always been at the forefront of the international community, with international organizations such as the International Monetary Fund and the Bank for International Settlements paying close attention to the development of China's digital finance. (For details, see "Huang Yiping: Digital finance is an important Chinese story | Chief Interview ⑦").

However, "digital intelligence" and "data governance" have become two sides of the coin in the digital transformation of the banking industry. Regulatory authorities have put the data governance of the banking industry on the agenda. On August 2, 2024, Suzhou Bank Co., Ltd. (hereinafter referred to as "Suzhou Bank") was fined 600,000 yuan by the Jiangsu Supervision Bureau of the State Financial Supervision Administration for "violating prudent business rules in data governance". The "Shepherd Dog - China's Financial Industry Compliance Cloud Platform" (hereinafter referred to as the "Shepherd Dog Platform") of Southern Weekend shows that from January 1, 2024, to August 11, 2024, the State Financial Supervision Administration, the People's Bank of China, and the above two institutions have issued 18 penalty notices involving "data governance", "information system construction", and "data submission" issues, with a total penalty of more than 36 million yuan.

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In order to objectively and scientifically evaluate the digital intelligence and data governance capabilities of the banking industry, the New Finance Research Center of Southern Weekend has combined the 2023 digital finance list and data security into one, and merged and optimized the two index evaluation systems according to the regulatory orientation and the market's own changes. Based on the annual report data of 2022 and 2023, ESG report data (Environmental, Social, and Governance Report), and the Shepherd Dog Platform data, 43 banks (including 42 listed banks and one of the systemically important banks, Guangdong Development Bank) were calculated and ranked. After more than 4 months, the "2024 Golden Benchmark - Digital Finance List" preliminary list was made.

Starting in September, the New Finance Research Center of Southern Weekend will add or replace the 2024 mid-year report data of the banks on the basis of this preliminary list, and update the scores of the relevant indicators. At the same time, a deep questionnaire survey and on-site or online research will be conducted for the evaluated banks. At the same time, an expert review team composed of authoritative experts in relevant fields will be selected for independent selection. Based on the certain weight of the above three types of scores, the "2024 Golden Benchmark - Digital Finance List" will be produced and released.

Four dimensions and 25 sub-indicators, adding 6 reverse indicators

In the rapid transformation of digitalization, the banking industry has to be cautious in how to balance "intelligence" and "governance".

In response to the regulatory orientation and the market's own changes, the New Finance Research Center of Southern Weekend has combined the 2023 digital finance list and the data security list, and re-sorted and optimized the evaluation index system of the two lists, to more objectively and scientifically assess the digital intelligence and data governance capabilities of the banking industry.

Based on the banks' consistent promotion of digital transformation, this list has followed the high continuity of the core elements of the evaluation index system. The 2024 Digital Finance List evaluation index system retains the evaluation indicators of the 2023 Digital Finance Index System and the Data Security Index System for technology investment, digital risk control, and institutional processes.As the digital transformation has entered the deep waters, the actual benefits of digital applications in the banking industry and the level of data governance have become the current focus of attention in the industry. Based on this, the New Financial Research Center of Southern Weekend has increased the weight of digital efficiency and data security indicators on the basis of the relevant index system in 2023, and slightly reduced the weight of the technology investment dimension.

At the same time, in order to further quantify the evaluation of the effectiveness of digital applications and the level of data governance in banks, this list of evaluation indicators has added several quantitative sub-indicators such as "Return on Risk-Weighted Assets" (a financial indicator used to measure the efficiency of banks in generating net profits from risk-weighted assets), "Number of Penalties Involving System Security" and "Fines for System Security Issues".

What is more worth mentioning is that the evaluation system of this list has six reverse indicators. The higher the score of the reverse indicators, the lower the total score will be.

After merging and optimizing the two list evaluation systems of 2023, the evaluation system of the 2024 Digital Finance List is finally set to four major dimensions of "Technology Investment", "Data Security", "Digital Efficiency" and "Digital Risk Control" and their corresponding 25 sub-indicators. Relevant indicators are assigned different weights according to their importance.

Some qualitative indicators in this evaluation are closely related to the transparency of banks' data. Some banks have lost points due to insufficient disclosure of information. In order to let the public have a clear understanding of the digitalization process of banks, the New Financial Research Center of Southern Weekend suggests that each bank should disclose relevant information in the field of digital finance in detail in financial reports and ESG reports, and improve data transparency and availability.

Bank of Communications did not enter the top ten, and the disclosure of information is poor.

According to the above evaluation system, the New Financial Research Center of Southern Weekend has calculated and ranked more than a thousand indicators of 43 banks. The 2024 Digital Finance List shows that China Merchants Bank, Industrial and Commercial Bank of China, and China Construction Bank have the top three comprehensive scores, which is almost similar to the public's general cognition.

However, contrary to public cognition, some rural commercial banks have overcome the disadvantage of scale and have made efforts in the field of digital finance and have achieved initial results. Reflected on the list, two rural commercial banks have entered the top ten, and they are almost on par with state-owned banks and joint-stock banks.

Among the six major state-owned banks, five banks have entered the top ten. Among them, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Postal Savings Bank of China have entered the top five of the list.Compared to the 2023 digital finance ranking, Postal Savings Bank of China (PSBC) has jumped from 13th to 5th place in the rankings. How did PSBC surpass its former competitors?

The New Finance Research Center of Southern Weekend found that the bank disclosed in detail the effectiveness of network application technology, the effectiveness of Robotic Process Automation (RPA), and the effectiveness of the Internet of Things (IoT) application in its 2023 annual report. At the same time, the bank's non-performing loan ratio was only 0.83%, which is the best among the six state-owned banks.

As banks generally face the pressure of rising non-performing loan ratios, how does technology help PSBC cope with challenges? The 2023 annual report of PSBC shows that the bank has fully optimized the "Looking into the Future" model (a rating model customized by PSBC based on the characteristics of technology companies) and promoted the bank's risk management to shift from passive loan review to proactive risk management and lead business development.

After the 2023 digital finance ranking, ICBC once again entered the top two of the digital finance ranking. Behind it is ICBC's continued high investment in technology. On the basis of a high-tech investment of 26.2 billion yuan in 2022, ICBC still had a technology investment of 27.2 billion yuan in 2023, a year-on-year increase of about 4%.

Compared to the 6th place in 2023, the Bank of Communications (BOCOM) unexpectedly fell out of the top 10 this time, mainly because the bank's information disclosure was insufficient, and some qualitative indicators scored lower due to missing data.

Agricultural Bank of China (ABC) scored almost full marks in the dimension of data security, ranking first in this dimension. This is mainly because it has sufficient information disclosure and no penalties under data security.

The top and bottom of the 10 joint-stock banks are 38 places apart.

As the second echelon of joint-stock banks, the top and bottom of the 10 joint-stock banks tested are 38 places apart. China Merchants Bank is at the top of the list, but Ping An Bank and China Zheshang Bank are after 30 places. Where did Ping An Bank, which has always focused on digitalization, lose points? Where did China Merchants Bank and Industrial Bank score high?

In the 2023 annual report, both China Merchants Bank and Industrial Bank have comprehensive and detailed information disclosure in the field of digital finance. Therefore, the two banks have scored high on many qualitative indicators.From the perspective of quantitative indicators, the performance of multiple quantitative indicators of the two banks is also at a leading level. In 2023, the risk-weighted asset return rates of China Merchants Bank and Industrial Bank were about 2% and about 1%, respectively, ranking first and third among the ten listed joint-stock banks. This means that China Merchants Bank and Industrial Bank have achieved a net profit conversion efficiency far higher than the industry level in the process of applying digitalization to business scenarios (specifically manifested as high scores in multiple qualitative indicators).

At the same time, the above two banks are also the leaders in digital risk control of joint-stock banks. In 2023, the non-performing loan ratios of China Merchants Bank and Industrial Bank were 0.95% and 1.07%, respectively, far lower than the average of the ten joint-stock banks (1.32%). Among the ten joint-stock banks, the above two banks and Ping An Bank also have higher risk-weighted asset return rates and lower non-performing loan ratios.

Which indicators did Ping An Bank and China Zheshang Bank, which are generally recognized and perceived well, lose points on?

The New Finance Research Center of Southern Weekend found that in addition to the lower scores of some qualitative indicators due to information disclosure reasons, the above two banks also have the situation of reducing information technology investment (the year-on-year decrease in Ping An Bank's information technology investment was about 8%) and lower risk-weighted asset return rates (the risk-weighted asset return rate of China Zheshang Bank was below 1%).

Agricultural and commercial banks have two out of ten, and data governance issues are prominent.

It is not surprising that state-owned banks and joint-stock banks enter the top ten list, but the small-scale agricultural and commercial banks that have made it into the list may have subverted many people's perceptions and cognition.

Wuxi Bank and Shanghai Agricultural and Commercial Bank have become the leaders in digitalization among the large group of agricultural and commercial banks. Thanks to factors such as smaller scale and lower initial investment, the above two banks show a commonality of increasing information technology investment (the average year-on-year growth rate of the two banks is about 24%) and high net profit conversion rate (the average risk-weighted asset return rate of the two banks is 1.4%). Nanjing Bank, Hangzhou Bank, and Bank of Beijing in the city commercial banks are also close to the top ten.

It can be seen that in the process of digital transformation of the banking industry, the first echelon of small and medium-sized banks has both the advantages of "small and refined" and "easy to transform".

However, while vigorously developing digital finance, the data governance issues of small and medium-sized banks are more prominent. Among the 43 banks evaluated, the three penalties issued by regulatory authorities throughout 2023 involving data governance or system security all fell on the city commercial banks. Among them, Xiamen Bank was fined about 7.65 million yuan by the People's Bank of China Fuzhou Central Branch for 23 reasons including "violating personal financial information protection regulations", "failing to accurately report financial statistics", and "unauthorized inquiries of personal credit reports due to system reasons". In this indicator, Xiamen Bank scored low in the data security dimension and ranked at the bottom of the list.Goals and Bottom Lines Are Indispensable

The aforementioned analysis indicates that there is a differentiation in the digital finance process among state-owned banks, joint-stock banks, and urban and rural commercial banks, as well as within the same echelon of banks. However, compared to the wealth management list where the highest and lowest scores differ by as much as 60 points (for details, see "Wealth Management List: Banks' Second Growth Curve, Who Is the Leader?"), the digital finance list shows a more concentrated score among the 43 banks, with the highest and lowest scores only differing by about 30 points. This suggests that the banking industry's overall digital strategy is converging, and the level of digitization is generally high. Digitization has become a key move for all banks to layout their future core competitiveness.

Observing from the dimension of technology investment, the banking industry as a whole shows a trend of accelerating investment growth for small and medium banks with a smaller base, and decelerating investment growth for large banks with a larger base.

As the base of investment in the digital finance field continues to increase, the term "digitization" almost runs through the descriptions of all businesses in the 2023 annual report. A set of qualitative indicator data reveals this: among the 43 banks, 43 banks disclosed the effectiveness of network technology application; 37 banks disclosed the activity of mobile banking; 36 banks described the application scenarios of digitization; 34 banks disclosed the effectiveness of Robotic Process Automation (RPA); 29 banks disclosed the effectiveness of Internet of Things (IoT) application; 12 banks disclosed information related to intelligent early warning and other digital risk controls. Specifically, most banks have achieved the effect of "AI working for the bank in all aspects" such as cloud-based business, intelligent customer service, online risk control platform loan issuance, and full business intelligent early warning.

However, observing from the dimension of quantitative indicators, the actual effect of the banking industry's digitization is a mixed bag. In the middle of 2023, the return on risk-weighted assets of 30 banks showed a downward trend compared to the previous year. This means that most banks have a lower net profit conversion rate. Against the background of the industry's net profit growth slowing down, the actual effect of digital business operations such as Robotic Process Automation has not been reflected in the current income of banks. In contrast to the application effect of digitization in business operations and other fields, the year-on-year decline in non-performing loan ratios of 32 banks shows that banks have achieved good results in the field of digital risk control.

Undoubtedly, regardless of the effectiveness of digitization application, the digitization of banks has entered the implementation stage.

The aforementioned 18 penalties related to data governance in 2024 warn banks that while carrying out digital "intelligence management", banks should not ignore the bottom line of data "governance".

At present, most banks still have a large room for improvement in data governance. By sorting out the 2023 annual reports and ESG reports of 43 banks, the New Finance Research Center of Southern Weekend found that 26 banks did not disclose the organizational structure of the data security department; 25 banks did not disclose the release and implementation of relevant system documents for data security; 20 banks did not disclose the internal special audit of information technology management.The New Financial Research Center of Southern Weekly believes that after continuous updates and iterations of its digital "smart management" system, the cost reduction and efficiency enhancement capabilities of digitalization will eventually be reflected in the financial statements of banks. At the same time, regulatory bodies' requirements for banks' data governance will also be enhanced. To ensure the security and stability of the digital "smart management" system, regardless of the size, all banks should establish a data security department and improve relevant data security regulations. In addition, banks should also conduct internal special audits on information technology management in a timely manner to keep up with the internal data governance situation, in order to meet or exceed regulatory requirements, and achieve a dynamic balance between "smart management" and "governance".

The effectiveness of digitalization is undoubtedly the ultimate goal that banks pursue, and data security and effective governance should be the bottom line that banks cannot relax for a moment.