Chinese banks suffering because their heads are not in the cloud – claims People’s Bank of China Report

A risk analysis from the People’s Bank of China (PBOC) says that in the $45 trillion financial systems of the world’s second-biggest economy one in 10 of China’s 4,000 banks has a fail rating.

Of those, 425 rural financial institutions were judged ‘extremely risky’. Many now face sanctions to stop them from taking on new business. They will also be barred from re-lending activities and receiving support from the authorities.

The problem for China’s bankers is they can’t get their head in the cloud, according to the report.

Another major barrier to digital transformation is the Chinese consumer’s fear over data privacy.

The PBOC warns that Chinese banks could fall behind in the race to adopt new technology and will struggle to meet the digital demands of customers.

Speaking at this year’s Asian Financial Services Congress, IDC research director Yu Zhen said all banks, not just those in China, are struggling to move to the cloud.

However, the biggest state-owned Chinese banks are struggling to adopt a hybrid-cloud model, the analyst told the Congress audience.

Banks have got it right when they use a protected private cloud for sensitive data, while using cheaper services for their ancillary financial products, whose services can run on public clouds from local vendors, says IDC.

Mid-sized Chinese banks are attempting to adopt the hybrid model, which gives them license to invent new services for clients without jeopardising the safety of their data.

Regulations in China, which prohibit banks from using cloud service providers like AWS and Google, are creating work for local cloud providers. This promotes a culture that brings out the full diversity and flexibility of the cloud, says IDC.

The small Chinese banks – who would otherwise benefit from the economies of scale offered by AWS, – face the biggest challenge in finding a local service provider. Lacking the resources to move to the cloud, so they are forced to demure to reluctant service providers who will take on the job of migration and inventing new services. But being a small client, their project is not a priority and the service provider’s top talents won’t be assigned to them.

The analyst warns that Chinese banks that don’t make the leap into the cloud will risk major losses, so there are major opportunities for cloud providers – but not AWS or Google.

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