“This year marks the 36th anniversary of IB. The stage of being established at thirty is past, and as we approach forty, the journey is still long and challenging,” expressed Lv Jiajin, Chairman of IB, at the 2023 annual performance briefing. He stated that the Bank is resolutely following the path of financial development with Chinese characteristics, ensuring it can continuously outperform the market and further solidify its position among joint-stock commercial banks.
In planning for this year’s operations, “It’s challenging to follow the old paths; we must resolutely shift from high-speed growth to high-quality development,” Lv Jiajin remarked. He emphasized the importance of prioritizing quality and efficiency, focusing on optimizing business structure, stabilizing the net interest margin, controlling capital consumption, and achieving balanced development in scale, quality, and efficiency.
He highlighted that this year, IB will concentrate on three key areas: first, to effectively tackle the battle against risks, especially focusing on credit risk, interest rate risk, and the prevention and resolution of new types of risks; second, to accelerate the release of technological productivity, deepen “enterprise-level, standardization,” hasten the construction of scenario ecosystems, and strengthen digital operations; third, to build a high-quality team, transitioning from being adept at handling large real estate and infrastructure projects to focusing on detailed, specialized, and technical tasks.
“Looking ahead to 2024, while there are many complexities and uncertainties in economic development, there are several certainties for IB,” expressed Chen Xinjian, President of IB, confident in outperforming the market. He believes that the narrowing of the net interest margin will further decrease this year; risks in key areas such as credit cards and government platforms are generally controllable; the dividends from digital transformation will be further released, enhancing the empowerment of business development; and the management team’s unity and pragmatic style, along with a clear strategy and strong execution, will drive positive business developments. The confidence in outperforming the market also stems from the continuous enhancement in “five capabilities”: strategic execution, customer service, investment trading, comprehensive risk control, and management drive.
IB 2023 annual report reveals that last year the Bank’s total assets exceeded RMB 10 trillion, with both loans and deposits surpassing RMB 5 trillion. It achieved net interest income of RMB 146.503 billion, a year-on-year increase of 0.85%. The non-performing loan ratio dropped to 1.07%, marking a continuous decline over three years. Additionally, IB’s MSCI ESG rating was upgraded from A to AA, distinguishing it as the only bank in China to receive the highest rating for five consecutive years.
Advancing the Restructuring of the Balance Sheet
“Stable performance with positive results aligning with expectations.”
“The primary impact comes from the one-time effect of income from older wealth management products. Excluding this factor, on a comparable basis, revenue saw a year-on-year growth of 0.94%, and net profit is expected to maintain a strong level,” Chen Xinjian, President of IB, directly addressed concerns about the decline in revenue and net profit during the performance briefing.
It’s particularly noteworthy that, against the backdrop of last year’s LPR reduction and mortgage rate adjustments impacting interest income, IB achieved a net interest income of RMB 146.503 billion, growing by 0.85% compared to the previous year.
In recent years, IB has advanced a new round of balance sheet restructuring, leading to more balanced business transformation and development. On the asset side, the Bank has achieved “solidifying the foundation and fostering innovation,” aligning its asset allocation more closely with the real economy’s transformation direction. Loans in the “Five New Tracks” areas of technology innovation, inclusive finance, energy, automotive, and parks saw double-digit growth from the beginning of the year, with weaker operating loans and consumer loans growing by 16.22% and 20.57%, respectively. On the liability side, IB achieved “cost reduction and efficiency enhancement,” with the interest rates for RMB deposits, interbank deposits, and issued bonds declining year-on-year by 11 BPs, 1 BP, and 10 BPs, respectively.
“Through the growth in liabilities volume and cost optimization, we effectively supported the allocation of credit assets and offset the impact of narrowing interest margins. Our net interest margin decreased by 17 BPs year-on-year, which is a relatively well-controlled reduction,” said Chen Xinjian.
Thanks to its robust development, IB increased its cash dividend payout ratio to 29.64% of the net profit attributable to shareholders of the parent company, nearing 30%. Since its listing in 2007, IB has distributed dividends totaling RMB 193.67 billion, significantly exceeding the RMB 83.535 billion raised through common stock-related financing, delivering substantial returns to investors.
“We are confident in maintaining stability in our operations this year, providing investors with robust returns. We aim for continuous improvement, achieving a ‘symbiotic and win-win situation for’ social value, shareholder value, and the Bank’s own value, thereby creating a ‘value bank’ with distinctive IB characteristics,” stated Chen Xinjian.
Looking ahead at this year’s net interest margin trend, “Influenced by the continuous reduction of the LPR, the net interest margin in 2024 is still on a downward trajectory. We do not rule out further declines in the LPR,” remarked Lin Shu, General Manager of the Financial Planning Department at IB. The Bank plans to continue its balance sheet restructuring to alleviate the pressure of narrowing interest margins, striving for net interest income performance that continues to outperform the market.
Forging Strengths, Solidifying Foundations, and Addressing Weaknesses
“Enhancing Comprehensive Strength to Navigate Economic Cycles”
The Central Financial Work Conference highlighted the need to excel in five key areas: technology finance, green finance, inclusive finance, elderly finance, and digital finance. These “Five Major Areas” align closely with IB’s strategic development focuses: “Three Pillars of Our Businesses,” “Five New Tracks,” and digital transformation.
As IB’s strengths and areas of advantage, the “Three Pillars of Our Businesses” achieved new breakthroughs last year.
In terms of Green Banking, the Bank’s green finance balance increased by 16.14% to RMB 1.89 trillion in 2023, with PBOC-calibrated green loans reaching RMB 809 billion, an increase of 171.9 RMB billion from the beginning of the year, accounting for 36% of new loans. The interest collection rate for green loans was in line with corporate loans, with a non-performing loan rate of only 0.41%, demonstrating stable returns and risk performance.
Regarding Wealth Bank, last year’s group retail AUM (including third-party custodian market value) reached RMB 4.8 trillion, with IB Wealth Management’s AUM growing by 8.18% to RMB 2.26 trillion, ranking second in the market.
“We designate 2024 as the ‘Year of Wealth Bank Enhancement,’ placing the upgrade of Wealth Bank as the foremost of the three major strategies for our retail business in the coming years,” stated Zhang Min, Deputy President of IB. In 2024, the Bank aims to break through RMB 6 billion in retail wealth intermediary business income, with the growth rate of commission-based income maintaining above 10%.
For Investment Bank, last year, IB underwriting volume for non-financial corporate debt exceeded RMB 730 billion, ranking first in the market. Its underwriting scale for foreign bonds led among Chinese joint-stock commercial banks, and its REITs-like underwriting volume secured the second position in the market. Moreover, IB has steadily claimed a top spot in the Banking industry’s mergers and acquisitions (M&A) sector, with M&A transactions exceeding RMB 150 billion in the past two years, contributing RMB 1.4 billion in revenue in 2023 alone, a year-on-year increase of 122%.
“M&A has become a new engine for revenue growth in our investment banking sector, also driving new customer acquisition, deposits, salary payments, credit cards, pension accounts, and personal consumer loans, yielding excellent comprehensive benefits,” stated Zeng Xiaoyang, Deputy President of IB.
The “Three Pillars of Our Businesses” continue to shine, providing a crucial leverage point for IB to excel in the “Five Major Areas.” Two years ago, IB proactively adopted the strategy of “stabilizing the foundation and exploring new tracks,” vigorously pushing the “Five New Tracks,” which aligns closely with the essence and objectives of the “Five Major Areas,” demonstrating a forward-looking strategic vision. Not only has IB been proactive in the “Five Major Areas,” but it also boasts advantages in its system, mechanisms, and talent pool.
Over the past two years, IB’s loans in the new tracks of technology finance, green finance, inclusive finance, automotive finance, and park finance have cumulatively increased by 106.5%, 78.5%, 67.7%, 64.9%, and 55.9%, respectively, far outpacing the overall asset growth. “Practice has proven that excelling in the ‘Five Major Areas’ not only achieves business transformation and development for ourselves but also realizes symbiotic and collaborative growth with the real economy,” stated Lv Jiajin.
Lv Jiajin emphasized at the performance briefing the importance of strengthening the long board of interbank and financial market businesses, solidifying the foundation of corporate banking and investment banking, and focusing on addressing the shortfalls in retail banking to gradually establish a balanced “tripod” across the three main business lines, enhancing the Bank’s comprehensive strength to navigate economic cycles.
Interbank and financial market operations have always been distinctive services of IB. “Last year, facing an unpredictable market, we adhered to our principles and innovated, striving tirelessly and, I would say, fulfilling our mission commendably,” stated Zhang Ting, Vice President of IB. In 2023, the Bank’s interbank customer cooperation coverage exceeded 97%, with a significant optimization in income structure. The “basic plate” revenue, which is unaffected by market valuation fluctuations, increased its proportion from 50% in the previous year to over 80%, and liability business income grew by 20% year-over-year, reaching a recent high.
Risk in Key Areas Remains Generally Controllable
“There will be a certain decrease in new non-performing loans and risk costs in 2024.”
“Our bank has a low level of risk and more than adequate impairment provisions, laying a solid foundation for steady and long-term progress,” Lv Jiajin said during the performance briefing.
Specifically, as of the end of 2023, the Bank’s non-performing loan balance remained basically unchanged from the beginning of the year, with a non-performing loan ratio of 1.07%, a 0.02% decrease from the beginning of the year, approximately two-thirds of the Banking industry’s average. The provision coverage ratio was 245.21%, an 8.77 percentage point increase from the beginning of the year, 1.2 times the industry average. The ratios of loans overdue for more than 90 days and loans overdue for more than 60 days to non-performing loans were 68.30% and 77.33%, respectively, the best in nearly three years.
Risks in the closely watched sectors of real estate, local government financing, and credit cards are generally controllable and converging. Chen Xinjian detailed that in real estate, the Bank’s new non-performing loans in corporate real estate decreased by 53.98% year-over-year in 2023; in local government financing, new non-performing loans for the year decreased by 55.22% compared to the previous year; and in credit cards, some forward-looking indicators improved, with the collection initiation rate decreasing by 0.36 percentage points and the overdue rate decreasing by 0.59 percentage points from the beginning of the year.
In recent years, the central government has introduced a comprehensive package of debt reduction policies, focusing on reducing existing debt while curbing new debt and solidifying responsibilities across all parties. This approach has bolstered market confidence and led to a convergence of financial risks associated with financing platforms. “IB is resolutely implementing the central government’s debt reduction policies, leveraging our comprehensive financial strengths to drive business transformation and development, and providing compliant support for the high-quality development of regional economies, achieving favorable outcomes,” said Lai Furong, General Manager of the Risk Management Department at IB.
Entering 2024, with the implementation of national monetary, fiscal, and industrial policies to mitigate financial risks, the issues exacerbating risks in the financial sector are gradually being addressed. “IB will seize all advantageous opportunities, take effective measures to resolve existing risks, and further solidify the foundation for high-quality development. In the process, we will adjust our asset structure and enhance our ability to prevent risks,” stated Lv Jiajin.
Based on the current situation, he anticipates a decrease in new non-performing loans and risk costs for IB in 2024 compared to the previous year, with key indicators such as asset quality and asset impairment expected to maintain stable performance. “This year’s financial condition is projected to be better than last year.”
“Seeking Benefits from Digitization”
Striving to Connect Digitization with “The Last Mile” of Productivity
“We have conducted extensive foundational, pioneering, and strategic work around digital transformation, and now we’ve entered a new stage where we seek tangible benefits from digitization,” emphasized Lv Jiajin.
Over the past three years, IB has advanced its transformation at a critical pace following an “enterprise-level, standardized” methodology. Investment in technology increased by more than 70%, the number of tech talents doubled, and patent applications surged fiftyfold. By the end of 2023, the group’s technology investment reached RMB 8.398 billion, accounting for 3.98% of revenue, with 7,828 tech talents, making up 13.91% of the workforce.
“In the past, technology was a shortcoming for IB, but after two to three years, the ‘four beams and eight pillars’ of digital transformation have been essentially established,” Chen Xinjian also noted.
IB has initially established a comprehensive “Digital IB” ecosystem, encapsulating “1 (Mobile Banking) + 5 (IB Inclusive Finance, IB Butler, IB Life, Money Manager, IB Platform for Integrated Banking) + N (Various Scenario Ecosystems).” Over the past two years, the Bank’s mobile banking MAU has increased by 44.11%, with over a thousand new projects added to its scenario ecosystem construction, covering an average daily settlement deposit of RMB 319.041 billion, a 14.61% increase from the beginning of the year.
In recent years, digital technology has made leaps from big data to large models, and from text generation to image and video generation. IB has actively seized the opportunities presented by generative AI, partnering with leading domestic manufacturers for collaborative research since February last year, and by June, it launched its proprietary large-scale billion-level model, ChatCIB, initiating its first batch of AI model applications.
“In the next phase, we will adhere to our blueprint and focus on ‘producing results,’ striving to achieve ‘three breakthroughs and one adherence,’” stated Sun Xiongpeng, Deputy President of IB, regarding the Digital IB construction plan.
The “three breakthroughs” include: a breakthrough in artificial intelligence, focusing on applications, infrastructure, and innovation, particularly in intelligent marketing, investment research and advisory, intelligent risk control, intelligent office, and code generation to accelerate productivity gains; a breakthrough in digital operations to hastily realize data-driven decision-making, deepen the integration of online and offline operations, creating synergy between physical branch banking and Digital IB; and a breakthrough in the scenario ecosystem by embedding more digital financial services into customers’ operational scenarios. The “one adherence” refers to maintaining a secure baseline, continuously focusing on technology risk prevention and control, ensuring business continuity, and balancing development with security.