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Innovation Opens Profit Space for the Industrial Bank


Like all business enterprises, profitability is essential for a commercial bank.

According to the data disclosed by the Industrial Bank, the average annual increase of total assets, deposits and loans from the date of its establishment to the end of 2007 was 39.06%, 56.02%, and 37.12% respectively. In accordance with five level series, the rate of non-performing loans is 1.15%, which is sound on an international level. It has been profitable for 20 years in a row and achieved a cumulative retained profit of over RMB 20 billion Yuan, together with an accumulation of shareholder equity of over RMB 40 billion Yuan and taxation payment of about RMB 14 billion Yuan. Undoubtedly, such a high rate of growth is has a lot to do with the Bank's innovation.

Foresight to Build Bank-bank Platform

Over the years, the Industrial Bank has developed the three major business segments of institutional banking, retail banking and wealth management. Among them, institutional banking, based on different objects, is divided into corporate business, Bank-bank business and investment banking. In its Bank-bank business, the Industrial Bank launched the “Bank-bank platform” in May 2005, which has been highly praised by industry insiders for its distinctiveness and excellent prospects for development.

So what is the “Bank-bank platform”? “Simply speaking, it is a bank for banks!” Zheng Xinlin, the general manager of the Bank-bank business department in the Industrial Bank explained, “Take city commercial banks for example. At present, they are witnessing rapid development. In the process of their development, they encounter a number of demands, such as network expansion, development of core business systems and the related upgrading. Since they are constrained by factors including funds, technology and qualified personnel, they are not able to solve these difficulties relying on their own strengths alone. So, they are crying for a service provider.” The Industrial Bank, based on its own strengths, creatively launched the “Bank-bank platform”, which provides comprehensive financing solutions covering payment settlement, wealth management, financing wealth, optimization of capital, assets and liability structure, technological management output, fund use, exchange agency and integrative training. The Bank has set itself a goal of becoming “a professional provider of banking services for small and medium financial institutions”.

The early products in the Bank's Bank-bank cooperation mainly included access payment system, transfer agency of off-site capital and counter fast. However, in the process of cooperating with small and medium financial institutions such as city commercial banks and credit cooperatives, the Industrial Bank discovered that these banks were lagging in IT. All too often, normal network link-up could not be made even after several rounds of debugging and there was often the risk of outsourced IT companies going bust. The Industrial Bank came across previously undiscovered business opportunities of a huge nature when it sent specialists locate the problems and improve systems.

“The early trials started from the development of standardized system products and technology output. Then, based on that, the Bank launched derivatives such as technological management output and work flow output, which further enriched the content of Bank-bank cooperation.” Zheng introduced. This business boomed as soon as it was launched. In June 2007, “The Core System Cooperation Project between The Industrial Bank and Dongying City Commercial Bank” was put into operation successfully. The output projects currently under development and those for which agreements have been signed this year have totaled at seven, and the Bank is fully booked up for next year. The Industrial Bank is the first and sole commercial bank in China that is able to output core business and technology management to other banks. It has signed strategic agreements in “Bank-bank cooperation" with 112 city commercial banks. According to Zheng's estimation, about 30 of these banks will use the services.

Relying on the strategy of technology output, the Industrial Bank, in addition to assisting its counterparts in upgrading their service capacities, has also extended its own network and created profits. Through network grafting with small and medium banks, the Bank now has over 10,000 interconnected outlets, covering the majority of second and third-tier cities. This scope is approaching those of the four major state-owned banks. With these outlets, the Bank is able to provide its own clients with services such as payment settlement and sales of financing products, which, to a great extent, has made up for the shortage in its outlets.

Reform Drive to Turn Retail into a Strong Area

In seizing the opportunity to develop Bank-bank cooperation first, the Industrial Bank has shown its insight and foresight. In retail, an area which commercial banks rely on for their survival, the Industrial Bank has demonstrated that it is courageous enough to make drastic reforms of established systems.

It is known that the retail business of the Industrial Bank was not one of its strong areas before the year 2000 owing to is small scale, weak foundations and comparatively backward infrastructure. With the increasing market-orientation and integration of finance, the Bank realized that the retail finance market would maintain fast growth. Areas of rapidly growing demand such as mortgage loans, credit cards and personal finance will present commercial banks with both opportunities and challenges in respect to the transformation of services and the optimization of income structures.

“A truly outstanding commercial bank is only so when it has excellent retail banking”, says Li Renjie, the president of the Industrial Bank. In 2005, a working conference of unified retail business was held, at which the management of the Industrial Bank established the basic idea of vigorously promoting the structural reform of retail business. Guided by this concept, a management head office for retail business was established in the headquarters of the Industrial Bank in a move toward divisionalization. At the same time, the Bank constructed a comparatively unified, sound service system of retail business and initiated pilot reforms for retail divisions in eight branches while the organizational structures of retail business in branches were standardized and improved. Soon, the management system of retail business in headquarters was linked to the marketing service system of retail business in the branches, which represented a further step towards realizing top down management by the division.

After three years of efforts, a specialist operational structure has essentially been established for the retail business in the Bank. The structure effectively supports the rapid development of retail business. As the loan balance of Bank increased dramatically, the proportion of retail loans has risen quickly, from less than 7% at the end of 2005 to almost 33% in the end of 2007.

Constant Innovative Awareness

Throughout the 20 year history of the Industrial Bank, an extraordinarily innovative ability has been an important engine in driving on the development of the Bank. Innovation can be seen throughout products, R&D, marketing services, internal control and management. Just as Gao Jianping, the BOD chairman, said, the Industrial Bank, a product of China 's financial reform, has committed itself to exploring a road to establish a modern commercial bank with its own characteristics.

Take the highly influential and talked about financing products of the Bank for instance. The Industrial Bank, based on the demands from the market, launched five brand series, including “Everyday Gain”, “Special Financing A+3 Plan”, “Super Gain” structural financing product, “Global Financing” QDII and “Smooth Transfer” financing products for foreign currency. These products meet the diversified risk preferences of clients and constitute a relatively complete product chain ranging from low risk to high risk.

Furthermore, the Industrial Bank has given full play to its capabilities in innovation in the fiercely competitive credit card market. The Bank has issued about 40 varieties of credit card under seven series, including platinum cards, standard cards, theme cards, co-brand cards, department-store cards, affinity cards and civil cards. Featured products, such as Garfield Cards, QQshow Cards, Zodiac Cards, China Heart Cards, and platinum cards have been influential in the market. Among them, the Garfield Card was the first cartoon themed novelty shape credit card issued in China, and won the “Best Card Design Award” from Mastercard Worldwide. The Bank launched an all-new “Coolest Bonus Point Scheme”, which has top functions such as permanent bonus point, combination of bonus points, bonus point consumption, bonus point advance and bonus points for air miles. The “bonus point consumption” (swiping the Bank's credit card on a dedicated POS designated by the Bank, clients can use the bonus points in the card to offset cash spending based on converting proportion) and “bonus point advance” (when the points in a card are not sufficient, clients can advance points to swap beloved gifts and repay the points through normal accumulation.) are both innovations which have broken through the use of bonus points in a traditional sense. This May, the Industrial Bank released a patriotism themed credit card: the “China Heart", the first of its kind in China. The card is coupled with a “China Heart” charity scheme. When clients receive the card or use it in a transaction, the Bank will donate a certain amount to charity through the China Foundation of Poverty Alleviation.

With respect to business management, the Industrial Bank has realized a series of innovations through dedicated exploration and bold innovation. They include introducing a high proportion of foreign strategic investors, supplementing capital through bond issuance; acquiring small and medium financial institutions, such as the Foshan City Commercial Bank, through market-oriented approaches; and being the first domestic bank to win a national invention patent with its “service system and solution”.

(Fang Chuangliu, Straits Metropolitan News, Aug 19, 2008)