Nine Questions to the Industrial Bank: How to Achieve Sustainable “Blue Ocean”
An Exclusive Interview with Li Renjie -- the President of the Industrial Bank
20th Anniversary of the Industrial Bank
The Industrial Bank celebrated its 20th birthday on August 26.
Time flies. In the space of 20 years, the Industrial Bank has quickly risen from a local bank located in a small city in Southeast China to a mainstream listed bank boasting almost RMB one-trillion Yuan in assets, more than 10 thousand employees, over RMB 10 billion Yuan realized profits annually and a strong spirit of innovation. In the last five years, the total assets of the Bank achieved an annual increase of 35%, and its retained profit has reached an average annual increase of 72%. This kind of development is unequalled among domestic banks. The Industrial Bank is thus regarded as a miracle in Chinese banking industry.
The development history of the Industrial Bank can be seen as an epitome of China's 30 year reform and opening up. As a product of the reform and opening up of the nation, the Industrial Bank is one of the first pioneers and beneficiaries of the reform on China's financial system. What is the logic behind the development of this wave rider? Shanghai Securities News reporters conducted an exclusive interview with the Bank's president, Mr. Li Renjie, and asked him to portray the “Blue Ocean” of the Industrial Bank.
Timely Regulations on Operational Objectives
Shanghai Securities News: As the 2007 annual report indicates, a few of your bank's operational objectives for 2008 are to achieve an annual increase 20% in its total assets, an increase of 20% in deposit balance and an increase of 19% in loan balance. With the current situation is characterized by a tight monetary policy and strictly controlled credit quotas, and the deposit-to-loan ratio remains high, how can the management in your Bank guarantee the smooth attainment of these objectives?
Li Renjie: The 2008 operational objectives were made following due consideration of the changes in both internal and external conditions. Their establishment reflects a modification of our bank's business strategy for this current phase. In early 2008, we made a full appraisal on the seriousness of the external situation and based on it, we made corresponding modifications to our business strategies and objectives. We shifted our emphasis from assets expansion, which was what we were doing in pervious years, to liabilities expansion. While actively and adequately lowering targets for asset increase, we have maintained a relatively high target for liabilities increase.
According to statistics for the first half of this year, the increase rate of assets and deposits in this period is slightly lower than expected, owing to the State's strict control on credit growth and the fact that a large increase of corporate clients' temporary deposits at the end of last year led to a high deposit base. Our bank will further improve policies on business management. We will ensure sustainable, coordinated and sound growth by adopting a number of measures, such as intensifying the structural adjustment of businesses, actively innovating businesses, vigorously developing high-quality clients and improving the evaluation and incentive mechanisms regarding the absorption and stabilization of liabilities by operators. We are confident that the targets for the year as a whole will be met as these policies and measures are implemented.
Strict Control on Housing Credit Increment
Shanghai Securities News: At the end of June 2008, the balance of loans for the real estate industry in the Industrial Bank was RMB 63.1 billion Yuan, accounting for 14.29%. The balance for personal mortgage loans reached RMB 116.2 billion Yuan. At present, the macro economy is faced with a downslide risk and real estate prices are under increasing pressure to come down. Under such circumstances, how can the Bank continue to expand its mortgage business and control the latent risks at the same time?
Li Renjie: Since the latter half of 2007, our bank has taken the initiative in slowing down the growth of real estate loans and has placed strict controls on the credit increment of real estate. Real estate loans this year are focused on structural adjustment, ensuring the projects that have been granted with loans are successfully completed. The credit increment of real estate development is based on a principle of being prudent and the approval process is stricter than before. So far, the stocking loans for real estate development in the Bank were mainly issued before the first half of 2007. We have selected quality developers and cooperated with them on quality projects. Generally speaking, risks are under control. According to statistics from the end of this June, the non-performing rate of the Bank's real estate loans was only 0.58%, and the quality of the loans was better than the average asset quality in the Bank.
The Bank will further strengthen the management of real estate development loans. On the one hand, we will tighten loan scale and proportion of real estate loans and improve the admittance standard and conditions for loans to this industry; on the other hand, we will also put strict control on the after-loan management and the stocking loans of the real estate industry. We will improve the whole process management of the projects and strengthen closed operation and scheduled withdrawal of the capital so as to ensure asset quality.
With respect to personal mortgage loans, the loan balance in our bank was RMB 116.2 billion Yuan and the rate of non-performing loans was a mere 0.12% by the end of June 2008. In connection with the changes in the domestic real estate market, on the one hand, the Bank has taken the initiative in slowing down the development pace of personal mortgage loans and tightened the approval conditions for loans. On the other hand, the Bank focuses on loan monitoring, after-loan management and pressure testing to guard against risks. Based on the experiences of international banking, the violent regulation of the real estate market would admittedly have an impact on the quality of personal mortgage loans, but the risk could still be kept at a relatively low level if proper management and tactics were adopted. For example, the real estate price in Hong Kong declined for six consecutive years from 1997 to 2003. But, as Hong Kong 's banking industry carried out proper measures, the rate of non-performing personal mortgage loans was still controlled at about 1.5%. And in early 2008, the rate came back to 0.09%, the best it has ever been.
Transformation: Introducing Strategic Investors and Public Offering
Shanghai Securities News: The introduction of strategic investors in 2004 and the public offering on the A-share market in 2007 are seen as two major leaps in the Industrial Bank's efforts to diversify its ownership. What influences have they had on the Bank?
Li Renjie: The introduction of strategic investors and the later public offering have had far-reaching influences on the Bank. It can be said that they brought about thoroughly remoulding. These influences are mainly seen in the following aspects: firstly, the Bank's capital was bolstered and the ownership structure became more diversified and rational, both of which consolidate the basis for corporate governance. Secondly, they helped enhance concepts on operation and management in a direct way. For instance, foreign-funded shareholders put a greater emphasis on risk control and capital management while listing made us attach more importance to corporate governance, information transparency and market value management. All of these have now been widely accepted throughout the Bank. The third is that considerable improvements have been made in management. Introducing foreign-funded shareholders allowed advanced international management methods and tools to be rapidly absorbed. At the same time, management at all levels in the Bank has been standardized in line with the requirements for listed banks. Management capabilities, particularly in corporate governance, risk management, financial management and IT construction have been fast upgraded. Fourthly, remarkable achievements have been made in business expansion. In the last five years, our bank has seen an average annual increase of 35% in total assets and 72% in retained profits. This kind of growth momentum is unmatched in other domestic banks and can largely be attributed to the successful introduction of strategic foreign investors and going public. The Bank has also made rapid progress in its cooperation with HSB and IFC in areas such as credit cards. Fifthly, the introduction of strategic investors and going public has greatly increased the influence and awareness of our brand, and this will be beneficial for our sustainable and sound development in the future.
Alternative Way of Realizing a Nationwide Network
Shanghai Securities News: For quite a long period of time, the Industrial Bank was an out-of-the-way bank in Fujian Province. How did it expand nationwide in such a short time? Could you tell us about the unique expansion route that the Bank has taken?
Li Renjie: The Bank began its all-out nationwide push in the year 2000. The renaming of the Bank in 2003 marked its successful transformation from a regional bank to a national bank. There are a few crucial experiences previously gained that made our transformation within such a short time possible. The first one is development based on solid preparation. Ever since the establishment of the Shanghai Branch in 1996, the Bank began to delve into the mode of cross-regional operation. After four years of probing and developing this model from 1996 to 2000, the bank had essentially formed a set of modes for business operation and management that could be used as a template for nationwide development. These modes ensured the success of every branch opened after the year 2000 as well as faster than normal development.
Secondly, we did not follow the path of conventional banks. In terms of institutional network expansion, the Bank, based on the resources at its disposal, rationally determined the order of market entry in accordance with the principle of economic significance. Meanwhile, it adhered to the principle of “combining the physical and the virtual”. Namely, as well as establishing actual organs, it energetically developed a virtual e-bank network. It successively established on-line banking, telephone banking and mobile banking, all of which boast nationwide coverage. In addition, it has launched “bank-bank cooperation” in which banks complement each other and share resources. Under this mode, an agency network has been constructed, meaning that the Bank has realized optimum network coverage at the lowest possible cost.
The third is the bold pursuit of market-oriented merger and acquisition. Starting from the acquisition of the Yiwu City Credit Union in 2001, the Bank has set up many institutions though market-oriented M&A, such as its Yiwu Sub-branch, Taizhou Sub-branch, Wuxi Sub-branch and Harbin Sub-branch. Particularly, it set up the Foshan Branch by means of an overall acquisition of the Foshan City Commercial Bank. This was the first case of a joint-stock bank comprehensively buying-out a city commercial bank.
Phased Targets for Comprehensive Operation
Shanghai Securities News: The Industrial Bank once announced that it was preparing to found a joint venture fund management company and was to set up a financial lease company in Tianjin ...How are these plans progressing? What are the Bank's notions on comprehensive operation?
Li Renjie: The BOD of the Industrial Bank has deliberated and passed a motion to set up a fund management company and authorized representatives of the three parties involved have officially signed a sponsorship agreement and the draft articles of association of the company. The BOD has also deliberated and passed a motion for the establishment of a financial lease company, and the management are currently in the process of active organization and implementation.
In regard to comprehensive operation, the Bank specially formulated the Outline of Comprehensive Operation Plan of the Industrial Bank, which focuses on the planning of explorations in new banking fields and non-banking financial fields. Specifically, short-term, mid-term and long-term targets have been set for non-banking financial fields. The short term targets mainly cover initiating and establishing securities investment funds management companies, financial lease companies and absolutely holding or physically controlling a trust and investment companies. Mid-term targets mainly include setting up or acquiring securities companies and setting up equity investment fund companies through establishments or acquisitions. Long term targets mainly involve setting up financial futures companies and insurance companies through establishments or acquisitions and establishing a stable mode of comprehensive operation. The Bank, following the principle of “proactive advancement and stable operation”, will steadily promote the progressive realization of above-mentioned targets.
Exploring Differential Development
Shanghai Securities News: After China's entry into the WTO, Chinese commercial banks upped the pace of their strategic transformation. Retail banking and intermediary business are the common trends for most banks. What does the Industrial Bank have in mind in this regard?
Li Renjie: The Industrial Bank was one of the first banks to propose strategic transformation in China . As early as the beginning of 2004, when most domestic banks were focusing on expansion, we took the lead in proposing a return to the nature of banking services and the idea of promoting strategic transformations in both business and profit modes. Retail banking and intermediary business are two important directions of the Bank's strategic transformations. Regarding the means of transformation, we have always been dedicated to exploring a path of differential development and have tried to avoid getting stuck in low-level homogenous competition.
Take retail business for instance. We rejected the traditional development mode in retail business, i.e. focusing on savings. Instead, we focused on clients and made retail credit, especially mortgage loans, our entry point. We achieved the all-round growth of retail business, which was driven by the development of quality client groups, and achieved remarkable effects.
In the last three years, the amount of personal loans granted by the Industrial Bank has quickly risen from RMB 30.6 billion Yuan to RMB 133.7 billion Yuan. This figure quadrupled in three short years. Furthermore, we developed a large number of valuable retail clients, which spurred on fast growth in other retail businesses, such as savings, debit cards, credit cards and wealth management.
There are also examples in intermediary business. We primarily started from high added-value new businesses, including funds business, wealth management business, asset custody and investment banking. By gaining the first-mover advantage, the growth of intermediary businesses was driven on. At present, the Industrial Bank has initially established its own unique features and competitiveness in certain areas, such as RMB derivatives, domestic and foreign currencies wealth management, the underwriting and issuing of short-term financing bills and SME financial advisory. Overall, intermediary businesses are developing well.
Seeking a Balance between Enterprise Revenue and Social Responsibility
Shanghai Securities News: The Industrial Bank has caught people's attention with its capital operation, Bank-bank platform and green credit. How is the Industri al Bank building its core competitiveness at the present and how will it do so in the future? How can it pinpoint the balance between enterprise revenue and social responsibility?
Li Renjie: In the 20 years since its foundation, the Industrial Bank has been working hard to build its own core competitiveness. A featured product and service system is a critical element. The Industrial Bank has basically established a diversified and highly competitive product and service system covering the areas of institutional banking, retail banking and wealth management. In the Bank's early years, it succeeded in opening up the market and winning clients with pro-active, high quality and visiting services. In the 1990s, it was the first bank to provide banking services in the securities market, and thus established its status among the banking industry in the field of securities fund clearing. In recent years, it has launched a number of featured products including capital operation, the Bank-bank Platform and “green credit” for energy conservation and emission reduction.
Briefly, the core competitiveness of the Bank can be summed up as follows: firstly, the ability to plan with foresight; secondly, the self-development capacity and the ability to withstand risks, which have long been tested in the market. Thirdly, a featured product and service system. Fourthly, operation and management systems and mechanisms which adhere to modern banking laws and the domestic market situation. Finally, a pioneering, progressive and unified personnel team and the corporate culture they reflect.
In fact, there is no conflict between enterprise revenue and social responsibility. The courage to take responsibility and the ability to spread harmony are essential elements in companies that are prosperous on a long term basis. For 20 years, the Industrial Bank has never forgotten to serve the country and repay society whilst its business has grown constantly and rapidly. According to incomplete statistics, the Bank has made cumulative donations of over RMB 50 million Yuan to social welfare undertakings in the past 20 years. Moreover, it has made efforts to develop sustainable finance and has tried to integrate the fulfillment of social responsibility and own business activities in a closer way. The green credit launched by the Bank in recent years is an excellent example of this. Energy conservation and emission reduction loans were jointly launched by the IFC and the Industrial Bank, the first green credit product in China . The loans provide domestic enterprises credit support for the programs such as improving energy efficiency, developing and utilizing clean energy and renewable energy resources. By the end of this June, the Bank had provided cumulative finance of RMB 2.153 billion Yuan for 69 energy conservation and emission reduction projects nationwide. The projects that it has supported are expected to be able to reduce the consumption of standard coal by 2.3 million tons per year and emissions of carbon dioxide by 6.5 million tons. This is equal to the amount of carbon dioxide emitted by 38,000 taxis in a year.
The Essence of Success: Pooling the Best People
Shanghai Securities News: When a company is developing quickly, it is extremely important for it to attract, retain and accumulate talent. In terms of evaluation and incentive systems, what actions has the Bank done to satisfy its needs for talent during its rapid growth?
Li Renjie: Talent is the most valuable resources that a commercial bank has in its possession. Looking back on the 20 years of the Bank, I think that the most fundamental thing is the attraction and pooling of different kinds of professional talent. The evaluation and incentive system adopted by the Bank is very market-oriented in character. On the one hand, we pay particular attention to quality and ability. Talent of all sorts have to be tested by and selected from the market. They are assessed on their comprehensive performance; on the other hand, the evaluation results are directly linked to the use, survival and payment of personnel. We have made efforts to ensure that employment of staff depends on their performance, that they can be promoted or demoted as necessary and that salaries depend on and change with the position in question. To constantly improve the scientific nature of evaluation and incentive mechanisms, the Bank has successively introduced a series of advanced approaches over recent years, including the balanced scorecard, 360-degree assessment and broadband salary payment. Long-term incentive mechanisms such as enterprise pension and risk funds have also been established to further strengthen the Bank's appeal to talent. In addition, the platform for personal development that the Bank represents and excellent corporate culture are also important means to attract and keep talent.
As a medium-sized commercial bank, the Industrial Bank's room for growth is still very large. This means that the bank will provide opportunities and act as a platform for the career development and self-realization of all kinds of talent. Meanwhile, the Bank has built up a simple, harmonious, pure, and positive working atmosphere and home-like culture. This will also help it to attract and keep some of the best talent.
“I Hope that the Public's First Impression is that we are Rational and Responsible”
Shanghai Securities News: The Industrial Bank has had an extraordinary 20-year history. It has forged ahead and innovated, with has impressed many people. Personally speaking, what kind of first impression would you like the public to have of your bank? And where do you and your team hope to take the Bank?
Li Renjie: I hope that the public's first impression of us is that we are rational and responsible. In fact, this is what the Bank has been putting into practice for over 20 years. Ever since its establishment, we have been rational, pragmatic and prudently progressive, and that has allowed us to seize great opportunities, guard against big risks and keep growing and developing. When confronted with a favorable situation, we are never blindly optimistic; and when an adversity strikes, we never passively let ourselves go. We move on step by step, soundly and steadily. Meanwhile, being in a special industry which has wide social contact and diversified stakeholders, we always keep in mind the mission and responsibilities that we have assumed and try hard to create greater value for our country, our shareholders, our clients, our staff and society as a whole.
As a member of the Industrial Bank, I am glad that I have been able to participate in this thriving cause and do my bit to promote its further development. I hope, with the joint efforts of my colleagues, that we can establish a first-grade comprehensive financial group with a reputable brand, outstanding value, notable contributions and that is worth believing in. ( From: Shanghai Securities News )