January 7, 2013 Source: www.stcn.com Reporter: Zhu Zhongwei
On the last day of 2012, the issuance of tailored additional shares planed and prepared by Industrial Bank (IB) for more than a year was approved by China Securities Regulatory Commission (CSRC). In the coming days, the bank will officially introduce five large and outstanding SOEs including PICC, PICC Property and Casualty and PICC Life Insurance.
Not long ago, centering on the theme of “Returns of Shareholders and Corporate Governance”, the 11th Chinese Corporate Governance Forum was held in Shanghai. IB won the Board of Directors Award consecutively in this year, after receiving the honor in 2011. It is the highest award for listed companies in China in the field of corporate governance. While showcasing that the regulatory authorities and investors fully recognizes the corporate governance construction of the bank, the honor also signifies that the corporate governance of the bank has reached the advanced level at home.
As the strategic investors introduced by IB this time are all outstanding representatives in their respective industries, their participation will sure further improve the corporate governance level of IB, inject new vigor for its development, and bring new anticipations to investors. For this reason, Gao Jianping, Board Chairman of IB accepted the interview of our reporter upon the beginning of spring of 2013, sharing the experience of the bank in the course of corporate governance.
Value hammer-hardened by responsibilities
Reporter: Your bank has won the Board of Directors Award twice. What, in your opinion, is the most important thing for IB to receive this high honor twice?
Gao: As for me, the most important thing, I think, is “responsibility”. In my opinion, the root cause that IB won the great honor twice can be attributed to the responsibility and mission that the board of directors of the bank shoulders tenure after tenure.
Let's take the “green finance” promoted by IB with great efforts as an example. I remember that, during the period that Mr. Zoellick, President of World Bank , visited China in 2007, he asked me a question: “If green finance could bring profits, why don't others do it? If it cannot bring profits, why do you engage in it?”
The answer I gave then is that we naturally should stress on making money in doing banking business. Nonetheless, banking is a public sector and banks are special enterprises providing financial services. This requires that bankers should have a broader and more far-reaching vision, perform more responsibilities and contribute to the society.
Along the rocketing Chinese economy, we have seen the challenges to economic development brought by the increasingly protruding environmental problems. How to harmonize the development of environment, society, economy and enterprises becomes a question that we consider. I believe: we can perform our social responsibilities while achieving economic and corporate development, and during the process of balancing, a bank that assumes its responsibilities boldly must and can make some achievements.
Of course, apart from performing social responsibilities self-consciously, we are also aware of the enormous business opportunities contained in “green finance” that we advocate and develop: to perform social responsibilities through providing products and services tallying with social appeals is beneficial for the harmonious development of society and economy, but it is also an effective method for banks to build lasting enterprises and achieve their own sustainable development. For this reason, we took the first step earlier compared with others.
Reporter: How has the concept of “green finance” influenced the business operation model of banks and enterprises in a profound way?
Gao: The exploration of “green finance” by IB didn't stop at slogan.
In 2005, IB, in collaboration with our partner IFC, designed and developed the energy conservation and emission reduction financing products. IB released the first energy-efficient project financing product in China in 2006, and became the first Chinese bank releasing comprehensive carbon financial services in 2007. In 2008, IB announced to the public to adopt the “Equator Principles”, becoming the first Chinese “Equator bank”, and in 2009, the bank established the Sustainable Finance Center, the first institution specialized in sustainable finance in China, and the first project compliant with the “Equator Principles” was implemented in Yong'an, Fujian. In 2010, IB issued the first low-carbon credit card in China, extending the “green finance” from the field of enterprise project to personal consumption, and the first emission rights pledged loan was granted in Jiaxing. In 2011, IB granted the first carbon asset pledged loan in China, and other innovative green credit products like emission rights pledged credit were also released in succession. In 2012, the Sustainable Finance Center of the bank was upgraded into the Sustainable Finance Department, a Class I department of the Head Office to plan as a whole the development of “green finance” businesses in an all-round way. With sustained innovation and bold attempt in the field of “green finance” in the latest seven years, IB has become the advocator of sustainable finance concept and the forerunner of green finance businesses in China.
Let's take “energy-efficient financing” initiated by IB in China as an example. Since the first energy-efficient financing project was implemented in 2006, IB has accumulatively extended nearly RMB 200 billion green financing loans to around a thousand enterprises with a variety of financial tools by the end of 2012.
At present, the “green finance” business of IB covers three major fields of low-carbon economy, recycling economy and ecological economy. These projects involve a variety of projects such as improvement of energy efficiency, development and utilization of new energy and renewable energy, carbon emission reduction, sewage treatment and water area management, reduction of sulfur dioxide emission, and recycling of solid wastes in the mainstream sectors of energy, construction, transport and industry. It has become one of the business fields with the most distinctive features of differentiated business operation in the bank.
In summary, in developing “green finance” and following the “Equator Principles”, we have gradually touched and understood the profound connotation of “green finance” and the sustainable development concept contained in it. Meanwhile, we have gradually introduced the concept into our corporate governance and put forward the social responsibility practice model of “obtaining reasonable profits while bringing benefits to the stakeholders”. The concept has influenced our thinking mode and daily operation method in great depth.
Apart from the exploration and innovation in business operation mentioned above, you may also see that the office environment of our headquarters is very simple. Moreover, many details we advocate such as minimizing business travel, increasing video conferences, and reusing paper all indicate that the concepts of “green development”, “sustainable development” and “obtaining reasonable profits while bringing benefits to the stakeholders” have run through all areas of our operation and management.
Reporter: In this way, the concept of “green finance” corresponds to the notion of “Beautiful China” launched recently?
Gao: Yes. The “Construction of Beautiful China” proposed in the 18th CPC National Congress is an appealing objective of great strategic significance, and it is another major action and achievement of CPC in practicing the Scientific Outlook on Development. Green, energy conservation, environmental protection and sustainability are the essential and indispensable core ideas for the “Construction of Beautiful China”. In the perspective, the concept of “green finance” fully tallies with the core ideas of “Beautiful China”. As for the banking sector, to adhere to the concept of “green finance” and develop green finance business vigorously is the down-to-earth act to implement the strategic arrangement of the 18 th CPC National Congress and serve the construction of “Beautiful China” by bringing into play the functional advantages of the sector.
In terms of IB's practice, by the end of this year, all the projects supported by IB with its “green finance” may reduce the emission of 66.18 million tons of carbon dioxide, which is equivalent to shutting off 151 thermal power plants of 100 MW or stopping running 100,000 taxis for 32 years. The effect in promoting energy conservation, emission reduction and environmental protection is obvious.
Of course, it requires the joint efforts of all industries and circles including the banking sector to promote the construction of “Beautiful China”. Although our “green finance” has seen preliminary results, it is only a very small portion compared with the thousands of billions of fund demand in the field. In fact, in the process of giving priority to the development of “green finance”, we not only hope to help the development of relevant industries by allocating resources of IB to drive energy conservation and environmental protection directly, but more to erect a banner for calling upon more banks and enterprises to assume their social responsibilities so as to build a “Beautiful China” characterized by the harmonious development of economy and environment. With regard to the feature of differentiated business operation formed on that basis, it seems more like a surprise to some extent and a kind of “award” for the exploring efforts in accordance with development laws and trends by the economic society.
Reporter: In this issuance of tailored additional shares, IB will raise a total of capital around RMB 24 billion. Then, how will your bank perform your “responsibilities” regarding capital management and supplementation?
Gao: First, at the level of the board of directors, we have further specified the capital management and supplementation should satisfy the needs of multiple stakeholders while meeting the outside capital regulatory requirements, so as to promote the sustainable development of the bank in the long run. Here, we consider the following three layers: the first one is to satisfy the needs of multiple stakeholders;, the second is to ensure that the capital demands of the bank for present and future business development match the total available capital while full consideration is given to the capital regulatory policies and possible changes; the third one is to choose suitable combined capital tools with an eye turned to the requirement of long-term sustainable development, and make active innovation in debt financing tools to raise capital and manage the balance so as to highlight the investment value of the bank.
Next, we have always put stress on supplementing capital in many ways and arranged the proportion of equity financing to debt financing properly based on the accumulation of internal source based capital. To be specific, among the capital of RMB 135 billion supplemented by IB since our IPO, the internal source based financing accounts for more than 2/3, with about RMB 75 billion supplemented depending on profit accumulation, a proportion of 56%. Moreover, we are also the first bank that has supplemented capital by issuing subordinated debts and hybrid capital debts. The capital supplemented in this way reached about RMB 27 billion, accounting for a proportion over 20%.
In the period of fast economic growth, the development of a bank needs to meet the huge credit demand in the society, so it is unavoidable to make necessary capital supplementation. In the process of capital supplementation, based on balancing time and again, we have tried to choose the most reasonable supplementation method so as to give consideration to the interests of all parties. For instance, considering the big pressure in the current stock market, we are issuing tailored additional shares to supplement capital, introducing incremental capital and increasing the fund supply in the market instead of drawing blood from the market.
Development driven by sharing
Reporter: from a local commercial bank to one with a capital scale totaling RMB 3 trillion now, what is the source power for “IB speed”?
Gao: I believe that this originates from the corporate governance concept sublimed constantly by the board of directors of our bank under a high sense of responsibility.
Over the more than 20 years after it's founding, IB has fulfilled frog-leap development from a local bank into a regional bank, a national bank, a listed bank and a comprehensive banking group. The concept of corporate governance has also been transformed in three phases, from “shareholders' interests foremost” to “giving consideration to the interests of stakeholders” and finally to advocating the performance of social responsibilities in many ways to promote the sustainable development of economy, environment and society. The internal driving force in the process comes from the governance concept sharing of strategic investors.
Each change in the shareholder structure is a time for us to study and reflect on the concept of corporate governance, from our second share enlarging in 2000, with eight large-sized nationwide enterprises, to the introduction of three international enterprises including International Finance Corporation in 2003, and to becoming a public company in 2007.
For example, we are good at learning advanced concepts of international banking institutions regarding corporate governance. In 2003, we put forward the transformation in two areas, namely business operation model and profit model. The focus of the two transformations lies in differentiated business operation and diversified development, including “green finance”. Now it turns out that they increasingly become distinctive features of IB compared with other banks.
In practicing “green finance” and deepening our study and understanding of the “Equator Principles”, we have further elevated our corporate governance concept, proposing to give full consideration to the interests of multiple stakeholders and pursue the harmonious development of environment, society, economy and enterprises, and seeking new business opportunities in the process at the same time.
We are now issuing tailored additional shares to introduce strategic investors with great overall strength and rich cooperation resources that recognize the long-term investment value of the bank. I believe that, like those strategic investors both from home and abroad that we introduced before, this attraction of investment will, with the construction of a capital bridge, bring not merely capital, but more the overall elevation of both hard and soft strength. This is of great strategic significance for the long-run development of IB.
Reporter: Investors have seen the frog-leap development brought by all the previous attractions of investment. How will IB benefit the society with the “positive energy”?
Gao: Let's take the “bank-bank platform” as an example.
The “bank-bank platform” of IB has broken through the conventional idea that domestic commercial banks mainly develop corporate customers and personal customers. IB is the first Chinese bank that takes small- and medium-sized banking institutions as an important customer group to carry out marketing and provide services, giving priority to stressing the mutual complementation of advantages and resource sharing between small- and medium-sized financial institutions.
By sharing outlets, products and IT through the “bank-bank platform”, all participating parties can make up their shortcoming of a limited number of outlets effectively and extend their service channels greatly. That is to say, customers of the all participating banks of the “bank-bank platform” may, with their respective bank cards, handle basic banking businesses at nearly 20,000 bank outlets networked by the platform across China.
The platform has, in fact, achieved four important initiatives. First, by allying the dispersed regional networks of small- and medium-sized banks, it establishes a nationwide network platform for payment and settlement services, enabling the small- and medium-sized banks to extend their regional services to all over the country. Second, small- and medium-sized banks may enrich their own financial products with the “bank-bank platform”, and it is helpful for them to improve their own service capability and quality. Third, the “bank-bank platform” goes beyond institutional competition and establishes a cooperation model for achieving win-win results and common development. Fourth, it avoids malicious financial competition and repetitive construction and saves social resources by complementing the respective advantages and sharing resources with each other between joint-stock commercial banks and small- and medium-sized banks in terms of network structure and financial functions.
The symbol of “bank-bank platform” is a lotus, actually meaning association and sharing. In other words, IB has built an open information expressway network which is accessible in all directions, and all accessed parties may interact with each other smoothly and pay or collect equivalent fees according to the channel resources that they provide and the business volume that they handled in an interactive manner. In this way, the financial resources that used to be confined in a corner can be used extensively across the country, which, not only saving resources, but also improving efficiency, promotes the development of society and economy.
In the perspective of IB, the sharing has also boosted our better and faster development. As customers always put forward new demands, we can make significant progress in our own service means and level while meeting such demands.
Reporter: Then, how has IB shared its frog-leap development with investors?
Gao: In this regard, what the market cares the most is the cash dividends of banks. Over the more than five years after our IPO, the total cash dividends of IB hit RMB 13.1 billion, accounting for 21% of the total distributable profits available to investors in the five years. The total cash dividends of IB in the latest three years account for as high as 48.41% of the annual mean net profits belonging to the shareholders of the parent company in the same period. On that basis, in the coming three years, it will also steadily increase the proportion of cash dividends and keep it at a reasonable level according to the profits earned and capital sufficiency.
In fact, along the elevation of corporate governance concept, IB does not confine its understanding of growth and sharing at individual financial indexes like dividends. Instead, we put more weight on the concept of sustainable development that we advocate and stress on promoting the sustained and steady growth of banking performance in the sturdy and sustainable business model, so as to share benefits between the enterprise and investors to the maximum extent.
Let's take the development of IB over the five years after our IPO as an example. IB has made considerable progress in terms of both hard indexes, such as business, finance, and asset quality, and soft indexes, such as risk control and corporate governance. Our development in all aspects shows desirable sustainability. In terms of business scale, the bank's total assets increased to nearly RMB 3 trillion at the end of this third quarter from over RMB 600 billion at the beginning of 2007, rising 3.8 times, and the equity of shareholders grew to RMB 137.9 billion from RMB 16.2 billion, rising 7.5 times. In terms of business benefits, in the past more than five years, the bank registered a total of pre-tax profits up to RMB 134.9 billion and after-tax profits RMB 103.6 billion. The net profits in the first three quarters of this year increased six times over the total profits of 2006 before the IPO. In terms of asset quality, the non-performing loan ratio dropped to 0.45% at the end of the third quarter of this year from 1.53% at the beginning of 2007. In the meantime, the provision coverage was improved from 126% to 431%. In terms of employees, the staff number of the whole bank increased from over 10,000 at the beginning of 2007 to 38,000 at the end of the third quarter of this year, creating nearly 28,000 new jobs over the five years.
We can say that the value improvement brought about by the diversified and differentiated development of IB in recent year has created not only considerable financial returns, but also significant social benefits, which in turn will provide strong foundation for the sustainable development of the bank and sustained increase of returns to the shareholders. This is really a sharing and win-win result.
“The sea encompasses a hundred rivers; it is willing to accept all and is thus great”. It is not easy to run an enterprise, and to build a long-lasting bank, IB should have a vision high enough and a mind broad enough. The tide of history is mighty and vast. In the modern economic society featuring mutual dependence and high complexity, only those enterprises that can really give an eye to sustainability and benefit all stakeholders and even the whole society may stand the test of the tide of history.