The Path of Industrial Bank — An Exclusive Interview with Gao Jianping, Board Chairman of Industrial Bank

Source: The Chinese Banker, No.8, 2013

Founded in August 1988, Industrial Bank (IB) is one of the first groups of joint-stock commercial banks established with the approval of the State Council and the People's Bank of China. Marked by its listing at Shanghai Stock Exchange in February 2007, IB has successfully fulfilled frog-leap development in four stages, growing from a local bank into a regional bank, a national bank and a publicly listed bank, and fully established itself as a mainstream bank in the Chinese banking industry. Up to 2013, IB has witnessed a history of 25 years, with its total assets exceeding RMB 3.5 trillion and annual net profits registering nearly RMB 40 billion. It has ascended to the China Top 10 Financial Institutions, Global Top 50 Banks, and Fortune Global 500. What is the trump for the development of IB? In the late July, Board Chairman Gao Jianping of IB received the exclusive interview of our magazine at the bank's Head Office in Fuzhou.

The foundation stone of growth founded on a common cause

The Chinese Banker: With 25 years of development since its founding in Fuzhou, IB has grown into a national joint-stock commercial bank among the Global Top 50 Banks, with businesses covering the whole country and asset scale rising to No.7 in the Chinese banking industry. Chairman Gao has worked in IB since the bank's establishment, participating in and witnessing the growth of IB. In your opinion, what are the factors and core competitive edges contributing to the fast development of IB?

Gao Jianping: In the initial period, IB only had a limited amount of funds invested by the founders, and also assumed a massive amount of debts left by the predecessor. It is of no exaggeration to say that the bank “started as a toddler from scratch”. Twenty-five years later, our total assets exceed RMB 3.5 trillion and all deposits break through RMB 2 trillion. We have established 756 outlets across China, with more than 40,000 employees. A comprehensive financial service group has been established preliminarily, focusing on the principal banking businesses and covering trust, lease, fund, and assets management. IB has successfully ascended to the China Top 10 Financial Institutions, Global Top 50 Banks, and Fortune Global 500.

Working in IB since the initial stage, I and many “old” employees have experienced the development and growth of IB personally. Objectively speaking, the fast development of the bank can be attributed to both external and internal factors.

Externally, it mainly benefits from the bonuses brought by the fast economic development, reform and opening-up of China. Over more than 30 years of reform and opening-up, our Chinese economy has generally maintained a fast and sound development state despite various twists and turns. This provides a desired “soil” for the fast development of the Chinese banking industry. Meanwhile, the reform and opening-up of finance have been pushed forward in a sustained and in-depth manner, so the banking industry has been “thoroughly tempered” in the market and learned how to dance with wolves during the opening-up process, remolding itself with thorough changes and tremendous growth.

Internally, although the external economic situation, market environment and competition pattern have always been changing, the cause of IB as a whole to “serve the country, improve livelihood of people, give returns to the society and devote to rise of the national finance of China” has always remained the same. From “exploring paths for financial reform and making more contributions to economic construction” at the initial stage, to “running a real commercial bank” at the starting stage, “building a national modern commercial bank” at the stage of fast development, and “building a first-class bank, forging a long-flourishing IB” at the current stage, common ideas have clustered IB people from all over China into a whole, and endowed IB people with the characteristic s of being rational and practical, and approaching ambition step by step, the courage of obviating difficulties and pursuing super-excellence, the characters of being simple and harmonious and daring to take on responsibilities, and the genes of sustained reform and unremitting innovation.

Upon every market-oriented reform and innovation, IB has always taken the lead in the industry. From the implementation of the modern enterprise organization form, joint-stock system, to breaking through the models of “communal pot, iron rice bowl, and guaranteed leading post”, from consolidating and improving the head-branch system with one legal person and multi-level operation to exploring and establishing the new business operation system featuring the combination of blocks and strips and matrix-based management, and from establishing the institutional systems of modern commercial bank, covering management of asset-liability ratio, management of integrated business plans, risk management and internal control management, among the first group, to carrying out process reforging and system restructuring in an all-round way, the sublation and reform carried out by IB from time to time have infused the bank' cause with inexhaustible power. From being the first to innovate in capital supplementation tools to being the first to open the green finance market, and from being the first Chinese bank to adopt the “Equator Principles” to being the first to establish an institutional financial service platform, the business innovation campaigns ahead of others again and again have provided the most powerful weapon for the fast development of IB's cause.

The Chinese Banker: The corresponding plans should be worked out before actions are taken. From the perspective of the board of directors, the main task of the board chairman is to work out the general plans and strategies for the development of IB. Then, what are the outstanding strategic features of IB?

Gao Jianping: Over the past 25 years, IB has made significant business performance constantly. It should first be attributed to the correct strategic guidance. According to my own understanding, the strategies of IB mainly have the following characteristics:

First, they are prospective. The “three-step” strategy established at the initial stage has built a sound development foundation. We proposed to launch “second start-up” in 1996, carrying out trans-regional operation. In 2000, we specified the aim to “build a national modern commercial bank”, accelerating the national development march in an all-round manner. In 2004, we took the lead to launch the strategic transformations regarding business development model and profiting model, pushing ahead the public listing. And in recent years, we pushed ahead the reform of business line specialization. We can say that IB has grasped every development opportunity, make strategic deployment prospectively, and carry out robust implement uncompromisingly.

Second, our strategies match the national situation and market reality of China. China has unique systems, national situation and social situation, so successful development strategies must be based on local conditions. We cannot simply follow and copy others, let alone resign ourselves to the authorities and doctrines, go after lofty aims and worship foreign banks blindly.

Third, our strategies are in conformity with the trend of China's financial reform and development and the internal development rules for commercial banks. In terms of implementation, IB stresses on the step-by-step progress. Each step forward should be based firmly on customers, businesses and services, and finally, we can realize scientific and sustainable development.

The Chinese Banker: As the first “Equator bank” in China, IB has not merely established a good corporate image for the bank with green finance, which also becomes one of the bank's development strategies. Is the strategy put forward in consideration of the bank's brand and social responsibilities, or based on cultivating the bank's own core competitive edges and its sustainability?

Gao Jianping: From being the first to release the energy conservation and emission reduction loan in 2006 to being the first to promise to follow the Equator Principles in 2008 and to setting up the first institution specialized in green finance – Sustainable Finance Center in 2009, and to offering the first low-carbon credit card in China in 2010, IB has extended “green finance” from the field of enterprise project to that of personal consumption. IB has spared no effort to explore innovation in green finance and kept enriching and completing the product family, achieving a more organic combination between the performance of social responsibilities and innovation in commercial models. We can say that the bank has harvested both economic and social benefits.

Now, IB's green finance has covered three major fields: low-carbon economy, recycling economy and ecological economy, involving 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 control, reduction of sulfur dioxide emission, and recycling of solid wastes in the mainstream sectors including energy, construction, transport and industry, etc. Taking a leading position in the industry in the aspects such as market concept, social influence, product development, technical regulations, service fields and organizational guarantee, IB becomes the bank with the broadest green finance product family and the most diversified products. By the end of June 2013, our bank has accumulatively granted RMB 286.2 billion of “green finance” based financing loans to more than 1,000 enterprises, with financing balance of green finance reaching RMB 155.3 billion, which accounts for nearly 10% of the corporate credit balance. More importantly, with our practice model and drive, the enthusiasm of Chinese banking industry and business circle in developing green finance is witnessing gradual boost now, and the business of green finance is in the state of accelerated development. The positive effect will show further expansion and emergence.

To be objective, in developing green finance, IB has undergone the experience similar to that in developing many other businesses, starting from the drive of innovation awareness, to exploration for progress and adjustment, and to the final vigorous growth, a process extending from particular points to entire area and gradually deepening understanding. Our first contact with the business of green finance is the negotiation with International Finance Corporation (IFC) on the energy efficiency financing program in 2005, which did not involve a big amount of money, only RMB 460 million. Then, the Chinese banking industry didn't give any attention to the program on the whole. Nonetheless, we subtly felt that such business would tally with the world's tide of development and it would have great vitality. Moreover, it conformed to the concept of performing corporate social responsibilities actively that we have always advocated for. As a result, the decision-making team paid great attention to the program and input resources in its development enthusiastically. In 2006, the first green finance product in China – energy conservation and emission reduction loan – came into the market. It showcased powerful vitality upon its release, gaining extensive recognition of the government, enterprises and all social circles. Then, in the process of product promotion, our understanding to green finance and the meaning of sustainability concept contained in it has become deeper and deeper through in-depth exchange and interaction with government agencies, enterprises and advanced financial institutions both at home and abroad as well as various non-governmental organizations. Meanwhile, our innovation and exploration in the field of green finance has gone increasingly deep. We have developed a “green-to-gold” sustainability road with completely reforged process from innovation in single products to reform of business model and from corporate governance philosophy to enterprise system. To be specific, green finance does not become the financial burden of IB, but, with it, we have successfully developed new business fields and profit growth points, and improved our market competitiveness and brand influence. The concept of green finance has become the core philosophy and value direction guiding the bank's business operation and management and reforging the business process.

The Chinese Banker: Recently, apart from the conventional credit businesses, IB has also developed a group of characteristic businesses, such as the business of financial market, in particular the bank-bank platform and institutional business. As one of the banks with the greatest profitability at home, are these characteristic businesses have to do with the diversified business structure of IB? What are the starting point and turning point to build such a business structure?

Gao Jianping: People familiar with the Chinese banking industry may know that we are nicknamed the “experimental field” for the domestic financial market and the “Whampoa Military Academy for China's financial market business” by many insiders, because we often have new business models and our wall is often undermined by similar banks. Such nicknames are a bit exaggerated, but to be objective, IB has indeed established certain differentiated competitive edges in the field of financial market with sustained innovation for years, not only winning reputation, but also making contribution to the business and profit growth across the bank.

The bank-bank platform is a characteristic product among our institutional businesses. In the beginning, the business was the counter pass between banks. Later, we discovered that, during the process of providing services to the small- and medium-sized financial institutions, especially the agriculture-related institutions such as rural credit cooperatives, rural credit cooperative unions and rural commercial banks, they also had demand in many other aspects including technical output and management service apart from counter pass, and meanwhile we have advantages in these areas. Therefore, we could achieve desired mutual complementation, which was also helpful in saving social resources. Therefore, in 2007, we innovatively released the “bank-bank platform” based on counter pass and network interconnection, covering many services including payment and settlement, business agency, technology output and management training. By the end of June 2013, the bank-bank platform had 426 signed customers and more than 23,000 connected outlets. Its scale effect came into being gradually and market influence also saw constant expansion.

That IB has developed a differentiated development road in the field of financial market business is mainly based on our own business reality and our judgment on and understanding to the macroscopic trends of economy and finance. On the one hand, IB has developed the financial market business for a long period, which has long been a characteristic field. For instance, we are the bank getting involved in the service of securities capital liquidation in China at the earliest time, and we are the earliest bank developing such businesses as RMB capital trading, derivative trading and agency of precious metal trading in China, always remaining front in developing relevant businesses among domestic banks. Therefore, the development of our financial market business has undergone the process of accumulating and growing gradually and further forming characteristics. On the other hand, we always believe that the diversified asset-liability development of banks and multiple development of financial institutions at home are the unavoidable trends and results of market-oriented reform, and the financial market business is a development area of crucial importance with a great platform. Therefore, we have always intensified our extension and innovation in the field for years, thus establishing certain first-chance advantages. Now, our financial market business has internally established a relatively complete business system covering institutional business, capital trading, assets management and assets custody. Externally, we have carried out specialized operation via subsidiaries engaging in trust, lease and fund. The two sides strive to form a powerful integrated and group-based business operation pattern by way of linking and supplementing with each other.

Dedicated to sustainability through transformation and innovation

The Chinese Banker: With 25 years of endeavor, IB has achieved frog-leap development, becoming one of the Global Top 50 banks. What is the greatest challenge in the bank's development in the next stage? What measures can be taken?

Gao Jianping: The challenges mainly lie in two areas: First, the increasingly complicated and changing macroeconomic situation. Banking is a typical periodical industry, and the performance is closely related to the macroeconomic situation. In the previous more than ten years, the Chinese economy experienced a period of desired prosperity, and the Chinese banking industry also shared the fruits of economic success. Nonetheless, with the constant accumulation of underlying contradictions during the economic development, it is not practical to expect that the macroeconomy can continue its fast growth in the next stage. Against the increasing pressure of removing excessive capacities, de-stocking and deleveraging, the two requirements, “structural adjustment” and “stable growth”, which seem contradictory with each other, will exist simultaneously, and both are pressing to deal with. According to our judgment, the adjustment of economic structure will last for a long period and the process may be very painful. These will bring great trouble to the business operation of banks, in particular the quality control of assets in stock and control over the investment orientation of incremental.

Second, the increasing competition pressure for banking transformation. On the one hand, with years of exploration in reform, all banks have established their strategies in business transformation in succession, increasing investment continuously in the areas including retailing business, investment banking, assets management and wealth management. Against this background, we will unavoidably encounter more furious competition and challenges in the business fields where we used to have certain competitive edges. On the other hand, along the deepening financial reform and fast development of information technology, cross-border competition will become more and more furious. These will bring new challenges to the banking operation and may even lead to major change to the financial ecology.

Challenges may occur at any time, and the key lies in whether our preparations are sufficient and whether we have the ability to fight better. IB will deepen reform unswervingly. Through reform, we can break through various system and mechanism related obstacles encountered during the process of development and maintain blooming business vitality and internal growth power. In the meantime, we will drive forward the transformation. We are one of the first banks putting forward the transformation strategy in China. With nearly ten years' efforts, we have made certain achievement in transformation and accumulated a good foundation. In the future, to respond to the changes in the business environment, we will continue pushing ahead transformation, including: driving forward the market-oriented, integrated, group-based and internationalized business operation steadily, continuing the vigorous development of innovative businesses represented by investment banking, wealth management, and assets management, and constantly advancing the sinking of “gravity center” of banking services, etc. We will still make unceasing innovation for differentiation according to the changes in the market demands, including innovation in conventional business, development of emerging business, and development and utilization of new technologies and tools. With sustained innovation, we create competitive business features and maintain differentiated competitive edges.

The Chinese Banker: Recently, the General Office of the State Council issued the “Guiding Opinion on Support of Finance to Structural Adjustment, Transformation and Upgrading”, known as the “10 State Guidelines for Finance”, stressing the key contents such as improving the allocation of financial resources, using the incremental in a desired manner, and revitalizing the stock. What influence will these guidelines have on the future strategic planning of IB? How will IB respond?

Gao Jianping: Since the beginning of this year, the economic operation of China has generally kept stable. However, the real economy still faces considerable difficulty, and against the protruding structural contradiction, the economy is still confronted with downward pressure. Under such situation, the State Council issued the “10 State Guidelines for Finance” in a timely manner, setting down specific requirements and measures for the adjustment of economic structure, transformation and upgrading in ten areas. These guidelines catch the key issues for the finance to serve the development of real economy, so we will give our firm support. We are learning these guidelines and implementing them actively.

First, in accordance with the requirements of the “10 State Guidelines for Finance”, we will intensify our efforts in adjusting the asset structure. On the one hand, we will intensify the risk investigation over and structural adjustment for assets in stock, and exit from those industries and projects involving big risks and seriously excessive capacities in a timely manner. On the other hand, we will control the investment orientation of newly-increased assets, continue furthering the credit support to those industries and areas that conform to the national economy and livelihood of people, tally with the guidance of national policies and meet the requirements of market development, and meanwhile drive the adjustment of stock structure.

Second, we will combine the implementation of the “10 State Guidelines for Finance” with our own strategic transformation in a more organic way. Considering the specific measures put forward in the “10 State Guidelines for Finance”, many of them coincide with the transformation strategies of IB. For instance, to support small- and mini-sized enterprises and retailing enterprises to “go out” are our important directions in pushing forward the business transformation in recent years. Next, we will combine the implementation of the “10 State Guidelines for Finance” with our own business transformation in a more organic way so as to further specify the transformation orientation, define the transformation focus, and improve the effect of transformation.

Third, we will combine the implementation of the “10 State Guidelines for Finance” with our further innovation in banking businesses in a more organic way. Under the general requirements of “using the incremental in a desired manner, and revitalizing the stock”, the “10 State Guidelines for Finance” point out a new direction for innovation in banking businesses. For instance, encouraging asset securitization, merger and reorganization of enterprises, cross-border investment and transfer of non-performing loans are all important rooms for the future innovation of banks. We will continue bringing into play our advantages of fast market response and strong innovation awareness, and further accelerate the innovation process centering on the orientations pointed out in the “10 State Guidelines for Finance”, so as to better meet the financial service needs of real economy.

The Chinese Banker: We see that the road of integrated business operation has become a development direction for many commercial banks. As far as IB is concerned, the bank has achieved major progress in integrated and group-based development by establishing trust company and fund management company. What does it mean to the next stage of development of IB?

Gao Jianping: Just as you have mentioned, integration has become an inevitable direction and tendency for modern banks, especially large and medium-sized banks. To grasp the tendency, we have always taken integrated and group-based business operation as an important direction in the recent ten years, and make sustained efforts in the direction.

In the recent three years, IB made great breakthroughs in integrated business operation in succession: in 2010, we established Industrial Financial Leasing Co., LTD, a solely-owned subsidiary; in 2011, we controlled China Industrial International Trust Limited by purchasing its shares with the consent of the State Council and approval of the China Banking Regulatory Commission (CBRC); in the first half of 2013, Industrial Fund Management Co., Ltd., another subsidiary controlled by IB, was established with the approval of the China Securities Regulatory Commission (CSRC). In addition, China Industrial Asset Management Limited, a subsidiary controlled by Industrial Trust, and China Industrial Wealth Management Limited, a subsidiary controlled by Industrial Fund, have also been approved in succession recently. Thus, a comprehensive financial service group has been established preliminarily, focusing on the principal banking businesses and covering trust, lease, fund, and assets management.

With relatively complete financial license resources, we will, focusing on consolidation of resources, business linkage and crossed sale, push forward and further group-based and integrated business operation and exert ourselves to improve the effect of group-based and integrated business operation. On the one hand, we will, standing on the core strengths of the parent banking company and all subsidiaries, strengthen specialized labor division and define different service focuses. While cultivating our capacity to provide multi-market services, we strive for forming relative competitiveness in many markets. On the other hand, we will make constant exploration to improve the business linking mechanism, profit distribution mechanism and risk isolation mechanism compliant with integrated and group-based business operation, encourage resource sharing, complementing the respective advantages, and linked development among different entities in the group, and isolate risks effectively.

Afterword: With the full launch of the adjustment of economic structure, transformation and upgrading in China, our economic development will step into a new historical stage. In correspondence, with the accelerated progress in the all-round deepening of financial reform, the construction of market-oriented and multi-layered capital market, and the development of diversified financial institutions, the financial market environment and competition situation will expect big changes. In the eyes of Chairman Gao, for the great cause of “a first-class bank, a long-flourishing IB”, 25 years are only a start. After experiencing splendid achievement in the past 25 years, IB will march into a new long period of strategic growth and there is still a long road to go. But he believes that the increasingly mature and wise IB people will, no doubt, create new greater achievements in the grand cause of a long-flourishing IB.