– An Exclusive Interview with Li Renjie, President of Industrial Bank
August 16, 2013 Excerpt from China Finance, No.16, 2013 Reporter: Sun Furong
In 1988, Industrial Bank (IB) was born in Fuzhou, becoming one of the first group of joint-stock banks established in China. Twenty-five years later, as the only joint-stock bank with a poor base that is not based in a key district for the development of Chinese economy, IB ascends into the lists of China Top 10 Banks, Global Top 50 Banks, and Fortune Global 500. It has built a comprehensive financial service group preliminarily, focusing on the principal banking businesses and covering trust, lease, fund, and assets management, and it is the first and only “Equator Bank” in China till now. While greatly enriching the philosophy of Equator Bank in practice, it has been appraised as the “Sustainable Bank” by the British magazine, Financial Times , for years consecutively.
In 25-year marathon, what has IB depended on to stride ahead? With this question, our reporter had an interview with President Li Renjie of IB. President Li said that the flourishing of banks would depend on the flourishing of other industries and it should closely center on the national development strategies to revitalize all industries. Adhering to the differentiated business operation strategies, IB was born in the market-oriented environment, and it is also destined to assume the mission to push the in-depth development of financial market.
The Strategy of IB: Following the Pulse of National Development Closely
Formerly known as Fujian Industrial Bank, it was renamed Industrial Bank in 2003. The development of IB in the latest 10 years can be described as growth at a rocketing speed: In December 2000, the registered capital of Fujian Industrial Bank increased from RMB 1.5 billion to RMB 3 billion. Based on constant accumulation from this starting point, by the end of 2003, the year the Bank was renamed, the total assets of IB hit RMB 256.3 billion, and by the end of the first quarter of 2013, the figure reached RMB 3,469.6 billion, registering a growth of 12.54 times within 10 years. In 2012, the net profits attributable to the parent company realized by IB accumulatively amounted to RMB 34.718 billion, a YoY increase of 36.12%. The net profits registered in the first quarter of 2013 hit RMB 10.977 billion, a YoY increase of 32.44%.
What's more important is the transmutation behind the above figures. Many people in the Chinese banking industry believe that, with 25 years of development, IB has grown into a prestigious finance brand with distinctive features at home boasting unique business development model and brimming with constant innovation vitality.
When mentioning the main experience in answering questions, President Li firmly believe that the development of banks depends on the flourishing of other industries. In particular, we should pay attention to and seize the sectors and industries which become the social development trends because they contain great business opportunities. Grasping these opportunities, a bank has formed the basic premise to achieve constant frog-leap development. As learnt by the reporter, Li Renjie has a habit that has never been changed for more than 10 years after he became the president of IB. That is, he holds the operation and management analysis meeting regularly each month, and the primary task of the meeting is to analyze the situation and nail down the direction. He believes that, to run a bank well, we should be prospective and direction sensitive and control the business and business rhythm in a desired manner. It should not be pushed ahead too quickly when we are expected to slow down, and vice versa. All opportunities that we should grasp should be seized securely. Only when we hold onto the general trend of economic and financial development, we can then ride on the wave.
While following the general trend of economic and financial development, we should, based on our own characteristics, make strategic arrangements, pinpoint our position, figure out our direction, and do something correct but not everything. This is a piece of important experience that President Li summarizes for the 25-year development of IB.
Taking urbanization finance as an example, he started his analysis. Urbanization is believed to be the most important impetus for China's economic development in the past 10 years. Starting from 2006, IB has vigorously developed, centering on urbanization, the businesses including personal mortgage loan, real estate loan, and urban infrastructure construction loan. Hence, the urbanization finance businesses of IB have witnessed sustained and fast growth, and the asset quality has always been kept an excellent level. The Bank has achieved good business benefits.
In fact, the development of IB's urbanization finance not only lies in that it has grasped the trend of urbanization in China at an early time, but more importantly, it has formed a range of comparatively mature products and a whole set of professional and normalized procedures and institutional arrangements based on innovation and accumulation over these years, and organized an flexible team. President Li always believes that urbanization will remain to be the main line and engine for China's economic growth for a certain period in the future. Considering the national “12 th Five-year Planning”, China's urbanization rate will rise to 51.5% in 2015 from the current 46.6%. The new government also takes “new urbanization” as the area with the greatest potential to increase domestic demand. In his anticipation, under the boost of urbanization construction, the new round of urbanization upsurge will achieve high concentration of various factors including capital, technology, and human resources. A great number of areas, such as the construction of infrastructure, development of modern agriculture, and development of town-area industry, cannot do away with the strong support of the finance industry.
In the development of the previous years, he indicated, IB has formed certain features and advantages in the field of urbanization finance. In the coming years, the Bank will further increase input in relevant fields and endeavor to consolidate and expand existing characteristic advantages.
IB Characteristics: Adhering to the Road of Differentiated Development
As a “dark horse” among joint-stock banks, IB boasts a distinctive asset-liability structure and business structure, which has drawn great attention in the industry all the time. Behind them are the unique business operation concept of IB and its exploration in practice. “Over 25 years, IB has always adhered to innovation to take the road of differentiated development and made great efforts to establish its own business features and leading advantages.” This is another important successful experience of IB summarized by President Li.
President Li believes that a common problem in the Chinese finance industry is serious homogenization, and differentiation is an unavoidable trend for the reform and development of finance in China and a key for a financial enterprise to stand out among others.
Holding such business operation logic, in the latest more than 10 years, IB has brought into play its own advantages including strong market awareness and flexible system and mechanism, and seized each big opportunity for innovation and development observantly. Daring to take the lead of the industry and developing new “blue sea” boldly, the Bank has explored a development path belonging to itself and formed its business features and competitive edges in many segments.
IB made the judgment at an early time that green finance would become an important direction for the development of domestic finance and there would be a big market. In 2005, depending on the cooperation with International Finance Corporation (IFC) to carry out the energy efficiency financing project, IB took the lead to get involved in the green finance market at home, releasing the first green financial product – energy conservation and emission reduction loan. In 2008, it officially announced to the public to adopt the Equator Principles, becoming the first and only Equator Bank in China up to now. Since then, taking it as the main line to promote the Equator Principles, IB has kept intensifying its exploration in the green finance market. By now, it has established two product families including green finance based financing service and emission right based financial service centering on the three main business sectors: energy efficiency financing, environment finance, and carbon finance, and formed a green finance business system throughout China. It has become a pioneer and leader in the field of green finance at home, an honor that it fully deserves. From the implementation of the first energy efficiency financing project in 2007 to the end of 2012, IB has accumulatively granted nearly RMB 200 billion of green finance based financing loans to around 1,000 enterprises with a variety of financial tools, with the financing balance of green finance exceeding RMB 110 billion, which accounted for nearly 10% of its corporate credit balance. On June 4, 2009, in the appraisal jointly organized by the British magazine, Financial Times , and IFC, IB was nominated for two awards, i.e. the “2009 Sustainable Bank” and “2009 Asian Sustainable Bank”. Finally, it won the champion of “2009 Asian Sustainable Bank”. After that, the Bank almost won various prizes related every year, with nearly 30 prizes of such kind both at home and abroad in 2012.
The adoption of the Equator Principles in 2008, President Li stressed, was an important milestone for the development of corporate finance business of IB. It enabled the Bank to stand onto a new strategic height to provide services to the real economy, and tally its own development with the performance of social responsibilities and construction of “Beautiful China” more closely. In recent years, by promoting the Equator Principles, IB has, on the one hand, achieved overall self improvement in the areas including corporate governance, risk management, business process, and technical system, taking a more scientific and sustainable development road. On the other hand, it has also thrown great influence to business concepts and models of the market and customers.
People familiar with banking businesses may easily find that IB, a bank located at a corner in Fujian, has long explored the finance market and kept unexceptional sensitivity to the market. From the involvement in the business of securities capital clearing incipiently in 1996, IB has gradually extended itself from the original bank-securities cooperation to bank-bank, bank-insurance, bank-trust, bank-finance, bank-fund, and funds market. The Bank is well-known for its sustained strong business innovation capabilities in the industry and takes a leading position in a great many market segments. Over these years, IB could always release various new financial concepts, businesses and services at the earliest possible time. IB can always be seen wherever innovation occurs in the financial market.
In this June and July, the Chinese banking industry experienced a liquidity baptism, which drew the attention of people to the financial market business of IB. After in-depth focalization, nonetheless, what people saw was the fast and decisive response of IB full of confidence to the market and its sound circulation in a normal manner. The reason why IB could stand the test of the market, in the words of President Li, lies in that IB has always been swimming in the deep sea of the financial market and thus cultivated an outstanding ability in swimming.
To develop the financial market business well, President Li indicates, first depends on the internal organizational arrangement, the capabilities in researching and developing new business, and the capacities in integrated operation and orderly accumulation. Take capital business as an example. As early as November 3, 2003, IB established the Capital Operation Center in Shanghai. Then, it became one of the first banks obtaining the qualification for trading financial derivatives, that for the market maker of inter-bank RMB foreign exchange, that for trading foreign currencies against RMB swap on behalf of customers, and that for overseas wealth management on behalf of customers(QDII). It is one of the first banks developing RMB capital trading, and one of the banks with the most diversified businesses.
Another example is the bank-bank platform, which enjoys a high reputation within the industry, and it is another concentrated embodiment for the integrated operation and innovation capability of IB. Relying on its long-term accumulation in the field of institutional banking, IB innovatively released the bank-bank platform in 2007, mainly targeting at the small- and medium-sized financial institutions. Based on counter pass and network interconnection, the platform covers many services including payment and settlement, business agency, technology output and management training. Now, it has more than 400 signed customers and more than 23,000 networked outlets. Its scale effect and economic effect come into being increasingly. In particular, the platform plays an increasingly prominent role in helping small- and medium-sized financial institutions in the rural area to extend their service antennae, break through the payment and settlement bottlenecks, and enrich service categories, and serve the real economy and the “Agriculture, Rural Area and Farmers” in a better way.
Another example is the assets custody, an important intermediate business in the financial market. The steady development of Chinese economy helped to generate a large amount of demands for assets custody, and IB tightly grasped this market opportunity. Established in February 2005, the Assets Custody Department of IB obtained the qualification for managing the securities and investment fund custody with the approval of China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC), and thus, the Bank becoming the 12 th bank with the business of securities and investment fund custody. Although having a late start, IB grasped the favorable opportunity brought by the fast development of the fund industry depending on its reserves for years and powerful internal integration advantages, and its business qualifications quickly covered a number of areas including fund, securities, trust and QDII. By the end of 2007, the total assets custody scale reached RMB 71.0087 billion, and kept growing quickly at the rate of 55.61% annually on average from 2009 to 2011. The custody scale of IB grew from RMB 227.149 billion at the end of 2010 to RMB 1628.255 billion at the end of 2012, a nearly 8-fold increase in only three years, ranking No. 1 among similar joint-stock banks.
Retailing business was always a weak point of IB. However, as noticed by the reporter, IB has chosen an accurate breakthrough point to take the road of differentiated development, and as a result, the retailing business of the Bank has also witnessed substantial development.
Since 2006, IB has seized the opportunities including urbanization and upsurge of wealth management demands among residents, and taking as breakthrough points mortgage, credit card, third-party depository, and wealth management, it has preliminarily developed a differentiated business operation road which takes products as breakthrough points and centers on customer operation to drive the all-round development of retailing business. From 2006 to 2008, the balance of personal housing mortgage loan granted by IB broke through RMB 100 billion, ranking No. 2 among joint-stock banks. Domestic securities industry witnessed the reform of third-party depository system in 2007. IB responded to the reform quickly, developing more than 1.5 million personal third-party depository accounts within merely a year. Other banks marveled at its great achievement.
In recent years, adhering to the direction of differentiated business operation, IB continued intensifying its efforts in the field of retailing finance. In 2010, it released “Business Express” – an exclusive integrated financial service program for the group of “growing business owners”. Over the past three years, the program has totally provided personal business loans of RMB 190 billion to 90,000 personal business owners. In 2012, it released the “Enjoyable Life” integrated financial service solution, the first one targeting at the aged group. In 2013, it took the lead to release the “Suixingyou” (Interest-guided Tour) integrated financial service program. Recently, it released the first community bank providing services to community residents – IB Fuzhou Federal Plaza Community Sub-branch, which is closed at 8 pm. In this way, the residents in the community finally have a “night bank” available. Now, IB has started to promote the “community bank” service model around China, and the number of community banks keeps increasing quickly.
The Future of IB: Arranging New Development Track in Transformation
In the process of decoding the 25-year development of IB, President Li led the focus of topics to the future development of IB, showcasing his practical style and forward-looking perspective.
“Now, the domestic economic and financial reform and development are entering into a new historic stage.” President Li indicated, “Generally, it is still the basic trend to be market-oriented, integrated and internationalized, and the process will be further accelerated. In correspondence, transformation and adjustment will be the key for domestic financial enterprises to win in competition.”
In fact, IB has kept accelerating its business transformation in the recent two years, and it has quietly made arrangement for the gravity center and pattern of its new round of business development in the process of transformation, with remarkable effects being shown gradually. On the one hand, in the conventional business areas, IB has insisted on sinking its focus of customers, given priority to the services to SMEs and retail customers, and vigorously developed the conventional businesses including green finance, financial services to small-sized enterprises, and retailing finance. For large-sized customers, it mainly met the funds demands of large-sized customers through direct financing. On the other hand, IB will continue bring into play its advantage of strong innovation capability to develop emerging businesses vigorously, including trading finance, cash management and bank-bank platform, which embody the basic core banking functions, and new payment and settlement businesses such as third-party payment, as well as integrated financial services which are mainly represented by wealth management, investment banking and assets management. In particular, with regard to the latter, IB has grasped the first chance again to some extent.
As introduced by President Li introduced, IB is the Chinese bank explicitly taking the businesses of investment banking, wealth management, and assets management as the keys areas and directions in the transformation strategy at the earliest time. This is mainly based on the judgment over and understanding to the basic tendencies in the following aspects: first, market-oriented interest rate, second, financial disintermediation, third, financial integration, and fourth, capital regulation and restriction. Considering the current situation, the tendencies in the foregoing areas exhibited accelerated development in the recent two years. Correspondingly, the advance arrangements and efforts made by IB in the businesses of investment banking, wealth management, and assets management also began to see blossoms and fruits.
The business of investment banking is another new highlight in the business development of IB in the recent two years, and more a new engine for the Bank to develop the business of corporate finance. At the end of 2005, IB established the Investment Banking Department in Beijing, starting to arrange the first batch of investment banking business. With years of unremitting efforts, the investment banking of IB has occupied certain shares in the market, accumulated rock-solid business and customer foundations, and established a good market reputation. According to statistics, across 2012, IB issued a total of 197.5 debt financing tools, a scale of RMB 201.243 billion, taking up a share of 7.64% in the market, and ranking No. 6 across the market only next to four state-owned banks and China Development Bank (CDB). In the first half of 2013, it issued a total of 110 debt financing tools, a scale of RMB 122.726 billion, taking up a share of 7.99%, ranking No. 5 across the market, No.2 among joint-stock banks, and No. 2 both in terms of the number of enterprises and the number of issues.
Next, in the area of investment banking, besides further making in-depth exploration in the debt financing tool market, IB will also put stress on developing the business of financial consultant to combine indirect financing with direct financing in an organic manner by playing the financial consultant of enterprises, so as to better meet the diversified financing needs of customers.
In the business area of assets management, the greatest advantage of IB is that it has established an assets management business platform with well-established structure and complete functions. In June 2013, Industrial Fund Management Co., Ltd. was officially established with the approval of the CSRC. In the same period China Industrial Wealth Management Limited, a subsidiary controlled by Industrial Fund, and China Industrial Asset Management Limited, a subsidiary controlled by Industrial Trust, were also established upon approval. UP to then, IB has become one of the few banks holding the license for all assets management related businesses. In the future, depending on internally the specialized operation institutions including the Assets Management Department and the Assets Custody Department, and externally the subsidiaries specialized in specialized in trust, fund, and assets management, IB will build efficient and coordinated assets management platforms featuring complementary functions and different service focuses, thus grasping the opportunities upon the coming of the “age of extended assets management”. President Li said in full confidence, “we have already made full preparation".
In the business field of wealth management, IB will on the one hand, depending on the powerful assets management platform, continue extending the market of standardized wealth management products, and provide customers with value-maintaining and value-increasing services. It will, on the other hand, take the business of private banking as a key area for future development.
“The new round of transformation competition will depend more on the market-oriented operating capabilities of banks, including the capabilities in business innovation, risk management and cost control. And all of these capabilities are strongpoints of IB”, summarized President Li.
By the end of the first quarter of 2013, the non-performing loan ratio of the Bank was only 0.49%, and its asset quality ranked No.1 among all China's listed banks. In terms of operating cost, the cost/income ratio of IB has always been kept around 35% in recent years, 2~4% below the mean level of the industry, and it reached 26.73% in 2012, taking a leading position among all listed banks in China. All of these should be represented by the ROE (rate of return on net assets) of the Bank. Since its IPO in 2007, the ROE of IB has always remained at a leading level in the industry.
From President Li's narration, gentle and full of confidence, in the short interview, which lasted for over an hour, the reporter had an intuitional understanding to the secret that IB has achieved great success for 25 years, and more anticipations for the future of IB spontaneously.