Industrial Bank (IB) 2013 Performance Meeting was held in Shanghai from 4 pm to 6 pm on March 31. The attendees include IB President Li Renjie, Board Secretary Tang Bin, General Manager Li Jian of the Financial Planning Department, General Manager Zou Jimin of the Risk Management Department, Vice President Lin Ronghui of the Corporate Finance Headquarters, Vice President Yan Xuewang of the Retail Banking Headquarters, General Manager Zheng Xinlin of the Institutional Banking Department, and Chief Economist Lu Zhengwei. At the meeting, they shared information with investment managers and securities analysts from more than 50 institutions both home and abroad with regard to the Bank’s business performance in 2013 and business development ideas in 2014. The memoir of the meeting is shown as follows:
Tang Bin: Good afternoon, everyone! Welcome to IB 2013 Performance Meeting. Now, I declare the official commencement of the meeting. Next, let's first ask General Manager Li Jian of the Financial Planning Department to share with us the business performance of IB in 2013.
Li Jian: In 2013, against the unfavorable macroeconomic environment on the whole, the Company continued following the changes and made timely adjustments to business tactics, keeping the development of all businesses in a steady, sound and coordinated manner. The operating income hit RMB 109.287 billion, up 24.73%; the net profits attributable to the parent company reached RMB 41.211 billion, up 18.70%. The return on total assets registered 1.20%, and the weighted average return on equity 22.39%. The company also increased the provision by RMB 7.7 billion. As the assets depreciation loss reached RMB 18.188 billion, increasing 46.89%, the return on equity would exceed 25% if no increase of provision.
Based on analysis and judgment of macroeconomic situation, the Company slowed down the pace of business development on its own initiative, and further improved business structure in the meantime. In terms of assets, the total assets hit RMB 3,677.435 billion, witnessing an increase of 13.12% over the beginning of the period. As the incremental in assets was mainly seen in the first half year, the daily average scale of interest-earning assets grew by nearly 30%. Meanwhile, the return on various assets kept rising gradually. In terms of liabilities, the deposits of customers increased constantly at a fast rate. Against the backdrop of a significant growth of 35% in 2012, the deposits continued increasing by 19.69%, making their market proportion keep rising. In the meantime, the daily average balance of deposits broke through RMB 2 trillion, an increase of 36% over 2012, thus laying a greater solid business foundation, and the loan-deposit ratio at the end of the period is only 61.95%, far lower than the upper regulatory limit of 75%, remaining at the lowest level among similar banks; the institutional deposits were matched in a reasonable way according to the needs of asset allocation, and the structure was further improved, with the proportion of settlement-related institutional deposits and those brought by the cooperation with small-sized financial institutions witnessing an increase of 18%.
The income structure witnessed sustained improvement. The net interest margin dropped by 21 BPs to 2.44, which could mainly be attributed to the impact of the two cuts in interest rate by the central bank in 2012. In general, the interest margin of commercial banks became narrowed. Under such a circumstance, our net incomes still grew by 18.91%. The incomes of handling charges and commissions kept growing at a fast rate, up by 57.75% over 2012, and their proportion in the operating incomes rose 4.73% YoY. Based on reasonable cost control, the cost/income ratio was 26.71%, remaining at a low level in the industry.
Risk resistance was further reinforced. Although the absolute value and proportion of non-performing loans rose, our provision has reached RMB 36.375 billion. The LLR/loan ratio registered a significant rise of 0.68%, reaching 2.68%, and the provision coverage hit 352.10%, keeping a front rank in the banking industry.
The major regulatory indexes all reach the regulatory requirements. The capital sufficiency reached 10.83%, meeting the requirement set in the new rule ahead of schedule. The liquidity ratio kept rising constantly, and the loan-deposit ratio remained at the lowest levels among similar banks.
All kinds of businesses were developed in a coordinated and sound way, and the specialized level of business lines was further improved. In the area of corporate finance, we exerted ourselves to build a business pattern in “four direction” – diversified financing, multiplied fund-raising, modernized payment and settlement, and multiple financial incomes, fully drove forward the business of trade financing, and created new highs in terms of supply chain financing volume and international settlement volume; the business of green finance was upgraded constantly, witnessing further expanded brand influence; cash management, small-sized enterprise business, and institutional banking saw steady growth, with foundations being reinforced constantly. In the aspect of retail banking, the customer foundation was further reinforced, and the core retail customers increased by 45.2%. Private banking also achieved significant development. The total number of customers also hit 15,300, up by 44%. With improved profitability, the intermediate business incomes of retail banking grew 81%, and the credit card business incomes nearly 80%. Thus, after covering the non-performing losses, the book profits still increased 47.56%. The scale of retail synthetic financial assets kept growing at a fast rate, and the year-end balance hit RMB 761.131 billion, up by 36.72% over the beginning of this year. Other businesses such as travel finance and pension finance witnessed desired development momentum and kept extending their market influence. The business of financial market continued keeping the first-mover advantages. The source of institutional funds remained stable, and the structure was further improved; the scale effect of the bank-bank platform became increasingly prominent, further opening its development room; debt investment, proprietary trading and brokerage developed in a sturdy manner, further reinforcing their role to serve and support the entire bank.
The group-based and integrated business operation witnessed significant effect, and the bank has obtained a basically complete range of financial licenses. At the end of 2013, the third subsidiary of the Bank, Industrial Fund Management Co., Ltd., opened successfully. With the scale of fund management assets hitting RMB 49.978 billion, the company witnessed profits in its first year of business. The scale of assets under the management of Industrial Trust reached RMB 563.3 billion, up 68% over the beginning of 2013, ranking among the top 3 in the industry. The net profits registered by the company in the year totaled RMB 1.106 billion, witnessing a YoY increase of 43.26%. The balance of financing lease assets of Industrial Financial Leasing hit RMB 52.9 billion, up by 32% over the beginning of this year, and the net profits registered hit RMB 873 million, a YoY increase of 30.88%.
Adapted to the development trend of financial disintermediation, the Bank made vigorous efforts to develop the business of “greater asset management”. IB firmly intensified the efforts to develop the business of asset management, strengthened internal planned management, and fully assembled and utilized the group’s asset management platform and license resources to enrich and extend the varieties of asset management business. In the meantime, the Bank established and improved business coordination and linkage mechanism between all internal business lines, between headquarters and branches, and between banking group and subsidiaries, forming a resultant force of development. In the recent three years, the mean compound growth rate of various assets under the management of the Bank hit 80%, and the balance at the end of 2013 reached RMB 1.11 trillion, up 43% over the beginning of the year, which amounted to 30% of the on-sheet assets scale. Grasping the opportunity of flourishing asset management business and taking the construction of professional service capacity and brand as a grab, IB continued speeding up the development of asset custody business, expanding business scale and improving profitability. The asset custody scale hit RMB 3.09 trillion, registering an increase of 89.54% over the beginning of the year, a figure ranking front among similar banks. Accustomed to the trend of financial disintermediation, the investment banking business kept growing at a fast rate, the debt financing tools of non-financial enterprises for IB served as the lead underwriter totaled RMB 241.2 billion, up 19.88%. IB ranked front in the market in terms of market shares and number of enterprises for which the Bank serves as the lead underwriter.
The operation support and guarantee became more well-established. The branch network was further extended. IB opened Lanzhou Branch, prepared for the establishment of Haikou Branch, and applied to prepare for the establishment of Xining Branch. In addition, Hong Kong Branch received the business license officially in January 2014. At the year-end, the total number of branches and sub-branches hit 826 while the outlets networked by the bank-bank platform reached 25,800. The Bank made further improvement in the functions of electronic banking, launching WeChat Banking and “e-family wealth” services, and expanded telephone banking system. The transaction substituting rate of electronic banking rose 4.64% to 76.48%.
All management capabilities saw further improvement. The Bank established a new liquidity management system, setting three defense lines for liquidity management. First, indexes were set for the asset-liability proportion of all business lines to ensure the balanced development of assets and liabilities in all business lines. Second, through FTP price guidance, we controlled the current funds sources, the amount of funds used and the term structure. Third, grasping market opportunities, we conducted capital accommodation through institutional lending/borrowing and bond repurchase in the inter-bank market. For the assets, meanwhile, IB established a three-layered management system for liquid asset: firstly, making flexible adjustment to our excess reserve according to pre-judgment over market; secondly increasing the short-term liquid assets including institutional borrowing/lending; thirdly increasing cashable assets including treasury bonds, central bank bills and high-grade credit debts. For the liabilities, in particular in the area of institutional liabilities, we further improved the structure, reinforced stability, and strengthened the general commanding and scheduling of the Head Office. IB intensified intensive management of capital, strengthened the management of capital budget, and allocated the scale of risk assets in all business lines and branches. In the meantime, we intensified the assessment and management of requirements for return on capital, and guided business offices to develop businesses of low capital occupation. We reinforced overall risk management, carried out risk screening and response in an all-round manner, and control risks to win initiative. We improved the risk management systems and mechanisms of head office, branches and subsidiaries and pushed forward group-based risk management with a view to control various risks in an effective way.
In 2014, the Bank will closely adapt to the changes in national macroeconomic policies and market, stick to the principle of steady and stable progress, control business growth speed in a reasonable manner, and focus on structural adjustment. We will give prominence to the core role of capital income in assessment, evaluation and resource distribution, and adhere to the path of capital-conserving and internal-balanced development. Centering on the basic trend of “market-oriented, financial disintermediated, networked, and customized” finance, we will further accelerate transformation and innovation, and cultivate new business and profit growth points. Surrounding the transformation and innovation direction, we will mobilize the multi-license resources in a desired and flexible manner, lay stress on intra-group coordination, linkage and crossed sale, better explore potential for integrated business operation, and improve the integrated business benefits.
The key tasks of 2014 include:
First, improve structure and accelerate transformation. We will stress on capital income and intensify the efforts in adjustment and improvement of business structure based on return on capital; promote sinking the service focus of conventional business services to accelerate the development of corporate and retail banking and improve the level of return on assets; accelerate the transformation and upgrade of businesses related to financing, funds-raising and payment and settlement centering on the tendency of in-depth financial reform, with a view to improve the customer service capability.
Second, make vigorous efforts to develop the business of “greater asset management” by getting accustomed to the development trend of financial disintermediation. We will focus on our principal businesses and accurately locate the acting point to continue accelerating the reform, innovation and development of investment banking business, and further improve the functions of investment banking; enhance the wealth management service and competition capabilities substantially and push the transformation of wealth management business from “asset management oriented” to “consulting-driven”; develop the “bank-bank platform wealth management portal” into a big and strong brand by expanding the body of participating institutions continuously, enriching the varieties of wealth management products, and smoothening wealth management sales channels to further promote the brand.
Third, improve the group-based operation pattern and actively cultivate new business growth points. We will change the management perspective of the parent banking company, and reinforce its planned management, unified planning, organizational promotion of the group's businesses. We will push the sustained and sound development of businesses of subsidiaries, all of which should, centering on the overall strategy of the group and following the development rule of the industries where they belong, bring into play their own respective professional advantages, define the development orientations accurately, speed up the development pace, and strive to ascend into the mainstream and establish advantages in their own industries and market segments. We will grasp the hot topics in the market, intensify the study of internet finance, explore the practice of capital operation, and develop new business areas and cultivate new business growth points based on more flexible systems and mechanisms.
Fourth, further improve the specialized and refined level of management. We will enhance asset-liability management, improve the prospectiveness of asset-liability and FTP pricing tactics, and perfect the early warning and emergency response mechanism. We will improve the assessment, evaluation and management of resource allocation, intensify the management of capital budget, and strengthen the guidance of capital conservation. We will deepen the reform in risk management system, reinforce responsibility restriction and improve the capacity to control customer risks.
Tang Bin: Next, we come to the part of interaction. All questions are welcomed.
Guotai Junan: How is the credit assets securitization of IB proceeding, now?
Lin Ronghui: The Company attaches great importance to the business of credit assets securitization. Since it was decided in the executive meeting of the State Council held on August 28, 2013 to further extend the pilot areas for credit assets securitization, we have always got actively involved in the pilot campaign of credit assets securitization, and officially re-launched a new round of credit assets securitization projects in September 2013. Under the guidance of the People's Bank of China (PBC) and China Banking Regulatory Commission (CBRC), the Company accomplished the submission of project material for the first issue of credit assets securitization, and received the reply of relevant authority. On January 24, 2014, we finished the bid invitation for “Xing Yuan First Issue of Credit Asset-backed Securities” (ABS) in the national inter-bank bond market. The total issue reached RMB 5,184.185 million, and the total subscription hit RMB 7,814.9 million, 1.59 times as great as the bid amount. On February 19, we released “Xing Yuan First Issue of Credit Asset-backed Securities” (ABS) successfully, totaling RMB 5,184.185 million.
In the future, the Company will further summarize the experience in “Xing Yuan First Issue of Credit Asset-backed Securities” (ABS), and in the light of the arrangement of the PBC and the CBRC, further extend its business of credit assets securitization in an orderly manner, and give priority to financial services to small- and mini-sized businesses, environment finance and areas supported by the national industrial policies with the credit scale released from credit assets securitization.
UBS Securities: As the market expects that the regulatory authorities will intensify the regulation and supervision over institutional banking in the future, what pre-judgments does the Company make to the direction of ensuing regulatory policies? How will the Company make adjustment to the institutional banking tactics?
Zheng Xinlin: In fact, IB has grasped the opportunities of market-oriented finance and diversified financing, developing some businesses in the way of institutional banking in a reasonable way. Since the second half of last year, especially after the liquidity tension in last June, the PBC and the CBRC have both intensified regulation and supervision over institutional banking. We believe that in the future, the regulation and supervision over institutional banking will evolve in the direction of standardization and innovation either from the perspective of macroeconomic development at home or regulation and supervision over the financial market. Under the new regulatory requirements, the Company has made full preparations for adaptation to the new regulatory norms. In the next stage, we will, according to the regulatory requirements, realize the sound, compliant and sustainable business development in an active manner. The focus of institutional banking transformation in the future is to develop integrated wealth management businesses that take internet as the medium and combine both on-line and off-line transactions.
UBS Securities: The core capital sufficiency of the Company in 2013 went down to some extent. Under such circumstance, which factors will drive the business growth in 2014?
Li Jian: Our capital funds of RMB 23.5 billion supplemented at the end of 2012 are basically used to offset the influence of new rules on capital. That is to say, our capital scale grew 13% and risk assets increased more than RMB 300 billion in 2013, both of which were supported with the retained earnings. As far as 2014 is concerned, on the one hand we consider capital supplementation by way of issuing Tier 2 capital debt and exploring the issuance of preferred shares; on the other hand, we should support business development in this year based on our own profits. How we maintain sustained profitability has been described in the PPT demonstrated at the performance press release. To be specific, the factors driving business growth mainly include: First, adjust and improve the asset structure, sink the service focus of conventional business services, and improve the level of return on assets. Second, carry out overall assessment and resource allocation centering on the rate on risk assets and return on economic capital, and guide all business offices to develop businesses of no capital occupation and low capital consumption. Third, reduce capital occupation by way of assets standardization and securitization and accelerate capital flow. Fourth, concentrate efforts on pushing the development of businesses including investment banking, assets management, and assets custody constantly, enable the borrower and lender to have direct off-sheet matchmaking through direct financing tools and assets management plans for customers, take the transformation path of “greater investment banking” and “greater assets management”, and make the business model occupying no and low capital become the new driving force for business growth.
Tang Bin: I’d like to make some complementation to the above introductions by President Lin and General Manager Li. We often mention institutional banking, and in fact, our bank means the business of financial market. We all know that as the product of marketization, IB established the first branch in Shanghai and the second one in Shenzhen. The first job of the two branches was to match the capital market actively and serve the securities clearing, and hence they developed a range of cooperation between financial institutions, which were simply summarized as institutional banking. In fact, they are businesses developed by IB to adapt to the entire finance marketization. Second, in the aspect of management system, we have established quasi-business departments and business departments over years, which tallies with the direction of current policies enacted by the regulatory authorities. Third, you may pay attention to the process how IB understand the market, adapt to changes, grasp opportunities, and make innovation in products, rather than a single product launched by us in a certain stage.
Fourth, General Manager Li has said a lot from the perspective of capital management just now, and I’d say something about capital supplementation. IB has always take innovation in capital tools as a means to enforce regulation and supervision. From the subordinated debt launched in 2003 and hybrid capital debt launched in 2005, to perpetual capital debt that we have been exploring in the recent two years, to preferred shares released by the State Council and the CSRC this time, we have been tracking and getting closely involved in the enforcement of regulatory requirements. We fully realize the importance of preferred shares to the governance and capital supplementation of commercial banking corporations. Now, we have started to draft plans and communicate with regulatory authorities. In addition, the Company will also, based on the regulatory direction and market situation, strengthen communication and research, and continue exploring the innovation in capital-supplementing tools including convertible bonds and perpetual capital debts, etc.
CITIC Securities: I hope to learn the judgment of IB over the macroeconomic situation, policy direction, responding tactics of the bank and the tendency of interest rates of funds.
Lu Zhengwei: To begin with, I’d like to talk about our judgment over the macroeconomic situation. In terms of the economic circumstance per se, all the “three horsecars” will face certain downward pressure. After reaching to the periodic peak in 2008, the consumption has almost gone down a step each year. Now, it is still in the periodic downward process. Investment also faces the callback pressure under the influence of factors such as removing excessive capacities and dropped real estate sale. Export may only benefit from the recovering west economies in a limited manner under the restriction of overrated real effective exchange rate of RMB.
In confrontation with the pressure of downward economy, it is estimated that the policy-making authorities will continue employing the controlling method which was effective in the previous year (namely, three major measures: streamline administration and delegate power to the lower levels to inspire civilian vitality, specify intervals to guide expectations, and give no loosening and tightening but accurate stimulation) for buffering. In the end, the GPD may be still around 7.5%. Because the economy is still in the process of removing excessive capacities, no obvious inflation pressure will be seen across the year, but we need to pay attention to risks of deflation.
Against such a backdrop, as a procyclical industry, banks should have a good sense to the periodic rhythm and overall skeleton of economic development. In terms of periodic rhythm, we should properly improve risk tolerance and speed up assets expansion in the upward economic period. Contrarily, we should reduce our risk tolerance and ensure the stability of asset quality. In terms of holding the macro skeleton, in the past decade, which is a period of China’s speedy urbanization, all commercial banks grasping the dominating industries such as infrastructure and real estate witnessed desirable growth performance. In the coming decade, the stress is put on market-oriented financial reform and “urbanization of people”, our commercial banks should catch hold of the historical opportunities brought by integrated business operation and flourishing services, thus greeting the next ten years of splendor.
Next, in terms of interest rate of the funds market, I believe that the policy of the central bank will remain tensely balanced within the year, but no extreme circumstances like those occurring previously will happen. Here, I have four reasons: First, international experience tells us that the level of interest rate after a country enters the ageing society is not necessarily higher than that when it has a young population structure. Second, the asset-liability rate of enterprises is high now, so it does not support the continued rise of interest rate. Third, the process of market-oriented interest rate does not remain in the initial stage now, but only a step far from opening the deposit interest rate. Fourth, based on our calculation, China’s interest rate has no obvious relativity with that of US. In the future, when the Federal Reserve Board (Fed) increases the interest rate, the economy of China remains in deflation, so in correspondence, our interest rate will drop rather than rise. As a result, I don’t worry about the future rise in interest rate. The level of interest rate in the second half of last year will be an insurmountable peak in the coming five years.
Credit Suisse Founder Securities: How is the construction of community banking outlets going on? Is it helpful to make contribution to deposits?
Yan Xuewang: In order to enforce and implement the spirit of the Central Government on supporting the adjustment, transformation and upgrading of economic structure, considering the great changes in living and residing forms of the common people, the Bank has, based on long-run development, internal control and convenience to people, vigorously launched the construction of community banking outlets since 2013, furthering our efforts in the aspects of offering convenient financial services to people and serving the needs of the general public. In full compliance with the requirements of regulations in terms of business model, business scope, staffing, and risk management, our community banking outlets are under standardized management with controllable risks. Now, they develop toward the sound and active directions in general, and win extensive recognition and acknowledgement of all social circles, community residents in particular, showcasing good social benefits gradually. 90% of our present community banking outlets were opened in last November and December, with only a quarter going by. Recently, we have been intensifying our management and improvement of capacities of community banking outlets. With the accumulation of business experience in community banking outlets, they will make increasing contributions to liabilities.
Ping An Securities: Based on the wealth management portal of the bank-bank platform, how is the sales performance of “Money Manager”? What will be its future direction?
Zheng Xinlin: By the end of 2013, the sales revenue of institutional wealth management products broke through RMB 900 billion, hitting RMB 918.165 billion, more than 360 times as great as the figure in 2007. Specifically, the sales revenue of wealth management products targeting at terminal customers broke through RMB 120 billion, hitting RMB 121.576 billion, an increase at a rocketing speed from RMB 100 million to RMB 120 billion, showcasing broad development space. By March 21, 2014, the number of signed customers of “Money Manager” reached 328,800. Since the official launch on March 10, 2014, “Manager’s Wallet” has grown at a high rate, exhibiting enormous sales potential.
Depending on the massive cooperation network built by the bank-bank platform, “Money Manager” has also connected the physical outlets and counter channels of financial institutions cooperated including securities and trust companies. By integrating on-line and off-line resources, it achieves innovation in internet financial products and growth in incomes brought by innovated channels, and at the same time, jointly improves the customer volume and service capacities of cooperative financial institutions, realizing a desired combination between innovation in internet financial model and corporate social responsibility.
In the future, “Money Manager” will develop the internet wealth sales businesses constantly. First, it will further extend and cultivate on-line sales system, and construct powerful wealth management channel based sales capabilities. Second, it will vigorously push the off-line sales distribution including sales terminals and customer experience centers, keep broadening the cooperative customer scope and network coverage, and further develop rural financial market. Third, it will introduce a professional team consisting of specialized talents, and achieve fast and steady development with the internet-based ideas and operating model. Fourth, it will plan the independent development of on-line payment and settlement, and give access to the e-commerce platforms of other financial institutions while meeting its own needs of payment and settlement.
GF Securities: In 2013, the non-performing loans increased to some extent. Besides the low non-performing base number, what other causes were there? What is your plan for writing off non-performing loans in 2014?
Zou Jimin: Our non-performing loan and non-performing loan ratio rose to some extent in 2013, but the asset quality was generally kept at a stable and good level in the banking industry. The main causes include:
Firstly, banks were confronted with more complicated and austere business environment, which imposed certain unfavorable influence to our asset quality. Nevertheless, we effectively evaded various major risks thanks to the prospective analysis, pre-judgment and control of various risks. For instance, our non-performing loans were mainly distributed in several areas and individual industries, and the asset quality in most areas and industries were still kept at good levels. The major risk areas including government financing platform and real estate had no or few non-performing loans, and our asset quality was above the average level of the entire industry.
Secondly, following the practical and down-to-earth principle, we disclose risks truthfully and fully to ensure that various risks were handled in an active and timely manner. All the disclosed risks are also within our predicted scope, the provision accrued is enough to cover current and future possible risks, which can be controlled in an effective way.
Thirdly, in recent years, we have sped up business transformation, increased our support to businesses including credit to small- and mini-sized enterprises and petty consumption credit. Although the risks and non-performing rates of such customer groups are higher, it complies with our development strategy of sinking service focus to serve the real economy. The balance between risks and incomes can be achieved by intensifying risk management and control. Under such a circumstance, it is acceptable for the non-performing ratio to go up to some extent as it is within the control scope.
In 2014, we will arrange the plan for writing off non-performing assets in a planned-as-a-whole manner according to the macroeconomic environment and our own situation. According to the requirements of the new write-off regulations of the Ministry of Finance, the losses occurring in the transfer of non-performing assets must be covered for writing off. Therefore, our plan for writing off non-performing assets in 2014 will be generally identical to the sum of non-performing assets written off and transferred in 2013.
GF Securities: In 2014, what policy will IB adopt with regard to loans for real estate development?
Zou Jimin: In a quite long period to come, real estate will remain an important industry in our national economy, and it still have rooms for long-term development under the propelling of new urbanization. However, real estate is a procyclical industry. Against the transformation of economic structure and drive of new urbanization, the industry has begun to see adjustment and differentiation in some areas. Therefore, based on detailed research and all-round scrutiny in the early period, we have made prudent and meticulous considerations and arrangements as for who our partners will be, which areas we will deploy in, which projects we will choose, which means of cooperation we will employ and how risks will be controlled and managed for businesses related to real estate in the future. To be specific, on the premise of keeping policies basically stable in the recent two years, our real estate policies in 2014 will strengthen namelist-based management through “hierarchical business operation”, reinforce the selection of areas and quarters for projects based on “choice projects”, match different products and services and corresponding risk control models for projects of different customers and operating situations by way of “classified management”, and further reinforce closed operation and risk disposal by “improving management”. Therefore, we will continue developing businesses related to the development of real estate in 2014, and ensure our real estate assets to keep quality, steady and sound progress.
Tang Bin: The time will come to the end soon. In the above discussions, some investors raise questions about internet finance and the business tactics in the next stage. Now, let’s welcome President Li to give us an introduction.
Li Renjie: Nearly seven years have passed since the IPO of IB in 2007. Generally speaking, I attend almost every annual and half-year performance meeting to exchange ideas and opinions with investors. Today, we face many new situations and changes, and I’d like to share with you about how our management team think, what challenges we face and which measure we prepare to take.
For the time being, we are mainly in confrontation with challenges in the following five areas. The first challenge is changes in environment. Objectively speaking, the macroeconomic environment is more difficult compared with last year. I’d follow the comparatively agreed expression now, namely “overlapped three periods”, which means the overlapping of gear-shifting period for economic growth, pain period for structure adjustment, and digesting period for initial incentive policies. This brings great challenge to banks and even the entire national economy.
The second challenge is new regulatory policies. Since last year, the regulatory authorities enacted many new regulatory policies, such as CBRC Basel Accord III, liquidity management measures, and Decree No. 107 of the State Council. All are talking about how to prevent systemic and regional risks, and are defining responsibilities for risk prevention. Regulation and supervision become increasingly strict in all aspects. In this perspective, I’m afraid whether the superposed effects of these regulatory measures would cause resonance and bring some shocks to the market or not. Because China is pushing the process of marketization, all market players, including enterprises, regulatory authorities and monetary policies-making authorities, need to adapt to the accelerating marketization process and keep improving the capability to adapt to new changes.
The third challenge is market-oriented interest rate. Market-oriented interest rate was proposed in 1990s and now, the only thing left is the unlashing of deposit interest rate. Although the deposit interest rate has not been liberalized, many market-oriented wealth management products have appeared in the market. To some extent, they are a kind of extension and substitution of market-oriented deposit interest rate. The process of interest rate marketization is speeding up, which is a kind of challenge to banks.
The fourth challenge is brought by disintermediation. In the past, we said that the structure of Chinese financial system was not balanced as the indirect financing represented by banks accounted for an excessively big proportion. Yet, it is direct financing flourishing, now. The booming can be seen not merely in the stock market and bond market, but also in direct financing in various other forms. Even some e-commerce companies also indicate that 70% of their incomes will come from finance ten years later. It seems that all want to engage in finance and can do well in finance.
The fifth challenge is the development of internet finance. The development of internet finance in reverse forces financial institutions to consider how to become more internet-oriented.
Then, how should we respond to challenges in the five aspects? As far as our business tactics in this year are concerned, we mainly consider it in three aspects:
First, we should comprehend the macroeconomic environment clearly. The latest 10 years’ development of IB rests with, in fact, our understanding to the macroeconomic environment. We haven’t pushed ahead too quickly when we were expected to slow down, and vice versa, controlling the rhythm and direction in a desired manner. In this year, specifically, our general tactics is to be more stable. We may not put in a great deal of efforts to pursue the scale expansion. With regard to common deposit, for instance, it is possible that we may not seek the growth rate achieved two years ago. We will put greater stress on doing business based on calculations, seek long-term development, and pursue the construction of cash management system and payment and settlement system, so as to increase liabilities at a relatively low cost. For the whole bank, our total asset scale will remain relatively stable, develop and transform the business models from the previous direction of holding assets to that of managing assets, and go in for the relative stability of ROE rather than the growth rate in absolute value.
Second, how can we make best use of our advantages and compensate for our disadvantages? What are our advantages? Maybe, all of you have noticed that we have been making great efforts to development greater investment banking and greater assets management over these years. In the aspect of corporate businesses, we put forward the idea to endeavor to become the shadow CFO of enterprises as early as 2005, thinking from the perspective of enterprises and considering financial service to enterprises in the way of investment banking. Therefore, we have always been making arrangement in the aspect over these years. Now, our efforts have seen some preliminary effects. For instance, the issue and underwriting of our debt financing tools and assets custody both rank front in the market. In the aspect of assets management, we have our own assets management department, trust company and fund company, as well as an assets management company under our subsidiary. In this year, based on our existing operation platform and good preparation, we will consider how to ensure effective internal coordination and crossed sale, and carry out group-based operation in an efficient way, thus producing greater benefits.
Third, we all know that our business sectors mainly include corporate banking, financial market and retail banking. Comparatively speaking, our retail banking is in fact a weak point. All of us also notice that, what is under the greatest impact of internet finance is the area of conventional retail banking. Then, as far as the current situation is concerned, the impact to us is relatively small because the proportion of retail banking is originally small. Contrarily, however, we should try to establish our late-mover advantages. In developing retail banking, it is not possible for us to employ the model in which our peers has made great successes in the past. Thus, we should take into overall consideration to develop the retail banking, namely the combination of both on-line and off-line channels. For on-line channels, we plan them as a whole. I take the lead to work out the overall planning with the joint efforts of vice presidents in charge of relevant business lines, back office and IT. Drawing on good experience in the banking industry and even other financial industries, we will build out retail finance with internet-based ideas. For off-line channels, we began to develop community banking outlets at the beginning of last year. Besides learning from good practices both at home and abroad, we have made full communication with the regulatory authorities at each step and obtained the recognition of regulatory authorities. The construction of community banking outlets will make up our previous deficiency in outlets to some extent. Besides our own outlets, we will also take into overall consideration the network of our agencies, improving its use efficiency. To sum up, we will, centering on our original weak points, develop retail banking by making full use of new technologies and concepts, and put in a great deal of efforts in both on-line and off-line channels, really achieving great progress both on-line and off-line.
Looking into 2014, you may wonder whether the business objective put forward by the Bank is too prudent or conservative. I want to tell you that a bank should commit to make transformation in a down-to-earth manner now that we have realized that the growth model of rushing to occupy market shares at a rocketing speed in those years was not sustainable. Therefore, considering the current environment, what’s important is not the growth speed but the quality of development.
This year, in the field of finance, all measures for deepening financial reform will be incubated and issued at an accelerated rate following the basic direction of “ensuring the decisive role of market in allocation of resources”. The financial market environment will witness profound changes constantly, and the trend of “market-oriented, disintermediated, networked, and customized” finance will become increasingly clear.
As far as IB is concerned, following the trend of market-oriented finance, we will get a hump on improving the product pricing and asset-liability management mechanism, improve the conventional service functions through innovation, and accelerate the process of sinking our service focus. Following the trend of financial disintermediation, we will continue pushing forward integrated business operation, change our role positioning and accelerate our extension from credit and fund intermediary to information and capital intermediary. Following the trend of networked finance, we will make active exploration in developing the business of internet finance, and meanwhile, boldly drive innovation and reform in financial product R&D, service organization and marketing model by drawing on the internet-based ideas, technologies and business models. Following the trend of customized finance, we will exert ourselves to improve our professional service capabilities and reinforce the fast response to individualized demands of customers. Following the direction of transformation and innovation, we will try our best to mobilize the multi-license resources in a desired and flexible manner, lay stress on intra-group coordination, linkage and crossed sale, better explore potential for integrated business operation, and improve the integrated business benefits. On the basis of improving and completing the group-based management system and mechanism, we will increase our capital operation in a timely manner, and cultivate new business growth points.
In one word, we have both challenges and opportunities in the new year. We will endeavor to bring good returns to shareholders and investors present here, rather than fail the expectations of all.
Tang Bin: Thank President Li very much for sharing the analysis over the current and future economic and financial environment and capital market trends, and the ideas of IB on business management in the next stage. Meanwhile, thank all present analysts and fund managers and all present directors and supervisors. Though a total of five listed banks hold business performance conferences early or late today, you put yourself out of the way to come here, showing your concern and support to IB.
Today, it’s better to say we have discussed issues we are commonly concerned with by utilizing the sample rather than to promote IB. For instance, for the influence of market-oriented interest rate to the banking interest margin which all of everyone is concerned. With the discussions today, we notice that banks may counteract the rise in liability cost by improving asset allocation and pricing structure, so as to maintain a relatively stable interest margin. For another example, the issue of asset quality that all of you concerned. in discussion, you have noticed the improvement in the capabilities of managing banking risks and pricing, and the effective coverage of banking excess reserve, etc. Thus, all of you may understand banks in a more objective and all-sided manner. As the board secretary, it’s my and my team’s mission and responsibility to build good environment and conditions for exchanging ideas. I hope that our communication wouldn't be restricted to this afternoon, and we will always be ready for your visit at any time. Thank you all. The conference is over.