Time: February 25, 2016 Source: Financial News
（http://www.financialnews.com.cn/yw/ft/201602/t20160225_92799.html）
“This year will be one of great difficulty for the business operation of Chinese banks. Specifically, there are challenges both from the constantly downward macroeconomy and the deepening economic and financial reform.” said Board Chairman Gao Jianping of Industrial Bank (IB) in the interview with our reporter recently.
In 2016, the first year for the “13th Five-Year Planning”, the economic situation will become increasingly complicated, how to adapt to changes in economic situation and achieve its own gorgeous transformation in the process of pushing structural reform on the supply side will be undoubtedly a severe test for the banking industry. Reform will, Chairman Gao believes, undoubtedly give rise to “labor pains”, but there will be more opportunities than challenges for the banking industry in the long run.
It’s better to make your whole year's plan in the spring. Upon the critical moment for overall planning at the beginning of this year, Chairman Gao, as the leader of IB, made an in-depth analysis over the situation that the banking industry will face in the coming year, and gave a detailed description on the corresponding strategies and business layout.
Reporter: This is the first year for the “13th Five-Year Planning”. The central government made a strategic deployment of pushing structural reform on the supply side and set down five missions, namely deleveraging in economic operation, cutting capacity in industry, destocking in the real estate market, reducing the financing cost of real economy, and offsetting the shortcomings on the supply side and human resources. Against this backdrop, what is your opinion on the situation of banking operation in this year?
Gao Jianping: First, in the perspective of macroeconomic situation, all major economies in the world all face unfavorable situations. Though the economy of US recovers to some extent, it is far from expectation. This is the main cause that the Federal Reserve Board (Fed) has been hesitating and postponed the increase of interest rate over and over again. Although Europe and Japan have adopted the quantitative easing policy to an unparalleled level and entered the age of negative interest rate, the effect and sustainability of their economic recovery remain to be proved. For China, the economic growth rate is still obviously higher than that of the major economies, but we still face great pressure of downward economy and enormous tasks for economic restructuring and completing the five missions, namely deleveraging in economic operation, cutting capacity in industry, destocking in the real estate market, reducing the financing cost of real economy, and offsetting the shortcomings on the supply side and human resources. All of these will be reflected in the business operation of banks in the end and bring great challenges to their asset quality and business and profit growth.
Next, the challenges are enormous from the perspective of economic and financial reform. In the aspect of economic reform, the central government has made strategic deployment of pushing structural reform on the supply side with great political courage and resolution since the end of the previous year. This is a correct and wise decision, which we will support unswervingly and implement decisively. Nevertheless, we must also be clear that reform will unavoidably bring pains and it is inescapable for banks to face increasingly pressure of asset quality in a short period.
What’s more important, the structural reform on the supply side is a systemic work of great complexity, which brings forward many new requirements for the ideas of economic development and ways of offering financial service. How should a commercial bank actively offer service and make adaptation on earth? There are a great many jobs to be explored. This is a greater challenge. With regard to credit extension, for instance, the areas which banks used to be good at and where they made substantial input are the conventional industries, heavy-asset industries in particular. However, these industries are generally facing excessive capacities, and thus become the main targets of the reform on the supply side. As a result, the effective credit demands are contracting in fact. In the meantime, the emerging new economic areas and industries do not lack of loans in actuality. Yet, how to provide financial service to these industries and enterprises, banks only have limited capabilities themselves. In the area of financial reform, the reform of market-oriented interest rate has been completed basically, and the reform of exchange rate formation mechanism is speeding up. In the recent two years, there has been a clear tendency of financial disintermediation and narrowing credit spread, with a speed far beyond expectation. All of these bring great impact on the business operation, steady profitability in particular, of banks.
Thirdly, in the perspective of market and social confidence, it also faces great challenge to supplement the capital of commercial banks till the safe and steady business development.
Of course, every coin has two sides. On one side, a thing can be a challenge, but on the other side, it may provide opportunities. For instance, economic restructuring, removing excessive capacities, de-stocking and deleveraging will cause pressure in the short run, but they may bring more opportunities than challenges in the medium and long run. Because such adjustments, the conventional industries will reach a new state of balance and new industries, economic areas and power will be fostered consequently. Meanwhile, the systemic risks will be released in an effective way. Hence, it will bring more benefits than disadvantages. Another example is the deepening of financial reform. On the one hand, it will compress the conventional business and profit rooms of commercial banks. On the other hand, it will bring many new business opportunities, such as overall operation, merger and restructuring, and the development of interest rate, exchange rate and cross-border business. In the meantime, it will, in reverse, also compel banks to speed up reform, build themselves up, and make further practical efforts to grow better and stronger. As far as an individual commercial bank is concerned, the key is how you respond and whether you have made sufficient preparation and have enough capability to convert risks into opportunities. With proper countermeasures, I believe that there is broad space for the development of commercial banks.
Reporter: In confrontation with the changes in economic situation, which areas will IB stress on and make overall planning? And what new measures for reform, transformation and innovation will IB take?
Gao Jianping: Facing the great change in economic and financial environments, our basic strategy for business operation will give prominence to the following five aspects in this year:
Greater stress on steady development. We will make sufficient estimation on the possible impacts of economic structure and reform on the supply side, in particular the impacts on the asset quality of banks, and intensify the prospective adjustment in the areas such as asset structure, customer structure, product structure and regional structure, so as to ensure the general stability of business operation and asset quality across the entire bank. We will control the relation between speed, scale, quality and benefit more reasonably, and put the quality and benefit of business development at a more important position.
Greater stress on innovation. We will further intensify innovation in business products and models and explore new business and profit growth channels actively while improving the level of customer service and market competitiveness. We will further speed up innovation in thinking, methods, instruments and tools of risk management, not only grasping the essential risks in an effective manner, but also boosting the implementation of innovative and transformational businesses.
Greater stress on linkage. We will constantly intensify the coordination and linkage across business lines, institutions and business sectors and between parent company and subsidiaries, between subsidiaries, between domestic and overseas offices, and between home currency and foreign currencies, improve the capability and efficiency of reaching customers efficiently by way of linking and dig deeper into customer and business value. We will continue integrate resources in the areas including commercial banking, investment banking, asset management, wealth management, capital business, and Tier 1 and 2 markets, thus building a more well-organized service and value chain.
Greater stress on refinement. We will plan as a whole and speed up the building of management tools for internal transfer price and management accounting, and improve the refined level of management. We will place more stress on the development of digital and smart business operation and management, promote the application of advanced technologies such as mobile internet, big data, cloud computing, and artificial intelligence more thoroughly, and transform business and boost innovation with technologies.
Greater stress on system and mechanism reform. We will grasp the general trend of deepened financial reform, actively look for and try to win over favorable policies and opportunities, continue pushing reform and innovation in system and mechanism, in particular corporate management system and incentive and restrictive mechanism, and maintain and reinforce the soft competition force of the banking group.
With regard to the acting point of business operation and innovation specifically, in this year our basic consideration is to adhere to “equal importance” to both conventional and emerging businesses and make great efforts to create and foster the structure of six financial businesses. Namely, we will attach importance to the consolidation and development of advantageous conventional businesses including three characteristic businesses – institutional finance, environment finance, and pension finance, try to further boost up business advantages, reinforce our market position and establish a distinctive brand. Meanwhile, we will attach importance to the cultivation of emerging strategic businesses, extend business boundaries and rooms, and try to form new business and profit growth points, specifically in the following three areas:
In the area of integrated financial service, we will exert ourselves to bring into play the advantages of rich license resources and strong integrated service capability, and work hard to develop the integrated financial service by closely following China’s major national strategic deployments like the development of the “Belt and Road”, and hot market demands like reform of SOE and merger and restructuring, trying to build up core competitive edges.
In the area of cross-border finance, with the implementation of China’s major national strategies such as the “Belt and Road Initiative” and internationalization of RMB, cross-border financial service will anticipate great development opportunities. At present, IB Hong Kong Branch and institutions in domestic free trade zones are on the track of regular business development, and in this year, we will also expect the establishment of CIB International Holdings Company Limited in Hong Kong. Next, relying on these institutional platforms, we will further intensify the linking of both domestic and overseas businesses, and try to make breakthroughs in the area of cross-border finance.
In the area of inclusive finance, last year the Central Government brought forward the implementation of targeted poverty alleviation to ensure that all poverty-stricken people can be relieved from poverty till 2020. As an unparalleled grand strategy, it also contains massive business opportunities. We will strictly follow the decisions of the Central Government, further intensify the performance of social responsibility, and develop inclusive financial service vigorously, unifying the corporate social value and commercial value in a more organic manner.
Reporter: How was the business performance of IB in 2015? Could you give some information on the business objectives, including the profit objectives, in 2016?
Gao Jianping: In 2015, both the internal and external business environments confronting commercial banks were generally complicated and austere, and the pressure was great. Despite the great difficulties and considerable challenges, thanks to the joint efforts of the entire bank, in particular the active and flexible adjustment to business strategies and grasping market opportunities in an active and effective way, our bank maintained steady and sound development in all businesses and fulfilled all annual business objectives smoothly, putting a full stop for the "12th Five-year Plan" period. With regard to the business performance and characteristics at the end of 2015, I can simply sum up simply as below:
Firstly, our business development reached a new stage, with the total assets hitting more than RMB 5 trillion. By the end of 2015, the total assets of the group amounted to RMB 5,297.3 billion, up by 20.22% over the beginning of this year.
Secondly, the economic benefit made a record high, with the annual net profits hitting more than RMB 50 billion. In 2015, the net profits belonging to the parent company registered by our bank hit RMB 50.257 billion, up by 6.62% YoY.
Thirdly, our team kept stable, with a total of over 50,000 employees.
Fourthly, we exposed risks actively and sufficiently, disposing non-performing assets worth more than RMB 50 billion.
Fifthly, our position in the industry was elevated to a new level, and we have has made our presence in the Global Top 50 Banks and Fortune Global 500 in all-round way.
In 2016, commercial banks face increasing business pressure. Our business objectives are, with our endeavors, to try to achieve reasonable business growth, keep steady asset quality and profitability generally, and make a good start for the new round of five-year development.