On April 28, Industrial Bank (IB) held the performance Information Meeting that was welcomed by a majority of investment managers and securities analysts.
Under the background of difficult and challenging operation for banks and accelerating demands for transformation and upgrade, IB, as a commercial bank with high level of marketization, agile sense of development opportunity and the consistency of differentiated operation, puts its future performance and development route under the spotlight of the market.
During the meeting, Tao Yiping, the president of IB who just took his post not long before, summarized IB’s performance in 2015 with 5 "Fives":
First, the business development has reached a new stage, the total assets at the end of the year exceed 5000 billion yuan and amount to 5298.9 billion yuan, up by 20.25% compared with the beginning of the year; second, the economic benefit has made a record high, the annual profits exceed 50 billion yuan and reach 50.2 billion yuan in 2015 with an YOY increase of 6.51%; third, the talent team is stable and the total number of employees exceeds 50 thousand, up by 3.59% compared with the beginning of the year; fourth, risks are exposed actively, over 50 billion yuan of non-performing assets are disposed of each year,non-performing loan-NPL at the end of the year is 1.46% and the asset quality remains reasonable and controllable; fifth, the position in the industry keeps moving forward and IB has become one of world’s top 50 banks and top 500 enterprises.
Tao Yiping stated that under the leader ship of chairman Gao Jianping during the past decade, IB has achieved all-round and leap-forward development from a cornered bank into one of China’s leading modern financial service groups and formed its differentiated operation features, cultivated a batch of competitive and advantageous business, and created innovative, aggressive, simple and harmonious corporate culture and spirit. "All these outcomes greatly reveal IB's excellent capability of seizing strategic opportunities and implementing strategic plans, and underpin our efforts in coping with environmental change and standing out among competitors."
Stable Traditional Business and Still High Profitability
According to the annual report of 2015, IB’s accumulative operation income amounts to 154.348 billion yuan, up by 23.58%, ranking the second among all shareholding banks; its PPOP amounts to 108.069 billion yuan, up by 25.52%; the return on total assets and return on net assets are respectively 1.04% and 18.89%, leading the entire China.
In the context of narrowed interest rate differential, by virtue of reasonable allocation of assets and liabilities, the annual net interest rate differential is only 3 BP lower than the last year, while the net income from interest is increased by 25.40%; the scale of commission charges and other intermediary income is increasing steadily with an YOY increase of 18.23%. Interest income and non-interest income are both increased.
IB has seized the opportunity of interest rate downtrend to put more focus on the allocation of medium- and long-term high quality assets guided by RORWA and on the premise of stable and prudent operation. At the end of the year, the net investment of IB is 2.6 trillion yuan, up by 1.24 trillion yuan or 91.04% compared with the beginning of the year.
Non-interest income maintains fast growth. At the end of the year, the scale of various asset management reaches 2.76 trillion yuan, up by 64.80% compared with the beginning of the year and accounting for 52% of recorded asset scale. The scale of asset custody is 7.21 trillion yuan, up by 52.64% compared with the beginning of the year and ranking top among banks of the same type; the lead management of debt financing tools to non-financial enterprises amounts to 384.245 billion yuan with an YOY increase of 22.12%. The market share and number of lead managers are leading in the market.
"In the context of overlap of Three Periods, increase of credit risk and continuous downturn of interest rate, it is really incredible to have such performance. This also means that some leading commercial banks already produced outcomes from innovation and transformation", said by Zeng Gang, the director of bank research office of Financial Research Institute, Chinese Academy of Social Sciences.
It is worth noticing that the operation of IB as a group is followed by vigorous growth of business from its subsidiary companies. The annual report shows that subsidiary companies make increasingly more contribution to profit and business coordination of the group. In 2015, IB's subsidiary companies achieved the profit of 2.548 billion yuan, up by 18.08% on an YOY basis.
Zeng Gang believes that IB is perfecting its coordination system concerning all departments, institutions, lines and businesses based on a diversified platform. While better serving clients, this also makes great contribution to the total profitability of the bank.
In terms of cost control, IB still did a good job: the business and management fee is increased by 11.54%, which is lower than the increase of operation income (12.04%); the cost-income ratio is 21.59%, down by 2.19% on an YOY basis, which is at a low level in the entire industry.
Transformation Starts to Produce Outcomes and Take Shape
Since the operation environment of the entire industry will not improve significantly in the short term, due to the decreasing net interest margin and further progress of interest marketization as well as the influence of Internet financing, transformation and development has become a must of traditional banks.
According to the annual report, IB has been on its way of transformation. In 2015, basic businesses of IB based on transaction banks made significant progress; major businesses characterized by light assets and capital maintained the surge; innovative businesses oriented at serving capital market were operated effectively.
In terms of transaction banks, the number of clients for cash management at the end of 2015 is 17597, up by 46.87% compared with the beginning of the year; the daily amount of deposit by cash management clients amounts to 835 billion yuan, up by 32.06% compared with the beginning of the year. Local and foreign currency cross-border settlement business amounted to USD 122.394 billion, thus making a new record.
Furthermore, electronic banking and Internet finance are developing rapidly. At the end of the term, the total settlement amount on the banking platform amounts to 2904.144 billion yuan, up by 42.22% on an YOY basis. The number of clients of Money Manager, an Internet financial platform, has reached 3.40 million, up by 215% compared with the initial period; the scale of financial products sold to terminal clients reached 774 billion yuan, up by 42.43% on an YOY basis. Once the “Cloud Quick Pass”, inter-bank agency issuance, online receipt, electronic FX surrender and other new payment and settlement mode form a certain scale, the profit is expectable.
Major businesses characterized by light assets and capital are developing rapidly. In 2015, the scale of debt financial instruments sold or distributed reached 384.245 billion yuan, up by 22.14% on an YOY basis. The daily reserve of wealth management products is 1347.641 billion yuan, up by 60.27% on an YOY basis. The scale of asset custody at the end of the year is 7213.948 billion yuan, up by 52.64% compared with the year beginning. The settlement amount of futures exchange is 1912.499 billion yuan, ranking top in the market. Meanwhile, innovative businesses oriented at serving capital market keeps progressing; industrial fund, PPP business, similar perpetual capital securities, asset securitization, private placement of listed companies, financial consultation and other businesses are developing healthily.
The above-mentioned data reveals that the "light capital" transformation pattern of IB focusing on "One System Two Wings" and based on "major investment banks, big asset management, great wealth management" is now being reinforced. "One System" means the traditional business of IB; "Two Wings" means the wholesaling banking business driven by investment banks and the asset management business driven by wealth management and private banks, which feature low capital consumption and high operation efficiency.
"Traditional businesses are our basis and advantages to differentiate us from other financial institutions; ‘Two Wings’ are our strategic focal point of business transformation, and also what we are good at and what we put stress on during these years. In the next few years, we will focus on the construction of system and platform and build a professional service system that fits the platform based on the guidance of ‘One System Two Wings." Said by Tao Yiping.
In the opinion of Zeng Gang, the banking industry of China will face greater challenges caused by the furthered adjustment of economic structure in the near future. On-going innovation and transformation is the only way for a bank to stand out in the fierce market and what IB has done is worth focusing and studying.
Succeed in “Two Articles” and Drive the “Four Wheels”
In addition to "One System Two Wings", Tao Yiping also emphasized that IB must succeed in "Two Articles" and drive the "Four Wheels” during the meeting.
The first article is "comprehensive finance", which means that IB should stick to the needs of clients, apply various financial licenses, integrate multiple market resources, employ diversified financial instruments to provide one-stop, diversified and comprehensive financial service for clients and thus open up the source of business, income and profit.
Meanwhile, he noted that IB should pay attention to "Four Combinations" to have it done:
First, the combination of online and offline resources, which means the combination of traditional banks and Internet finance. Based on what we’ve learned from practices, the combination of online and offline resources is a trend no matter for Internet finance or traditional banks.
Second, the combination of overseas and domestic resources, which is to seize opportunities brought by "One Belt One Road", the internationalization of CNY and other state-level major strategies. Currently, IB Hong Kong Branch and institutions in FTZs in China are already on track and it is planned to set up Industrial Bank International Holding Co., Ltd. In Hong Kong to intensify its layout outside China. In the future, IB will rely on these institutions and platforms to further enhance the connections of domestic and overseas outlets and look for new source of business and profit.
Third, the combination of internal and external resources, which is to reasonably coordinate the development and internal and external business, enhance their connection and cooperation, provide full and effective cooperation for businesses of investment banks and commercial banks, so as to better facilitate physical economy and the financing and investment requirements of clients.
Fourth, the combination of local and foreign currencies, which is to better fit the needs of domestic enterprises and citizens to "Go globally" " and strive to provide comprehensive and multi-currency business and services for clients.
The other article is to "save capital". This is the core of transformation and also a benchmark for verifying the result of transformation. As for specific business, it is important to "promote two aspects ": the first aspect is to promote business, especially those with no or minimum needs for capital; the second aspect is to promote the utility of inventory, decrease the percentage of high-capital business and leave more room for capital.
Tao Yiping stated that "Four Wheels" must be driven and the direction must be clarified to have this job done.
First, vigorously develop wholesaling finance driven by investment banks and inter-bank platforms. The ideas and methods of investment banks should be used to produce tailor-made and value-added comprehensive financial solutions. Second, driven by "Three Fast Tracks" of transaction banks and enterprises in finance to promote the development of industrial and commercial finance. Fully engage itself in logistics, capital flow and information flow of enterprises to form a close and cooperative bond with clients. Third, implementing new and intelligent service of payment and settlement to accelerate the development of retail finance. Fourth, promoting and developing capital management finance driven by the needs to construct a cooperative, coordinated and comprehensive financial service platform, and increase the percentage of net-valued products.
In the next few years, IB expects to put long-lasting stress on the aforesaid four aspects and make greater breakthrough in transformation.