On April 29, Industrial Bank (IB) announced the 10th annual report after IPO and the performance report of Q1 2017. According to the report, standing against the severe operation environment, IB has adapted itself to changes and proactively planned for the future by focusing on “scale, quality and performance”. By flexibly changing the operation strategy, intensifying the business adjustment and accelerating the upgrade and transformation, IB’s performance leads the market and has made a great start for the new Five Year Plan.
By the end of 2016, IB’s total asset has exceeded RMB 6 trillion for the first time and reached RMB 6.09 trillion with a YOY growth of 14.85%, ranking the first among shareholding banks; the net profit was RMB 53.85 billion with a YOY growth of 7.26%; the total ROA and weighted average net ROA were respectively 0.95% and 17.28%, with the cost-income ratio of 23.39%, remaining excellent in the industry. For the first quarter of 2017, the total assets reached RMB 6.23 trillion and the net profit reached RMB 16.824 billion, with the YOY increase of 7.16%.
Scale merits grow steadily; business structure is constantly optimized
In 2016, with the deepened operation guidance of “customer orientation” and led by technologies, IB accelerated upgrade and transformation, made progress in quality and efficiency enhance. While maintaining the stable growth of its scale merits, IB actively optimized its business structure, paid more attention to consolidate customer base and business base with a far-reaching vision.
In terms of asset and liability structure, IB accurately seized the economic and financial trends and policy changes and made flexible adjustment to operation policies. In particular, IB has proactively and actively adjusted the asset and liability structure since the 4th quarter last year, which has produced remarkable outcome. At the end of 2016, the core liability of IB was raised steadily; the deposit balance of local and foreign currencies was RMB 2.694751 trillion, up by 8.49% compared with the beginning of the year; the balance of core deposit subject to official rate interest was RMB 2.425867 trillion, up by RMB 147.248 billion compared with the Q3. In the first quarter this year, deposits from clients were increased by RMB 190 billion; the amount of inter-bank deposits and asset sales with recourse were decreased by RMB 170 billion; loans to clients were increased by RMB 110 billion; inter-bank investment was decreased by RMB 110 billion. The structural optimization is highlighted.
In terms of income structure, in 2016, IB achieved the operation income of RMB 157.060 billion. The retail banking now rises up with more balanced profitability structure instead of being a “shortcoming”. At the end of 2016, the balance of comprehensive retail financial assets was RMB 1.3118 trillion, with a YOY growth of RMB 102.4 billion; the net income of retail business was RMB 30 billion with a YOY growth of 11.83, accounting for up to 20% of the total operation income throughout the bank. The function of “anchor” and “security pad” was gradually seen. The handling charges and commissions were increased by 15.15% on a YOY basis, accounting for 24.63% of the total operation income, up by 2.87%; the total net profit contributed to by all subsidiaries reached RMB 2.876 billion, with a YOY growth of 12.87%, accounting for 5.34% of the total profit of the group. All coordinated business totally generated RMB 3.1 billion of income from intermediate business in the group.
In terms of customer base, IB has addressed customer demands and “pain points” to produce effective solutions and countermeasures to enhance the quality and efficiency of customer service while further expanding the customer pool. By the end of 2016, the number of customers for enterprise finance was 525.2 thousand, up by 10.17% compared with the beginning of the year; the number of retail banking customers (including credit card) was 44.75 million, up by 22.59% compared with the beginning of the year; interbank customers cover all sectors in the financial industry and our cooperation is constantly deepened, allowing us to lead the industry.
In 2016, IB actively promoted the role of information technology that leads the way of business development and facilitates upgrade, transformation and innovation rather than only acting as supports. The combination of IT and business was further propelled. The core V3 system was officially release. The financial cloud of the industry, “Shujin Cloud”, with nearly 300 cooperative partners, applies the “Gold Eye” intelligent risk control product to accurately search for abnormal loans amounting to RMB 10 billion. IB also established a technological and financial innovation lab to explore the application of artificial intelligence, block chain, biometric authentication and other new technologies in the finance industry. The critical function of financial technologies in building a “future bank” was highlighted.
Transformation and upgrade is accelerated and featured by “three-type bank”
In 2016, IB insisted on the transformation direction of “light capital, high efficiency” and accelerated the change into intensive capital management. By the end of 2016, the overall asset risk weight was 62.48%, down by 2.21% compared with 2015.
According to the annual report, the operation services and channels became “lighter and more efficient” in 2016. On one hand, IB optimized the organizational structure and internal process so as to increase the efficiency of operation; on the other hand, IB aggressively made the channels more intelligent. In 2016, 90% of OTC business was transferred to machines and 96.16% financial transactions could be handled on line. The O2O service system is being built. The number of mobile banking customers reached 11.97 million, that of Money Manager reached 7.1 million. Customers are moving online, which effectively reduces management cost and also increases operation efficiency. In 2016, IB features a cost-income ratio of 23.39%, maintaining excellent among all shareholding banks.
Based on “light capital and high efficiency”, IB focused on individual and institutional customers to construct a settlement-based, investment-based and transaction-based bank.
In terms of a settlement-based bank, IB more focused on developing payment settlement, cash management, trade financing and other settlement business; intensified the penetration into the whole process of operation of clients; consolidated the fundamentals of clients and business. In terms of the retail terminal, the “webbing project” improved the consumption scene with the accumulative transaction amount of RMB 633.1 billion and a YOY growth of 40.1%. In terms of the public terminal, “IB Butler”, a mobile payment product for enterprises, was released with 36000 customers signed within one year after the release. In 2016, the daily balance of RMB settlement deposit was RMB 1.0032 trillion and the cross-border settlement business volume reached USD 86.1 billion.
In terms of investment bank, IB took the advantage of multiple license and comprehensive operation and used the diversified financial market resources to provide entities and enterprises with multi-market and multi-product financial solutions. By the end of 2016, the underwriting scale of debt financing instruments of non-financial enterprises reached RMB 407.9 billion, ranking top among all shareholding banks for 5 consecutive years; the balance of wealth management products was RMB 1.3831 trillion, keeping ahead of the industry; the income from intermediate wealth management business was increased by 29.61% on a YOY basis. IB was one of the first banks to march into “technological finance” and “innovative finance” fields and has established partnership with 1848 NEEQ listed customers.
In terms of transaction-based bank, IB further strengthened the financial transaction business including FICC, managed and transacted assets more rather than holding them, thus making the group development light. At the end of 2016, the number of trading bank customers was 81185, up by 16.69% compared with the beginning of the year; the volume of Internet financial transactions was 64844 counts with the trading volume of RMB 358.1 billion; the agency FICC business of the bank generated a income of about RMB 1 billion, with a YOY growth of over 40%; the scale of products aiming at de-leverage for enterprises and implementing asset securization totaled RMB 153.927 billion, accounting for 18.28 of market share.
As for “light capital and light asset” business, IB also performed well. The number of cooperative customers on the interbank platform was 1078 with a YOY growth of 65.08%; totally RMB 1.9223 trillion of financial products were sold; the settlement volume of interbank platform was 55.02 million counts with a YOY growth of 32.16% and the settled amount exceeding RMB 3 trillion; the scale of asset custody reached RMB 9.4 trillion, ranking top three in the industry and gaining an income of RMB 4.345 billion from intermediate custody business. As for financial market business, especially the FICC business, IB has strengthened its advantages as the market maker and linked RMB 43.6 billion of fixed income products such as investment bonds and asset securization with a YOY growth of 246%. The transaction of agency forex derivatives amounted to RMB 243.7 billion with a YOY growth of 36%. The transaction of agency precious metal business amounted to RMB 282.3 billion with a YOY growth of 31%.
Asset quality tends well, risk prevention ability keeps being intensified
Since the fourth quarter of 2016, the NPL rate of IB has been decreasing. By the end of 2016, the NPL rate was 1.65%, down by 0.06% compared with the end of Q3. In Q1 of 2017, it is once again decreased by 0.05% to 1.60%. Both the amount and percentage of NPL were decreased. The asset quality features marginal improvement and is turning more and more stable.
In 2016, IB implemented strict standards on recognizing NPL and intensified the overall risk management throughout the group while making NPL more transparent. IB also set up risk management systems such as consolidated statement management, unified credit extension system, and established and improved a risk control system fitting the new business layout based on three main business sectors, i.e. commercial bank, investment bank and asset management.
Meanwhile, IB further deepened the construction of compliance culture, which is “internal control drives development and compliance creates value”. IB proposed and implemented “Thirteen Prohibitions” and the “Woodpecker Program” for employees, facilitated the “Two Reinforcement and Two Containment” special activity, actively built the internal control compliance management system and long-term mechanism for all employees and all processes, so as to keep promoting internal control and risk management and provide a solid foundation for stable development of the bank.
The feature of IB’s asset quality management lies in the ability of generating profit from NPL. In 2016, IB launched the specialized operation of special assets and set up a level I department, the Special Asset Operation Department, at headquarters. The department now consists of more than 200 employees. By the end of 2016, 33% NPL was disposed of by means of liquidation and restructuring. In Q1 of 2017, the ratio was increased by 24% to 57%, which is far higher than the average level. Discovering “true profit” in NPL also makes considerable contribution to the performance growth of the bank.
It is worth mentioning that the risk offset and compensation ability of IB has been further enhanced. At the end of 2016, without supplementary tier 1 capital from other sources, the adequacy ratio of tier 1 core capital was increased by 0.12% compared with the beginning of the year; the year-round provision was RMB 51.276 billion with a YOY growth of 13.29%; the year-end provision coverage was 210.51% and the provision-loan ratio was 3.48%, which is the best in the industry. All these prove that our risk prevention ability is being enhanced.
Coordinated competence with multiple strength improves the quality and efficiency of serving the entity economy
The year of 2016 represents the deepening of the structural reform of supply side in Chinese economy. As a mainstream commercial bank in China, IB takes the opportunity of serving the structural reform of supply side, plays its role of “financial feeder” and actually serves the entity economy. By virtue of multiply licensed operation of the group, IB intensified the coordination of all business sectors throughout the bank, actively promoted innovation in financing instruments such as bonds, trust, leasing, fund and asset securization, so as to effectively meet the changeable demands of enterprises in financing during the process of economic development.
By the end of 2016, the balance of bank-trust linkage business of the bank was RMB 670.5 billion, balance of bank-fund linkage was RMB 403 billion and balance of bank-leasing linkage was RMB 88.9 billion. IB successively provided RMB 80 billion of fund via lease financing for the joint development of Beijing, Tianjin and Hebei and the development of the Yangtze River Economic Belt. Joining hands with IB Trust, IB Fund and other subsidiaries, IB participated in the incorporation of China’s largest Silk Road fund - Silk Road Gold Fund, the China Railway Industry Fund, Fujian Marine Industry Fund and etc.
In terms of addressing overcapacity, IB further implemented differentiated credit and loan policies based on the requirements on industrial structure adjustment. While protecting and propelling the industries with severe overcapacity such as coal, iron and steel, electrolytic aluminum, cement and shipbuilding, IB also combined risk management with the adjustment and optimization of business structure. By the end of 2016, for five major industries with overcapacity including steel, cement, electrolytic aluminum, shipbuilding and flat glass, balances of all asset businesses in IB have been reduced to RMB 97.1 billion, down by RMB 22 billion compared with the beginning of the year.
Meanwhile, relying on the leading edges of the green financial group, IB insists on the simultaneous development of credit & loan, leasing, trust, fund and consumer finance. It has provided over RMB 1 trillion of fund via green financing by applying diversified financing products, with the financing balance of RMB 494.4 billion. In 2016, IB successfully released the first green finance bonds, amounting to RMB 50 billion. All funds raised were used in green and environmentally friendly industries to boost the development of green capacity.
In terms of reducing inventory, IB joined hands with its affiliated company IB Fund to design and establish a special asset-backed securities program for housing provident fund loan. It has successfully issued 6 rounds and raised RMB 3.7 billion, which effectively help tier 3 and tier 4 cities to reduce the inventory of real estate.
Meanwhile, IB also aggressively developed acquisition fund, industrial fund, PPP fund, asset securization and other capital market business, so as to expand the financing channel for entity economy. IB has successively participated in the incorporation of the Military-Civilian Integration Development Fund, the Fujian Provincial PPP Guiding Fund, the Technical Reform Fund and etc. RMB 50 billion of fund has been provided to support key “fill the gap” projects in Fujian and facilitate “de-leverage and gap filling” for the entity economy. By relying on the “Zhima Kaihua” growing and listing plan for small and medium-sized businesses, IB boosted direct financing for innovative and technological enterprises and helped them reduct cost.
During the process of serving the entity economy, the core competitiveness of all subsidiaries has also been strengthened and their industrial positions have been improved stably. IB Trust managed assets with the total scale of RMB 1.107037 trillion, keeping ahead of the industry and its net profit was RMB 1.462 billion; the total asset of IB Financial Leasing amounted to RMB 117.720 billion, holding its position in the first echelon and its net profit was RMB 1.381 billion; the scale of assets managed by IB Fund was RMB 500.682 billion, up by 21.33% compared with the beginning of the year and its net profit was RMB 422 million with a YOY growth of 62.63%; IB Consumer Finance Company accumulatively granted over RMB 10 billion of funds within two years of operation, earning a net profit of RMB 102 million.