CICHF - China Construction Bank Corporation (CICHY) Q2 2023 Earnings Call Transcript

2023-08-24 16:50:33 ET

China Construction Bank Corporation (CICHY)

Q2 2023 Earnings Conference Call

August 24, 2023, 04:00 AM ET

Company Participants

Hu Changmiao - Board Secretary

Zhang Jinliang - President

Tian Guoli - Chairman

Sheng Liurong - Chief Financial Officer

Cui Yong - Vice President

Li Yun - Vice President

Wang Bing - Vice President

Conference Call Participants

Li Xiong - Guosen Securities

Winnie Wu - Bank of America

Richard Xu - Morgan Stanley

Presentation

Hu Changmiao

Investors, analysts, friends from the media, ladies and gentlemen, good afternoon. Welcome to the 2023 Interim Results Announcement Press Conference by CCB. And I thank you for your trust, care and support to our bank. This press conference is held in both Hong Kong and Beijing through a video link, and it is also livestreamed online to shareholders and the public.

In Hong Kong, present in this venue are Mr. Tian Guoli, Chairman of CCB; Vice President, Mr. Ji Zhihong; Mr. Sheng Liurong, CFO. Present in Beijing are Mr. Zhang Jinliang, President of the Bank; Vice President, Cui Yong; Mr. Li Yun, Vice President; Mr. Wang Bing, Vice President; Mr. [Li Min] (ph), Member of the CPC Committee of CCB. We also have Mr. Xia Yang and Madam Liu Fang present as Shareholder Directors. We also have a Mr. Kenneth Chung, Graeme Wheeler, Michel Madelain, Mr. William Coen and Mr. Liu Huan, who is a Supervisor Representative in Hong Kong. Madam Shao Min and Mr. Tian Bo and Madam Li Lu, Representatives of Equity Shareholders, are joining us from Beijing. We also have colleagues from the head office and other business departments in both Beijing and Hong Kong present.

My name is Hu Changmiao. I'm the Board Secretary. Our interim results were disclosed yesterday. I'm sure you have all read it. The presentations have all been published on our official website.

Before we go into questions and answers, Mr. Zhang Jinliang, the President, will give a presentation on the business performance of the first half 2023. Mr. Zhang, please.

Zhang Jinliang

Investors, analysts, friends from the media, good afternoon. Welcome to the 2023 interim results announcement by CCB. Thank you for your care, support and trust to our bank.

Up next, I will make a presentation on the business performance of the first half and the way forward. In the first half, we deeply implemented the spirit of the 20th CPC Congress and Central Work -- Economic Work Conference, we fulfill our political economic and social responsibilities. We see high-quality development as a priority with consolidated customer base and key risks being under control.

We have seen stable growth in all business lines with, our development quality going for the better. Up to the end of June, total assets amounted to RMB38.3 trillion; liability, RMB35.3 trillion; net profit, RMB167.3 billion, or 3.12% year-on-year. We have seen higher quality amid stability development. NIM, 1.79%; ROA, 0.92%; ROE, 11.95%. All the key metrics have been balanced and very robust, putting us at a very good level compared with the industry average. MPL ratio 1.37%; coverage ratio -- provision coverage ratio, 244.48%, capital adequacy ratio, 17.4%. Both asset quality and risk mitigation have been very well.

Since the beginning of this year, we kept the key priorities in state policy in our mind and helping real economy recover, so we can play the stabilizer role as a major bank. We have seen very robust and effective bond and low insurance. In the first half and second half, we have made a good kick start and stabilized the total volume. In the first half, the newly added loans amounted to RMB1.94 trillion or RMB354.1 billion year-on-year. Newly added bonds amounted to RMB717.5 billion.

We have targeted key sectors. RMB480.5 billion are invested in manufacturing industry with a year-on-year increase of 21.4%. Infrastructure saw new loans of RMB806.3 billion, or up 14.13%. Technology related loans have added RMB265 billion or 21.57% increase. We have strengthened our support to real estate sector and made sure that the real estate property developers can deliver their houses. The balances of loans for private companies are RMB5.22 trillion. We have facilitated the coordinated development of different regions Beijing-Tianjin- Hubei and Yangtze River Delta and the Greater Bay Area took up over 50% of corporate loans. Central China, East -- Western China and Northeastern China have seen more loans compared with last year.

Since the beginning of this year, we implemented the new development concept and explored the effective ways for Chinese modernization with financial services. We have seen higher scale and more coverage with inclusive finance. The loan balances from inclusive finance is at RMB2.86 trillion, up 21.79%. Both credit customers and loan customers have achieved new highs. We have enhanced our leasing financial services system with a closed loop of investments to exit financial services. We have issued loans for leasing of RMB300 billion,.

Our self-developed, distributed, new system has been improved with the launch of financial big models supporting our business. We have 259 million customers on our e-governance platforms, handling 4.4 billion applications. CCB Cloud was launched, enabling small and medium sized FIs. 370,000 Yunongtong service points covered most of the villages in China, serving over [50 million] (ph) customers. Yunongtong saw over 10 million registered customers.

Yunong Quick Loan and Yunong Loan have seen fast growth in loan balances. Loan balances for agriculture related products have been RMB3.62 trillion. Binary Star has been gaining traction with over 110 customers with CCB Life, or an increase of 127% in transactions. It has been proven that CCB Life has been interacting with our mobile banking app. Green loans have seen a balance of RMB3.48 trillion, an increase of 26.39%. Green bonds amounted to RMB15 billion, with AAA ratings for consecutive three years. Since this year, we have been deepening the three business sectors of corporate, personal and wealth management, all the business sectors have been operating in a good way with a better synergy.

Most of the key metrics have been proven very brilliant. In the first half, corporate loans have added RMB960 billion, with more contribution from the investment banking business. There is also an increased amount of corporate deposits. We have 10.16 million corporate customers. Major customers, major projects and our service level have been improved. We have seen better performance in personal, financial business and our contribution to the industry. Personal deposits and daily added volume have achieved new historical highs with personal AUM exceeding RMB18 trillion. Personal consumer loans, operating loans have seen greater growth. Long-tail customers have released capacity.

Asset management business has seen higher volume and better quality. Bond investment has seen stable growth. Financial market has reached RMB10 trillion in its asset under management size with RMB20 trillion under trust services. Precious metals and commodity businesses have gained a good start. As independent institutions this year, we have been always keeping the Western scenario in our mind and strengthening our risk mitigation and management systems. And we are trying our best to make sure that all kinds of risks are put under control across the group, so we can enhance this three-dimensional risk governance structure.

Blue-chip engineering investment transaction business, Smart Platform, has been awarded the first prize from PBoC. We have strengthened our forward-looking management of a major financial risks with a stable asset quality in key industries like property development. We have been going a steadfast in digitalization and internal control with better and more robust grassroot governance systems.

For the second half of this year, CCB will continue to adhere to Xi Jinping's thought on Chinese characteristics for a new era concentrate, which will bring our heart and soul together, and we will focus on high quality, high standard education for various themes and to continue to push forward for high-quality development.

We will continue to improve our finance supply capability and to facilitate the efficient improvement of the economy's improvement as well as the reasonable growth of quality. The first is that the total volume need to be stable. We need to make sure that we can provide solid, stable, and sustainable financial support. Second, the projects need to be solid. Surrounding the key areas and the strategic business, we will devise a very accurate, servicing plans and to continue to solidify project pipelines. And thirdly, we need to make sure that the rhythms are accurate to ensure that our supply and credit extension is very balanced and ensure that all the capital will go into the real economy. And number four, to ensure that the structure remains optimized to continue to enhance our retail lending support and to ensure the stability continuity of the policy support for the corporate lending business and to serve the important areas and key themes.

We'll continue to enhance our strategic implementation capability using the new finance to serve people's livelihood to continue to increase the housing leasing capital supply and to look at new models for the real estate financing service industry to continue to deepen our digital inclusive finance, further expand inclusive finance credit extension to various customers, to further enhance the supply for the rural areas and ensure more and more financial resources will be provided to the rural areas and continue to speed up our studies and research in the new technology and fundamental technologies continue to enhance our digital operation to push forward for the mobile banking as well as the concentrated development of CCB Life cycle as well as the circular operation.

We'll continue to push forward our corporate retail and asset management business. In terms of the corporate business, we'll continue to focus on key areas and new industries to make sure that the volume as well as the pricing and the risks are all balancing out to ensure that we have the capability of managing good cash flow and to continue to extend our settlement capital to improve the quality of corporate loans to improve our overall comprehensive financial services supply capability.

In terms of a retail business, we'll continue to build our retail banks advantages and continue to expand the individual client's scale to improve our private banking capability. In terms of mortgages, as well as credit cards and consumption loans, in all these areas, we will continue to improve the retail credit loans efficiency and contribution to our business.

In terms of asset management, we'll continue to adhere to the high-quality service as well as regulation and to make sure that we can create new values and help the bank to transfer to a light asset model. We will continue to improve our digital response capability and solidify our accurate management foundation, further deepen technology empowerment. Overall, improve technology, driving forward the business development and to make sure that we can improve all the branch competitiveness as well as operation efficiency, further deepen the Binary Star's platform to make sure that our business can be comprehensive and inclusive.

We continue to enhance our asset management and balance sheet management to make sure that there is a differentiation of our deposit and the loan business as well as the accurate pricing management continue to improve our capability and the sustainability of serving long-term real economy, continue to make sure that we can grasp the cost management. We continue to utilize our advantage in fintech and to push forward the overall planning for the branch work and intensive management and continue to push forward the intensive management of a capital, improve the capital usage efficiency, continue to optimize our internal valuation model and to ensure the accuracy of such models and the role it plays.

We will continue to make sure that we are going to be continuously working on our risk management and continue to perfect our three defense mechanism to ensure that all the group's risk preference and the judgment of customers are unified and continue to speed up the corporate risk management platform building and to continue to push forward the common sharing system for the information of our corporate clients and individual clients. We continue to speed up the comprehensive financing management mechanism and ensure that onshore, offshore, local, and foreign currency, on an off balance sheet, as well as prop trading, all these business, we can cover all the risk management. We will build a very clean and healthy balance sheet and ensuring that the bottom line of a safe operation is safeguarded. We will continue to adhere to the policies implemented by the central government and state council. We will focus on stability of our business and sustainability as well as continuity, continue to realize a high-quality development of our business and to use a solid performance to repay you for your support and trust in us.

Thank you very much.

Question-and-Answer Session

A - Hu Changmiao

Thank you, Mr. Zhang . Now we will start taking questions.

This press conference is being held both in Beijing and Hong Kong. So, we will alternate between two venues for questions to allow more participants to ask questions. We urge you to limit your questions to one each time. And before asking a question, please identify yourself. So, we start from the participants in Hong Kong, the lady in the middle.

Unidentified Analyst

Congratulations to CCB for the very good business performance. I think it's closely related to the so called new financial campaigns. Can Chairman Tian please share with us the effect of new financial campaigns and its future key priorities? We've been hearing, on the other hand, strategy for house leasing. So, how does it contribute to your business as a strategy? What are the future plans?

Hu Changmiao

The question comes from Phoenix TV. Mr. Chairman?

Tian Guoli

Thank you for your interest in new financial campaign. We've been talking about that in Mainland China very often, so it's well known already. But 96% of our investors are in Hong Kong. That's why we'd like to take this opportunity to communicate the idea to overseas investors as well, so you will gain a better understanding of what new financial campaign is and how it contributes to our business.

In the presentation you've just heard, you might note that every strategy was related to technology. It wasn't about credit customers, it was more of a technology-related engine, which was driving the growth of our business lines in different aspects. Simply put that is to use the power of technology to take care of the long-tail customers.

In the past, big banks served their big customers in a relatively good way. That was one of our advantages as well. However, back then, we wanted to serve small and medium-sized customers, but that would require much higher technological capabilities and solutions. So, we couldn't do that back then. However, we have improved our technology very efficiently in recent years and with higher computing power, big data, and all other technologies, we have seen a new window of opportunity to improve on our capabilities, and this is an opportunity that we must not miss.

Let me give you an example. Rural areas used to be a market that we would cringe at. We were pretty disadvantaged when it comes to agriculture-related loans, but now we have Yunongtong mobile application. It covers tens of thousands of service outlets. We can keep in touch with the CPC Committees of every and each village. We can set up a terminal there, providing services to local villages. We can also work with local telecommunication companies. So our application can enable the rural users offering financial support and services.

The Yunongtong app is a very powerful app. You can save money, apply for loans and do a lot of things as a one-stop service. And it will also be able to publish village life related information. We have nearly 400,000 service outlets, which is a rather powerful service network. Let me give you some numbers. Over recent years, we have served over 58 million village customers. This was unimaginable in the past, because all our customers used to live in cities. And now, we're able to serve 58 million rural customers.

Besides that, we set up a digital platform supporting the industry chain development in rural areas, for example, vegetables, potatoes in this sector, this would enable us to develop credit services to villages so we could help different sectors build their own digital platforms, and these digital platforms can offer some very good visibility of what kind of credit support villagers needed. In the very first half of this year, many overseas investors talked with me about agriculture related business. So there is this very high level of interest. In the first half, loan balances for rural areas amounted to RMB313.8 billion and 54% increase compared with the beginning of the year.

When it comes to internet-based services, sometimes the growth is just exponential. This is a just higher -- much higher than expected. Agricultural related loans have grown by 18% year-on-year. Our balance increased from RMB1.8 trillion in 2019 to RMB3.6 trillion in 2022. The number almost doubled. Loan balances of agricultural loans have seen its historical highs in both growth rate and scale. And these loans have been helping our villagers in a very efficient way. Actually, villagers are very kind-hearted people. So, we have a higher level of assurance when it comes to credit and trust, because these villagers have been living together in a place for a long time. So, they treasure credit and trust. Through big data, we can tap into agriculture markets. So, that's why we've made very [Technical Difficulty] progress.

Besides that, CCB is also trying to make more contribution to society. We help governments build so called digital governments. We're talking about smart governance. Most of the provinces have seen their e-governance systems being built by CCB. We have a team of 15,000 personnel. Large financial institutions like us are very good at digital services, because we are dealing with data every day. Let me give you a few other numbers. 14 provinces and 13 municipalities have seen their governance systems being built with the help of CCB. You can see, we have a huge potential going forward. Registered customers are 260 million. Total number of applications amounted to 4.4 billion. These are the substantial numbers supporting our business performance. Over 9,000 applications were handled in our outlets in different parts of China. You can go to another province to handle all this paperwork even you are coming from a different province. Well, imagine that we have lots of outlets much more than government offices, this is why we can serve people with a large service network.

In the past, when you thought about CCB, you thought about ATM and machines withdrawing and saving money. But now if you go to an outlet, you can apply for different documents of proof and do a lot of things in a place. You can pay your social security, you can pay fees, a lot of things. You can make appointments and handle this government paperwork in 14,000 CCB outlets. We have allowed 17,000 items to be handled through these outlets. And the amount increased to RMB250 billion. This is not financial services. So, that's a huge number.

E-governance helped us build a bridge between bank services and customers. This is beneficial to the bank in tapping into long-tail customers. In the past, commercial banks used to focus on major corporate customers, but small and medium enterprises taking up 90% of the market were ignored. I believe you've heard many complaints about that, but now we are still in the process of addressing this problem.

Let me talk about our solution and how it worked. In traditional model, it was risky and costly to serve SME customers. A bank like us wanted to serve small customers, but it wasn't about our intention. It was, because of our limited capability. However, new finance and technology allowed us to make a breakthrough. Inclusive finance and how it serves a small and medium enterprises is a global issue. Before this year, we only offered RMB20 billion to RMB30 billion loans to SMEs. The NPL ratio was 7% to 8%. The key to breakthrough is fintech. We use a internet, AI, big data, and blockchain to reduce our reliance on collaterals. We don't need collaterals anymore, because they don't have any assets to pledge. Otherwise, they wouldn't be SMEs. So, we need to tap into data to less rely on manual work and establish standardized process both online and offline, building a new model for inclusive finance, becoming the largest FI in inclusive finance.

Let me give you another number, which is really shocking. It's shocking to peer banks and even some analysts. Over the recent five years, over 10 million customers have gained access to inclusive finance, small loans, low interest loans. The banks have controlled their risks under control with a proven efficiency. We have full confidence for that. Inclusive finance has a very, very short duration. We're talking about three to five months or one year at most. We've been working on inclusive finance for over five years. So, we have an established model. The loan balance increased from RMB400 billion in 2021 to RMB2.86 trillion in 2023, 6 times. And the loan percentage increased from 3.4% to 13.4%. Newly added loans increased from 7.6% to 24.3%. You can see how much room for growth we're looking at. You can see how much potential we're looking at. NPL ratio decreased by 1.7%.

We have maintained good asset quality. With technology, we are bold enough. In the past, big banks, often asked for collaterals, but this made it impossible for us to tap into SMEs. This time, we can enhance our support to SMEs and high-tech companies. Some tech startups don't have any asset for pledge. They can pledge their equity, but they wouldn't want to do that because they thought their invention had a very good potential. That's why we proposed a new methodology in assessing their assets, that's about patents and equities. And we've been exploring different ways. Sometimes risky tech startups can also gain access to fund from our bank. So, we can look at their future development potential through innovation, we can serve their tangible needs.

A lot of the SMEs are tech companies. A lot of them are -- they are private companies, nearly 100% of them are private companies. We use internet thoughts to recreate our distribution channels, building the Binary Star of our mobile app. So our mobile app will offer a fresh look from inside out. Through internet, we hope that we can reshape the time honored brand of CCB, so it can present a new look.

Mobile app is the entrance to all online financial products. In the first half, we recorded 131 million customers, year-on-year increase being 12%. And CCB Life is another app serving people's daily life. We have an agriculture-related financial services network that covers a lot of villages. But here, CCB Life is there to cover people in cities. Since -- three years since it's launched, its customers exceeded 110 million. And that number puts us comparable to some very brilliant peer banks, but it took them 10 years to achieve that number of users. It took them 10 years, but for us, only three years.

We have been building our presence in over 350,000 online stores. Now we have over 3 million DAUs. In the past, national banks, their mobile applications were not good. We preferred talking about total number of users, but we were too shy to talk about daily active users, but now the case is different. We are confident talking about DAUs. Currently, we have around 3 million DAUs offering internet traffic to online merchandisers, increasing their sales.

Our applications are popular among merchandisers, people who open an account and use our mobile applications and use our credit services will find it very useful. For example, BYD from Shenzhen and Guangzhou Auto from Guangzhou even started selling their cars on our CCB Life application. If I don't talk about it, maybe these features are unknown. We offer free services to merchandisers to bring them internet traffic. We issued over RMB4 billion consumption vouchers behalf of the government in 250 cities. CCB Life covers a very large area. So, RMB4 billion worth of consumption vouchers were issued through CCB app. We have more and more new products.

These examples above will enable us to know how important fintech is in our bank's business. In 2022, we had over 15,000 technology personals. Our investment in technology was a RMB33.2 billion. Our technology capabilities were used in over 2,500 scenarios. 700 of them are supported by AIs. Big data, on average, handles over 100 billion entries every day. In the past, in order to serve long-tail customers, we used to ignore the 80% of the market long-tail customers, but now we are able to serve the 20% large companies, and we can also serve the 80% long-tail customers.

Fintech, the fast development of fintech has translated our intention to serve the public into reality. Let me give you another example. With our development philosophy, we're not happy with increasing our competitiveness by investing in tech companies. We're quite open with that our risk, our control models, and other softwares are open to the public. A lot of financial institutions use our systems to build their own ones. So, we turned our bank into a tech company. This tech company, 50% of its revenue comes from financial markets. This is to implement the national policy that's to share financial resources, because some smaller banks would not be able to develop their own systems, especially in risk control.

You also asked about house leasing. When there were turbulences in the property sector, people thought that CCB would be a victim. But contrary to that, we proposed a leasing as a major strategy six years ago, and that enabled us to reduce our reliance on developer loans and mortgage loans. And we hope that we can shift into a new real estate development model. We used to have a very high percentage in our business for property development, but now we've switched to leasing, which has played well. And looking at what is going on today, I'm very happy about how forward-looking we were back then. We chose the most difficult task at the first place that was to enhance leasing market that was to fulfill our responsibility to society. It was also to enhance our own development, which worked very well.

CCB has been working with real estate industry for a long time, and previously people would think of CCB when they wanted to buy a house. And now they go to CCB for renting a flat or even a pledging their property. That's because we have these platforms above. And this is thanks to the coverage of our outlets across the nation. Let me give you some numbers. We established multiple ecosystem, scenario-based system. And CCB's leasing platform is called a CCB [indiscernible]. The online customers have exceeded 47 million customers. Over 16,000 enterprises were on the platform. The applications have been promoted in 158 cities. The application is available in 234 cities. We rely on 270 long-term leasing communities. House leasing has brought to CCB over 13 million new customers, with a total business volume of RMB237.5 billion.

Corporate leasing loans have exceeded RMB300 billion, taking up one quarter of corporate loans. This is beneficial to the bank in keeping its credit growth and profitability resiliency. Now the national government made it clear to support leasing markets. We were one of the early starters, so we could benefit from the trend in a better manner. We believe that this is in compliance with the future policy directions. So, we will offer supporting services to megacities and reconstruction project in cities. In the future, there is great potential to tap into.

There are always opportunities coming out of risks. CCB was one of the early ones to tap into these opportunities, so we can seize them in our hands more steadfastly. We have set up a close loop from investment to exit. You can see that a new business model is emerging. Leasing funds, as you know, were approved by the state council. CCB is the only bank who got the approval. We work with the market entities in setting up sub-funds with a total volume of RMB30 billion, subscribed amount, RMB19.7 billion. We have developed our own public REITs for leasing markets. Now it's the best time to go into M&As in real estate development projects. Now we can enjoy some discounts when acquiring new projects, so we can make sure that the rent will enable us to pay for interests.

I'm confident that in the future, the market will become vibrant again. We're confident that as long as the rent is higher than interest rate, because, everyone knows that interest rates is coming down, and leasing market will become more vibrant. That's why we are very confident about this market. By taking this back, we can issue REITs to benefit the market. So, we are both an investor and an asset manager. We are managing these collected funds for the public and society. CCB will adopt a new business model in managing these assets, building our leading position in the market.

That's all. Thank you for your interest in CCB.

Hu Changmiao

Thank you, Mr. Tian. Just now, Mr. Tian has given us a very detailed response to new finance. So, we now welcome a question from Beijing.

Li Xiong

Thank you management for giving me this opportunity. This is from Li Xiong from Guosen Securities. And I would like to ask a question regarding your operating strategy. We know that for major banks and your net profit growth is closely related with the economy and the market environment. So I'd like to ask in terms of this very complicated geopolitical situation and with a very good recovery in Mainland China, what is -- how do you actually support the growth of real economy and improve your operating quality as well as the net interest growth and balancing volume price and risk and what are the specific measures that you will be taking?

Zhang Jinliang

Well, thank you for your question. This is a question that is quite good, and we'll see how -- let's take a look at this. So, for the first half of this year, for 2023, faced with this very complicated operating environment, CCB has very carefully implemented all the deployment from the central government as well as the state council.

And in terms for net profit, we have been able to realize a growth of 3.12% quarter-on-quarter improvement of 1.09% and for our ROA, ROE, NIM, and CAR ratio, et cetera, were all leading compared with our peers. In terms of NPLs, it remains very stable whilst actually coming down. And provision coverage ratio continue to improve. Liquidity ratio is higher than the regulator's requirement.

And for second half of this year, we will continue to work hard and focus on the five areas of relationships. And, the five areas that would be about the scale and efficiency, the volume and the structure, short term and long term, partial areas and the overall areas, and as well as, development and growth. We will continue to work hard to create better values for shareholders as well as for our clients. So, specifically speaking, we are working in the following areas, which will be improving.

First, in terms of our operating income, let's take a look at this. This is number one. The other one is to control the operating cost. So, this -- for improving the operating revenue and the first part is to make sure that we can stabilize the net interest income, which is to say that we look at the volume and pricing. So, in terms of the volume, we need to focus on the requirement of the macro economy policies, and we need to make sure that we can provide very stable sustainable financial support to the real economy's development. In terms of pricing, we need to make sure that we will follow the very reasonable commercial logic and to continue to ensure that we have a very reasonable NIM level and to enhance our capability of helping and assisting with the development of the real economy.

In the meantime, for CCB, for our loans, at the moment, has already exceeded RMB22 trillion. And we need to continue to optimize the structure such loans. We will continue to enhance the inclusive financing to further consolidate our status as the key retail banking. For first half of this year, in terms of mortgage, we have about 52 million mortgages extended and granted to the market. And in terms of our individual loans, we can see that we continue to enjoy very good development and momentum compared to beginning of this year. It has grown by 25% and the 47%, respectively. This is on our net interest income.

And second, we also need to expand the non-interest income for first half of this year. For -- the fee income has exceeded RMB70 billion, accounting for 18.19% of the operating income. It has increased by 0.7% year-on--year. We continue to maintain this at a very good level among our peers. Second half of this year, we will continue to focus on the following areas: wealth management, asset management, consumption finance, consultancy business, trading business, et cetera, and to continue to consolidate our advantage in fee incomes. In the meantime, we will also follow the market closely, continue to carry out a reasonable allocation of equity and debt and enhance the volatility management, continue to increase the other non-interest income stability and their contribution. So, this is on the revenue income side.

So, in terms of controlling the operating cost, there are mainly three parts of the cost. The first one is, capital cost, credit cost, as well as operating cost. First of all, we need to work hard on controlling capital cost. As we have heard from Mr. Tian, we will be focusing on building ecology, establishing the scenario and expanding our users to use digital operation to continue to solidify our client base and to realize a low cost settlement capital. For first half of this year, our comprehensive service continue to be deepened, and we have seen very good results. In terms of client's expansion, for corporate clients, this has exceeded 10 million.

And in terms of the RMB settlement account, the total is 14.18 million accounts; and inclusive finance clients, 2.94 million clients; individual clients, 747 million; and private banking clients, over 200,000. And in terms of the interest paying, we can already see that the marginal benefits is emerging. And for the first half of this year, the interest payment for individual deposits is a 1.75% and it is 0.08% lower compared with the first half of this year. And with the continuous development and push forward, we believe that our debt structure and the total volume will continue to be improved.

Secondly, to focus on control the credit risk. Just now, we have heard that we continue to have a very good risk management and defense. So, we continue to see that first half of this year, where NPL has further decreased by 1 bps to 1.37%. And, in terms of our overdue NPL price [indiscernible] continues to be negative and the provision coverage ratio has improved by 2.95% to 244.48%. For credit cost ratio, it has dipped by 0.1% to 0.79%. For the second half of this year, we'll continue to perfect our three defense coordination mechanism and to continue to ensure that we can focus on the protection and to prevent us from risks such as credit, market liquidity, and reputation, to continue to safeguard at the risk, regulation bottom line and to ensure high quality development.

And thirdly, which is operating cost. We focus on comprehensive cost management, improve our cost input and output efficiency. For first half of this year, our cost to income ratio is 23.69%, continue to maintain at a very good level compared with our peers. In terms of our expenses, there are areas where we keep down areas that we ensure the cost and expenses. More of the cost, we are now allocating it to, for instance, new finance campaigns and digital business as well as a business, customer expansion area to nurture new business and to continue to reduce the expenses for administrative matters. We continue to enhance our intensive operation capability, continue to reduce our operation cost and improve operation efficiency.

Thank you very much for your question.

Hu Changmiao

Thank you, Mr. Zhang. Back to Hong Kong.

Winnie Wu

Thank you management for the opportunity. Winnie Wu from Bank of America. I'd like to ask a question about NIM. This year, there were two LPR cuts in June and August, and your bank has adjusted deposit rate as well. How does that affect your ROA? And how does it affect your NIM in the second half?

And another question has to do with repricing existing mortgage loans. After the [politburo] (ph) meeting, the tone from the National Government is to guide banks to reprice existing mortgage loans. If it goes further, how does it affect your NIM? Thank you.

Hu Changmiao

You asked question of a great concern. Mr. Sheng will answer your question.

Sheng Liurong

Thank you for the question, very professional. Indeed, LPR cuts, which led to lower deposit rates have post challenge on NIMs of each and every bank. But due to differences in terms and the structures of loans, the situation might be different from bank to bank. Our repricing initiative was primarily done in the first half in March. So, in the second half, LPR cuts will have lesser impact.

We believe LPR cuts are comparable to deposit rate cuts. They can offset each other. You mentioned that there were two deposit rate cuts in May and June. Concerning core deposits and agreement deposits, there were some adjustments in upper limits. And we have adjusted our listing rates as well. The impact of LPR cuts will have a much bigger impact on next year rather than this year. In general, the reduction of deposit rates might be lower than the reduction of a listed deposit rates.

As Mr. Zhang said, over the recent years, we've enhanced the management of deposit interest bearing ratio. Our retail banking and corporate banking have seen a decrease in deposit interest payment ratio. The corporate banking business may have seen more increase due to foreign currency reasons. But, as for RMB, we have seen decrease in both retail and corporate banking. That means we've done a good job in managing deposit interest payment ratio.

As you said, PBOC mentioned in the State Council meeting to reprice mortgage loan rates with the principle of marketized -- market-based interest rates, but the regulation is still silent on its details. We've been keeping close contact with regulators. But I'm sure there will be some downward pressure.

Note that in the latest report by PBoC, and it says to support the development of a real economy and mitigate risks. Commercial banks should keep reasonable levels of profit and NIM. It shows that the stable levels of NIM and profit of commercial banks are there to support the system for development of real economies. It shows that the government hopes that commercial banks can keep NIMs at a stable level. As for our own efforts, we hope that we can take some measures to at least arrest the slide of NIMs.

Since 2022, we've been coordinating economic development and pandemic control. LPR rates for one-year and five-year term decreased by 60 bp and 70 bp. And our LPR is down by 40 bp. So it's still better than industrial average. Up to Q1, we've been doing very well relatively compared with peer banks. As Mr. Zhang said, on the one hand, we hope that we can optimize asset allocation to increase highly profitable assets and reduce those less profitable. We took some measures in Q2, and they worked well. So, we could have good asset returns.

Secondly, we must develop retail credit services, be it for retail banking or inclusive finance because they offer higher quality. As you know, the major EU and U.S. banks have included the SME loans in retail banking. If that's the case, we would have a very high percentage of retail. Now the number stands at 36.5%. And as we said, our inclusive finance takes up 13.4%. Altogether, you have 50%. So we have a big chunk of our business with a high ROA and less risks.

Thirdly, through enhanced management, we will be able to control the cost of liability. We took some measures in Q2, and we will continue to do so. This is to control those high interest deposits, including interbank deposits through digital operation, through platform-based operation, we hope that we can absorb more settlement funds, and we must give a full play to our trusted services. Through that, we can bring in low-cost assets. And through that, we can control the cost of liability at a reasonable level.

Of course, through pricing management on the loan side, especially those low interest and long-term loans, recently, we adjusted authorization to branches to ensure that our loan rates can stand the test of time. So through these efforts, we hope that we can control the NIM decrease at a reasonable level.

In the end, two things that I wanted to tell you, a 50% of our loans are in the big retail loans. So compared with other peer banks, we are very, very unique. In line with the national policy, we are improving on both scale and quality. So, we will try every means to increase our operational efficiency. Thank you.

Hu Changmiao

Thank you very much, Mr. Sheng. So, we now go back to Beijing. We have this lady in row four.

Unidentified Analyst

This is from Xinhua News Agency. We have heard from the management in terms of the loan extension. I would like to ask in terms of the second half of this year what your outlook for loan extensions? Especially we can see that the regular regulatory bodies had continue to have policy adjustment for the property sector as well as the delayed policy implementation for Finance 16 article. So what are the specific measures that you will adopt to support the development of the property market?

Hu Changmiao

Mr. Cui, please, from Beijing.

Cui Yong

Thank you for your question. This question is an area that we are carrying out research on. And for first half of this year, in terms of our credit extension is actually quite fast. And this is quite in line with the overall real economy. This is something that we all know very well. So, for the second half of this year, in terms of our research, we can see that there is a quite strong demand, whether it is through new finance, inclusive of finance, as mentioned by the Chairman, and we already have about RMB110 billion. In addition, we also have some green finance as well as rural revitalization, manufacturing and new technology financing, et cetera. And for second half of this year, we can see that there's a lot of these areas that are booming and those are the areas that we will be focusing on for second half of this year.

Just now we have heard from our President that one area is from retail banking. And the retail banking recently has seen some suppression. However, we have seen that all the policies are already there. And for the second half of this year, we continue to see the demand emerging. For instance, the demand coming from small and sole traders as well as small business owners, so from this area, we do believe that this is going to grow. Secondly, internally, for our retail extension business, and we have put this as the priority for corporate business, we can see that at the moment, we have seen a great pipeline, and we have about 400 million of such accounts. And with this, we will be following closely the State Council's policies and support the very important industries, for instance, inclusive finance, green finance. And in addition, recently, we also have a new industry that is called the happiness industry. This is closely related to our citizens livelihood from beginning of this year.

Looking at our operation for first half of this year, we have a very good policy. And in terms of the satisfaction of the demand, it is very diverse, for instance, from healthcare, from tourism and from [cultural] (ph) and entertainment, et cetera. So for second half of this year, as we have heard from Mr. Sheng, looking at the interest-bearing assets and in terms of our allocation, in terms of the structure, we have made some optimizations and to mainly focus on the important areas that are requested by the government as the important areas to focus on. And in terms of the property sector and we can see that the government has been very appropriate in releasing policies for the property sector. And we continue to focus on the high-quality property companies. In the meantime, we also ensure the healthy development of the property sector.

And with the 16 articles, we have taken some actions. First is that we are implementing the easy hand, because with the 16 article policy, whilst we are making preparations through some of the existing debt extensions as well as adjustment, there are some impacts from the pandemic as well as the delay in the construction, et cetera. So, in terms of the debt proposals where debt repayment plans, we have made some optimization to ensure a healthy and virtuous development of the property sector.

And the second, we implement the plan for the high-quality real estate sectors to improve their balance sheet performance. For instance, we are working hard on the activation of assets, some continuation of debt and equity supplement as well as improve the expectations. And we work together in a comprehensive fashion and to push forward the development of the real estate development. So for this area, we have seen that our clients are working together with us very well, and this has helped a lot of the companies to improve their balance sheet.

And thirdly to further deepen our new finance practice and improve the quality of our new finance product, we have heard about the housing rental strategy, and in the meantime, we are also exploring some of our financial services. Especially working with the property management companies, we continue to perfect our investment of financing management and exit housing finance closed loop. For instance, we have heard about some rental REITs products and through all of these different measures, we are able to activate and rejuvenate the capital in the property market.

And number four, following the market-driven and legal professional principles, we work together with the local government and to ensure the delivery of housing and stabilizing of livelihoods. This is a very hard job. However, we have taken our measures and taken actions very early on. So, at the moment, we are leading in this area ahead of our peers. And for the Ministry of Housing and Construction, if you look at their review for our work, for instance, in terms of our mortgage arrangement, et cetera, they have also given us some guidance and advice. At the moment, we have specific policies for different cities and different property projects. And at the moment, the resumption of construction, ratio has already reached 100%, and this is going very smoothly. And in addition, following on different areas continue to have various demand, and we continue to work on this area. And so far, in terms of the quality, we can see that the quality is very satisfying.

Thank you for your question.

Hu Changmiao

Now back in Hong Kong, again, this gentleman.

Richard Xu

Thank you, management, for the opportunity. Richard Xu from Morgan Stanley. I'd like to ask a question about bond investment. In the first half, bond investment group very quickly, local government bonds, LGFV credit bonds. Can you talk about the risks and the trends of interest rates? Going forward in the second half, what's your view on the outlook of bond market? And does that change your investment strategy? Thank you.

Zhang Jinliang

Thank you for the question. As of the end of June, the investment balance was RMB9.26 trillion, which added RMB713.2 billion, a year-on-year increase of 8.64%, slightly lower than the increase of total assets. Most of the investments is RMB bonds. RMB bonds have grown very quickly in these years. So, it must be an important part of commercial banks in its asset allocation, and it's an important vehicle to support real economy.

In China, the bond market is highly marketized. Higher grade bonds occupied very few capital with high liquidity. That's why we have been actively investing in bond market. We've improved our management capabilities and bond yields has been very stable. And over many years, we've been standing out in the industry.

As for your question, let me respond to that in the following point. We have been committed to the principles of safety and value investment to serve the real economy. CCB has attached a very big importance to real bond yields. In some bond investments, they involve zero capital occupancy. So, we need to take everything into consideration, including capital efficiency.

In recent years, we've been investing in treasury bonds, local government bonds and other government bonds in the open market. The total amount exceeded RMB7 trillion. This is to support the national financial policies. The balance of policy financial bonds exceeded RMB800 billion. Part of our bond investment was there to support a private economy, private small SMEs, green bonds, et cetera, and some key strategic emerging industries. We've been at the leading position in bond subscription, and we will continuously improve our investment management capabilities.

Given that we have a very stable fund sources and our purpose of asset allocation hold -- and investment and hold balance is taking up 93.87% and owning 6.13% is for transaction. Through years of work, we have developed a bond investment decision-making system, combining both qualitative and quantitative strategies. We use multiple factors, risk premiums and other quant models to guide allocation in major assets.

Thirdly, we have been very active in being a market-maker in bond market, and we have undertaking underwriting and distribution business in bonds. We are one of the most important traders and the market-makers. In the first half, we have underwritten nearly RMB1 trillion of government bonds and RMB100 billion of policy financial bonds and RMB200 billion government bonds. And we have devoted on our own financial market interactive trading platform, enabling small FIs to participate in bond investment. And in the first half, the transaction amounted to RMB200 billion.

At the same time, we've been working closely with a Bond Connect of Hong Kong, enabling the interaction between the Chinese Mainland and Hong Kong in bond market. In the first half, the transaction volume of Bond Connect was RMB200 billion. We have very high-quality assets in our bond investment with stable returns and controllable credit risks, and we have achieved the balance between security, liquidity and yield.

You asked about the trends in the bond market in China. In the first half, thanks to the moderate recovery in China and the open-market interest rates adjustment, bond investment saw very little turbulence. But in general, it has been going downwards. In international market, investment yields have remained high for USD bonds. So, the situation is rather complex. In China, with the national policy is being rolled out to stabilize growth as was pointed out by the politburo in July. Economic recovery is about ups and downs, and twists and turns. Recently, the PBoC, again, decreased open-market policy interest rates and MLF interest rates. And the market is still factoring this policy change in their strategies.

Going forward, we believe local governments will emerge at a higher scale. CCB will follow the trends of macro policies, given that we have a very large existing bond business, we will make the best use of it. So, we will do a good job in risk mitigation and optimizing the structure, duration of bonds, and we need to strengthen the coordinated management before and after investment. We need to be more proactive in lean management so we can achieve high-quality development and bond investment. Thank you.

Hu Changmiao

Thank you very much. Let's go back to Beijing. Lady in the fourth row, please.

Unidentified Analyst

Thank you, management team. This is [indiscernible] from Securities News Daily. And as the largest retail bank, what are your future strategies in terms of mortgages at the moment? Are we seeing the recovery of the mortgage need? And in terms of payment in advance of mortgage, is that situation kind of getting less and less frequent?

Hu Changmiao

Well, we welcome Mr. Li Yun, our Vice President from Beijing to answer this question.

Li Yun

Thank you for your question. As we have said from end of June, for CCB Group in terms of our individual loan, it has already reached RMB6.41 trillion, and we continue to put the retail business development as our focusing and the main strategy. And for the next step, we will continue to use a multi-pronged approach, and looking at three areas: individual operating loans, the individual consumption loans and individual mortgages. And to continue to push forward for the development of the retail banking and solidify our status as the number one retail bank as what we have heard previously. And if we are adding the SMEs, we are even more confident that we would be able to maintain our advantage in this area.

Following on, for individual mortgages, we will continue to support the structural need for housing as well as upgrading need for housing. We will continue to utilize our advantage in this area and to assist with the transfer of a second-hand housing as well as combination of using the provident fund to purchase housing and to continue to ensure that our brand will stand out in serving the mortgage market. In the meantime, we will continue to work with high-quality agencies as well as high-quality property companies and to continue to improve customers' experience of obtaining a mortgage. So on one hand, we continue to expand our advantage in this area. And on the other hand, our traditional advantages are maintained and further solidified. From first half of this year, we can see that our mortgage issued to continue to be ahead of our peers.

In terms of individual operation loans, we will continue to perfect our business model and the services system. As Mr. Tian has said just now in terms of inclusive financing, we started this quite early as well as for digital inclusive finance, this is quite unique for our inclusive finance as well as our products that we have expanded this to the individual operation loans, especially for sole traders and small business as well as for farmers, we have built the inclusive loans. And if we look at the actual practice, for first half of this year, in terms of the individual operating loans, it has reached about 47%. And for second half of this year, we'll continue to push forward for some very targeted projects, such as personal Yunong express loans and to meet the individual operation and manufacturing need.

And in terms of individual consumption loans, we will continue to focus on specific customer groups and specific consumption scenarios. This would include, for instance, the credit card business as well as the other fast loan business. For credit card business, it has its traditional advantages at the moment. The total balance, we continue to see that we are number one among our peers. The next step that we are looking at is for the existing customers as well as the younger consumers and to continue to solidify our competitiveness in this area. In terms of consumption loans, we will need to fully utilize our advantage in the areas such as digital platforms, and we continue to connect with our online resources, and for instance, for new EV car purchasing and renovation of housing, et cetera. And for first half of this year in terms of the consumption loan, it has also grown by 25%. For first half of this year, we have especially launched our [indiscernible], this product, and this will continue to play a very important role going forward.

Just now you have also asked in terms of individual mortgages and in terms of the demand, has that recovered as well as the payment in advance and what's the current situation. For individual loans, in terms of mortgages, the demand for mortgages for the first half of this year from the central government and the local government, they continue to have new policies coming out. And for the demand continues to be released, especially for Q1, we continue to see the recovery of the purchasing of the housing market. And therefore, for first half of this year, whether it is our granting of mortgages or the expanding of mortgages, and we can see a very clear recovery.

And in July, the politburo has also said that we need to look at the optimizing of the policies for the property market and to better meet the structural need as well as upgrading need of housing of our citizens. We will closely follow up with these policies, and we'll continue to improve our servicing capability to our clients and to actively support the structural as well as upgrading housing demand of our citizens and to help with the steady improvement of the property market.

And in terms of repayment in advance, and in terms of the recent months, we can see that it has already stabilized compared with the peak in April, it has decreased quite a bit. And we will continue to work hard and provide better services in this area and use different methods and to continue to improve the high-quality development of the retail banking.

Hu Changmiao

Thank you, Mr. Li. Now back in Hong Kong.

Unidentified Analyst

Thank you for the opportunity. Question with [indiscernible] with UBS. In the first half, your fee income was quite stable compared with peer banks. Of course, in Q2, the growth was rather sluggish. We know now people in China have this strong intention to evade risks, which led to higher interest rates in term deposits. They're not willing to invest in either trust or wealth management products. Is it true that Chinese residents started to take out some money from their deposits and invest in wealth management products? We've seen very high income from agent insurance business or banking insurance business. In the second half, will we see higher growth in fee income in your bank compared with the first half? Thank you.

Zhang Jinliang

Thank you for the question. This year, the growth in fee income is in line with our expectation in the beginning of the year. In the beginning of the year, our goal was to go for light assets in fee income. So, in the first half, the new income showed three highlights: retail banking, transactions and investment banking.

Retail banking saw a 9% growth rate in some key products, for example, third-party payments, bank insurance and credit cards recorded two-digit growth. The other highlight is investment banking with a growth rate of 5%. Consultancy business, investment adviser business, have seen higher than 10% of growth rate. Among the banks, CCB is the only one that offers investment consultant services, which saw 14% growth in the first half. This was pretty much about our intelligence and there were no assets involved.

As a major bank, we've been provided services in trust services. As I said, we have seen the size of a trust business of over RMB20 trillion, and the revenue increased by 5%. So these are all light assets and light cost growth drivers. But there were some reductions. In recent years, both trust and wealth management have seen very fast growth. To strengthen our management and to smoothen market turbulence, we have two things to do. The one is to protect investors' returns. Secondly, there were some regulatory requirements for transformation in trust business. So, we wanted to manage its size. So the quality is enhanced and the negative impact on investors is minimized. Of course, transformation has brought to us some impact in wealth management business.

Now most of the business is a net value business that comes with less fee income, hence, the decrease. Now, we're working on three fronts. The first is to solidify our fee income. Through comprehensive financial services, our fee income in corporate banking will be stable. For example, RMB corporate banking settlement. Although the growth might not be very remarkable, but it's still very stable. And in the second half, with more macroeconomic policies in place in infrastructure and as in other key areas like rural revitalization, smart manufacturing and inclusive finance, there will be some opportunities. So, consultancy services, investment advisers, there are some business opportunities.

Secondly, retail banking will contribute more. Retail Banking saw very high growth in the first half. And in the second half, with the recovery of the consumer market in credit cards, a third-party payment and bancassurance, we will see very strong emphasis of growth. This was the case both last year and this year, and I think the trend will continue. Besides, through our efforts in the first half of the year, we have set up a three-tier system from investment research to investment adviser. Through putting together a strong team, we hope that we can explore more business opportunities in the broader sense of wealth management services.

Thirdly, in asset management, trust and property trading, we've seen that RMB depreciation and turbulence in foreign exchange markets led to more business opportunities. We can keep high-speed growth in arbitrage business, and we can control the trust and wealth management business at a reasonable level. In recent months, there was some recovery with wealth management products. So, we try to minimize its negative growth. In the second half, I believe fee income will see positive growth, albeit very slight, and we will adjust our layout in order not to expand the growth of a negative impact. Thank you.

Hu Changmiao

Thank you very much. We'll go back to Beijing. We'll have this gentleman on the right-hand side in row three.

Unidentified Analyst

Thank you, leaders for giving me this opportunity. This is [Li Chi] (ph) from BOC. And I'd like to ask a question regarding your asset quality. We can see that first half of this year, you continue to have a very stable asset quality. For second half of this year, what is the asset quality? And what are the major risk points for corporate and retail business? In recent months, we can also see that the recovery of the economy has slowed down. So, do you feel that your cost of credit -- the credit cost will face the pressure of the cost going up? And what is the future trend for this?

Hu Changmiao

Thank you. We will have Mr. Beijing -- Wang Bing from Beijing to answer this question.

Wang Bing

Thank you for your question. For first half of this year, faced with this very complicated operation situation, we continue to adhere to our bottom-line and focusing on the asset quality control as the work priority of the whole group. And by end of June, our NPL ratio is 1.37%. It is down by 0.01% compared to beginning of this year. Special mentioned loans is 2.5% and decreased by 0.02% compared to beginning of this year. Overall speaking, the asset quality remains stable, provision coverage ratio 244.48%. It has increased by 2.95% compared to end of last year. So, we have very good risk prevention capabilities.

And in terms of asset quality, we continue to adhere to the risk assessment and work on the classification of risks and ensuring our asset qualities. By end of June, our overdue loan is 1.13%, lower than the NPL ratio by 24 bps and overdue NPL price has continued to be negative for 25 quarters. So, for second half of this year, we believe that our asset quality and the real economy are closely related. It is also closely related to our self risk control capability.

If we look at the current economic recovery, as the politburo pointed out on the 24th of July, our economy has a huge resilience in the potential. The overall upward trend fundamental does not change. So we believe that second half of this year, the economy will continue to realize high-quality improvement and reasonable growth in terms of volume. We will continue to build a solid foundation and look at the risk in a scientific fashion and to take control over the risks in the forward-looking view and continue to improve the efficiency of risk management, especially our monitoring of -- monitoring and resolving and disposal of key areas of risks.

If we look at the corporate area, by end of June, our corporate NPL is 1.88% and down by 0.2% beginning of this year. For retail areas, by end of June, our individual NPL is 0.61%. Even if it has gone up by 0.06%, it continues to be at a very good level. In terms of the individual mortgages, the NPL is 0.42%. Because of the market impact, it has gone up by 0.05%, however, the trend is in line with our expectation and has not actually impacted our overall asset quality. In the meantime, in terms of the existing NPL, we continue to enhance our operation awareness and enhance our disposal and continue to improve the overall structure of the group and provide a solid foundation and support to the efficiency of the bank.

For second half of this year, we'll continue to implement the various requirements from the central government and to actively serve the real economy to support the expansion of domestic demand and the benefit to the livelihood, continue to enhance the analysis and judgment of the market and continue to resolve such risks and cope with them in a forward-looking fashion. We are confident and we are capable of facing up to these challenges. And we believe that for the second half of this year, the core indicators will continue to be in a reasonable range and will continue to keep the stable level of our credit cost.

Hu Changmiao

Thank you, Mr. Wang. And according to the plan, we are already 30 minutes' delayed, so welcome the last question here in Hong Kong, please. Okay. We'll invite the question from our friends from the press.

Unidentified Analyst

Good afternoon. [indiscernible] with Hong Kong Economic Journal. Inclusive finance and micro loan interest cuts were not mentioned by the national government anymore. So, does it impact your objective for the whole year? And how does it impact the pricing of your loans? What are the main initiatives in inclusive finance by CCB? And in inclusive finance, when you serve customers, how can you make sure that you will control risk at a reasonable level and also NPL at a reasonable level?

Hu Changmiao

Mr. Cui will take the question.

Cui Yong

Thank you. I believe that you should be proud of yourself to be able to ask that question. And that means inclusive finance is a widely recognized concept globally. Inclusive finance, when being implemented, received a lot of support from State Council and other national authorities. This year, we adjusted some policies. And I especially want to thank you for raising a question about this very sensitive policy interest rates.

In the past, as you know, the policy direction was geared towards low interest rates, but the tone has changed at present. However, in practice, commercial banks should go for market-based pricing. And we always bear that in our mind. So, we're not swayed by policy changes. And on the contrary, we are adopting new models to solidify inclusive finance to contribute more to real economy.

Some customers have new demands. They demand quick loans. They need to borrow and repay a loan as quickly as possible. So, we developed new product where customers can borrow and repay any time with accumulated daily interests. So, small businesses can make efficient use of the funds. We've visited some big companies and they have the same demand as well. And this is to realize our objective of giving back profits to real economy entities through these policies. So, we can help businesses efficiently manage their funds. So in this way, we will be able to balance scale, price and risks, and we took proactive measures to optimize the product structure.

In the first half, the newly added RMB500 billion, a large part of them was completed online with a rather low cost. We've done a good job in risk management. So, the risk premium -- risk cost was also very low. The policies have been very accommodative when it comes to interest rates. But we wanted to give more profit and benefits to the real economy in order to balance scale, price and risks.

You've also asked about the impact of new policies on the issuance of new loans. Well, as we mentioned, in the first half, the newly added volume was RMB510 billion. There was an increase of 21.7%. So the policy doesn't impact the size of the loan. In practice, we saw that some trusted customers, the trusted customers had talked a little about interest rates. So I believe there was no impact on volume, but there are a few different measures.

First, as we know, we have 170 million customers in China. And so, for such a big size of market, we have only covered 2.94 million customers. In the beginning, the management proposed to increase the density of our work. So, I'd like to share with you some new numbers. Through big data management and smart applications through data connection, we have pre-approved 5 million customers through a big data intelligence. So, we have accumulated bond resources of potential customers. And to achieve that, this year, we have done a lot. We proposed to benefit over 10,000 enterprises, we propose to increase both the scale and coverage of inclusive finance so that we can increase the coverage of customers.

Secondly, recently, we've done some research on the new customer needs. For example, credit facilities, business partners, banking partners, cooperation procedures and loan terms. And therefore, we optimize procedures and streamline our products. In this process, we optimized quick credit loans, because at present, SMEs have a keen demand for quick credit loans. And we've also streamlined our internal policies when there were some constraints in our internal procedures, we optimized and streamlined them. So, we will be able to respond to customer demand very efficiently.

Thirdly, in assessing technological inventions as a pilot project, CCB was a good example among the major banks in providing technological product to SMEs. So, we can promote the knowledge-based structure with SMEs so that we can obtain even more customers. Last year, we upgraded the Huidongni platform to Version 3.0. Through the platform, we can offer inclusive finance customers non-financial services like logistics, legal and tax services. Having built such a cool system, we were able to have even more customers.

Fifth, we promoted packages of services. In the past, we were keen to offer standardized services. But this year, through comprehensive and packages of services, we were able to offer our customers services that cover an integrated system of comprehensive services through these five dimensions. In the first half and especially in recent two months, we've seen that the projects I mentioned above have been going very well.

You've also asked about risk management. This is our lifeline. This is very critical to inclusive finance. So, on risk management, in inclusive finance, we leverage on big data and other smart technologies in checking risks, so we can think of the worst scenario, including financial frauds. So, we can forestall those risks before they happen, and we have this smart risk-monitoring system, and we have professional debt collection services. These technologies enabled us to do lot of things in risk management, which were not be able to complete it by human beings.

For example, some small loans could not be put under radar in our management. But through data management and model-based management, some funds, if in contrary, any problems, will send automatic alerts. So, our offline personnels can go for a quick debt collection. Imputing this risk control system, and we are making sure that the smart technology is used in every step and link of our services. So, when we select customers, we can filter them with five layers. Sometimes people said that was too much. But through five layers from pre-loan to after-loan insurance, we can go for intensified management and making it more efficient. Therefore, when we improve the efficiency of risk management in inclusive finance, despite the high number of inclusive financial customers, we can still achieve high-quality development.

As the Chairman said, the quality of inclusive finance business is even higher than that of the whole group. So, we are particularly confident that we can see the growth in customer numbers and the level of services through very stringent AI-based management, we can ensure safety and high quality of inclusive finance.

Thank you very much again for the question. And please do spread the word about inclusive finance, especially this Huidongni platform, its features of comprehensive services are very useful to those customers who have insignificant financial demand and we will have the opportunity to develop a new market for inclusive finance even in overseas markets.

Hu Changmiao

Thank you very much. According to the regulator's requirement, we have already made our advancement public. And in the meantime, we have also opened up an e-mail for our various shareholders. And for this time, and we can also see that we have a lot of online exchanges. And my colleague has selected one question, which is since this concept for Chinese-specific characteristic evaluation system and for our small shareholders, they are very focused or concerned about our dividend policy. So, do we have any adjustment plans?

Zhang Jinliang

Well, let me quickly respond to this. Dividend policy, it's something that's closely related to the benefit of our shareholders. And for CCB, as a state-owned bank, that has been listed very early on in Hong Kong, and we are focused on creating benefits and values for our shareholders and drive growth.

So, for CCB, at the moment, we are a bank that has a very good valuation as well as a good dividend payout. And especially, as you have heard from Mr. Tian for our new finance push-forward of this product and our inclusive financing entities is benefiting for 85% of the citizens and the long-tail client. So, we have a unique Chinese characteristic finance development, features for our short-term growth as well as the long-term growth that has laid a solid foundation. It has also created a very good condition for dividend payout.

For our bank to pay dividend, we mainly consider about the willingness of the shareholders and the supplement of capital as well as sustainable development and requirement of authorities and regulators. Since 2015, our dividend payout ratio has always maintained at 30%, and with our net profit continued to grow and actually our dividend payout continues to grow in a stable fashion.

Since listing, we have already paid out a dividend totaling RMB1.1 trillion for A shares. In recent years, so we can also see that A shares, actually it's dividend payout and its yield is better and maintaining at 5% and above. And very recently, we have already realized this, it's about RMB0.389, and we try our best to provide long-term and stable value return to our shareholders.

To look into the future, we will continue to follow closely in terms of our operation, our overall capital situation and the guidance from the regulatory authorities and to reasonably define our dividend payout ratio to not only consider about the current return as well as considering about the capital accumulation and the sustainable development of the bank, whilst creating value for our shareholders, we also need to shoulder our obligations as a national major bank and to provide better value for our shareholders. So, our 380,000 employees will continue to work hard to create value for our shareholders and to seek benefits for you all.

So, this concludes the 2023 interim results announcement. Well, actually, let me add one thing. I can notice that we have a lot of analysts with us here today. Let me tell you that we continue to talk about new finance, and you need to make sure that there is a difference between the new finance and the traditional finance. So if we look at this for inclusive finance growth, it's actually driven by big data. It is something that is unimaginable, especially the 300,000-plus branches that we cover in the rural areas and all of these should be areas when you look at the commercial banks' models, it needs to be reflected. That's something I want to add.

Yes. Thank you very much all the analysts. And because of time, if you have any further questions, you are more than welcome to get in touch with our IR department. We will actively and immediately respond to your questions and concerns. We would also like to thank you again for your long-term support and trust in CCB. We would also like to thank you for coming to our results announcement today, and we wish you good health and all your dreams come true. Thank you very much.

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China Construction Bank Corporation (CICHY) Q2 2023 Earnings Call Transcript