Industrial and Commercial Bank of China Limited

I'm the general manager of Corporate Strategy and Investor Relations Department, Wang Liancheng. Welcome to our half one earnings recall, earnings call. Today's call is held via on-site conference as well as call. It's our good pleasure to have the investors and analysts for today's call. Now I would like to introduce the management present today, Mr. Liao Ling, the president of SBC. Mr. Wang Jingwu, the Executive Vice President. Executive Vice President, Mr. Zhang Wenwu. Executive Vice President, Mr. Zhang Weiwu. Executive Vice President, Mr. Zhang Hongtao. Board Secretary, Mr. Guan Xieqing. Our directors. Mr. Lu Yongzhen, Feng Wei, Dong Cao Li, Qin Shen, Yifan, and Dong Yang also joined today's call, and we are also joined by the heads of relevant departments and the sub-stories. In the first half of 2023, all the core indicators of our bank have maintained stability, and the key strategic layout has also achieved new progress. We have achieved results better than expectations. The net profit in the first half was $174.7 billion, 1.1% YOY growth, and 1.6 percentage point higher than the first quarter. The total revenue was $428.9 billion and maintaining better momentum than the first quarter. The net fee-based income was 73.5 billion, the size, the largest among our peers. In the first half, the ROA, ROE, respectively, 0.84% and 10.51% ranking a better position than most of our peers. The capital adequacy ratio was 18.45%. Also, the leading position among our peers, the prohibition capture ratio was 218%. The net NPL ratio was 1.36%, a drop two bips lower than that at the beginning of this year. The overdue ratio was 1.18%, four bips lower than that at the beginning of this year. Decapitation overdue loans and NPL loans was negative for the 13 consecutive years. quarter's name was 1.72%. By the end of June, the loan increased growth by 9% while comparing to that figure at the beginning of this year and the total investment increased by 7% and deposits increased by 11.7%. And this is the general introduction of the first half results. And our PPT of the presentation has also been posted on our website. You can refer to that. And now we are going to the Q&A session. We advise every investor and analyst to raise one question every time. And please indicate the name and organization before you raise the question. The first question, please. Thank you for the opportunity to raise the first question. I'm Yanmei Zhi from UBS Securities. Congratulations on ICBC on achieving the stable results on the back of complex situation. I would like to ask a question which I have frequently asked in former course about the net profit growth. Maintaining growth of net profit is not easy. However, this situation remains quite complex. So can you elaborate on the total volume and growth rate and any highlights of the revenue? Looking forward, can the net profit remain achieve a positive growth for the full year? Thank you. Thank you for your question. The question is about the revenue net profit. You have already have our PPT presentation about profits, so I will answer all the questions together. I would like to talk about the highlights of our half one results. We have a lot of price boards of our earnings for the first half. For example, the core indicators remained stable. All kinds of risks are controllable. The strategic implementation had achieved some breakthroughs and the operation has also achieved progress in both quality and quantity. And I would like to elaborate our achievements from two respective or two sheets, which I believe can demonstrate our progress in a more clear way. The first sheet is the balance sheet. The first sheet, the balance sheet of ICBC in the first half has become cleaner and healthier. Clean can be demonstrated in our improvement of our asset quality and the conservation of our capital. By the end of June, the NPL ratio was 1.36%, a bit lower than the beginning of this year. The gap between overdue loans and NPLs was negative 461, remaining negative for consecutive 13 quarters. In the first half, the RWA growth growth rate was 9.1%, 1.1 percentage point lower than the growth rate of our total assets. So all this combined, meaning the asset quality foundation of our bank has been consolidated. The balance sheet has become healthier, can be also demonstrated through our more balanced structure. The new incremental assets exceed 4 trillion RMB, mainly coming from the incremental loans, which is 2 trillion RMB, and also new investments amounting 700 billion. We have accelerated our assessments on the equilibrium and the balance so as to make sure our assets can be allocated in more stable ways to manufacturer, green, inclusive, agricultural related aspects which are the key aspects of the real economy side so as to better accommodate it to serve the real economy. And from the liability side, the assets increased over three trillion. And we have also achieved more balanced growth of all types of deposits, including savings, retail, corporate, and financial institutions deposit. And also the interbanking liability proportion has been managed at a relatively low level compared to our peers. The stability of our reliability has also maintained quite solid. The second sheet is the income sheet, which has become more balanced, coordinated, and sustainable. By balanced, it means we have become better adapted to the risk and profits. We have always paid great attention to development and security. And the provision cost ratio has increased by 9.15 percentage points, with the balance of allowance reached $751.2 billion. The total volume of net profit increased by 1.1%, and the total totaled $174.7 billion. That means we have improved both the risk mitigation capacity as well as our profitability. By coordinated, it means on one hand, we have become more conservative in our expenditures. Because income ratio was 23.9%, also a better position than our peers. By sustainable, we have become more solid in the foundation of our operation and development momentum. For example, we have implemented key strategies like GBC Plus to build a more solid system ecosystem of our clients and also DICPC digitalization of our bank, the total retail customer increased to 729 million and corporate customers exceeded 11 million. Another key indicator is the MAU of our mobile banking clients exceeded 200 million and a series of A large area of digital results, digital products have also been put into place, which can show our momentum for innovation has also been strengthened continuously. So these two sheets can demonstrate the solid foundation for our future development as well as the resilience. And secondly, about your question on revenue, My personal opinion is when you look at revenue, you should pay attention both to the growth rate as well as the total volume and structure. In terms of the volume, we have stabilized the revenue and improved the structure. In terms of the total volume, we remain the largest size. The first half, the total revenue hit $428.9 billion. continuously ranking the top among international peers, which has created adequate room for us for future profit growth as well as risk prevention. Structurally speaking, revenue has become more dependent on diversified resources. The non-interest income ratio made up 21.4% of the total revenue, increased by 3.9 percentage points, among which basic revenue like payment and settlement and bank card increased continue to register a positive growth, which has laid quite solid foundation for us to increase more revenue. in these areas because we know fee-based income are quite important to the total revenue growth. In terms of the growth rate, we have seen marginal improvement. You can look at the figures. Despite of the contraction of 3.4% of the total revenue, however, the contraction was 1.2%. 0.1 percentage point smaller than the first quarter's drop. And also the contraction of the net interest income and fee-based income also smaller than the first quarter. And the other non-interest income has registered a positive growth. About the outlook on the four years net profit, Looking into the future, we believe the good fundamentals of China's economy, which are quite resilient and has huge potential and vitality, remains unchanged. And we have seen the introduction of a series of policies to stabilize the economic growth. We also promote the economic to become stronger and better And we believe that will also create quite favorable conditions for financial institutions like SBC. So to sum up, with a huge size and strong base of customers, strong technological advantage, and it ecosystem of clients, we have still solid foundation for future development and strong momentum to have greater growth. And we are confident that we can foster more drivers for our future revenue growth and profit growth so as to create more returns for our shareholders and investors. Thank you for your question. The next question is

Thank you. My question concerns net interest margin. We have seen that your NIEM continued to go down. What are the main reasons? Is there any change in the interest payment cost? We have seen that the loans yield still faces pressure. with the policy interest rates slowing down and the outstanding mortgage interest rates adjusted down, how would you stable NIM and what is your outlook? Thank you. Just as the former questions concerning operating income, the question regarding NIM is asked every time. In our annual results announcement in this March, I have discussed this with all of you. At present, in China's banking industry, the operating model and the profitability model are all the same. So the sectoral trajectory of NIM is the similar, but the extent of the change differs according to the mix of the balance sheets. So the main trajectory is dependent on the sectoral one, but the extent is dependent on the bank's efforts of their own. For ICBC, we followed the sectoral trajectory in NIMH in the first half of the year. It further shrank, but we have also noticed some positive signs. Many analysts mentioned the rebound from my side for the change. NIMH Compression shrank compared with the last half of the year. Our NEM was 1.72% in the first half of the year, remaining within the reasonable range, down by 5 BP compared with Q1 and 20 BP compared with the beginning of this year. In the future, it remains to be seen if we can further stabilize it, but this is a positive sign. In terms of the reasons, the new time deposit interest rate is going down. The change of name is dependent on loan yield and the interest payment ratio of deposits. ICBC's interest-bearing assets average yield was down by 3 BP year on year, and the interest-bearing liabilities interest payment rate was higher by 30 BP. This is attributed to more time deposits. At present, with the deposit interest rate liberalization adjustment mechanism in place, we've seen the nominal rates of deposits is going down. Our new RMB time deposit interest rate was down by 9 BP compared with last year and down by 15 BP year on year. The marginal cost was lower for the new deposits, which will stabilize our cost of liabilities. In terms of the business mix, it is improving. In the first half of the year, we actively adjusted the mix in terms of assets, liabilities, customers, and so on. This is our internal momentum. We improved the mix of assets and liabilities to stabilize our NIM, especially in loans. we emphasized on all kinds of loans. Of all kinds of scale, we improved the proportion of retailing and medium and long-term loans, which is priced higher. By the end of June, the personal operating, the business loans, and the medium and long-term corporate loans accounted their proportion was higher by 0.7 and 1.5 percentage points respectively. This is also another positive sign. You also mentioned the reduction of outstanding mortgage interest rates. Reasonably speaking, such adjustments will have impact on NIEM. We have pressure indeed, but from the side of the customers, it is conducive to relieve their burden of repayment and reduce their willingness of prepayment, and it's also good for the commercial banks to remain their volume of mortgage loans. The highly adaptability is the requirement of constructing a modern financial system, and it is also our advantage. We will continue to improve our extension direction and the mix, and we will continue to manage well the interest payment and loans yield, especially manage well the balance of loans extension to remain within reasonable range and increase our capabilities and sustainability of serving the real economy. We are confident to keep it within a reasonable range. Thank you.

Next question, please. I'm from Huatai Securities. I would like to ask about asset quality. Just now President Liao mentioned half one MP ratio was lower. Can you sum up the asset quality performance in the first half of your bank? Investors have concerns over certain sectors. What do you think of your asset quality in some sectors like retail sector and also some geographical and also for inclusive finance. Large banks maintained high growth rate in the past several years and in potential risk in this regard. Thank you. I would like to invite Mr. Wang Jingwu to answer this question. The asset quality is the last line for bank. We have paid a lot of attention to risk management, particularly to the risk management in some key areas. In the first half, the core indicators of asset quality maintained quite stable and also improvement by the end of June. The balance of NPL was $343.6 billion. MPL ratio was 1.36%, so a bit lower than the beginning of this year. Overdue loan ratio was 1.18%, so a bit lower than the beginning of this year. The gap between overdue loans and MPLs was 46.1 billion, remaining negative for 13 consecutive quarters. We can look at some details from the corporate side. the asset quality of all sectors, overall speaking, have been improved, and the risk in some key sectors has been released. The average NPR ratio of corporate loans of domestic branches was 1.88%, 20 bps lower than the beginning of this year, and 8 bps lower than the first quarter. NPR ratio was And the ratio of half of the industries like manufacturer, retail, and wholesale have been also lowered respectively by 71 BIP and 149 BIPs in the beginning of this year. And for example, other sectors which have been negatively impacted by COVID like tourism, entertainment, transportation have also seen improvement At the same time, due to the adjustments of the real estate, developers have some pressure on destocking, and the NPR ratio of property-related industry was 6.68%. This is the corporate loans, 54 bps higher than the beginning of this year. But the ratio, the proportion of property-related loans to the total corporate loans has been quite low, just around 4.9%. Besides, we have also set adequate allowance to property-related loans, so relevant risk is controllable and impact is also limited to our total assets. From the retail side, the asset quality has also maintained quite stable. The domestic retail loan average NPL ratio was 0.66%, five bps higher than the beginning of this year, and one bps higher than the first quarter, among which the domestic mortgage NPL was 0.42%, two bps higher than the beginning of this year, and the retail consumption loan NPL 17 bps higher than the beginning of this year and 3 bps higher than the first quarter. The retail business loans NPL ratio was 0.77%, 14 bps lower than the beginning of this year, 8 bps lower than the first quarter. You asked me about the asset quality of the inclusive finance. We have maintained relative growth rate of inclusive finance since the beginning of this year with a growth rate higher than our peers. This is also a key strategy and measures for us to support the real economy side and also an actual need for us to optimize our structure and increase our revenue as well as accelerating our transformation. Currently, the NPR ratio of our inclusive finance was 0.76%, six pips lower than the beginning of this year with the relevant controllable and the limited risk. In order to realize higher quality development of inclusive finance, we have adopted the following measures. First is to make full use of our advantage in our technology by integrating both internal and external data and information and construct customer selection model so as to better accommodate our services to the requirements from the real economy side. Secondly, we have sticked to the loan extension by our experts. We have made full use of our advantage in terms of the offline outlets as well as our customer relation managers to enlarge their information access through via offline platforms and combining with the online digital platforms so as to effectively recognize relevant risk of our customers. Firstly, we have also continued to enhance our disposal on NPR ratios, NPR loans, and by achieving synergy in the front and middle and back desks. In recent years, facing complex macro environment, we have stepped up our disposal on MPL non-performing assets. Over the past three years, the disposal of non-performing assets exceeded 190 billion RMB, which helped us to maintain stability through cycles of our asset quality by maintaining the NPA ratio at a relatively low level so as to present a clean and balanced balance sheet to our investors. Looking into the future, we will continue to enhance our risk governance path and prevent any potential risks in the property sector as well as LGFV, so as to promote our risk control and prevention capability to reduce any potential losses of our credit risk assets, so as to create more room for our profit growth. About any potential impact that investment analysts might have interest from the new regulation of the classification of financial assets. The impact may mainly focus on the corporate credit business and it will have smaller impact on the retail or bond investment and the banking investment and bills assets. So relevant impact is generally controllable. The next question comes from online.