China Merchants Bank Co., Ltd.

MB 2023 interim result presentation will now begin. I am security representative and general manager of the Office of the Board of Directors of China Merchants Bank, Xia Yongfang, also the host of today's conference. Today's event is held in person at the head office of China Merchants Bank. Also, it is available via webcast. I would like to introduce the attendees of today's Meeting, they are Mr. Wang Liang, President and CEO. Mr. Zhu Jiangtao, Executive Vice President. Mr. Zhong Desheng, Executive Assistant President. Ms. Wang Ying, Executive Assistant President. Mr. Peng Jiawen, Executive Assistant President. and secretary of the board of directors. We have also got independent non-executive directors, Mr. Wang Xihong, Mr. Tian Hongqi in the event online. On behalf of China Merchants Bank, I would like to welcome you all to the conference and thank you for your interest in and support. for China Merchants Bank and your investment as well. Today's meeting will be divided into two sessions. The first session will be presented by Mr. Wang Liang on the introduction of the interim results takes around 30 minutes. The second session is the Q&A session takes around 90 minutes. Simultaneous interpretation in English will be provided for both the two sessions. Now I would like to give the floor to President Wang. Dear investors, analysts, good morning. First of all, welcome to China Merchants Bank 2023 interim results presentation. Today's presentation will be divided into three parts. First, an overview of our first half performance. Secondly, it is about specific operational information. And finally, we will briefly address outlook and strategies for the second half of 2023. For the first half, as we are faced with complicated operating environment, the group has sticked to our strategic objective of building the value creation bank and steadily extend all kinds of businesses and achieve quality efficiency and scales dynamically balanced development, which is reflected in the following six aspects. Firstly, operating results achieve stable growth. with profitability remaining at a high level. For the first half, net profit attributable to the bank's shareholder was 75.7 billion yuan, up by 9.12% year-on-year. ROAA and ROAE were 1.45% and 17.55% respectively, down by 0.01% and 0.52% year-on-year, respectively, remaining at a high level. Net operating income was 178.4 billion yuan down by 0.34% year-on-year. Annualized credit cost ratio was 0.88%, up by 0.09% point year-on-year. Due to the decrease operating income, the cost-to-income ratio was 29.07%, up by 1.31% point year-on-year. Net interest income was 108.9 billion yuan, up by 1.21% year-on-year. Influenced by continuous LPR cut and insufficient effective credit demand, interest earning yield was 3.83%, down by 9 bps year-on-year. Influenced by the trend towards time deposit and the foreign currency interest rate increase, our interest-bearing Liabilities annual average cost ratio was 1.71% up by 12 bps year-on-year. Our NIM was 2.23% down by 21 bps year-on-year. Secondly, our asset quality remains stable with strong risk compensation capability. NPL slightly increased. NPL balance was 60.6 billion yuan up by 2.637 billion yuan compared with the end of last year. NPL ratio was 0.95% down by 0.01 percentage point compared with the end of last year. Allowance coverage ratio was 447.63% down by 3.16 percentage point compared with the end of last year. Allowance to loan ratio 4.27% down by 0.05 percentage point compared with the end of last year, remaining at a high level. Thirdly, we conduct solid asset origination and liabilities advantages maintained. We actively respond to the challenges of insufficient credit demand and took several measures to strengthen asset origination and enhance asset allocation efficiency. Total asset was 10.74 trillion yuan up by 5.93% and further enhance our loan granting and bond investment efforts. Our total low-earns and advances is worth 6.36 trillion yuan, up by 5.02%. Total bond investment was 2.67 trillion yuan, up by 9.62%. In our low-earn structure, we enhance efforts in retail low-earns. The proportion of retail low-earns in general low-earn increment was 45.46%, up by 4.87% point year-on-year. Bill discounting balance was RM449 billion down by 12.65%. Total liability was RM9.75 trillion up by 6.2% compared with the end of last year. Total customer deposit exceeded RM8 trillion up by 6.56%, accounting for 82% of the total. liability of the group. We continue our strategy to take the core deposit growth as our mainstay. Core deposit daily average balance was 6.56 trillion yuan up by 12% and accounting for 86% of the total customer deposits daily average balance. Demand deposits daily average balance was 4.52 percent up 4.52 trillion yuan up by 8.65 accounting for 59 of the total down by 2.22 percentage point total cost ratio of customer deposit was 1.61 percent up by nine bips still remaining at a low level Fourth, we continue our business mixed optimization and sustained resilience of non-interest income. Firstly, main position of retail finance business was consolidated, and the value contribution continued to increase. Retail finance pre-tax profit was 50.2 billion yuan, up by 9.93% year-on-year, accounting for 60.84% of the bank's pre-tax profit, up by 0.26 percentage point. retail finance net operating income 96.7 billion yuan up by 0.44 percent young year accounting for 59.56 of the bank's total net operating income up by 0.93 percentage point among which retail none net net non-interest income 31.5 billion yuan down by 6.14 percent and accounting for 55 percent of the total of the bank's non-interest income down by 0.76 percentage point Fifthly, continue to optimize our loan structure. Retail loan balance 3.27 trillion yuan, up by 5.1%, accounting for 54% of the bank's total loans and advances, up by 0.26 percentage point. Surrounding at key regions and areas, we enhance loan extension. For corporate loans in key regions, it is increased by 10.52%, and accounting for 6%. 36% of the total corporate low end up by 0.75 percentage point. Manufacturing low end balance increased by 18%, technology low end balance increased by 16%, and inclusive SME low end increased by 12.5%, all higher than the growth rate of corporate low end. our revenue structure keeps good. The group realized a net non-interest income of 69.4 billion yuan down by 2.68% down year and accounting for 38% of the total net operating income remaining at a high level, mainly influenced by the continuous in fluctuation of the capital market, insufficient willingness of the investors and our Excessive wealth management income was recorded 25.8 billion, down by 8.53%, accounting for 14.48% of the total net operating income, still remaining its resilience. Five stable capital adequacy ratio and strong internal capital endogenous capabilities. among which the groups under the advanced approach, our core Tier 1 CAR and Tier 1 CAR, were respectively 13.09, 17.09, and 14.99%, down by 0.590%. six eight and zero point seven six percentage point respectively under the weighted approach our core tier one car tier one car and car were 11.16 12.78 and 14.19 respectively down by 0.36 0.747 and 0.49 percentage point respectively if excluding the influence brought by the dividend payout we still remain an increasing level of car six we proactively incorporating esg and earns earnestly fulfill corporate social responsibility Firstly, we fully promote green finance, green operation. Our green loan and green leasing business increased by 9.16% and 23.7% respectively. We issued the global's first blue floating rate bond, actively promote green operation and live up to the... green environmental protection and low carbon sustainable development philosophy. And secondly, we fulfill our social responsibility and strengthen our customer information security and privacy protection and further improve our relevant protection system, strengthen the interest protection of our consumer and incorporate those into our corporate governance, corporate culture construction and development strategy. And thirdly, we continue to promote the corporate governance mechanism. We We officially renamed the board's strategic committee into the board's strategy and sustainable development committee and strengthen our responsibility in ESG. This is a recap of our performance in the first half of 2023. Next, we will introduce the company's operational information. Firstly, we continue to consolidate our systematic advantages of retail finance. We adhere to the core value of being customer-centric and achieve steady growth in retail customer base and business scale. Total retail customer number was 190 million, up by 3.26% compared with the end of last year. Sunflower level and above customer increased by 7.19%. The number of PB clients increased by 6.21%. Retail AUM increased by 5.9%. among which sunflower level and above customers increased by 6.1%, and AUM from PB clients increased by 5.89%, ranking first in the industry by scale. Influenced by the insufficient demand and the pre-repayment, we see residential mortgage lowered scale down, with greater efforts in attracting new home buyers and second home buyers. As a countermeasure, the balance of residential mortgage loan only declined by 0.76% to RMB 1.37 trillion. Under the premise of enhanced risk management, we increased the loan extension to microfinance loans and consumption loans with the balance increased by 12.65% and 34.68%. Credit card business remains stable. Credit card transaction volume was 2.37 trillion yuan down by 0.67% year-on-year. Credit card low-end balance 905.7 billion yuan up by 2.42% compared with the end of last year. secondly we strengthen differentiated advantages of corporate finance continue to iterate and optimize our segmented and classified based service system and adjust customer and business structure total number of clients reached 2.64 million representing an increase of 4.5 85 percent as compared with the end of last year our fpa was rmb 5.5 trillion up by 8.05% compared with the beginning of the year. Average daily balance of corporate customer deposit was 4.5 trillion yuan. We continue to build up distinctive advantages to serve clients in an efficient manner. In transaction banking business, number of active users of treasury management cloud service reached 254,000, up by 41%. lc and lg related transaction volume up by 59 and the domestic trade finance business volume up by 56 in terms of crosswater finance business bop volume for trading goods reached 81.3 billion usd increased of 10.45%. In supply chain finance, we have promote 261 projects of one entire bank for one company and extends our services to 28,000 SMEs with a total loan granted of RMB 313 billion. We improved, thirdly, the professionalism of investment banking and financial market business. We enhanced our capabilities in bond underwriting and M&A finance, continued to improve our financial market business, and tradings on behalf of customers further strengthened. Investment banking business, debt financing business instruments with the company as the lead underwriter was 321.4 billion yuan. And influenced by the build market, the direct build business volume was 701 billion yuan, down by 16%. Trade acceptance bill discounting business volume was 82.6 billion yuan, ranking first in the industry. Financial market business transaction volume of RMB bond investment amounted to RMB 1.38 trillion, an increase of 15%. We provide hedging service to 3,019 companies with a total transaction volume of USD 29 billion and provided online derivative trading services to over 2,500 corporate clients, with a total volume of USD 11.98 billion. The online interbank service platform Zhaoying Tong has said online sales of the third-party asset management product amounted to 429 billion yuan, up by 8.78%. Fourthly, we steadily promote the development of the extensive wealth management business Retail AUM has achieved 12.84 trillion rand up by 5.9%. Retail WMP balance increased by 3.21% compared with the end of last year. Agency sales of non-monetary mutual fund was down by 18.53%. Our agency sales of insurance premium has increased by 54.88% year-on-year. Customers holding our wealth products reached 46.63 million, representing an increase of 8.12%. Customers using the CNB tree as an allocation system has achieved 8.65 million up by 6.45% compared with the end of last year. Family trust business transaction has exceeded 10,000. Business volume has increased by 22.79% compared with the end of last year. Zhao Cai Hao open wealth management platform was further opened and enlarged the friend circle. 144 asset managers have been settled in the Zhao Cai Hao. Second, the percentage of the balance of FPA in non-traditional financing remains stable. The figure was 2.45 trillion yuan, up by 158.5 billion yuan compared with the beginning of the year. with a proportion of 44% of the total FBA. Thirdly, the asset management business showed resilience. Total business volume was 4.41 trillion yuan, remaining the same as compared with the end of the previous year, among which WNP under CNB Wealth Management was 2.53 trillion yuan down by 5.24% and increase by 72 billion compared with the first quarter. Mainly, we increase the product provision of cash type, close low volatile business and mid to long-term maturity matching products. And fourthly, the custody business maintained its leadership. The balance of assets under custody amounted to RMB 20.86 trillion, representing an increase of 3.99%, ranking first in the industry in terms of the scale of asset custody. Fifthly, we further promote the construction of digital bank. Surrounding at online, database, intelligent, platform-based and ecological operation, we enhance our level, service level of human, people plus digitalization. In the first half of the year, in terms of our expense, our IT input amounted to RMB 5.2 billion, equivalent to 3.21% of the net top-rated income of the bank. In terms of digital services of retail finance, CNB Application, CNB Life Application has an MAU of over 111 million, up by 3.31%. AI Xiaozhao has served 11.72 million customers, up by 140%. In terms of wholesale finance digital services, online financing has accounted for 89% of the total, And for FX online business, it has accounted for 73% of the total. In terms of risk management, we use FinTech to increase our risk control capability and to make further risk determination. We enhance our risk awareness and use FinTech to guarantee customers security into our assets. we have lowered the percentage of fraud and account takeover amount by non-car holders to 0.1 in 10 millions by using the Libra system. In terms of internal operation, we have realized a work equivalent to a workload of over 14,000 people replaced by RPA and AI. In terms of digital infrastructure, we built an industry-leading financial cloud infrastructure with the overall availability of the platform reaching 99.99%. Sixthly, we continue to heighten asset classification, fully exposed risk, and actively disposed NPL. Retail NPL ratio was 0.84%, among which credit card NPL ratio was 1.68% down by 0.09%, and corporate loans NPL was 1.27% in terms of its ratio. ratio of mpl to the lowest overdue for overdue for over 90 days 60 days were 1.08 new information of mpl was 30.5 billion down by 193 million analyzed mpl formation ratio was 1.04 down by 0.09 percentage point the disposal of mpl by the company in the first half was 28.28 billion yuan 11.05 billion was written off, 11.38% was securitized, and 5.64 billion was recovered by collection. We effectively manage the risk in real estate business, local government financing business with overall quality of assets under control. Corporate retail loan balance total 315 billion down by 18.7 billion yuan and accounting for 5.26% of the total loans and advances of the company. Retail industry's NPR ratio was 5.45%, up by 1.46% compared with the end of last year, mainly influenced by individual highly indebted clients' further release of their risk and the slow risk disposal progress, and also the lower balance of the real estate loans. The total balance of the business for which the group did not assume credit risk amount to RMB 247 billion. For the local government financing platform business involved a company and CNB wealth management was 248 billion down by 15 billion, among which corporate loan extended by domestic branches was 137 billion accounted for 2.29% of the total loans and NPR ratio was 0.14% remaining at a good level. Next, I will briefly introduce the company's outlook and strategies. Looking into the second half of the year, the banking industry faces a number of challenges and opportunities at the same time. In terms of challenges, firstly, there is an increased uncertainty in the international environment that can be attributable to high global inflation, further interest rate hikes by European and American countries, weaker driver for global economic and trade growth, and rising international Geopolitical risks. Secondly, domestic demand remain insufficient and can be attributable to the prominent contradiction from insufficient demand in economic operation, weaker drivers for consumption, investment and external demand, longer time required to recover personal income and confidence of citizens. And thirdly, the banking profitability, it is more difficult, it can attributable to intensified competition, narrow banking interest spread, with a new normal of low interest spread and low rates possible in the future, leading to heavy pressure on revenue growth. At the same time, economic recovery continues in China, bringing new opportunities to the banks. it is mainly reflected in firstly as the national coordinated regional development is further deepened key regions in china are full of vitality with good momentum and secondly new economy new forms of business and industry with new growth engines are having rich business opportunities with great potentials in green economy inclusive finance and technology finance and thirdly wealth management market continue to expand, and there are still great market potentials in the retail finance area. As we are faced with these challenges, we will stick to our strategic objective of building the value creation bank and construct our core competitiveness with differentiation. Firstly, we will continuously maintain strategic focus on retail finance and continue to consolidate our advantages. We will maintain the supporting role of retail finance as a company and its strategic mainstay, speed up the construction of people plus digitalization, enhance its coordinated development without a segment, and let retail finance become the platform of wealth ecology, the cornerstone of asset business, the driver of flywheel effect and the leader of value creation. Secondly, we will strengthen asset liability management, optimize asset allocation, enhance liability assets. We will stick to the principle of expansion, increment, price stability, and quality assurance to guarantee the loan extension to retail assets. and stick to our liability structures that take core deposit growth as the mainstay to control the high-cost deposits and maintain our low-cost fund advantages. Thirdly, we will strengthen our customer base, expand and optimize capital-like business. We will strengthen customer group construction, expand AUM scale growth, and continue to optimize their structure and increase our core competitiveness in wealth management business. Fourthly, we will accelerate the development of branches in key areas and continue to improve their value creation. We will customize development strategies for branches in key regions such as Yangtze River Delta, Pearl River Delta, Chengdu, Chongqing and West Strait economic zones and enable their fast development for new growth engine with increase in both the regional market share and their contribution in the bank. Fifthly, we will insist on innovation-driven development and establish new advantages in niche market. We will further promote digital transformation and carry out the upgrade of process, product, service, management model, and other aspects, and move actively in cross-border finance, pension, green auto, consumer finance, and other business, and to build advantages in terms of product, niche market, and customer groups. Sixthly, we will strengthen comprehensive risk management and stay firm to the bottom line of risks. consolidate the foundation of risk management, and strengthen risk prevention and mitigation in key areas, and effectively manage credit, market, liquidity, interest rate risks, compliance risk, and other risks, and to firmly build a fortress-style overall risk and compliance management system. Thank you.

Thank you, Director Wang. Next, Director Wen.

Thank you for your introduction. Now we are going to the Q&A session. Since there are many participants today, so everyone should raise only one question each time. And we will have two questions raised by on-site and one from online. Please state your name and the institution that you represent before your question.