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Edited Transcript of 1658.HK earnings conference call or presentation 21-Aug-19 1:00am GMT

Half Year 2019 Postal Savings Bank of China Co Ltd Earnings Call (Chinese, English)

HK Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Postal Savings Bank of China Co Ltd earnings conference call or presentation Wednesday, August 21, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chunye Du

Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary

* Jiawen Qu

Postal Savings Bank of China Co., Ltd. - VP

* Jinliang Zhang

Postal Savings Bank of China Co., Ltd. - Chairman

* Xueming Xu

Postal Savings Bank of China Co., Ltd. - VP

* Xuewen Zhang

Postal Savings Bank of China Co., Ltd. - Executive Director

* Zhibao Shao

Postal Savings Bank of China Co., Ltd. - VP for Retailing Sector

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Conference Call Participants

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* Shujin Chen

Huatai Financial Holdings (Hong Kong) Limited, Research Division - Chief Financial Analyst

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Presentation

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [1]

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Dear respected analysts and investors from different media, ladies and gentlemen, good morning. It is a great pleasure for us to meet you once again in Hong Kong to report to you our business performance in the first half of this year. I am Du Chunye, the Secretary to the Board of Postal Savings Bank of China. I'll be the moderator of the results announcement. In Beijing and Hong Kong, we have the venues connected for this presentation. And we also welcome to friends online, and thank you very much for your great support to our bank.

In the first half, under the leadership of Mr. Chairman, through our press -- from our results and as mentioned, the roadshows as well as the other events, we have been communicating [effectively] with our friends, analysts and investors. Your insights and your recommendations have been adopted and implemented into our daily operation for the bank and that they are also delivering good results through our -- as well as through the operations. That's why here we are reporting to you our results announcement, to collect some more opinions and recommendations from you.

Now before we start, I would like to introduce our management team. In the [Beijing] venue, we have Mr. Jinliang Zhang, Chairman of the Board; Mr. [Yuejun Chen], Chairman of the Supervisory Board; Madame Yao Hong, Executive Director and the Vice President; Mr. Xu Xueming, Vice President; and in Hong Kong venue, we have Mr. Zhang Xuewen, Executive Director and Vice President; Mr. Qu Jiawen, Vice President; and Mr. Shao Zhibao, Vice President.

Meanwhile, online, also here we have managing staff from the different departments of the bank. And in Beijing venue, we have the department heads as well from the different departments. So all together, we have department heads from 30 -- 23 departments. So during the press -- during the results presentation, [Zhang Xuewen] will share with you our business performance first. And we also provide simultaneous interpretation services to you.

First of all, shall we invite Mr. Zhang Xuewen to share with you our business performance in the first half of this year.

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Xuewen Zhang, Postal Savings Bank of China Co., Ltd. - Executive Director [2]

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Good morning, ladies and gentlemen. It's a great pleasure to share with you the operating results of PSBC in the first half of 2019. This year marks the 100th anniversary of launch of Postal Savings business and also the first year that PSBC was subject to the [position] as a large state-owned bank. Under the leadership of the new Board of Directors, we will fully implemented all the major policies and plans made by the Party Central Committee and facilitate social and economic development, pursuing progress while ensuring stability.

By the end of this -- end of first half of the year, our total assets reached RMB 10.07 trillion, with an increase of 5.79% over the prior year-end. The customer deposits exceeded RMB 9 trillion to reach RMB 9.1 trillion, with an increase of 5.49%. The operating income is RMB 141.7 billion, with an increase of 7.02%. Profit before provision is RMB 68.4 billion with a year-on-year increase of 18.81% and the net profit increased by 14.98% to RMB 37.4 billion and the long-term deposit ratio has reached 51.66%.

In the first half of this year, the bank was selected as one of the top 100 Hong Kong stocks, went 20th in the main list and rose further to 22nd in The Banker's Top 1,000 World Banks in terms of the first year capital. And Fitch and Moody's gave PSBC A+ and A1 rating, respectively, which is the same as China's sovereign credit rating. Standard and Poor's gave PSBC an A rating, which is the highest rating among domestic peers.

Now let's see the business highlights in the first half of 2019. First, we remained true to our original aspirations and [saw] the real economy in a solid way. Our total loans to customers stood at RMB 4.7 trillion, with an increase of 9.93% over the prior year-end and the inclusive loan to small and microenterprises stood at RMB 612.6 billion, ranking second among the industry. And the loan accounts registered 1.51 million, ranking first among the industry. The consumer loans increased by RMB 150.46 billion to RMB 1.84 trillion. We've granted RMB 209 billion corporate loans to Xiong'an New Area, the Beijing-Tianjin-Hebei region, the Guangdong-Hong Kong-Macao Greater Bay Area, the Yangtze River Economic Belt, and we adhered to the green development principle and the balance of green credit was RMB 210.4 billion, with an increase of 10.52% over the prior year-end.

Second, we adhered to the strategic position and highlighted other retail features. Who wins the real retail markets can rule the world, and we have a retail [gain] since our birth. In the first half of this year, we have made progress in terms of retail customers, personal deposits, personal loans and income from personal banking. Now the retail customers increased by 11 million to 589 million, ranking second in the industry. The e-banking customers increased by 20 million to 297 million, and exceeded 300 million in July this year. The mobile banking users increased by 21 million to 239 million, ranking fourth among the industry. The personal deposits increased by RMB 452 billion to RMB 7.92 trillion, accounting for 87.02% of total customer deposits. And the personal loans increased by RMB 230.2 billion to RMB 2.55 trillion, accounting for 54.24% of total loans, which ranks the [first] among the industry. The proportion of personal loans to total loans to customers remained about 50%, and we had issued 1.94 million new [UGC] cards. The newly issued credit cards reached 5.2 million and the credit cards in circulation amounts to 27.52 million, which is 19% increase rates. And the growth rate is ranking the [third] among the 50 major issuing banks domestically. The income from personal banking business was RMB 86.85 billion, up 8.59% and accounting for 61.30% of the operating income, with an increase rate of 0.89%.

Third, we deepened reform comprehensively and promoted transformation and development. The new Board has gone from the angle of future development and made great efforts to push forward a series of fundamental work, which promises long-term benefits. We improved the strategic development bank plan and built up our unique advantage of new retail banking. We strengthened technological empowerment by increasing inputs in IT, talent, team building and fostering new driving forces for technology bank development. And we have launched systematic transformation of outlets. We cumulatively kept 5,540 counters and adjusted 3,384 tellers to other positions. We accelerated [filling out] of the financial ecosystem, achieved accurate customer acquisition in batches and realized online and offline integration. We deepened cooperation with strategic partners by signing the new strategic cooperation agreement with JP Morgan Chase and DBS Bank, advancing asset management cooperation with UBS and conducting [events cooperation] with Tencent and Ant Financial in various fields. Meanwhile, substantial progress was made for the A-share offering and listing with the fifth application to [CSRC] completed. We launched the perpetual bond [issuance] plan and has extended capital replenishment channels.

Fourth, we adhered to sound and prudent operation and kept leading the industry in terms of asset quality. In a volatile market environment, everyone is focusing on the asset quality of the bank. In the first half of this year, the NPL ratio was only 0.82%, less than half of the industry average. And the NPLs and special-mention loans accounted for 1.49%, which is less than 1/3 of the industry average. And provision coverage ratio reached nearly 400%, which is more than double of the industry average. The proportion of NPLs to loans overdue for more than 90 days reached 1.24. And the loans overdue for more than 6 days and the loans overdue for more than 30 days, classified as nonperforming loans, accounted for 99.7% and [97.1111%], respectively.

Fifth, the bank improved asset allocation and continuously consolidated growth visibility. Our ROE and ROA were 16% and 0.77%, respectively. The cost-to-income ratio was 50.95%, down 4.85 percentage points as our bank with assets of over RMB 10 trillion, would really make that elephants can dance. And our fee-based business achieved income of [RMB 9,339 million]. Our net -- maybe you have noticed that our net interest margin fell slightly compared with the same period last year. This is what we had expected last year, and we had made active measures, strengthened cooperation with postal enterprises, consolidated our advantages on the liability side and continuously improved our asset structure. Our net interest margin was 2.55% for the first half of this year, maintaining the leading label among the industry. As the interest rate liberalization reformed, [merging to tracks] are advanced. The interest margin across the industry will face the pressure to [the first scenario], but we have the ability to revisit.

First, we have a unique asset structure and there is still ample room for the long-term deposit ratio to increase. And second, our retail position is clear. And looking forward to the second half of 2019, the pressure of global economic downside risk still exists, and the domestic economy is also facing the cyclical and structural problems. We're facing the challenges and risks. We will focus on doing a good job in our own business. We will push forward the new retail development mode, featuring attracting customers, retaining customers and tapping into customers' value. And we will still focus on the following work: First, we will take solid action to push forward transformation and upgrading. The key work now is to transform our potential into actual productivity. One action is better than a dozen of plans. We will push forward the systematic outlet transformation to make the bank intelligent, light and comprehensive, and we first activate the [validity] of nearly 40,000 outlets.

And the auxiliary microfinance at agency outlets has been highlighted in 6 provinces. And through the [4 types of covers] and the 10 services, we will realize customer acquisition in batches and consolidate our advantage of liability. We have pushed forward online business transformation through digitalization and building platforms, we will push forward the development of new-generation retail credit factory. We will -- leveraging the advantages of the fund and invest more funds in major national strategies and key areas such as Xiong'an New Area, Guangdong-Hong Kong-Macao Greater Bay area and the Belt and Road initiative, and integrate low-risk business lines and realize the transformation towards customer-centric, integrated financial service model.

Second, we will continue to make progress while maintaining stability and stick to the bottom line of asset quality. To secure the sustainable development, we must stay in awe for the growth of the industry. Regarding credit and noncredit business, we believe it is as important to be humble as to be innovative. We will build a full range, help process [and] all staff risk management system and strengthen asset quality management. We will continue to focus on large-size enterprise and small and microenterprise customers and strict, controlled incremental business risks, actively mitigate existing risks, timely exits from high-risk customers, continuously enhance the credit risk management capability.

Third, we will take multipronged measures and strengthen technological-driven development. On one hand, we will deepen the form of institution and mechanism, comprehensively launch a new generation of personal banking co-system across the bank, set up the fintech innovation department and build a new IT work node. We will set up a science and technology innovation fund to support the incubation of innovation projects and open a green channel for fintech projects. And we will strengthen the IT talent team building and the number of the persons of the IT team of the headquarters will be double at the end of 2019. In 2018, our investments in IT accounted for 2.75% of our operating income and this figure will increase to about 3% this year. On the other hand, we will have an open mind and sharing idea to continue to cooperate with fintech enterprises to accelerate the building of the distributed architecture and the 5G intelligent outlets.

Fourth, we will stimulate intrinsic potential and build a win-win ecosystem. It is inevitable for banks to conduct vertical and horizontal cooperation. We will make full use of our advantages, build various scenario platforms, integrate financial services, delivery service and rural e-commerce with the customers' production and life. We will cultivate the [scenario of service] for the standalone financial service, consumer finance, interbanking business and others. At the same time, we will strengthen the resource sharing with Tencent, Ant Financial and other strategic investors and deepen cooperation regarding the online and offline integration. We will cooperate with JP Morgan Chase and other institutions to promote outlet transformation. We will make full use of our respective resources and advantages to achieve mutual benefit and win-win results.

Fifth, we will include management capabilities and lay a firm foundation for long-term development. We will do a good job in economic capital management and strengthen capital return transformation. We will optimize financial management and ensure performance evaluation. We will carry out operation management and promote transformation towards digital and intensive operation. We will strengthen human resources management and attract talent with an open mind in various business fields. We have an open digital recruiting and the hunter's recommendations. We will improve the existing HR mechanism and adopt a flexible appointment, dismissal, promotion, demotion and compensation mechanism for employees to fully stimulate the organizational volatility.

Finally, thank you for your long-term support and attention for PSBC. PSBC has [built] and developed, with your witness. In the next step, we will bear in mind that time and tide wait for no man. We will accelerate the reforms and transformation, continue to maintain high-quality development and reward our investors with satisfactory performance. Thank you, all.

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [3]

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Thank you very much, Mr. Zhang, for your presentation. I believe that you've got a clear picture from the previous presentation how we are working hard to maintain high quality for growth and the transformation for a new type of a retailing business.

Now I would like to open the floor for questions.

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Questions and Answers

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [1]

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For the interest of time, I would like -- for the interest of smooth operations, I would like to take questions from the Hong Kong venue first and then later, Hong Kong venue. And also, for the interest of time, please raise just one question per person. And before you raise your question, please identify yourself. Now the first question, please.

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Shujin Chen, Huatai Financial Holdings (Hong Kong) Limited, Research Division - Chief Financial Analyst [2]

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Chen Shujin from Huatai Research Institute. My question is about LPR reform and [service name]. PBOC announced that there's the LPR reform several days ago, and just want to know for PSBC, what is your take on it? And how are you going to do it?

As for NIM, I noticed that the management said that you will have difficulties in the market. The bank has still realized the 2.55% NIM in the first half, even though there was a slight drop. However, comparing with other competitors, it is still high. So how are you going to maintain this advantage?

And how are you going to manage the NIM? How do you think about the savings and the loan, the interest rates? So do you think that the -- the long-term finance rates, how are you going to [read] it?

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [3]

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Thank you very much, Shujin, for your questions. I would like to invite our Chairman, Zhang Jinliang, to answer it.

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Jinliang Zhang, Postal Savings Bank of China Co., Ltd. - Chairman [4]

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Thank you for your question. Recently, PBOC just announced the -- after finishing the management [of our FJR] program it is also for the sake of improving the efficiency of the passing of interest rates. Now this is also a very important milestone for the interest rate marketization. According to international experience, in the very early stage, usually the NIM for all banks in the short period of time will suffer from the pressure of a tightening and a narrowing because of a [double] infrastructure and reliability structure. Therefore, the influence can be different to different banks. However, considering the present level of loans, so it, they predict, is also very high. So I will -- overall, we think that it is controllable.

For PSBC, there are challenges, yet there are opportunities as well. Now let me focus on the opportunities first. First of all, we have about 5 -- 600 million individual customers here for PSBC, this is very big. Because of the interest rate marketization, we have to mine deeper of this one, and this is a very important growth point for the bank. Secondly, for the bank, we have been sticking to the original strategy for a long time. Therefore, for interest rate marketization, we believe that we have a pretty good adaptability. Mr. Zhang said in his presentation that for the individual banking sector contributed over 61% in our total business. That is pretty high among all the banks. But this is a very special opportunity for us. In the past several years, our NIM has been leading ahead of others. Last year, we were ahead of the top 5 banks by 60 basis points. And this year, the NIM narrowed down a little bit mainly because of the influence of the interest rate operating at a low level in the market as well as having more competition. This fits for the overall trend in the industry. In the first half, our business performance is pretty good. And the profit before provision as well as net profit realized a 2-digit growth, pretty high, and the provisioning rate is also increasing year by year. Therefore, how to maintain the leadership of our NIM as well as of our ability, we have full confidence.

Now I would like to share with you very briefly from the asset front and the liability side as well as the revenue, assets and cost sides. First of all, from a liability end, we have to go deeper to our advantage of setting sort of reduced financing cost. Along with the marketization of the interest rate in China, how to acquire low-cost financing has been a very important core competitiveness for a commercial bank. All of this -- the lower financing cost can lead -- serve real economy better so that we can effectively reduce the financing costs for all the businesses. So in order to reduce the financing cost of all businesses for our bank, we have to reduce our managing cost first. In terms of the savings, our mentality is that we stick to the quality as well as efficiency first. We do not pursue for the market share for savings purposely. We do not pursue for the scale just mean that, that should be #1. So the quality and the efficiency will be more important. So we work hard to absorb the high quality of our savings. We are running 40,000 outlets for the time deposits. And as far as the low interest rate on savings, so those are our targets. So this is about the savings. Specifically, our strategy is for individual customers as well as for corporate customers, the payment settlement will be one strategic task for us. Through the payment settlement, we can improve the stickiness of the customers and reduce the sensitive to -- or sensitiveness to interest rates. So the assessment, the clearing, cash management, custody, the agency services like salary payment, the pure account payment as well as certain other payment services. So those are areas that we can work hard to improve the stickiness of the customers.

Corporate customers, we attract more through transaction banks. So for example, the coverage online banking, the cash management service center support. So we must improve our quality of our services. So this is about the liability end.

As for asset side, we optimize the asset structure to improve the overall yield of assets. First of all, we must improve -- keep improving our savings and the loan ratio. The yield of our loans is higher than the financial investment yield some -- by 92 basis points. So if we can keep improving the ratio, then the asset yield can also go up accordingly. In the past few years, this ratio has been going up year-by-year. In 2016, it is 41%. And in the first half, it was over 51% already. In the upcoming 3 years, this ratio will continue going up. Therefore, our yield will also be brought up accordingly. So this is something that other banks don't have. The average yield is over 70% for the banking center. Secondly, for the regional banking, it will be another area we will work on, and we hope we will work hard to improve its contribution because of the impact from the market. So this is different from the corporate loans. Retailing loans. So it will be another area that we must improve to improve the overall yield of loans.

As [Alexis] said, we will focus more on the growth of our retailing loans, particularly in terms of controlling in -- under the solutions for controlling risks, auto loans and the comprehensive loans of projects, installment loans we're going to support, those are the key areas of our retailing loans. This is a very clear positioning of retailing loan. 6% of the newly added loans are -- were directed to retailing area to support the post consumption operating needs.

So as for the individual loans, it's CNY 2.55 trillion, accounting for 54% of our total loans, already beyond the 54% among all the banks. So this is pretty high for retail loans. It's over 55 -- 54%. So this is about asset end.

As for the -- our revenue, right, we must keep improving our capability and improve the revenue. For the handling fee, the commission fee, this is a 55.7% of growth, and this is a very high speed of growth comparing with other banks. But you must see that for the intermediates business, our revenue is only 6.59% of our total revenue, and this is very low. This means that there's a great potential ahead of us.

In the future, we will focus on the following areas to improve on the revenue from the intermediate business. Number one, credit card business. So the gap is mainly reflected on the credit card business because we haven't done a good job in this area. Sounds like we are going through a reform to -- into this department, and we are recruiting more people so that we can improve the size as well as the quality and efficiency of our product agents. So this will be the major point for our intermediate business growth.

So in the first half, we -- our total number of our credit cards issued is only 27 million. In terms of the digitalization, we will focus on the QR code payment collection so that we can bring along the growth of our credit card business in the bank. In the first half, the commission fee increased by 40% in the e-cards payment. So this is also a very high-speed growth. So that is we're having Tencent as well as Ant Finance (sic) [Ant Financial], Alibaba.

Number three is agency services. For example, the agent services of our [sales and for sale] funds and the wealth management products and the insurance as well as precious metals. We have our sixth -- 600 million customers as well as over 40,000 outlets. And so there's great potential in this area. Through our agency services, we can have more customers to diversify the asset allocation. Meanwhile, we can also attract more time deposits. So for the security underwriting as well as asset securitization, there's also great potential in these areas. So this is about the intermediate business.

And finally, the cost side. Two things. Number one, we must manage two risks: the risk cost as well as operational costs. First of all, we must control the quality of assets to reduce the cost of risks because for -- our asset structure is a very rational one. In terms of profile, we are better at resisting the risks in the economic cycle. Our asset quality is good. And in the future, we will continue to improve the quality so that we can maintain good asset quality and, second, our clean balance sheet. In this way, we can control our credit loan result of a very good level and create more values to our shareholders.

Number two, through the technical impairment, we can greatly reduce our operations cost. In the first half, our cost-to-revenue ratio is 58.9%, down by over 4 percentage points. Operational efficiency has been improving. However, some analysts have been telling us that your cost-to-return ratio is over 50% is still very high. So therefore, we see great room for us to further reduce this ratio. So the main means will be through the technical impairment through R&D, through the big data, technical -- technology application. So we must shift the offers to more and more digitalize the bank to improve the operational efficiency and improve the cost of distribution.

So generally speaking, I believe that for -- to the -- or to PSBC, we have the DNA for retailing, we have a unique asset structure, and we have a very prudent operating culture. So for us, we will never be aggressive. We can start gently, of course, from interest rate marketization. We have confidence that we can keep leading in terms of the NIM, the risk management as well as the financial operations. Thank you for your question once again.

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [5]

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Thank you very much, Mr. Chairman.

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Unidentified Analyst, [6]

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[Haitong Vachanda], [Wan Li]. My question is about asset quality. We have noticed that through the ongoing pressure from macro economy, asset quality of the bank is also suffering from a pressure. According to the data from the CBRC the quality of assets is generally going down. And for PSBC, you have a lot of agriculture-related products, and in the second quarter, we noticed that your provision rate is improving and your asset quality is also improving. Just want you to know what you have done to date. You are a very young bank among all the big banks, and your asset quality is very good. Is this around your new credit expansion? Your credit growth is also very high. So how are you going to do to guarantee the quality of your assets?

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [7]

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Thank you, [Wan Li]. Thank you for your questions. I'd like to ask Mr. Zhang Xuewen in Hong Kong venue to take it.

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Xuewen Zhang, Postal Savings Bank of China Co., Ltd. - Executive Director [8]

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Thank you for your question. So actually, our Chairman has already answered part of the question just now. A clean balance sheet as well as good asset quality have been our key focuses for the bank. Now this is also the value of investment for us. This is also our business card. In the first half, our advantage has been further consolidated and enhanced. Just now in my presentation, I gave out some figures you may have already heard. So I just want to repeat some of the figures.

In the first half, our NPL -- the NPL is 0.82. This figure is less than half of the average in the bank -- in banks, and it is also below that of the end of the last year. For the special mention NPL, it is only an amount representing to the 1/3 of other banks. For our asset quality, you can see, it has been further improved and consolidated. Meanwhile, we have been implementing more prudent risk and related policies as well as the other policies.

So I can share with you some more figures. So the NPL over the 90 days, this is the value, is 1.23. The overdue 60 days as well as the overdue 30 days as part of NPL ratio is 99.97% and 97.11%. Our provision coverage is about 400x. It's more than double than other banks in the industry. Now this is a big increase comparing with that of last year.

The reason why we are able to keep improving our asset quality continuously is because we have been very strict in controlling the newly-added NPL. As for the existing NPL, we also carried out more stringent measures to dispose them and just through more stringent inspection and information for early identification and early handling. So this is about the first half this year.

In the future or in the second half this year in the future, we'll be continuing implementing our policy from allocating the larger responsibilities, turning out our tasks stringently as well as evaluating our -- evaluating and reviewing our operations to keep improving our risk management. Specifically, we will work on, number one, we will keep optimizing our asset quality, expanding our retailing loan proportion. You may have noticed for the bank we have a tradition as well as advantage of retailing. It's in our DNA. In the first half, so our features of our retailing bank has been further reflected (inaudible) the individual banking sector. If you look at the proportion or contribution from this sector as well as the total revenue, all the retailing loans to the total loans as a percentage, particularly our retailing customers, in the first half, of the e-banking customers, so the mobile banking users, they are growing in the unit of 10 million. You know that the retailing bank, particularly the retailing loans, retailing credit, is a small amount, and the risks are quite distributed. So therefore, the advantage -- we have the advantage of fighting against risks in these areas. We said that we will continue working on improving our capability for managing the risks. So this will be a very effective way that we can do.

Secondly, we will go on sticking to the policy of prudent risk management. This is the fundamental thing for us. Specifically, number one, with respect to the stringent risk management from industrial, regional, commerce side, product side, from these 4 dimensions, we will work out our -- the credit limit policies. Meanwhile, we will also stick to the constraint of our total capital. Through these 2 measures, we hope that we can direct capital to the areas that has a balance of risks and returns.

Secondly, we will strictly limit the entry -- entrance in terms of our customers with high qualities -- high risks, specifically for those of the multiple credit, over-credit as well as those financing from shell businesses, related party or the incompliance financings and support. And so the falsified financial report will also be further checked and handled. We will also work out a responsibility system. So this is a new system we put into place in the first half for the purpose -- for seeing all the responsibilities are being carried out. Whoever does it, who must take the responsibility and who must sign on it, so you take the responsibility. And next one, we will work out a progression system for all the classification of our different assets so that they are -- throughout the bank, we can control the newly added NPLs. So these are our risk policies.

So thirdly, we will do our optimizing our methodology and the tools of risk management. Particularly, number one, we will adopt big data related to risk management methodology and models. Number two, we will keep optimize our risk evaluation system internally. That is to say we will use big data to optimize our methodology and the tools of our risk management. Number four, we will we take more measures to dilute and dispose risks and NPLs. So we'll set up the periodical risk handling system. So this system has been in place for many years, and it must keep improving so that we can identify risks earlier. And for the other state of risks and the assets revoked, we must dispose them. We must handle them as quickly as possible. For those assets that are already NPL, we must handle them in a more stringent way. So we give them the measures and the different channels. So currently, we have the condition because of -- our provision coverage is close to 400x, and we have the full capability to dispose all those NPLs.

So all in all, we have that -- through taking these measures, we can manage and control risks in the future. We have confidence that we can maintain a clean balance sheet for the bank as well as a very good quality of our assets, our great advantage. Thank you very much. Thank you, Mr. Chunye, next question, please.

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Unidentified Participant, [9]

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(inaudible) from Hong Kong Commercial Daily. So I think as we heard from the management, retailing has been a feature for the bank. In May, during the Capital Market Open Day, the banks, et cetera, so you got a bit of a new blue ocean of retailing business, and you're going to deepen the transformation of all the outlets. Recently, when I was in Shenzhen, I experienced, your new retailing experience center in Shenzhen Bay. So just first of all, my understanding of the bank. But looking at other banks in Mainland China, retailing has been a major focus of transformation. So for you, how can you further consolidate and enhance your advantage? Can you please share with us in terms of the transformation of our retailing what are your take? And what is your plan for the future?

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [10]

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Thank you for your questions. I would like to invite Mr. Shao Zhibao, our Vice President for the retailing sector, to take it.

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Zhibao Shao, Postal Savings Bank of China Co., Ltd. - VP for Retailing Sector [11]

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Thank you for your question. Constantly, retailing business has been going more and more smart and centralized. This is emerging with the different platforms and scenarios based on big data analytics and also cross-selling. We can go deeper to mine the customers' retailing needs. So for a long time, the bank has been speaking to the [FRSFA] for growing retailing from a strategic front. We have 40,000 outlets and finance 589 million customers, as you may have already heard from our presenters. For the individual deposit users, it's CNY 7.92 trillion, but their savings account for 87% of our total savings. So this is also #1 among all the banks. So you can see we have a clear future of our retailing in our business.

So we have been improving and consolidating our advantage.

This year, basically, for the transformation of a new retailing, we have done greater [loans] of our bank. For the interest of time, I would like to report to you very briefly on the areas that we have done to improve it. In terms of [top new] fund, we have formed the big retailing segment by connecting the asset side and the liability side, the connection of these 2 sides, to realize the sharing as well as the -- mutual sharing and cross-selling. Number two, outlet is another feature we have. That's why we have enhanced our efforts in digitalization and the transformation of all outlets. Such a transformation, well, I could explain to you in 2 area -- in 2 aspects. Number one, in hardware. In terms of hardware, our assets are going more and more smart. That's our improvement. That's our imports. In terms of smart terminals, we have already deployed 1.3 ATM in the outlets in the future. This improvement -- this import will continue for more frequent itineration and more intelligence. Meanwhile, for the e-funding program, we will also go forward quickly. So this is about hardware.

In terms of our software, we have enhanced our over-the-counter operations procedures for the purpose of our automation. Just now, Mr. Zhang already talked about it in the first half. This morning -- in the first half, we reduced 5,541 operations by just -- by reducing about 2 -- 300 tellers. So all this -- all of them are actually transferred into our sales team, all those people. So currently, all the tellers are the -- are newly recruited college graduates with a very good quality of their students. And through our retraining, we can put them into our sales force. On the other hand, we also work hard to improve for the concentration of our -- concentration intelligence of outlets. Through our imports to the credit factory, we can -- or our efficiency improved by 56%. Meanwhile, we have saved 80 -- 58 for the whole position, for core personnel. Meanwhile, we also work hard to improve our 2 major projects, that is the marketing project as far as the performance evaluation project. So for all the outlets, we have taken different measures to -- through our intelligent terminals. Through our comprehensive marketing system, each personnel will be able to know what are his tasks and what is the figure of his work setting so that his performance can be evaluated and motivated. In this way, we're going to motivate the working efficiency of all the frontline employees.

Thirdly, we have built up a 3-in-1 new retailing business model. In -- on the context of profitable innovation in business, we make use of technologies and take -- by taking the customer in the center, we have speeded up of the 3-in-1 new retailing business model. Specifically, these are rationale for usage: Through our online and offline, we can build up the open life ecology so that we can attract more users for the bank. We have many outlets, and they are located in different areas through our advantage for outlets and their resources. Plus our active efforts of cooperating with the top 10 online platforms, we have a build up the explore platforms and the exchange product platforms and the members shopping more and so on and so forth and our way of special business circles so we can build upon platforms to enrich people's life. So with all those platforms in place, we can launch activities, provide the [evidence] and the services to attract more customers to get involved and integrated into our own -- the platforms of life scenarios. So in their life, in everything they do, in their work, we can find the right scenario to provide our services.

Through building up such a kind of life ecology, be it financial or nonfinancial, we can deliver the value to the customers. So this is about the direction of our customers. So their life cycle, we can direct the customers to our businesses so that they can be aware of our services. In this regard, we have already done some work. For example, today, so we have -- we just launched our PSBC Canteen, and in Beijing, many of you may have already loaded this. We tried it in the Suzhou Branch so for about 1 year. And it was very good. After a year, our newly added members was about 200,000. So yes, the past year, the total savings we then withdraw from them is about CNY 6.8 billion, so which is very good. This is a very good try for the life cycle.

And secondly, we go deeper with our customer base to further enhance our 5 [competitiveness]. In fact -- and therefore, we can tend to our customers better. So we have particular measures from different areas to keep improving our brand advantage, the online business advantage as well as our synergies as a group platform. Just now, we talked about the direction of users, and through these 5 advantages, we can attract and retain these customers. Meanwhile, we are speeding up. We're launching more activities.

And then number three is about the value discovery and the value mining. So we will grow together with our customers to mine higher value for them and promote the upgrading and the growth of our new retailing. So in this regard, our focus is on 2 areas: number one, the consumption finance and, number two, wealth management. Those are 2 areas of our focus. In terms of consumption with financing, we're focused on the online loans as well as business -- credit cards, other loans as well. So 3 fixed products. This will be based on our life cycle to realize online monetization in approving and to deliver better experience to the customers with a small amount, high frequency and small price. So offline, for those with the large model and low frequency, and the manual operations will be delivered to our customers.

So this is that we -- this is something that we have done to -- we have done online. The credit card, Mr. Chairman already talked about it just now. The credit card, if you look at the number of card [additions] as well as the revenue growth, we are still behind others, and there's a great potential for us to grow. And finally, auto, auto-related products. Wealth management is a certain area we will realize as quickly as possible of our services to medium- to high-end customers. And so what we are working on is setting up the R&D team for this purpose to deliver attractive products onto them. So these are the 2 areas which we've been working on to improve the values to the customers. At the same time, in order to build up the new 3-in-1 new retailing business model, we have done a series of the work subject to 3 turning [handles]. Number one, the savings. So we have issued 4 new cards for ETC; for the veterans; for the Tencent, the joint-branded card; for the agency services, for example, salary payment, as well as the consumption in different scenarios. So through a series of measures, we are working harder to improve to attract more savings.

The second one is increase our revenue through better marketing capability. We have been able to realize the expanded growth of our retailing and further improvement in risk management capability. The number ten measure is on the transformation [for reassuring] of our customers' -- the data as well as the 360-degree view of all the data as well as the event-based marketing via scenario building. We have to realize the steady growth of our retailing business. In the second half, we will definitely accelerate in implementing these 10 measures.

And then finally, about the new retailing, so today, the PSBC Canteen just went online. So from today on, we will -- we are different. Thank you.

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [12]

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Thank you very much, Mr. Shao, for your -- so in terms of the slides, it is already past 10 o'clock. Since we have another venue in Beijing, I think that I would like to take 2 or 3 questions from our Beijing venue. So just -- I believe that you must have a lot that you want to talk to, but just to try to be brief. Okay. So the Beijing venue, please. Mr. Xueming, please take questions from Beijing venue. Thank you.

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Xueming Xu, Postal Savings Bank of China Co., Ltd. - VP [13]

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Thank you. Dear investors and dear analysts, our dear friends from media, now I would like to take questions from the Beijing venue. The first question, please? Please identify yourself.

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Unidentified Analyst, [14]

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[Huang Zhou] from [21st Century Economic Report]. I just noticed that the [monthly release] said you again to make use of the technical empowerment. So in the first half, we have already seen that you are recruiting more and more technical talent in the market. So all banks are talking about the technical-related inputs, even selling off the subsidiary for technical purpose. So what are you going to do to attract more technical talents? So what about the cooperations in the future? And so do you have any specific plans to grow in technology internally or join with others?

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Xueming Xu, Postal Savings Bank of China Co., Ltd. - VP [15]

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Now I'd like to ask Mr. Qu in Hong Kong venue to take this question.

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Jiawen Qu, Postal Savings Bank of China Co., Ltd. - VP [16]

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Thank you for your -- this question even though it is far away back in Beijing. What you said is absolutely right. In 2019, in terms of the information and the technology, our inputs, our efforts for equipment have been greatly enhanced, greatly increased. Why? Because you all know that the technology on the fintech has been growing -- has become more and more important for the whole ecology. I think that it is crucial for us, either you embrace new technology or you will be phased out quickly. For PSBC, we need to trust that we have fully understood the importance of fintech. This morning, we took extraordinary measures to enhance our team building to promote the [Agilent] development -- agile development as far as implementing technical innovation. So now we are working hard to build up our team of information and technology.

We hope that we can recruit the people, we can retain those people and then use them well. So this is ecology we want to build up. I must say that in this cause, we have taken some very effective measures in order to guarantee that we have the attractiveness to those IT talents. So specifically, number one, we just broke the traditional recruitment mechanism. Just as Mr. Zhang said that the compensation can be high or low, the position can be high or low, and they can -- the personnel can be moved in or out. So from this year on, at the group level, we will offer 10% more based on our basic salary to all those IT talents. Meanwhile, we have also collected -- built up the promotion channels for those talents.

Secondly, in the first half at the headquarters, we set up the fintech innovation center in terms of artificial intelligence, big data and the blockchain with a total 10 areas. We have a build-up of our leadership of our talent. Meanwhile, we also set up an CNY 10 million innovation fund. At the same time, we -- this is our 1+ N+36 innovation platform. All those measures -- through all those measures, we have formed such an environment that everybody innovates and innovation is encouraged.

The innovation is based on people. So therefore, number three, we have taken different measures through social media, through [temps] recruitment through headhunters, will help to attract as many people as more people as possible. Our team has been expanding quickly. In this process, we have specified to a goal of double every 2 years. So in terms of '19, at the headquarters, our IT -- number of IT people next will be -- is doubled. Next year, the IT -- the number of IT talent will also be doubled at the headquarters. So far, 2010 -- so far, the goal we set out in 2010 has been hit.

So through the -- through all these measures, our new innovative results are also emerging, for example, big data, artificial intelligence, cloud computing, including blockchain. So a lot of areas. Our cloud computing services, for example, we have over 40 systems that are operating on private cloud. So all the employments of our blockchain. I must say that we are the first among all the banks to adopt blockchain technologies and the more core technology into our core system. So we were also awarded of the Innovation Award in China. Of course, we will have the smart -- the customer surveys and the remote -- robot services, et cetera -- robotics. So all this, we're happy with the risk reduction and in efficiency improvement.

Being short, we take information -- we take IT very seriously, particularly for the Board. For a long time, we have been speaking to the Board on planning and adopting new technologies. And by taking advantage of such technology, we can speed up our transformation of digitalization for the purpose of building up the new retailing bank. So the specific measures, our number one is the implementing of the 13th Five-Year plan. We have a blueprint. So this year, there's top -- we have 10 platforms -- 10 projects will be kicking off. And in the near future, we'll build up our core systems for the individual banking services.

Secondly, we will keep building up our team on the IT team to cater to challenges in the market. Number three, we will further deepen the governance and the application of our technologies, hoping so that we can apply big data to cover the -- all our business process to [tenancy and to marketize] and a self-service type of business flow. Number four, we will keep promoting the deeper merge -- fusion of technology and business. So agile development is now going on. Meanwhile, we call it [A, B, C, D plus 5G]. So we will work harder to improve the customers' experience through adopting those technologies. And number five, we will continue expanding our cooperations with others, and [the way we] have the share open mentality, such as -- and financing the JD.com and the Tencent. So those are our coverages. Number three, we have already built up special trends of cooperation in terms of sharing resources as well as new mutual benefits. We have built up a very effective model. And in short, for the interest fund, we'll try -- honestly, it's still brief.

So we will take advantage of fintech. We hope that we can realize a leap-forward growth in the bank. In the future, the bank will be definitely a fintech-based bank and a digitalized bank. Thank you.

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Xueming Xu, Postal Savings Bank of China Co., Ltd. - VP [17]

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Thank you for your question. Next question, please. Please identify yourself.

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Unidentified Analyst, [18]

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[Betty Fung] from [Haitong Security]. I just want to ask a question about your subsidiary for wealth management. So this is a [competent time] for the market, and this is also a good opportunity for the bank. We have observed that you are recruiting the Chairman of the Board for the wealth management subsidiary. We think that this is a good direction. I just want to know what is the preparation for the setting up of this subsidiary? What is the plan? And what is the position of the bank on said subsidiary? So what about the transformation direction of this?

So wealth management can be very big. Is the over -- the [CNY 80 million] cover this? The existing is a nonstandard one. So can you please share with us what about those in the [project] for the net value of the business where you have the 600 million retailing customers? What about -- what is the net value in terms of our customers?

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Unidentified Company Representative, [19]

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Thank you for your questions. Let me take your question. On the [10th of May,] CBIRC approved us to start preparing for a subsidiary for the wealth management. And ever since approval, everything has been going on smoothly. Ever since last year, we already started preparing for the subsidiary through, for example, the organizational structure, the IT system, risk management, R&D capability buildup as well as the recruitment. For example, recruitment in -- on covering the recruitment, we recruited 100 people. At the end of July, they were all on board. And recently, we are starting on the possibility of the systems in the future, it sounds like we have already prepared to monitor 8 policies and procedures.

So in August of this year, that is [not normal sale], we issued 2 indexes. Number one is the bundle we issued. So the -- this is the rolling index for the wealth management. On the 2nd of August in the [Paloomba] terminal, we issued another one with overseas the assets allocation index. I feel that these 2 instance -- indexes symbolize that our investment of index has -- we have already met the first effect in the index investments for the subsidiary, particularly by building up the index-related products, that this is a very good start. Just when you're talking about the open-end site, we hope that we will update our application to CBIRC for the operations.

Your second question is about the wealth management transformation according to the net value customers. Let me take this question. For [Tenplay] for the AUM of [CNY 80 million], nonstandard assets accounts for 10%. So this business data comparing with other banks is basically the lowest. So that's why we don't have much pressure for transformation. As for the nonstandard assets under the resolution or how we will be [sentenced] in implementing the guidelines from the [sales balancing], specifically, number one, Bitcoin; number two, the back to the balance sheet; number three, to start new engines such as our long-maturity products. As we go back to the balance sheet, we see that there is no big pressure. So for those assets, return to the balance sheet, we will -- we were trying not to increase the risk. For the end of June, so the [CNY 17.4 billion] of assets are basically are also the [net value]. Particularly recently, one of the new value transition has been speeded up. So for example, currently this speed is 3.6x faster than last year.

In the future, we will actively promote the transformation, particularly in terms of the product system. So fixed income products will be our major focus. For the special mention and to [hinder] inflation, will also be our [sole] focus. This is inclusive by the [senior-carrying] type as well as of the anti-inflation type are also our interest areas. Just as you heard from our Chairman, we have a huge number of customers. Almost 70% of our customers are on the areas where they have a strong demand for wealth management, and they are more and more aware of our wealth management. So during the transformation, we will focus on improving the efficiency as well as the information disclosure. The right products will be sold to the right customers. Simply, we are speeding up our transformation of retailing, trying to build up the new retailing model. As a next step, we will promptly enrich our products, improve our efficiency and our services and deliver better experiences so that the customers can allocate their assets to us.

So think about the customer base, so if you have CNY 1 or CNY 2 per person, that is over 10 million, so that is about one point -- this is about [CNY 1.2 trillion]. That is a big blue ocean. Along with the establishment of the wealth management secretary, other impacts in the future, our new retailing transformation will be integrated to new energy and a new dynamic.

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Xueming Xu, Postal Savings Bank of China Co., Ltd. - VP [20]

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Next question please?

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Unidentified Analyst, [21]

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[Thomas Ecru] for [Berlin]. I only have one. For the [our BOE] Asia market, what is the update? We noticed that yesterday the bank now announced that the perpetual band -- the perpetual bond issuance has been approved. I just want to know, so what is the consideration? What is your rationale for the consideration of the capital injection?

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Unidentified Company Representative, [22]

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[Interpreted} Thank you very much. Thank you for your concern for our listing in Asia market. It is something meaningful for us and very significant. And in this is for us to enrich our platform of injecting -- of replenishment -- replenishing capital to us. So this is also for the effect of the dual listing of the bank. Ever since we kicked it off, we've already gotten (inaudible) and all the supervisory departments. On the 18th of June, we finished the first application to CBRC -- CBIRC. And later, we disclosed the prospectus. And now everything is moving steadily, and we hope that we can finish the listing as quickly as possible.

We also announced our plan. We will submit it to the EGM for approval at end of October. Ever since the setup of the bank, we have focused on the efficiency of our capital utilization. So internal, external captures, both focus there to replenish our capital. The CAR is not very high. [Our CAR] is not very high, but it is enough to [water] our business growth. We also conducted a stress test recently, and the [capture] stress is under control.

For the interest of time, I would like to hand it over back to the home company. Thank you.

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Chunye Du, Postal Savings Bank of China Co., Ltd. - Secretary to the Board of Directors & Joint Company Secretary [23]

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I thank you very much for all your questions. Even though you may have other questions to ask our event, just for the interest of time, please contact us if you have any further questions, and we will definitely continue reporting our [governance] to you in the future.

So ladies and gentlemen, in the first half through our hard work, we are able to maintain the high quality of our growth, and it is with love and support that we are able to maintain the high energy and the dynamics of our growth. So please believe that what we said will be done. And under the leadership of the new Board of Directors, our further dynamics will be released and our figures will be further enhanced, and we will continue delivering good numbers and the performance to you all.

So this is the end of the 2019 PSBC Interim Results Announcement. Looking forward to see you next time.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]