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Edited Transcript of 2388.HK earnings conference call or presentation 31-Mar-17 9:00am GMT

Thomson Reuters StreetEvents

Full Year 2016 BOC Hong Kong Holdings Ltd Earnings Presentation

- Mar 31, 2017 (Thomson StreetEvents) -- Edited Transcript of BOC Hong Kong Holdings Ltd earnings conference call or presentation Friday, March 31, 2017 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lin Jingzhen

BOC Hong Kong (Holdings) Limited - Deputy Chief Executive of Corporate Banking

* Nan Luo

BOC Hong Kong (Holdings) Limited - Company Secretary

* Yang Sui

BOC Hong Kong (Holdings) Limited - CFO

* Yi Yue

BOC Hong Kong (Holdings) Limited - Vice Chairman and Chief Executive

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Conference Call Participants

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* Gary Lam

Citigroup Inc, Research Division - VP and Banks Analyst

* Kwok Kei Lam

Deutsche Bank AG, Research Division - Research Analyst

* S. Huang

JP Morgan Chase & Co, Research Division - Financial Analyst

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Presentation

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Nan Luo, BOC Hong Kong (Holdings) Limited - Company Secretary [1]

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Analysts, investors, good afternoon. Thank you for attending the 2016 Annual Results Presentation of BOC Hong Kong Holdings Limited. I am Kenny Luo, Company Secretary of BOC Hong Kong.

Before we begin, may I draw your attention to the slide for the forward-looking statement disclaimer and the new reporting basis that has been adopted in today's presentation. Now let's start our annual results briefing. First, please let me introduce our senior management team.

With us today are: Mr. Yue Yi, Vice Chairman and Chief Executive; Mr. Li Jiuzhong, Executive Director and Chief Risk Officer; Mr. Lin Jingzhen, Deputy Chief Executive; Mr. Yuan Shu, Deputy Chief Executive; Mr. Zhong Xiangqun, Chief Operating Officer; Madam Sui Yang, Chief Financial Officer; Mrs. Ann Kung, Deputy Chief Executive.

Today's agenda is divided into 3 parts. First, CE Yue will start with the performance highlights, followed by CFO, Sui, on financial results. After that, CE Yue will discuss about our outlook and strategy for 2017. Then we will open the floor for Q&A. CE Yue, please.

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Yi Yue, BOC Hong Kong (Holdings) Limited - Vice Chairman and Chief Executive [2]

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Ladies and gentlemen, good afternoon. I am very glad to see you again. In 2016, in the face of the complicated internal and external environments, BOC Hong Kong adhered to a strategy, made steady progress in each area by accelerating innovation and transformation, thereby outperformed the market in terms of core business. Operating results hit a record high and added a meaningful chapter to a centenary development history.

Today, I feel proud and honored to announce that profit attributable to the shareholders of BOC Hong Kong soared 105.7% year-on-year to HK 55.5 billion in 2016, a record high since IPO. Even after stripping out one-off nonrecurring items, such as the disposal of Nanyang Commercial Bank Limited, the adjusted profits still remarkably outpaced our peers by delivering a growth of 6.8% year-on-year. The robust growth in profits further solidified our capital strength. The group's total capital ratio rose to 22.35%, which lays a solid foundation for sustainable business growth in the future.

According to the dividend policy of BOC Hong Kong, the Board of Directors, after taking various factors into consideration, recommended a final dividend of HKD 0.625 per share. Together with the interim dividend of HKD 0.545 per share, the full year dividend will be HKD 1.17 per share on a normal basis, which translates into a dividend payout ratio of 48.4%, including the special dividend of HKD 0.71 per share associated with the sale of our equity stake of NCB. The full year dividend sets a new high of HKD 1.88 per share in aggregate.

Here, I would like to introduce the major achievements made by BOC Hong Kong with respect to strategic implementation and business development in 2016. With the further implementation of the nation strategy such as Belt and Road initiative, Hong Kong serving as a key joint along the Belt and Road initiative as well as an important window and bridge connecting Mainland China with the overseas markets will leverage its advantages brought by 1 country, 2 systems, while striving to fulfill its role as a super connector. Therefore, BOC Hong Kong made plans and preparations in advance.

Since 2016, we achieved remarkable progress in our transformation from a municipal bank to a regional bank by taking a series of actions, including the disposal of NCB and Chiyu Banking Corporation Limited. The acquisition of BOC subsidiaries in Malaysia and Thailand, branches in Indonesia and Cambodia and the set up of Brunei Branch. At the same time, BOC Hong Kong seeks to instill its edges in the aspects of advanced management concept, outstanding talent team, mature products and professional services to ASEAN business through in-depth integration of systems, operations, rules, process, supervision and culture with our ASEAN counterparts in order to drive the sustainable development of our Southeast Asia business.

In 2016, through collaboration with the parent bank and our ASEAN counterparts, BOC Hong Kong helped domestic enterprises in the course of going global and developed new business with local leading corporates by utilizing the edges of our products and services, thereby leading to a phenomenal increase of HKD 30.1 billion in Southeast Asia- related loans business from the end of 2015.

In 2016, BOC Hong Kong achieved exceptional performance in loan business. Customer loan balance increased by 11.7% to HKD 973.1 billion, outpacing the market and peers in its growth, with market share up by 0.5 percentage points to 12%. The good results should be attributable to BOC Group's scale advantages in both Mainland China and Hong Kong as well as our strong customer base, the efforts we made to further strengthen the collaboration with our parent bank and to further improve the financial services offers to going global Chinese enterprises and local leading enterprises in ASEAN. Additionally, thanks to our efforts in consistently developing local business in Hong Kong and deepening relationship with local customers during the past century. BOC Hong Kong was able to sustain its leading position as an arranger in Hong Kong, Macau syndicated loans market and in the new residential mortgage loan market in Hong Kong, while effectively developing our industrial, commercial and SME loans business.

Relative from the developments of payroll account services, the expansion of wealth management business that are targeting mid-to-high end customers, the increase of central banks and supranational institution customers and the exploitation of IPO fund business, our customer deposits increased by 9.8% over the end of the previous year to HKD 1,507.5 billion, with market share rising to 13.1%. The growth in deposit also supported the healthy growth of assets, while providing a solid liquidity position.

In order to fully leverage the scale advantage of our branch network, strengthen overall productivity of branches and step-up the capability of integrated services for SME customers, BOC Hong Kong has embarked on branch network transformation close to 200 branches in Hong Kong since July 1, 2016, which echoes its customer-centric business philosophy with aims to expand and reinforce SME business, to expedite the development of personal wealth management and wealth management for mid-to-high end customers, to promote the integration of online and offline channels and to greatly enhance local service capability and profitability of the branch network.

To support the growing multi-channel integrated service model and enhance the productivity of our branches, we optimized and restructured the operating model, which was originally based on 7 major districts and set up 35 subdistricts. We extended the functions of our industrial and commercial centers to the district branches, which were transformed from purely retail-focus into full service model that provide banking functions to both individuals and corporate customers.

In the second half of 2016, comprehensive service capacity of the branches and customer experience improved noticeably post-transformation. Compared with the first half of the year before transformation, average monthly income from branches in the 35 subdistricts grew 7.5%, average monthly income from mid-to-high end customers grew 13.1%, average monthly income from small enterprise customers grew 11.5% and the number of mid-to-high end individuals and SME customers also increased remarkably.

We continued to expand the business of our 8 key business platforms, with an aim to increase the fee and commission income, to enhance the noninterest income and optimize the customer structure and revenue mix, in which fruitful results were realized in key business fields in 2016. In credit cards business, average number of mid-to-high end customers grew 13.6% year-on-year, with UnionPay card merchants acquiring and card issuing businesses leading our peers.

The number of private banking customers and the scale of assets under management grew strongly. Besides, BOC Life continued to pursue diversified business model, while the volume contributed by non-bank channel rose. BOC Hong Kong Asset Management served with a wide variety of products and so its assets under management up 1.7x. In cash management, BOC Hong Kong earnestly pursued product innovation and functional upgrades, while capitalizing on the preferential financial and trade policies of Hong Kong to promote the setting up of corporate treasury centers and sustained its leadership in cross-border cash pooling business with regional and global capabilities.

In custody business, customer base was expanded, customer mix became more diversified and both the asset under custody and profitability increased sharply. Through collaboration, BOCI-Prudential Trustee enhanced its overall sales, referral and cross-selling capacity, thus sustaining overall market share with mandatory provident fund asset size grew by 10.9%. Po Sang Securities and Futures constantly enhanced its business capacity. Moreover, we stepped up efforts in building a global transaction banking platform and set up an investment banking department under our global corporate banking department.

Further moving ourselves towards an asset-light and capital-light business model to drive sustainable growth. Developments of our 8 key business platforms and business such as transaction banking and investment banking will further enhance the degree of diversification in our business, while improving our product quality and service capability. Besides, it will help driving the proportion of noninterest income and continuously optimizing the profit mix of the group. 2016 was a year where active progress was made by BOC Hong Kong in FinTech. We explored the application of new technologies like blockchain, artificial intelligence, Big Data and biometric authentication and made breakthroughs in various areas.

E-banking service level and customer experience improved continuously, and consistent progress were made in the integration of online and offline channels. The number of digital banking customers increased remarkably, while mobile banking and corporate Internet banking delivered solid results, with number of customer increasing by 16.1% and 13.4%, respectively.

BOC Hong Kong offered many new Internet products on the markets, some of which were first launched in the markets. These new products substantially enriched the scope of service and enhanced our capability to provide around-the-clock services. In respect of application of new technology, we developed and optimized 3 major innovative platforms, including the open platform, Big Data platform and intelligent technology platform to meet some long-standing and resolved need for customers. For instance, we launched the application of blockchain in property valuation project in Hong Kong, which has been used in more than 2,500 property valuation cases since November 2016, effectively ensuring the authenticity of documents and improving approval efficiency. Moreover, we took proactive approach to cooperate with capable research institutions and enterprises in FinTech R&D and created widespread spillover effect in financial sector and among Internet, enterprises and partners, which boost the local FinTech development.

In 2016, BOC Hong Kong's outstanding performance in financial technology was widely recognized by the industry and the media both internationally and locally. We were awarded by The Asian Banker, the Asian Banker Technology Innovation award for mobile social media engagement project; and by Global Finance magazine, the Best Consumer Digital Banks in Hong Kong, which have significantly improved the market in influence, position and brand image of BOC Hong Kong.

In 2016, adhering to a prudent and comprehensive risk management concept, BOC Hong Kong kept improving the risk governance system and overall risk management standards. As a local systemically important bank, we strictly adhered to the laws and guidelines set out by regulators and requirements of the board and took the initiatives to prevent various types of risks. We strictly implemented a prudent credit policy and gave close attention to the possible impacts associated with global economic uncertainties that potentially affects the credit risk of related industries, countries and customers and continuously refine relevant risk management policies and measures.

At the end of 2016, our classified or impaired loan ratio was 0.2%, a drop of 0.03 percentage point from that of 2015, well below the market's average of 0.72%. Credit cost stayed low at 0.06%. During the year, we actively sought to optimize our deposit structure, enhance the degree of our intensive management and maintained a solid liquidity position. On the other hand, we spared no efforts in anti-money-laundering during 2016 and achieved remarkable progress. We refined operating mechanism of AML framework in (inaudible) structure, risk appetite, assessment model and monitoring system. And in turn, enhancing the effectiveness of preventing and controlling potential money-laundering activities in high-risk business. We looked to eliminate preemptive risk through continuous business investigation. In the future, we will continue to improve the group's anti-money-laundering measures and processes to further increase the effectiveness of the anti-money-laundering mechanism.

Next, Madam Sui Yang, our CFO, will give you the details of the group's financial performance in 2016.

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Yang Sui, BOC Hong Kong (Holdings) Limited - CFO [3]

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Thank you, Mr. Yue. In 2016, our Bank of China Hong Kong's profit attributable to shareholders surged to HKD 55.5 billion, which is a year-on-year growth of 105.7%, of which HKD 30 billion was contributed by the disposal of NCB. Adjusted profits stood at HKD 23.7 billion, up 6.8% year-on-year. As of the end of 2016, our Tier 1 capital ratio and total capital ratio reached 17.69% and 22.35%, respectively, which were 4.8 and 4.49 percentage points higher than the end of 2015, respectively. Average return on equity rose 12 percentage points to 26.47%.

In 2016, our group actively developed Southeast Asian-related business and exploited Hong Kong local market. Our total customer loan balance increased 11.7% over the end of the previous year, outperforming the market. Loans were used in Hong Kong rose 20.5%, of which industrial, commercial and financial loans grow showed outstanding performance with a balance of HKD 374.9 billion, an increase of 31.9% over the end of 2015. Loan growth drivers by industry fields were diverse, covering property development, transportation and transportation equipment, wholesale and retail, manufacturing, IT and recreational activities. Personal loans were used in Hong Kong increased 8.3% despite the volatile performance in real estate market in 2016. We still registered 5.4% growth in mortgage loans, faster than the market's average.

Balance of trade finance decreased, partly explained by the poor trade environment and commodity market has not recovered. It was, however, also due to our positive and proactive management to maintain loan pricing level. Loans were used outside Hong Kong decreased modestly, mainly due to the strengthening of U.S. dollars and some customers accelerated repayment on U.S. dollar loans to cut financial costs. Also Mainland enterprises were less motivated to borrow in Hong Kong due to the narrowing of low loan spread between Mainland China and Hong Kong. We continue to enhance services quality in order to enhance our customer acquisition capability. Our deposit business continues to grow. Branch network transformation drove the expansion of mid-to-high end wealth management business and the growth of personal deposits.

Our CSA deposits grew remarkably through the development of payroll business, attraction of central banks and supranational customers and exploitation of IPO fund business. [ CASA ] deposits increased by 16.4% over the end of 2015, and mix rose 3.7 percentage points to 64.3% of our total customer deposit. The growth of low interest and interest-rate deposits effectively improved our profit structure.

Our deposit cost dropped by 18 basis points year-on-year, and we recorded a NIM of 1.32% in 2016, down 14 basis points from the year before due to lower RMB asset yield in 2016, shrinkage of offshore RMB deposit pool and volatility of offshore RMB interest rates.

Net interest margin stabilized and rebounded in the second half of the year, with 6 basis points increase over the first half, thanks to lower deposit costs, increase in customer loans and increase in market interest rates in the fourth quarter of the year. We continued to increase the contributions of noninterest income optimized in income structure. In 2016, the group's noninterest income increased 8.8% year-on-year, with its proportion rising 1.8 percentage points to 39.1%. And thanks to effective implementation of regional strategy associated with Southeast Asia and our efforts to deepen local market penetration, the demand for corporate loans grew significantly, driving loan commissions up 8.1%, with increase in the business volumes insurance, bill commission fee income increasing 11.1%, 12.5%, respectively. Currency exchange commission in income grew 11.3%. Payment services and safe deposit box commission income also achieved healthy growth compared with 2015 investment climate of capital market remained weak and trading volume in the stock market shrank leading to a decline of 40%, 18.4% in brokerage income and fund distribution income.

In the second half, with a gradual recovery of market sentiment, we seize the opportunities to strengthen promotion and publicity, especially in wealth management customers. In the second half, our securities brokerage income and fund distribution income rebounded 29.5% and 5.3%. And due to the net gains from foreign exchange smart contracts, increase in currency exchange income from customer transactions and mark-to-market changes of debt securities value of the net trading income increased 77.3% to HKD 4,605 billion.

In order to implement our new strategy, this year, we struck a balance in resource allocation among human resources, system platform optimization, improvement of network finance infrastructure, while supporting long-term sustainable business development and maintaining competitive edge. We continue to achieve sound cost management, while operating expense increased 5.2% year-on-year to HKD 12.2 billion. Among them, staff cost rose 5.7% due to higher salary following the salary increment. Premises and equipment expenditure increased 10.3% mainly due to higher rental cost and IT expenses associated with strategic initiatives.

Meanwhile, depreciation on owned fixed assets decreased by 4.4% due to larger depreciation charge on premises, following the (inaudible) property revaluation on IT infrastructure and the group's cost income ratio was 29.25% continuing to be low compared to local banking sector. And we have strictly implemented a prudent credit policy and maintained good credit quality by proactively managing our loan portfolio throughout the whole credit process.

At the end of the year, our classified or impaired loan ratio was 0.2% of total, a decrease of 3 basis points from the end of 2015, well below the market's average of 0.72%. The balance of classified or impaired loans was HKD 1.955 billion, down HKD 39 million. In 2016, net charge of loan impairment allowances was HKD 589 million, down HKD 217 million or 26.9% from 2015. It was mainly due to the reversal of impairment allowances for a few corporate advances, leading to a net decrease of 92% in individually assessed impairment allowances. And provision coverage ratio was [ 159.8% ].

Let me pass this back to Mr. Yue.

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Yi Yue, BOC Hong Kong (Holdings) Limited - Vice Chairman and Chief Executive [4]

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Thank you, Ms. Sui. Looking into 2017, international political and economic situation remain complicated. It is expected that growth rate of the world economy will remain low, protectionism will gain more attention and the globalization trend will intensify.

There are many uncertainties in global politics and economy, and banks will face challenges in operations and growth. However, there are also many favorable factors and significant opportunities. The good seaman is known in bad weather, being adept at finding opportunities in adverse environment and ensuring sustained development through reform are the reasons for the prosperity of BOC over the past century.

In the current period, BOC Hong Kong is focusing on 5 major strategic opportunities. First, Chinese government annual work report puts emphasis on stability and growth. The implementation of active financial policy and solid monetary policy both deepen the supply side reform, which propels economic transformation and expands open-up policy. These also enhance economic growth. The supply side reform, industry upgrades and technology innovation will stimulate the demand of financial services and increase banking opportunities.

Second, economic integration of Guangdong, Hong Kong and Macau will further deepen and unleash regional development potential in the regions. Chinese government work report points out that the country will study and develop a plan for Guangdong-Hong Kong-Macau Big Bay Area and enhance the position and functions of Hong Kong and Macau in the country's economic development and opening up. It will bring significant opportunities for Hong Kong's industrial transformation and upgrades and provide bigger room for financial industry. As a result, Hong Kong needs to do its best and also grasp the opportunities and join with China's national strategy in order to serve the needs of the country with its strengths.

Third, Hong Kong, as a member of AIIB will strengthen its super-connector role. Currently, strategies such as Belt and Road initiative will encourage more Chinese enterprises to expand in ASEAN. Hong Kong is an important international financial center in the Asia Pacific region, an important note of 21st-century Maritime Silk Road and the center of global economic network for Chinese people. Recently, Hong Kong has become one of the 13 members of AIIB, which will allow it to take these advantages altogether by leveraging its legal system, financial infrastructure and internationalized talent. These will bring Hong Kong more cooperations and development opportunities, strengthen its role as a super-connector and enhance its position as an international financial center.

Fourth, following the implementation of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, Mainland-Hong Kong Bond Market Connect is also on the agenda. It is expected that with the launch of such program, offshore investors will be able to invest in onshore bond market through their offshore accounts. And under the transaction rules of their respective territories, which will provide more investment channels and convenience for investors and induce their investment appetite, it will eventually add impetus to the development of Hong Kong as an offshore RMB center.

Fifth, there have been increasing demand from Chinese enterprises and mid-to-high end individuals to allocate overseas assets in Hong Kong, which is their preferred choice for external investment and overseas asset management.

With the presence of friendly policies and strategies promoted by the Hong Kong SAR government such as introduction of preferential tax policies, it is expected that more multinational corporations and Chinese enterprises will be attracted to set up their corporate treasury centers in Hong Kong. According to the survey conducted by the Trade Development Council, among the Chinese enterprises that are looking to expand to the market along Belt and Road region, 50% of them would see Hong Kong as their top pick as investment platform.

Last year, among the new wealth management clients acquired by our bank, 30% of them are cross-border clients who are mainly composed of Mainland clients through collaborating with our parent bank, BOCHK enjoys unique advantage in terms of business scale in both Mainland and among Chinese banks in Hong Kong. This will provide tremendous opportunities for further development of our diversified and integrated operations.

One would easily notice from our results in the past few years, that we have consistently outperformed the market in loan and deposit growth, steadily enhanced the market share and continuously delivered record high profits. Benefited from the opportunities arising from national strategies such as the Belt and Road initiative and leveraging all the dominant advantages with our parent banks in China and Hong Kong, the pursuance of innovation, the promotion of regional transformation and the development of local business, we are able to achieve commendable results. Based on the solid foundation aforementioned, we are confident in capturing opportunities offered by policies and the market and in delivering even more noticeable achievements in the future. Thank you.

In 2017, BOC Hong Kong will continue to uphold parent bank's strategic goal of serving society, delivering excellence. We will grasp the opportunities from China's national strategies such as the Belt and Road initiative, integration of Guangdong, Hong Kong and Macau and speed up our progress in regional development. Close collaboration with our parent bank institutions in the Mainland and overseas will give us advantages to develop cross-border business. We will remain committed to the local market, develop 8 major business platforms and deepen branch transformation. We will increase efforts in innovation and enhance the competitiveness and leadership position in FinTech, and we will insist on our customer-oriented principal and optimize business process, service mode and organization structure. We will seek to improve customer experience and strive to become a flagship bank for BOC Group at home and abroad.

In face of operating environment challenges, we will continue to enhance asset and liability and cost management. We will continue to cope with the ever-changing technology development and strengthen technical innovation. Besides, we will improve internal control of risks in response to the uncertainties of external environment and challenges of regional transformation and meet all regulatory requirements.

2017 marks the 20th anniversary of Hong Kong's return to the motherland and the BOC's centenary service in Hong Kong. Different parts of our social communities will cast their attention to us. That's why each and every one of our staff are full of hope for the future. With the full confidence in the future, we will continue to implement our development strategies and maintain healthy business development. We will spare no effort to contribute to the economic development of Hong Kong, improvement of its people's livelihood and its long-term prosperity and stability.

This concludes our presentation here. Thank you. You are welcome to raise any questions.

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Questions and Answers

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Unidentified Company Representative, [1]

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Would you please raise your hand? Before you ask questions, can you please briefly introduce yourself? On the left, on the second row, that gentleman there.

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Gary Lam, Citigroup Inc, Research Division - VP and Banks Analyst [2]

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I am from Citibank. My name is Gary Lam. I have 2 questions. First of all, I must congratulate the management on your 2016 results. We are delighted about that. Since 2015 till now, in overseas you have been making plans to develop further the local market and you have accumulated some achievement there. And what do you see is your core competency and then the focus of your development strategy? And what about how to overcome challenges concerning loan growth? In the past 2 years, we are increasing market share, but in recent half year, the growth

-- now the first half of 2016 saw bigger growth than second half. So after the second half, is it true that you have made adjustment so that more emphasis is placed on quality and profitability and you lessened your focus on increase in volume?

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Yi Yue, BOC Hong Kong (Holdings) Limited - Vice Chairman and Chief Executive [3]

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Concerning development strategy of BOC Hong Kong, let me give you some explanations. Concerning loan business development strategies, Mr. Lin Jingzhen will answer the question. Concerning our future development strategy, basically there are 2 major strategic focuses. First under the Belt and Road strategy, there is the very broad Southeast Asian markets. And right now, BOC Hong Kong had already covered all 10 countries of ASEAN. And in 7 countries, where there is asset reorganization with the parent company, there are 31 branch organizations. And for these branch organizations, they service a long period in those countries. For example, in Indonesia, our branch organization was set up in 1938; in Malaysia, 1939. So we have a history of more than 75 years. For ASEAN, there is very good development. We understand, that in ASEAN, population was 620 million. And for Chinese, there are 26 million Chinese people. In the coming years, transport, traffic, energy, infrastructure in ASEAN will exceed USD 400 billion in value. GDP in 2020 may reach USD 4.7 trillion. So all these will bring huge business opportunities to our group. In the past 2 years, looking at the developments, our development in Southeast Asia we have achieved quite good progress. Last year, for the whole year, for new loan balance, we reached HKD 30 billion, a big growth from the previous year. Besides, in Southeast Asia, if you look at the developments of our various branches, the development was fast. In the Manila branch, last year loan increase was almost 50%, (inaudible) branch 30% growth. And for our Thai branch, concerning credit cards and other cards issued, the number exceeded 80,000. So these are very important developing markets. Southeast Asia is a very good story for BOC Hong Kong and Southeast Asia is a very good source of profit growth. So that's a big strategy. Another strategy is that we will deepen our development of the local market. BOC Hong Kong has been operating in Hong Kong for 100 years. We are totally a local enterprise, deeply rooted in Hong Kong and we serve Hong Kong. We are the second largest banking group with 4 million individual customers, 200,000 enterprise and corporate clients, and 200 branch -- branches with a few thousand ATM and technical equipments. Last year, the restructuring was aimed at deepening the development of the local market here. Last year, our deposits, our loans outperformed the market. For syndicated loans, for consecutive 11 years, we're #1 in the market. After branch transformation in the 35 subdistricts, the total monthly average income saw a 75% increase from last year. Besides, there is a clear regional advantage in Hong Kong. So it is a critical point in the Belt and Road and it is also a critical note in the Big Bay area of Guangdong, Hong Kong and Macau and there is the advantage of the one country two systems and status being the international financial center. So Hong Kong's regional advantage cannot be matched by any city in China and any other country in the world. So we will continue to deepen our development of the Hong Kong market as our strategic center. We're actively seize the opportunities from the Big Bay area development, Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, the Bond Market Connect and also the mutual access scheme. So we will do a good job with our business and we will serve Hong Kong people in a better way. That's all I would like to say for the time being. Mr. Lin is going to comment on our loan business.

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Lin Jingzhen, BOC Hong Kong (Holdings) Limited - Deputy Chief Executive of Corporate Banking [4]

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Thank you for the question from the analyst of Citibank. I will comment on 5 areas to answer your question. First of all, it is true that the scale of our loan increased quite in a satisfactory manner. As you all know in 2016, for our overall loan balance, it's up 11.7% year-on-year. We outperformed the market. Market share also increased. Corporate clients or corporate loans used in Hong Kong was up 31.9% from 2015. So loan investment was very wide. We cover property development, traffic transport equipment, manufacturing, hotel, retail, recreation and so on and so forth. What I would like to say is that this satisfactory performance is a result of good strategy. Concerning competition in the market in 2016, our judgment was very accurate. So you can see that in the first half of the year, our loan grew very rapidly. In the second half, we made adjustments to our structure. In the second half, competition was most intense among banks. Our good performance in loan business originated from our grasping of opportunities from the Belt and Road and also our strategy transformation in developing projects in subdistricts. So we also capitalized on our advantage with a big customer base. We used loan as an entry point, to offer all-around comprehensive financial solutions to customers in order to increase stickiness to our service. Besides, the pricing of our loan is also market-oriented. And basically, we are at 2.23%, which is very stable. And then concerning our strategy on provision, well, we are closely connected to BOC, our parent company. So Mainland enterprises, Southeast Asia leading enterprises. We give a lot of service to these places and we deepen our developments of the Hong Kong market. We expand customer relationship with Hong Kong clients, including big enterprises, institutional customers, family customers, big trade associations and also quality, second and third line listed companies. So in these areas, we saw good growth. Number three, we did branch transformation. We enhanced our ability to serve corporate clients for our corporate business and SME loans. There is good growth year-on-year. The third point is, our syndicated loans and other high-end business areas, we continue to maintain our leading position. BOC Hong Kong is the Asia Pacific's syndicated loan center of BOC Group. And we offer high-quality syndicated loan business, and we lead our peers in this area. With overseas branches, we have synergy with them, and we took part in many important syndicated loans. BOC Hong Kong and BOC Group for 12 years have been #1 in terms of being the arranger bank for syndicated loans. And we also have close connection with Southeast Asia. We work with large enterprises and groups in Southeast Asia. And for investment projects in Hong Kong and also Chinese enterprises, Hong Kong enterprises developing in Southeast Asia, we try our best to [ set ] them in the acquisition and merger and also satisfy their overall funding needs. Comparing with last year, there is net growth in loans by HKD 30.1 billion, and Southeast Asian business has become a very important source of our business growth. The fourth point is, business growth, profit contribution benefited from stringent risk control. In 2016, we actively controlled loans to backward and overcapacity industries. So we strictly control credit risk, so that classified loan ratio and also loan ratio to all those problematic industries were stable. Then in 2017, in terms of our strategy and outlook, given the good loan growth in 2016, in 2017 our goal is to maintain stable growth. It is expected that overall loan business growth will be at around 10%. Besides, we will try to identify diversified sources of loan business growth and we will look at countries along the Belt and Road, especially the ASEAN countries loan business opportunities. We will expand our local financial institutions, personal customers, SME, Southeast Asian enterprise and customers loan growth opportunities. Thank you.

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Unidentified Company Representative, [5]

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On the right, second row in the middle. The gentleman over there, please.

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Kwok Kei Lam, Deutsche Bank AG, Research Division - Research Analyst [6]

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From Deutsche Bank, Franco. I have 2 questions. First question concerning NIM. In the U.S., we see that they have already raised their interest rate once. Concerning this raise in interest rates, how has it impacted you? And how do you see 2017? And next question is about Belt and Road and ASEAN investments. In the long run for investments in ASEAN countries, this -- how much do you think it will contribute to your profits, please?

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Yi Yue, BOC Hong Kong (Holdings) Limited - Vice Chairman and Chief Executive [7]

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First of all, the NIM question, Ms. Sui Yang, our CFO, will answer that question.

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Yang Sui, BOC Hong Kong (Holdings) Limited - CFO [8]

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As you have mentioned, in your question, in 2017, while the U.S. had already raised for one-time the interest rates, interest rates rise is always good for banks, because the NIM would be -- the spread would increase. In the short term, the deposit will be shorter. And therefore, for us, the NIM would -- the spread will increase. And for the entire year or for the medium-to-longer-term, we feel that for the interest rates of loans will outgrow that of deposits. So in the whole, rates rise is good for our NIM. Now apart from this good external factor, at the same time, we pay a lot of attention to our own internal strategy. The CE had already mentioned our 2 main strategies: one, for ASEAN countries; and secondly in Hong Kong. Now for Hong Kong, we will continue to grow deep our roots in Hong Kong. We would transform our network branches and also increase our CASA and also increase our SME customers and also raise our profitability. On Belt and Road initiatives, we will be grasping the medium to high-end customers. And in ASEAN countries, we will raise our exposure. And in the ASEAN countries development, they will especially -- we will grow the credit business. And therefore, we will be able to add to our overall credit growth and profitability as well as increasing our asset management products and also adjusting our loan maturities, et cetera. We will be very -- we are very optimistic. As for the specific figures for contribution, it would depend on the need for Hong Kong loans in Hong Kong, the competitiveness, the rate rise in the U.S., et cetera.

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Yi Yue, BOC Hong Kong (Holdings) Limited - Vice Chairman and Chief Executive [9]

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As for Southeast Asian markets, I will answer that question. Thank you very much for your question. I will answer this question in 4 perspectives. First of all, for the ASEAN countries integration and acquisition. The integration of ASEAN countries business had progressed greatly in October of last year. The Malaysian Bank had been integrated. And in December, our Brunei had -- Branch had opened business. And in January, the Thai subsidiary had been integrated. So -- and also Indonesia and Cambodia, the acquisition agreements have already been signed. So for acquisition and integration in Vietnam and the Philippines, we are still progressing with these projects. And the relevant transaction will need to be approved by the local authorities, the Hong Kong authorities and Mainland authorities. If there are any announcements to be made, we will be according to the listing rules of Hong Kong be announcing them to the market. And for contribution to our BOCHK, I have already disclosed some figures. For ASEAN countries, for them to be integrated into BOC Hong Kong for management and operation, this is the group's intention, and it is in response to the Belt and Road initiative of the country and also internationalization. And the group's intention is to fully utilize the maturity and management capabilities, talents, capacity and capital capabilities of BOCHK to strengthen its role in the region as the headquarters for the region in the ASEAN countries. In 2016, the headquarters of BOC for Philippines, Thailand, Cambodia, they have met with the very high officials of these countries, and they are discussing further business development in these countries and multipronged cooperation as well. And this will be beneficial to the extension of our brand in ASEAN countries. And BOCHK, when extending our business in these countries, this will be highly beneficial. And I have mentioned just now that we also have strengthened our engagement with the ASEAN countries. The business in these countries have increased significantly in credit growth over HKD 330.1 billion compared to the year before. Now, and another point is future integration [ and ] our positioning. In 2017, according to plan, BOCHK will transform and integrate the ASEAN market. The headquarters is in Hong Kong. And we will be engaging and interacting with the ASEAN market. And the main point will be in system, operation, workflow, management and culture. And in integration, first of all, for what is advanced in Hong Kong, that is in operation and management of our finances, our products, our talents and also professionalism and high level of service capabilities, we will bring all these to the ASEAN countries. In terms of products, we will be extending to Hong Kong companies and Mainland companies and some of the leading companies in the domestic regions as well as Chinese-led companies. And also in terms of settlement, investment banking, personal banking, credit card, asset management, custodian services, we will also extend these services and products to these ASEAN countries, so that we will be able to extend our business quickly in these countries, so that our banks will become the mainstream banks in these countries. And further, on our development goals. As our entire group develops in these ASEAN countries and as they are integrated into BOCHK, it will be BOCHK's medium-to-long-term main target for growth and impetus in developing these countries' businesses, especially when there is more saturation in the local Hong Kong market. This will become even more important. So as we extend on this plan in the ASEAN market, our -- the contribution to our revenue will grow in times, many times. Thank you very much for your question.

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Unidentified Company Representative, [10]

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On the left, the second row, the gentleman in the center.

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S. Huang, JP Morgan Chase & Co, Research Division - Financial Analyst [11]

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I am Jemmy from Chase Morgan. My question is about asset quality. At present, no matter whether you are talking about cost of credit provision and also the ratio, they are all at low levels. When the U.S. hikes interest rates and then you are also expanding in ASEAN, is it true that in the future, credit costs may go up? Or for BOC Hong Kong, do you have any strategy or plan to more appropriately control risk about asset quality?

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Yi Yue, BOC Hong Kong (Holdings) Limited - Vice Chairman and Chief Executive [12]

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Regarding risk quality or risk control and management, especially [ as the ] interest rate rise and also our business development in Southeast Asia, I will ask our -- Mr. Lin Jingzhen to answer the questions.

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Lin Jingzhen, BOC Hong Kong (Holdings) Limited - Deputy Chief Executive of Corporate Banking [13]

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Thank you for your questions. Just now, our CE and CFO said that in 2016, our NPL ratio is 0.5% and cost is 0.06%. So risk and also cost of credit are at stable and good level. So the major reason why we can maintain this condition is that all along we have been very prudent in our risk management, and we have very strict credit standards. And we also step up asset loan management.

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