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Edited Transcript of 3698.HK earnings conference call or presentation 30-Aug-19 3:00am GMT

Half Year 2019 Huishang Bank Corp Ltd Earnings Presentation (Chinese, English)

HK Nov 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Huishang Bank Corp Ltd earnings conference call or presentation Friday, August 30, 2019 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Baohua Lian

Huishang Bank Corporation Limited - GM of Research & Development Department and Secretary to the Board

* Dawei Li

Huishang Bank Corporation Limited - GM of Financial Accounting Department & Financial Controller

* Xiaoyan Huang

Huishang Bank Corporation Limited - GM of Asset & Liability Management Department and Director of Investment & Wealth Management

* Xuemin Wu

Huishang Bank Corporation Limited - Chairman of the Board

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Presentation

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Unidentified Company Representative, [1]

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Ladies and gentlemen, good morning. On behalf of Huishang Bank, thank you for your coming to our 2019 Interim Results Announcement. I thank you all for your continued support to the company.

First of all, shall I invite -- shall I introduce the management to you? They are Chairman of the Board, Mr. Wu Xuemin; Ms. Huang Xiaoyan, the Investment and Wealth Management Director; CFO, Mr. Li Dawei; and Board Secretary, Mr. Lian Baohua.

Now I would like to invite Mr. Wu, Chairman of the Board, to deliver a speech. Thank you.

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Xuemin Wu, Huishang Bank Corporation Limited - Chairman of the Board [2]

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Dear investors and analysts, and dear friends from media, good morning. I had a quick look, I noticed I have old friends sitting in the audience and our new friends there. So thank you very much for your coming to Huishang Bank 2019 Interim Results announcement.

Although there were challenges in the market, in the capital market absolute economic growth, as well as the government's policy being issued to the bank, we actively responded to the calls by the central government and to promote our business growth actively, so to transform our business and keep improving our efficiency for higher quality of our growth.

Our business realized steady growth, and overall operations also improved. In the first half, we -- along with active fiscal policies, you will see the effect, and the fiscal and monitor policies were stable. And we believe that the economic growth will be also maintained a very steady growth in the second half. So as for the bank, where we play a role of serving the local economy as the principle of our bank and focus on the assets, the original intention of our business and to actively implementing our 3-year plan so that to continue to consolidate our business space, and [return] our customers so that we can keep improving our business. Ultimately, realize the high-quality of our growth for our bank. Thank you.

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Unidentified Company Representative, [3]

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Thank you, Mr. Wu. Now I would like to invite Mr. Lian Baohua, Board Secretary, to walk you through the business performance in the first half of 2019. Mr. Lian, please.

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Baohua Lian, Huishang Bank Corporation Limited - GM of Research & Development Department and Secretary to the Board [4]

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Dear distinguished guests, ladies and gentlemen, good morning. I know that it's raining outside, and thank you very much for your coming to our 2019 interim results announcement.

In the first half, we actively implement the economic adjust measures as far as the monetary [per data] policies so that we can proactively promote the One Body, Two Wings action plan to realize steady growth of our business size and improvement to our business operations.

In the first half, our net profit is RMB 5.011 billion, up by 16.67%. The average ROI is 0.93%. Under ROE is 15.11%. In the first half, our net interest income is RMB 12.825 billion, up by 16.14%. This is mainly because of the growth, our interest-bearing asset size. Meanwhile, the structure of our interest-bearing assets also keeps in optimizing. In the first half, our net fee and commission fee is 0 -- is 2.56%, up by 0.17 percentage points. Net interest margin is 2.37%, up by 0.18 percentage point, so which means that there was a steady growth in both sectors. This is because of the implementation of effective pricing strategy.

In the first half, in the bank, our net fee and commission income was RMB 1.888 billion, up by 11.19%. As for the intermediate business, its growth is mainly because of the commission fee from the bank account, the commission fee of leasing business as well as the traditional after balance business. And I will share more details to you when I talk about the retail business out of the business card growth.

Our cost and efficiency keeps leading ahead of others. In the first half, our total operations cost is RMB 3.372 billion, up by 14.27%. So mainly this is about the costs on our employees, the operating expenses. Because for the frontline employees, we increased the salaries. And as for the medium to the senior executives, the salaries remain unchanged. So this is for the sake of implementing our growth to share the results of our growth to our frontline employees, because they are facing with our clients every day. (inaudible) so this fully shows the [way] we manage our business as well as our operations philosophy. In the first half, our cost-to-income ratio is 22.02%. So among all the banks, this is relatively speaking still maintained at a low level.

Now let's look at our business development. If you look at the big figures, as end of -- the end June, our total assets is some 1.098 -- was some RMB 109.8208 billion -- RMB 1,098.028 billion, up by 4.4 -- 4.54%. And the total liability was RMB 1,023.82 billion, went up by 4.45%. By adapting to the micro economy as well as the regulatory measures, we actively adjust our credit business and provide solid services to really -- to a real business, particularly those some local business and micro businesses. As of the end of June this year, the total corporate loans was RMB 263.952 billion, up by 18.28%. So this is about corporate loans.

As for the corporate deposit, it still maintains steady growth. So as for the corporate deposit, for 11 consecutive years, we have been ranking in the first in Anhui Province. As for the retail loan business, we keeps improving the transformation of the regional business by allocating more resources to this business sector. And therefore, you can see this is a, comparatively speaking, rapid growth in this business sector.

As of the end of June, our total retail loan was increased by 17.03%, and retail deposit was 106 -- RMB 169 billion, up by 13.82%. So that is -- the growth of our retail deposit is faster than other business sector. So this is about the savings and the deposit growth in the first half. So this helps quite a lot in contributing to our total performance. This is also a result of our solid work to promote the transformation of our retail business in the company, in the bank. Now we have seen the result, and we are happy to know the result.

Just now I talked about the credit card. Credit card also contributed a lot. As for the specific products regarding credit card business -- bank card business, we also actively promote the transformation of our retail business. And by sticking to our clients, we focus on the demands on the payment from the customers by promoting their credit cards and business -- and debit card as well as the integration of both online/offline business. So therefore, from the bank -- at the bank level, the card will still be our focus in the overall credit -- the bank cards business. We hope that we can activate more clients and promote the -- and encourage them to using our bank cards so that our retail business can keep moving forward steadily, both online/offline, and consolidate the client's habit of using bank card.

At the end of June, the total value to debit card we issued that is effective, the effective credit card is 13.81 million, with the total card fee income of RMB 375 million up by 30.21% as of the end of June. So for the wealth management business, excluding direct banking business, realized a revenue of 1 -- so RMB 136 billion. As for the fund raised for our personal wealth management, that totaled RMB 163 billion, up by 59.64%. So if you look at these indicators, plus our -- the deposit increase, so therefore, in terms of our retailing segment, the profit or liability, there have been both progress.

As for other business, we also realized a rapid growth. In the first half, the international business settlement amounted to RMB 3.73 billion, up by 12.03%. As of the end of June, the accumulated transaction volume of our foreign exchange funds amount to USD 5.25 billion, and cumulative contracted value of the derivatives business was USD 1.83 billion. And as of the end of last June, we set up with the partnership with 678 banks in 76 countries. And currently, we are carrying -- we provide clearing services in 8 major countries and have 14 overseas clearing accounts.

As for the electronic banking channels, our total number from personal online banking customers amounted to RMB 4.28 million. And the total number for our personal online banking transactions accumulated to 192.13 million, up by 48.83%. The total number of our contract mobile banking customers reached 3.78 million. The number of mobile banking transactions reached 58.59 million. And the transaction amount accumulated to RMB 320 million (sic) [RMB 320 million]. And comparing with the beginning of the year, there has been an increase of 33.19% (sic) [34.19%] of an increase in terms of the number of direct banking accounts and the balance of the various loans.

We also realized rapid growth in other businesses such as the -- such as the custody business, including different types of custody. And the balance increased dramatically, and we ranked the first among all the banks by the balance of assets under custody. So there is a 24.18% of increase. The assets business is now -- is also transforming. And the types of products is also getting more and more enriched. By the end of June this year, the existing wealth management balance was 156.6 billion, up by 37.17% than the end of last year.

Now let's look at the risk management and the asset quality. As of the end of June, the NPL was 1.03%. During the last results announcement, the NPL was 1.04%. Our asset quality further improved steadily. And I have confidence to tell you that our NPL, these figures are true and genuine.

At the end of last year, the NPL provision coverage was 301.37%, and the loan to provision ratio is 3.11%, so which were both maintained at a very stable and healthy level. In the first half, our overall credit strategy, as I said before, when I talked about the assets quality. So we must implement the green credit philosophy and optimize the allocation of our credit resources, actively support the real economy growth, focus on key areas under key industries in terms of our risk management, and sticking to the bottom line of our risk management.

We actively guide the credit resources to support real economy and to implement green credit so that we can also control the quota for real estate as well as the industries that they -- where there's overcapacity to strengthen and control the credit increase in the steel, coal, shipping -- ship making -- shipbuilding, so on and so forth.

And finally, our business strategy for the second half in terms of operations and development. Looking to the second half, there are still uncertainties in the global economy. But if you look at China, we have an active fiscal policy, which will play its role actively. The management policy is prudent, and liquidity will be maintained sufficient because China's economy is very resistant -- resilient. And there is a big room for us to grow. Anhui is located into the Yangtze River Delta. As announced in the national policy is to integrate the Yangtze River Delta as an overall strategy. This is in our favor quite a lot. Our adjustment that the -- our economy will maintain at a reasonable level, and Huishang Bank will definitely devoted ourselves to support the real economy and the [take charge] of our mission. We will also actively implement the One Body, Two Wings 3-year plan.

From March this year, we -- when we announced our annual result for 2018, we talked about the One Body, Two Wing strategy. So based on our implementation so far, I can surely tell you that this strategy fits for -- this strategy is in line with our national policy as well as the micro control purpose, and it also fits for our business growth.

So secondly, I can tell you that this fits for our real situation in Anhui as well because our purpose to serve Anhui to serve real economy, so [leaching] the banking service back to its assets.

And the thirdly, it fits for the -- our online banks pursuit of a growth as well. From an internal management point of view, we can keep promoting fund management by adopting this strategy so that we can further consolidate our base of growth.

We will spend a good -- we will make a good effort in managing our business 3G, promoting the business 4G and aiming at business 5G. So based on our real situation in the bank, at the beginning of the year, we had a meeting to overview -- to review our overall performance last year. Our purpose to retain -- maintain the steady growth in business, retain the customer, to maintain the solid foundation of our business and maintain stable quality so that we can create more values to our customers and make our employees more satisfied and let our customers into our better services to realize the maximization of values to the shareholders, customers as well as our employees.

Thank you very much.

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Unidentified Company Representative, [5]

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Thank you, management, for the presentation.

Now again, the Q&A session. For the interest of time, 2 questions per person, maximum. So please tell us your name and the organization you're from.

The first question, please?

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Questions and Answers

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Unidentified Analyst, [1]

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(inaudible). I have 4 questions for you. I will ask the first question first. So last time when we were here for the results announcement, you talked about the capital replenishment. So I just want to understand -- or just want to know about the update on it, on the listing in Asia market.

Second question is about the credit increase and the liability. In the first half, your credit increased pretty fast. So just want to know that in the second half, your credit increase were maintained the same? Or any adjustment on that? So what is your liability? Or what is the debt plan?

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Xuemin Wu, Huishang Bank Corporation Limited - Chairman of the Board [2]

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Thank you. So the first, I will take the first question. Our CFO will take your second question. On the 30th of June, we held the AGM. We can offer the application of [listing] in Asia market. We -- well, we hope that we can finish the procedure very quickly with CSRC -- with NDRC so that we can get listed in Asia market. The second question will be taken by our CFO.

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Dawei Li, Huishang Bank Corporation Limited - GM of Financial Accounting Department & Financial Controller [3]

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Well, in the first half, our credit increased fast, it's true. And it is one of the fastest growth in the industry. So we understand that it is because of the business need. In the second half, based on the market situation as well as our debt structure changes, we'll be looking at the credit increase as well. For the liability, if the asset stays good, with -- but even though there is a statue where we invested it. And otherwise, we will just want to make -- we will just make profit out of the price difference. From the regulator's point of view, they hope that all banks can get back to the essence of banking and sticking to the key focus at the key business. If you look at our financial report, in the first half, our asset structure also changed a lot. All investment business is taking a smaller proportion, and loan is taking up more proportion. So this is because of the company's policy requirements as well as the customer's requirements in Anhui. In the second half, well, we are still sticking to our purpose of serving the economy and provide better services to our customers.

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Unidentified Analyst, [4]

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Can I ask 2 more questions? Yesterday, media said that the Central Bank will -- CSBRC (sic) [CBRC] will enhance the regulation on the interbank business. So I just want to understand whether there's any impact to you in terms of your operations and the business strategy. And the second question, as reported before, you set up your wealth management subsidiary. So just can you please share with us more about it?

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Xuemin Wu, Huishang Bank Corporation Limited - Chairman of the Board [5]

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Thank you. So thank you for the 2 questions from you. Ms. Huang will take your questions. Thank you.

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Xiaoyan Huang, Huishang Bank Corporation Limited - GM of Asset & Liability Management Department and Director of Investment & Wealth Management [6]

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Thank you, Mr. Chairman. Recently, CBRC issued a policy on managing -- on regulating on the interbank businesses. So actually, this regulation process has been in place for several years already. And the CSBRC (sic) [CBRC] has been issued policies on regulating the interbank businesses. And this year, new policies were issued, which were more stringent or more specific indicators to regulate the interbank loans and [interbank] activities. I believe that they have a very clear purpose, that is pushing all the banks back to the essence of a business and putting more capital to support the real economy. So I can tell you that this will further reduce our financing costs of the real economy, particularly those small and micro businesses. This attitude is very clear. We noticed that the liability and the assets from the inter business center is -- has been -- have been declining. And this is the way we answer the Central Bank's call by optimizing our own assets. We have already started preparing for it. So from this extent, the influence is very limited. And so in the second half, what we will look at is specific requirements from the regulator. And so that we can keep optimizing our assets and putting more resources and more credit resources to the real economy to support the growth of the real economy better. So this is our business operations philosophy all the years.

As for wealth management, not long ago, we set up -- we received approval for setting up the subsidiary on wealth management and the preparation is now still going -- ongoing of setting up this company. So we had such a plan before. But now the regulatory environment is changing. The economic -- the economies are changing. So by adapting to the changes, we adjusted our subsidiary plan. So based on this, we will promote the establishment and the business growth of this subsidiary. Based on the [asset] management regulation, we will, first of all, focus on setting up a system in this system. Currently, we have already got 5 systems. When all the systems are well-built, can we effectively promote our business growth in the subsidiary. So this is a guarantee for the subsidiary. And we will recruit professionals from the market to enhance our technical capability as well as managerial ability in the subsidiary to maintain our competitiveness. We will look at the FinTech technology, the [market] data and the other IT technologies. So that in terms of smarter decision and the R&D and the design so that we can improve the competitiveness of the company overall. So the establishment of the company is now still undergoing. I believe that, as required, that within 6 months over time, we can set up -- we can finish the preparation of the setting up of the company. And the company will be ready for run.

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Unidentified Company Representative, [7]

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Next question, please.

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Unidentified Analyst, [8]

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[Everbright]. So under the context of a [suffering] economy, just want to understand what is your size quality and the situation and the plan for the security investment, particularly for wealth management and the custody input?

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Xuemin Wu, Huishang Bank Corporation Limited - Chairman of the Board [9]

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Ms. Huang will take your question.

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Xiaoyan Huang, Huishang Bank Corporation Limited - GM of Asset & Liability Management Department and Director of Investment & Wealth Management [10]

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Thank you, Mr. Chairman. Our security investment size is RMB 480 million -- billion. It's a standardized bond investment, mainly. Our bond investment in terms of proportion is declining year-by-year in the recent years because we have more resources that are being credit resources that are putting into our traditional business, the retailing business. This doesn't mean that in the capital market, in the financial market, we will -- actually, we will invest more resources to improve our R&D resources and our investment. You all know that the -- currently, that the market is low. The 10-year -- the initial bond rate is 3-point something. So therefore, we will study more on the investment.

So National Treasury, the local bank treasury as well as some other financial bonds. And so the high rating credit bonds will be our major targets. So particularly for good liquidity, the interest rate now is below the average -- the historical average by 50 basis points. So our strategy is that we can get going, and we can go out. We can get out. So we can withdraw easily. So we are keep improving our R&D capability. So we hope that we can (inaudible).

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Unidentified Company Representative, [11]

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Next question, please.

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Unidentified Analyst, [12]

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(inaudible) Two questions. The first one is LPR pricing mechanism. Just want to know that for this mechanism, what will be the impact to your assets and liability for the LPR based loans? What is the percentage in all the newly added loans?

The second question is about the NPL. So this year, there was a slight drop in the NPL, and it is at a low level compared with other banks. So I just want to understand what is the take on the NPL? So do you see more room for further reduction of the NPL ratio? Or are you going to be more aggressive in terms of lowering issuance?

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Xuemin Wu, Huishang Bank Corporation Limited - Chairman of the Board [13]

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Thank you very much. Our CFO will take the questions.

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Dawei Li, Huishang Bank Corporation Limited - GM of Financial Accounting Department & Financial Controller [14]

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Thank you. Before we came, the -- our people's bank of Anhui, so we just held a meeting. And we actually responded to the central government's call. And in terms of the promotion in terms of personnel trend, we are working on it. As for the influence to our pricing, we did analysis. So there will be some influence. However, mainly it will be very stable because it's very simple. So you have to look at the manager of the asset side and liabilities. At the asset side, if the assets price is going up, we will reasonably adjust the assets durability. If the assets price is going down, if the interest rate is down, and then we can prolong the duration of assets. In this way, we can get the right pricing.

So for the liability, so we will look at the -- to grow the custody business as well as the transaction banks. So for those, the less -- the net interest rate sensitive so that we can also look at the NIM to increase the NIM. As the (inaudible) sector said that our -- the net interest margin, we are one of the best among all the banks. So for Huishang Bank, we are actually answering the call from the Central Bank and promoting LPR in this process. We are enhancing the management on the interest risks so that we can make the reasonable profit out of the net interest margin and the net interest. That's for the NPL. We have been operating prudently if you look at our operations for so many years. So I'll be -- our -- if you look at all our key indicators, we are performing very well. So this is because that we always put the risks in advance. And now we're also making use of the big data technology to analyze the customers' risks. Particularly in different measures, we are working -- we are maintaining the stability of our assets.

So quick comment on your questions. The interest rate marketization, 5 years ago it was put forward. Actually, in the 5 years, there have been a lot of policies being issued and they are all related to interest rate marketization. During the 2 conference period, so the -- there were new proposals, and LPR -- that is why we had this LPR. The interest rate liability -- marketization, the last mile will be prepared ready. So we have made a lot of researches and have done a lot of preparations in the 5 years for the interest rate marketization. As for the last mile, objectively speaking, there will be influence, but it is not an impact. As for NPL, Anhui is in the -- is in central part of China. Our economy has been really stable, including the GDP growth, including the increase of our -- including investment growth and the taxation growth as well as individual dispensable income. So our economy has been good. The stable economic growth basically support our own steady growth. So it’s sure that we hedge NPL, which influence our business. And we have been spending years trying to absorbing the -- and reducing the impact of NPL. For the newly added NPL because we are better to preventing such NPLs, particularly by adopting big data technology, so therefore, the overall risks regarding the NPL has been better managed. So therefore, we have full confidence on the quality of our assets.

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Unidentified Company Representative, [15]

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Next question, please.

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Unidentified Analyst, [16]

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(inaudible), [Jessica]. Just want to ask you 2 questions. The first one, your financial investment under the new financial regulation. So what is the level for the interbank investment? And what will be level? And what is the disposal of such investment? And any capital injection plan?

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Xuemin Wu, Huishang Bank Corporation Limited - Chairman of the Board [17]

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The first question, for the interbank investment, this proportion, actually we received -- we do have some information, but it is not -- but we are -- it's not convenient for us to disclose it. But I can tell you that we are among the highest. The second question will be taken by Ms. Huang. And the third one by Mr. Lian.

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Xiaoyan Huang, Huishang Bank Corporation Limited - GM of Asset & Liability Management Department and Director of Investment & Wealth Management [18]

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Your second question, for the Central Bank and the [CBRS] -- so when they -- after they took over the Baoshang Bank and currently, they are doing the settlement. And as for our equity revolving at the Baoshang Bank, we will -- we go through verification from that. And some of the equity, we will have to go through the filing the lawsuit. So our -- then on credit assets, the impairment has been very well made. So far, Southeast Baoshang Bank doesn't have a big impact on us, the very limited influence. For our dealer operations, it's still moving forward steadily. For Huishang Bank, our capital injection or capital replenishment has been a very important consideration for us. Recently, for the capital replenishment, we have the following considerations. Some of the considerations are undergoing. So today is the 30th of August. On the 28th of August, we had the Board meeting agreeing that we are going to -- we propose to issue a RMB 12 billion of corporate debt, which will be approved by the AGM next time. And as for the Asia market listing, we're also pushing this program forward. And thirdly, we're looking to the possibility of issuing priority bond in China, because we were the first to issue the overseas priority bond. And now we're looking the possibility of issuing a priority bond in China. So this is the way, as encouraged, to replenish our capital in the local market. So basically, these are 3 things that we are working on steadily.

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Unidentified Company Representative, [19]

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Next question, please. Thank you very much. If no further question, I thank you very much for all your questions. I thank the management for taking the questions.

Thank you once again for you coming to Huishang Bank 2019 Interim Results Announcement. We look forward to you next time. Thank you.

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