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Edited Transcript of 600036.SS earnings conference call or presentation 22-Aug-22 1:30am GMT

Half Year 2022 China Merchants Bank Co Ltd Earnings Presentation Shenzhen Aug 25, 2022 (Thomson StreetEvents) -- Edited Transcript of China Merchants Bank Co Ltd earnings conference call or presentation Monday, August 22, 2022 at 1:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Liang Wang China Merchants Bank Co., Ltd. - President, Secretary of the Board, CFO, Joint Company Secretary & Executive Director * Jiang Chaoyang China Merchants Bank Co., Ltd. - Chief Information Officer * Jiangtao Zhu China Merchants Bank Co., Ltd. - Chief Risk Officer & Executive VP * Jianzhong Wang China Merchants Bank Co., Ltd. - Executive Vice President ================================================================================ Conference Call Participants ================================================================================ * Feifei Xiao * Meizhi Yan UBS Investment Bank - Research Division * Ran Xu Morgan Stanley - Research Division ================================================================================ Presentation -------------------------------------------------------------------------------- Unidentified Company Representative [1] -------------------------------------------------------------------------------- Dear investors, analysts, good morning. CMB 2022 interim result conference will now begin. I am CMB Securities Affair Representative, Head of the Office of (inaudible). First of all, I'd like to introduce the conference attendees of CMB. They are CEO and President, Mr. Wang Liang; Executive Vice President, Mr. Wang Jianzhong; Executive Vice President, Mr. Li Delin; Executive Vice President, Mr. Zhu Jiangtao; Executive Assistant President, Mr. (inaudible) and also relevant department heads from the CMB's head office. On behalf of CMB, I'd like to extend warm welcome to your participation, and thank you for your long support and investment in CMB. Today's meeting includes 2 sessions. Firstly, Mr. Wang will briefly introduce CMB 2021 (sic) [2022] interim results, which takes around 25 minutes. The second is the Q&A session, takes around 1 hour and 25 minutes. The meeting is provided with simultaneous interpretation from Chinese to English. Now let's give the floor to Mr. Wang Liang on his introduction of CMB 2022 interim results. Please, Mr. Wang. -------------------------------------------------------------------------------- Liang Wang, China Merchants Bank Co., Ltd. - President, Secretary of the Board, CFO, Joint Company Secretary & Executive Director [2] -------------------------------------------------------------------------------- Good morning. Welcome to CMB 2022 interim results presentation. Today's presentation will be divided into 3 parts. First will be an overview of our first half performance and second will be specific operational information; and finally, we will briefly introduce the next phase outlook and strategy for the second half of 2022. Despite the increasingly complex and severe domestic and international situation in the first half, the group has adhered to the concept of dynamic and balanced development of quality, efficiency and scale and continue to implement the strategic direction of [light-operation] bank and strategic positioning of One Body with Two Wings and have taken flexible countermeasures to keep the overall operations and performance stable and achieve stable growth while making further progress in accordance with the requirements on ensuring stabilities on full fronts, namely, ensuring stability on strategy, mechanism, operations and teams.in the following 5 aspects. Firstly, operating income growth demonstrated resilience with operation efficiency in line with expectations. For the first half, net operating income increased by 6% year-on-year to RMB 179.08 billion. Net profits attributable to our shareholders was RMB 69.4 billion, up by 13.52%. ROAA and ROAE respectively, was 1.46% and 18.07%, respectively, up by 0.04 and 0.01 percentage points year-on-year, respectively. Amid the external environment where interest rate spread quickly narrowed, we continue to improve the management of our asset and liability structure and maintain our core advantage of low funding costs. For the first half, our NIM was 2.44%, down by 5 bps, continue to lead the industry. And among which the cost ratio of our interest-bearing liability was only up by 1 bps year-on-year, offsetting the pressure from the declining yield of interest-earning assets. Net interest income realized [CNY 107.69 billion,] increased by 8.41% year-on-year. Thanks to the optimized cost management, the cost-to-income ratio declined by 0.19 percentage point year-on-year to 27.6%. All capital adequacy ratio slightly declined from the end of last year. CET1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio under the Advanced [Measurement] Approach was 12.32%, 14.46% and 16.8%, respectively, down by 0.34, 0.48, 0.68 percentage points from the end of last year. Under the Weighted Approach, the CET1 ratio, the Tier 1 capital adequacy ratio and capital adequacy ratio was 10.73%, 12.6% and 14.03%, respectively, down by 0.744, 0.58 and 0.68 percentage points from the end of last year. If the influence of dividend factors is excluded, the core Tier 1 capital adequacy ratio, Tier 1 and the Tier 1 capital adequacy ratio under the 2 approach still maintained positive growth. And secondly, extensive wealth management business developed steady, net noninterest income proportion maintained high. Balance of AUM from retail clients increased by 8.91% to RMB 11.72 trillion, among which AUM from Sunflower-level and above customers increased by 8.32% to RMB 9.57 trillion. AUM from m private banking customers increased by 7% to RMB 3.65 trillion. The balance of FPA to corporate clients was RMB 5.15 trillion, an increase of 8.7% year-on-year. Total AUM of asset management business was RMB 4.6 trillion, increased by 6.73%. Balance of assets under custody increased by 5.76% to RMB 20.58 trillion, ranked #1 in the industry in terms of scale. Net noninterest income increased by 2.73% year-on-year to RMB 71.39 billion. Fees and commission income from wealth management decreased by 8.13% due to exacerbated volatility in the capital markets and a relatively high base of the same period in the previous year. And the business was increased by 33.84% (sic) [32.84%] and commission income from the custody business increased by 6%. Income from extensive wealth management business was RMB 28.26 billion, increased by 0.3% year-on-year. Thirdly, overall asset quality remained stable with sufficient risk provisioning and compensation capabilities. Due to the risk rising from real estate clients and shock from regional pandemic situations, both NPL balance and ratio slightly increased, but the overall risks were still under control, among which NPL ratio, 0.95%, up 0.04 percentage points from the end of last year. Allowance coverage ratio was 454.06%, although down by 29.81 percentage points from the end of last year, but the balance of allowance for impairment loss on loans amount to RMB 256.02 billion, representing an increase of RMB 9.9 billion as compared with the end of the previous year. Annualized credit cost ratio, 0.79%, up by 0.2 percentage point year-on-year. We will continue to heighten asset classification standards and fully expose risks and step-up efforts to dispose non-performing assets. Ratio of NPL to the loans overdue for more than 60 days was 1.27. Annualized NPL formation ratio, 1.13%, up by 0.18 percentage point year-on-year. We disposed a total of RMB 27.13 billion NPLs in the first half of the year among which RMB 11.11 billion were written off and RMB 7.78 billion were securitized and RMB 6.15 billion were recovered by collection. And fourthly, sound liabilities' structure upheld with flexible adjustment to asset allocation. By the end of June, total liability was RMB 8.83 trillion, up by 5.32%, among which total deposits from customers was RMB 7.04 trillion, increased by 10.87%. Influenced by economic downturn and capital market and fluctuations, the trend [towards] time deposit is emerging, and the company continued to take the growth of core deposits as the main tax and the average daily balance of core deposit increased by 12.64% to RMB 5.6 trillion, accounting for 87% of the total. Average daily balance of demand deposit remained at a high level of 4.05 trillion, up by 8.68%, accounting for 62% of the total average balance of the deposits. In response to a relatively sufficient liquidity and insufficient demand of effective credit in the first half of the year, we have proactively and flexibly adjust asset allocation strategy to enhance the efficiency of asset allocation by increasing the proportion of bond and bills investment. By the end of June, the total asset was RMB 9.72 trillion, increased by 5.15%, among which total loans and advances to customers, RMB 5.93 trillion, increased by 6.49%. Total bond investments increased by 16% to RMB 2.2 trillion and bill discounting balance increased by 25.28% to RMB 540.35 billion. In terms of retail loan, under the premise of risk control, we increased supply of micro-finance loans and consumer loans. The balance of retail loans increased by 3.4% to RMB 3.04 trillion. In response to shock from the pandemic and sharp decline in real estate market transaction, we enhanced the organization of residential mortgage assets and mortgage loans realized positive growth, increased by 1.01% from the end of last year. We (inaudible) opportunities from consumption recovery post pandemic to increase the balance of credit card loans by 1.69% from the end of last year. Micro-finance loans and consumer loans increased by 8.54% and 17.85%, respectively, from the end of last year. In terms of corporate loan, we increased the credit of corporate loans and optimize customer mix and industry mix in light of insufficient demand for retail credit among the pandemic. Corporate loan increase by 7.45% to RMB 2.02 trillion. Balance of corporate real estate loan keep stable. Balance of loans to strategic emerging industries increased by 16.27%, with a proportion in the total corporate loans increased by 0.96 percentage points. Simply, the group's flywheel integrated faster with continuous strengthening synergy. Subsidiaries totally contributed RMB 2.61 trillion in AUM at balance and FPA contribution to the company was RMB 745.62 billion (sic) [RMB 745.65 billion]. The balance of products at CMB Wealth Management reached [CNY 2.88 trillion], which ranked 1st among peers. The scale of nonmonetary bonds of China Merchants Fund reached RMB 586.8 billion, ranking -- up by 7.01% compared with the end of last year and ranking among the top 5 in the industry for the first time. Total asset and net profit of CMB Financial Leasing increased by 23% and 24%, respectively. Growth of leasing assets and net profits were leading in the industry. Net profit of MUCFC increased by 25% and kept leading in the industry in key business metrics. This is a recap of our performance in the first half of 2022. And next, we will introduce the group's operational information. Firstly, we strengthened strategy implementation in the retail finance segment. We further push ahead with the original aspiration plan to enhance the capability of allocating [complex] products, even customer [companionship] and investor education. Retail client base continued to grow against headwinds. Total number of retail clients was 178 million, increased by 2.89%. Among them the number of clients who hold wealth products was 40.75 million, representing an increase of 7.84%. Number of [medium] and high-end customers continue to grow from a high base in a faster pace. The number of Sunflower-level and above customers increased to 402 million -- 4.02 million by 9.58%. The number of private banking customers was 130,000, increased by 6.53%. Number of active credit card users was 70.48 million, increased by 1.07%. We launched the upgraded TREE Asset Allocation System. Number of customers who carried out asset allocation under the system grew steadily to 7.97 million. A total of 9 wealth management subsidiary of our peer banks were introduced to the retail product system. A total of 126 asset managers were introduced to the Zhao Cai Hao open platform, providing services to customers for more than 221 million times. Sale of management of family office and family trust both exceed RMB 100 billion, with new management scale of family trust in the first half of the year exceeding that of the previous year. We further strengthened our asset organization of our retail credit business amid shrinking demand in the whole industry and retail loans increased by RMB 100.07 billion in the first half of the year remaining to lead the industry with higher market share. Credit card business, we strive to corporate the impact of pandemic and credit card transaction volume amounted to RMB 2.39 trillion, ranks #1 among peers, increased by 4.88% Y-o-Y, the highest growth in the industry. Secondly, we deepen the transformation of the wholesale finance business. We leveraged the customer service model with the integration of ICPT to improve customer experience, achieve professional industry operation and integrated customer service. Total number of corporate customers was 2.41 million, increased by 4.01%, among which 181,300 were newly acquired corporate customers, up by 0.55%. A number of core customers serve under the model of the [One Point Connection] model of our supply chain business increased by 8.93 year-on-year with services extended to 19,305 small and medium-sized enterprises. Number of corporate clients for withholding transaction was 944,800, with transaction amount increasing by 21% year-on-year. The company had 11 and 10,200 -- 110,200 customers of bill business. And for the transaction banking business, the CBS+ open service platform serves 4,154 group customers with 160,400 companies under management, representing an increase of 10.7%. The bonds underwritten by the company as the lead underwriter amounted to RMB 343.1 billion, ranked third in the industry in terms of the size of debt financing instruments. M&A business value increased by 15.2% year-on-year. Entrusted occupational annuity and the enterprise annuity services cover 27 provinces, regions and municipalities and 7,708 enterprises nationwide. The Entrusted enterprise and occupational annuities amount to RMB 153 billion, up by 10%. International settlement in respect of corporate customer increased by 21% year-on-year. And for financial market business, the trading volume of transaction services to the customer increased by 14% (sic) [25.48%] year-on-year. Thirdly, we continue to enhance our fintech capabilities. The information technology expenses amount to RMB 5.36 billion in the first half of the year, up by 6.03% year-on-year and representing 3.26% of the company's net operating income. Overall, cloud migration rate exceeded 90% and retail customer complete no trouble migration to cloud, leading the company to fully enter the area of cloud service. We push ahead the transformation of our talent mix. Number of R&D personnel reached 10,392, up by 3.48%, accounting for 10% of the group's total employees. We followed the technology-enabled strategy to build a Digital CMB by focusing on online, data, intelligence, platform and ecosystem. In terms of online transformation, 98% of the noncash business of retail clients could be handled through the CMB application and 96% of the basic service of corporate customers were available online. In terms of data-enabled transformation, the company has access to an aggregate of 300 external data sources, which have been widely used in various business sectors such as retail, wholesale and risks. In terms of intelligent utilization, smart AI customer service, Conch RPA and other intelligence service achieved the replacements of over 10,000 staff. The Libra platform helped lower the percentage of fraud and account takeover announced by noncardholders to 0.4 in ten millionths. In terms of platform-based transformation, the company opened 2,078 API interfaces to corporate customers, representing an increase of 63% and served 12,000 corporate clients in total. In terms of ecosystem construction, the company has leveraged technology to build an ecosystem of extensible management system, facilitating the integration of financial services of clients work life and business. Fourthly, we effectively manage our major business risks. As the quality of retail loans remain stable, NPL ratio slightly fluctuate at low levels. Non-performing loan -- non-performing ratio of retail loan was 0.82%, up by 0.01 percentage points and that of credit card loan was 1.67%, up by 0.02 percentage points. Ratio of the special-mentioned retail loan, 1.19%, increased by 0.07 percentage points, mainly due to the influence of the pandemic and the increase in loans that are not overdue but affected by external risk signals. The downgrade rate of special-mentioned loans into non-performing loans kept trending down. The non-performing ratio of corporate loan increased by 0.11 percentage points to 1.35%, mainly due to the risk exposure of individual risk, real estate enterprises. We attach high attention to risk management and control on our real estate business with measures such as formulating risk management measures based on different policy for each clients, focusing on high-quality customers and projects and proactively address the demand from first-time home buyers and home upgraders. Total balance of the group's real estate business was RMB 810 billion, including business of which the group assumed credit risk amounted to RMB 493 billion. Balance of corporate real estate loan was RMB 355 billion, accounting for 6.35% of the company's total loans. Approximately 80% of them are located in the first-tier and second-tier cities. The company's NPL ratio of corporate real estate loan was 2.95% (inaudible) increasing -- although increasing by 1.56 percentage points as compared with the last year end, but the risks are generally controllable. For residential mortgage loan newly granted were -- 88.44% were in the first-tier and second-tier cities, up by 4.22 percentage points. Residential mortgage loans in the first-tier and second-tier cities accounting for 86% of the total, up by 0.25 percentage points. The weighted average LTV ratio of the residential mortgage loan was 33.28%, further decreased by 1.1 percentage points from the end of last year. Simply, we actively implemented the concept of ESG and effectively supports the real economy. The balance of green loan increased by 18.32%, 10.87 percentage points higher than that of the total corporate loans. We assist 13 enterprises in issuing 19 green bonds with a total issuance size of RMB 42.54 billion, among (inaudible) The company underwrote [19.31 billion] as the lead underwriter, which strongly fortify the direct financing of green and low-carbon enterprises. The company completed the agency sales of 63 new energy and photovoltaic funds. The balance of investment by CMB Wealth Management in green bonds was RMB 24.6 billion. China Merchants Fund had 6 existing ESG-related product with a total size of RMB 2.67 billion. Balance of loans to manufacturing industry increased by 13%, whose proportion in the total corporate loan was 17.98%, up by 0.9 8 percentage points. Balance of inclusive finance loans to SMEs increased by 8.27%, which is 1.73 percentage points higher than that of the overall loans. The numbers of accounts with SME finance loan balance were 1.06 billion, representing an increase of 148,000 as compared with the end of last year. We enhanced financial support to customers heavily hit by the pandemic and the total amount of loan principal and interest repayment deferred by the company for customer suffered in the difficulties were RMB 15.53 billion. It is expected that most borrowers may repay the principal and interest normally in the future, and the effect on asset quality is overall controllable. I'll briefly introduce our outlook for the next half of 2022. Looking into the next half, internal and external circumstances of China will remain complicated and challenging. The company will stick to the free unchanged principle, which are the President assuming full responsibility under the leadership of the Board of the Directors, the market-oriented incentive and restraint mechanism and the stability of the cadre team and talent, adhere to the core value of being customer-centric and created value for our customers that follow the role of increment increasing, revenue increasing, efficiency increasing and value increasing for commercial banks. We will comprehensively strengthen management and promote strategy implementation to accelerate the establishment of the Malik Curve of CMB. Firstly, we will adhere to established strategy and continue to build the 3.0 model of extensive wealth management. We will stick to the differentiated development strategy and continue to build the 3.0 business model with the cyclic extensive wealth management value chain at the core. That is by our values, we will be more determined to strengthen strategy implementation and (inaudible) to existing strategies without being subject to global changes. Secondly, we will improve overall internal management to ensure high-quality development. We will rigorously enhance overall internal management by following refined standards. In line with CMB culture, we will step up efforts to strengthen our workforce, improve incentive and restraint -- restrictive mechanism with the (inaudible) mechanism at the core and enhance employees' capability and energize the talents. Thirdly, we will facilitate faster development in key regions and create new growth engines for high-quality development. We will formulate differentiated development strategies based on characteristics of economic structures in regions where our branches are located. We will further strengthen branches in central cities among the Yangtze River Delta, Pearl River Delta and Chengdu-Chongqing region and enhance the development momentum of branches in key regions and especially for tier-2 branches. And fourthly, we will leverage on fintech to accelerate the establishment of Digital CMB. Leveraging fintech, we will comprehensively promote the digital reshaping of the financial infrastructure and capacity system, customers and channels, business and products, management and decision-making by focusing on the 5 attributes, namely online, data, intelligence, platform and ecosystem. And fifthly, we will build a fortress-style risk compliance management system to remain a stable asset quality. We will promote business departments to strengthen risk management, emphasize the main responsibility of risk management of the first line of defense and pay attention to compliance risks. We will step up efforts to prevent and mitigate risks in key areas such as real estate, wealth management and agency distribution, optimize asset allocation structure and promote a sound development of business. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Now is the Q&A session. [Operator Instructions] Now we will have the first question. Q&A session will now begin. [Operator Instructions] First question is coming from UBS, Yan Meizhi. -------------------------------------------------------------------------------- Meizhi Yan, UBS Investment Bank - Research Division [2] -------------------------------------------------------------------------------- Thank you very much for giving me the opportunity. I'm May from UBS. Actually, I have 2 questions today for the management. Currently, we're in a very complicated environment, and CMB has reached a profit growth of double digit. It's very difficult to reach such a good result. But now the market is not very optimistic about the macro. So may I know what is the management's judgment for the macro picture? And also, at the same time, banks are facing challenges, and there is no sufficient effective demand. And as we can see in the first half, the retail loan of CMB is growing quite slow. So what is your forecast into the second half? And is it possible that CMB will become a bank that have a higher proportion of corporate loans? This is the first question. Second one is for the wealth management income. This is the future goal of CMB, where you are making efforts for, but currently affected by the macro situation. Your fee income for wealth management is seeing some negative growth. So what is your forward-looking judgment for this part. And also, at the same time, the real estate market is coming down, and it will deal quite big blow to your wealth management as well. What is your strategy for that to tackle this problem? -------------------------------------------------------------------------------- Liang Wang, China Merchants Bank Co., Ltd. - President, Secretary of the Board, CFO, Joint Company Secretary & Executive Director [3] -------------------------------------------------------------------------------- Thank you for the question. As for the macro picture, I would like to give you some supplement information just now when I give you the brief introduction about our first half news results. I just stated that as many other banks, we are facing very complicated external environment and the biggest blow or challenge is coming from the COVID. Especially in second quarter, COVID has been spread out in Shanghai, which also have a big challenge and difficulty to the bank of daily operation. In order to offset the decline in the overall economy, we can see that the liquidity in the market is quite ample, and we are having a quite ample or loosen monetary policy. So banks are facing many sufficient effective demand and also the rate interest risk coming down. And also, at the same time, the risk from the real estate is surfacing is rising up. So these are all the challenges coming together for CMB and post quite an unprecedented challenges and difficulty to the bank's operation. Under these circumstances, actually, we are implementing our strategy and also in order to ensure the stability of our business, ensure the stability of our mechanism and our staff team. So we have to achieve quite a results, as you have seen. It's quite a hard-earned results for the first half. And we have already reached our goal, has been designed at the beginning of the year. And all the business has been running in a stable manner. When you look -- when we are judging or saying about what we have achieved in the first half, we think that there are 3 major characteristics, I would like to share with you, three major characteristics of our operation. The first one is, we have maintained stable operation and also stable financial data. As you can see -- first one, you can see for the profit growth, 13.52% double-digit growth, and ROAA and ROAE is keeping quite a high level and also have a slight increase compared to what we have at the end of last year. As you can see, the profitability of the bank is still in a sound level and also keeping a good momentum. Secondly, after the very difficult -- we have experienced a very difficult environment. as you can see, the bank's business is quite resilient, which can be shown in the following aspects. The first one is retail. We can see the rapid growth of retail from customer group, from the AUM even though for the retail loans has been quite negatively affected by the market, such as mortgages is facing quite big difficulties. But still, we lead the way among our peers. This is for retail. After 20 years of following the retail strategy it has become the major business of CMB and also the business that helps CMB to counter cycles. So especially in these difficult situations, retail still play the pivotal role in the bank's business. And thirdly, for the past years, we have implemented very strict asset classification and also have maintained a high level of coverage ratio, which means that we are more capable to buffer the risks that we are facing now. Since our asset quality is solid, and we have ample coverage in place, so this negative environment will not post a big difference to the provision of the bank. And also at the same time, you can see, for this year we are making efforts in terms of expanding our noninterest income for the past years. So you can see the proportion of the noninterest income in our total operational income is at a very high level. Since we have a high rapid growth in a higher proportion of noninterest income so we can generate capital indigenously through profit growth. So if we do not consider the -- if the impact coming from the dividend payout, you can see that the CAR ratio or Tier 1 ratio are all growing respectively. This all shows the resilience of the business. And in the third aspect, as you can see, we have strengthened our management structure facing this difficult situation. We are strengthening our internal management, including strategy management, risk management, cost management and other aspects, we are trying to make the efforts to strengthen our management to improve our 3 capabilities namely for wealth management, for risk management and also for fintech, so that we can counter the current cycle and also to buffer the difficulties posed by the macro picture and maintain a stable growth. These are the supplementary information I would like to share with you for our first half performance. And also considering your question for the second half, we think that the macro picture will continue to be difficult. Major factors are first one, the biggest one is coming from the COVID impact. It has posted big uncertainties to the operation of business even though we can see from the policy side is that the central government want to keep a balance between COVID control and also business development but some local governments. They want to control the COVID first and then come for the economy, which means that economic development is in a certain place after COVID control. So these will post a big pressure on the economy. So the central government's policy is to ensure stable growth, ensure employment, but pressure will be very high. Our goal for 5.5% GDP growth rate, it will be very difficult or mounting pressure to reach this goal and also pressure from stabilizing economy and also stabilizing employment will be very high. So that is why monetary policy and fiscal policy will making -- having is more strengthened or stronger than before. You can see ample monitoring power very liquid in a market and different measures will be launched out to ensure that the economy will be stable, such as the decline in the LPR. This will also post bigger pressure on bank's business. But we think that we have followed the retail strategy for the past 20 years. We are strengthening our capability to buffer or counter the external risk. So we are confident that we can stabilize the macro -- stabilize the operation. So you just asked whether you will have a slow growth in retail side and have more corporate loans to complement the shortfall coming from the retail or whether CMB will become a bank that have a higher proportion of corporate loans. I think that we will insist on retail banking, not only the wealth management from retail, but also to expand our allocation to retail loans. We will try to maintain the higher proportion of retail loan. And the proportion will be higher than 60%. This year, we are facing contractions both on mortgage side and credit card side. So in the first half year, we haven't met our plan for retail loans. Our budget for the whole year is for RMB 100 billion, but now it's only the -- budget completion is only 13% of retail in the first half of the year. But that doesn't change our strategy, namely, to invest more into retail and have a higher proportion of retail loan. This is the first question. Secondly, for wealth management, I would like to invite Mr. Wang to respond to your second question. -------------------------------------------------------------------------------- Jianzhong Wang, China Merchants Bank Co., Ltd. - Executive Vice President [4] -------------------------------------------------------------------------------- Thank you for your question. Just now you asked a question that in the first half of the year, the relationship between CMB's retail wealth management with real estate market. Overall speaking, I think that CMB's wealth management is moving forward according to our plan and have reached good results. So why it seems that the fee income for wealth management have some volatility in the first half of the year. I think this is highly related to our ability of CMB, but it's not wholly relevant to CMB's ability in wealth management side. Every bank is doing wealth management. But as a bank, how can you do it well? The core -- what is the key to that? I think, firstly, what is your aspiration -- original aspiration and who -- are you working for your customer? Are you working in the interest of your customer? Or are you creating value for the customer? I think this is the original aspiration or original purpose from our business. So that is why last year, we have launched a series of program regarding back to our original purpose. So for wealth management of CMB or for other business, we need to place customers' interest at a forefront. It's moving forward quite smoothly in order to reach this goal and head office among our branches, we have kind of adjusted our evaluation system for our relationship managers. And secondly is to improve our ability to create value for our customers. In the head office and also in our branches, we are strengthening our middle office mainly to deliver the product or capability to our relationship managers to improve their capability -- RM's capability to service their customer. Thirdly, we have integrated retail and also other business lines, especially corporate line. I think the integration is even better. As you can see, we are doing the integration between corporate and also retail together integration of B and to the customers and based on our corporate customers' demand and also to get into or get back to their customers, so the retail kind of behind the corporate, so no promotion or the marketing will be more precise. And fourthly, we have integrated online and offline service. As you can see on our APP platform, we have proprietary marketing or customer origination capability online such as we have a cash management products that's called [indiscernible]. We have originated customer around 20 million and the balance of this customer in over -- also over 200 billion. So it's a huge amount. As you can see, the wealth management's capability is a systemic one from our value proposition to product delivery to service delivery, it's a system, holistic system. And very importantly, we have a capable team to support this system. And we think that we have achieved quite good results in this regard. And from the product side, the wealth management products, what is the difference from the current products to the past products? As you can see that now all the products are NAV based. It's hard to imagine in the past that the trust companies are facing large problems or difficulties now. Banks definitely are facing pressure from media and from our customer. So when you are doing asset allocation for your customer, the products that you offer are very much different from years before. In the past, the trust products, our relationship managers call it attractive products, which means that they are providing the trust product to the customers. The customers are very thankful that you give them this kind of products and will transfer most of their assets to the bank who can provide them this kind of trust product. As in the past, these kind of products has a guaranteed high yield. But nowadays, that margin is totally different. Nowadays, even though our wealth management products are all NAV based. So the wealth management allocation system today is all designed for tailor-made based on our customers' risk appetite, based on their customers' capability, namely, we need to analyze customer's risk appetite and customer's capability so as to allocate the relevant or applicable products to the customer. So we need to reduce the volatility of our customers' portfolio. That is why we emphasize on asset allocation in the first half of the year, even why we say we are facing pressure in terms of from the income side because it's very highly related to the capital markets. When we are in asset allocation in the first half of the year, we need to look back into our -- in the past. Last year, in the fourth quarter, we have recommend our customer to exit some of the equity products. We know it's a choice of choosing the timing and it's a difficult job to do. But in the fourth quarter of last year, we actually dare to do so to help our customers to choose the timing. And in the first half of the year, we have our discipline. Actually, it has been launched in the second half of last year, and we do not want to issue the very hard product in the market because the equity market was very high last year. We want to recommend our customer to exit. And I think it's also a result of our active move to help our customers to allocate their assets. We are pursuing them to more cash management products and more wealth management products than major products that have a lower volatility. So if you look at the profit ratio, definitely, these kinds of low-volatile products have a lower profitability ratio compared to the mutual funds. But definitely, I think it proves that CMB's capability is improving, which is demonstrated from our sales of our insurance products. Even though we don't -- we are not seeing a big increase in our total sales volume of insurance products, but we have seen a fee income for our insurance product is growing very rapid. This is mainly due to the different structure of our insurance products, namely, we are providing more guaranteed type insurance product to the customer. The first one is, as you can see, we are improving our capability to reach out to our customer online because insurance products are not standard products. So how you can reach out to your customer through online and to give a good explanation to your customer through online is a difficult thing to do. We -- our capability in this regard has been improved. Secondly is, for the professionalism, our relationship manager, offline, this professionalism capability has also been improved. And the increase in our income from insurance products shows our capability has to improve as well. So when we look into the second half of the year, after June, you are seeing that in equity products, we are kind of increasing our allocation to increase our allocation into equity products. It doesn't mean that we are seeing a low income and then we improve or increase our allocation to equity. It's totally based on our adjustment on the macro side. That is why we have made these active arrangements. And the foundation for that is we have more detailed classification of our retail customer. So for our private banking customer, we have encouraged our private banking customer to allocate more private fund products. So all these are based on our knowledge about our customers. And to know our customer better and then to more precise classification of our customer and then to have tailor-made as that allocation solution for them. So I think very importantly is what we are doing now and what we are trying to do in the future is that we need to put customer first. Customer's interest is our top priority. I don't think you need to bother too much about the slowdown of our income in wealth management. The key is whether you need to look at whether CMB can keep a solid growth for the customer base. So in the first half of the year is we are growing our customer base quite well. It's not an easy thing to do, especially for the high-end customer is for the growth is quite well, such as for our balance customers -- every customer for balance of the private banking is growing as well. Secondly, the key is to observe that whether CMB is putting customers first and to improve or to create value for customers or service the customer and to provide more balanced allocation for customers. Now we have around 40 million customers who are holding the wealth management products with our bank. So when it reached a higher level, I think that CMB will have a stronger or even more solid capability for wealth management. And your second question regarding the wealth management products is for real estate market. We haven't disclosed the real figures on that. So just now I said that our high-end customers, they like these trust products, which have a guaranteed high yield. So actually from early on, we already made arrangements for products who can replace these kind of products. So at the peak time, we have these kind of products at a peak time that was over CMB 100 billion, but now it has been a very minimum level, a very small amount. These kind of products has reduced largely. And now we have a wider choice for our customers, including deposits, wealth management products, insurance products or different kinds of funds, including bonds, fixed income fund or equity fund. It's a variety of products. These kind of nonstabilized asset products is at a very low level. We have already gone through this period and our customers are not reliant on these products. So for the problems that when the trust companies have difficulty to pay out the past products, we are trying very hard to collaborate with our trust companies to solve that problem. And especially for many problematic products, we have made our best efforts to coordinate different parties to minimize the impact on our customers. So actually, the current balance is already at a very small level. And I think that what happened in the real estate market the impact on the wealth management business simply is bare minimum. Thank you. Next question, please. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Next question is from Xiao Feifei from CITIC Securities. -------------------------------------------------------------------------------- Feifei Xiao, [6] -------------------------------------------------------------------------------- My question is regarding asset quality. I noticed that in the interim report, CMB's overdue special management nonperforming or performing formation ratio have all increased, especially for retail loans overdue and special mention loan ratio. I'd like to understand the reason behind and what do the senior management -- what do you look at following asset management trend in the next phase. The question will be taken by Mr. Zhu. -------------------------------------------------------------------------------- Jiangtao Zhu, China Merchants Bank Co., Ltd. - Chief Risk Officer & Executive VP [7] -------------------------------------------------------------------------------- Thank you for your questions. Regarding the bank's asset quality, we see for the first half, risk indeed increased. And there are following influential indicators. First of all, the macroeconomic condition is going downward trend. At the same time, along with the impact brought by the COVID, the overall risk is also increasing. The second reason is that based on our management need, we have enhanced our control over asset quality and applied fixed standard on nonperforming loan recognition. We have improved our recognizing standard from 90 days to overdue 60 days as nonperforming loans. And for credit card loans, we have also act according to regulatory requirements to move forward the recognizing time point. And for the retail loan asset quality, we have applied restricted and restraint mechanism on the asset quality control. And third reason is mainly due to the 2 areas of real estate industry and credit card risks. For the first half, we can see that the nonperforming loan formation, special loan and overdue are basically coming from the following -- the above mentioned 3 factors. But generally, from the retail asset loan quality, the nonperforming loan information is 0.33%, special mentioned 0.54% and overdue loan rate 0.55%, which is a relatively low level. And at the same time, we noticed that in the retail end, the early indicators such as the collection and entry ratio, the general performance is quite benign. So therefore, our expectation to the year-round asset quality indicators are confident, and we expect it to remain stable. And for the next half, our prediction is that the trend will be continued in terms of the risks externally. And this is my response to your question. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- The next question is from [indiscernible]. -------------------------------------------------------------------------------- Unidentified Analyst [9] -------------------------------------------------------------------------------- I have 2 questions. The first question is about NIM. The second question is about corporate loan. I noticed that in Q2, the NIM is 2.37%, which is for the past 13 years, the lowest level for a single quarter. I have also noted that the market interest rate have also reached a relatively low level, especially for the bills rate. And then as such circumstances, in my personal opinion, looking into the future, there was no much room to decrease for NIM. And I'd like to learn from the senior management about your prediction and view over the future trend of NIM. The second question is about corporate loan. I noticed that you have mentioned that's surrounding a new growth engine, green economy, quality, manufacturing and regional characteristics industries, and you will enhance a loan extension to these industries. And I'd like to learn from CMB that what kind of preparation have you make to nurture this kind of capability required to extend loans to these new areas, for instance, your organizational structure, HR incentives and et cetera? -------------------------------------------------------------------------------- Unidentified Company Representative [10] -------------------------------------------------------------------------------- Thank you for your question. About NIM, as you have mentioned, the second quarter NIM has decreased 14 bps to 2.37%, which is sharp among years of CMB's operation. This is also relevant with the banking industry nationwide. Currently the bank's interest rates is at the lowest level since the PBOC statistics. In order to ensure the stabilize the state stability of the economy and corporates are facing very big challenges. You can see that in May that the LPR has been cut again by 10 bps and also mortgage rate has been reduced or adjusted downwards by 20 bps. So you have seen quite the LPR and also why LPR has been further adjusted downward. And for this decline in LPR and the competition for quality assets will become more fierce. So you have seen that interest for this kind of quality assets is coming down. And as you can see some irrational pricing in the market, such as for some quality enterprises, loan rate for them is even lower for the deposit for rate. And those are the charge in the market. And we think that the distortion or is kind of an irrational scenario will not last for long. So the market will adjust by itself. But facing these very robust situation, CMB will definitely be affected by a monetary policy. And I just want to see that holding for corporate loan but also through retail loan, you are seeing a declining trend for the asset yield. So secondly, you see that in our second quarter we had such a big fee. This is mainly because of the -- due to the structure or of our loan portfolio. Consumer part, we haven't had a portion of higher earn as it is from retail side. And compared to years before, the increase in retail loan is around RMB 50 billion compared to in the first half of last year. So you have seen a decline or a slower growth for mortgages, and also for credit card, which are all the higher assets for CMB. So we are disbursing or sending year loss to corporate and have more bills this coming business to make up the shortfall coming from the retail side. But you know that yield for corporates loans and for bills are much lower than for retail loans. That is why you have seen the pricing point and that is why NIM [indiscernible] down very sharply, and, at the same time, you have seen an increase in our cost deposit cost. Even though our liability cost has been up by only 1 bp by [indiscernible] deposit cost has been up by 6%. So why that cost on our deposit is coming up even though we are facing -- said value are facing a very recent monetary policy and also we have a very high proportion of the core deposits. The reason behind is that we have the structure of our liability structure has been changed in the first half of the year. Things we are facing very weak capital market, our customers will tend to buy more stock for wealth management products. They are trying to be more risk averse, and they want to file deposits compared to those wealth management products. So then they want to have a term deposit with a bank and is very popular that a 3-year deposit term to consumer [indiscernible]. And as you can see, is close by PBOC the savings deposits for the whole [indiscernible] has seen increased by over 2 trillion and this all reflects that customers or investors, they are more risk averse and want to place deposits with bank other than a financial products or invest in property. So that is why we are kind of adjusting our structure of popular trend and have more term deposit products for our customers. So this has help drive the up pricing from the cost side. By combining the deposit side, as [indiscernible] NIM for the sake [indiscernible] cash in the second half of the year, we need to look at monetary policy, what will be the future pricing for LPR. The LPR continue to decline. That will post definitely the pressure on the asset yield side. If the monetary policy of what you mentioned are reasonable, applicable monetary policy, than this will definitely post pressure also on asset -- quality assets. And also, we also need to look at the investment. When we continue, you can see infrastructure rapid at retail or from the property investment is declining very sharply. So if the demand for property investment is coming up or recovered, that will help us to restore the stability of our interest rate or pricing for the asset. So how has CMB actively to counter the external environment. Firstly, I think that we need to keep our good momentum in credit card. Now we are seeing quite good momentum for the recovery of credit card. So we think that we -- and we can meet our budget for credit card. Secondly, we need to really actively show the deposit cost because we have a very good momentum for deposits flow and definitely, we have already meet up our budget for the deposit loan. So second half of the year is to optimize our deposit structure to reduce the deposit costs and maintained a stable NIM. So overall speaking, we think that, in the second half of the year, the NIM -- the decline of the NIM, I think, might be marginally narrowed. We will not be as sharp core as in the second quarter. This is our judgment for that and also is where -- what we are challenging to do or making efforts for. And secondly, for the corporate loan, I would like to invite Mr. Jiang to give you more explanation on that. -------------------------------------------------------------------------------- Jiang Chaoyang, China Merchants Bank Co., Ltd. - Chief Information Officer [11] -------------------------------------------------------------------------------- As for the asset origination for corporate loans, I would like to give you some introduction. [indiscernible] operation very important to look at its customer structure and for the CapEx asset origination or in other words that are customer base besides where -- whether it will have the slow potential in future and also the quality of these assets. So customer structure is the core of the base of the bank's operation. For CMB, for these years, we implemented the new development philosophy, where we follow very closely on industry operating new trend on industries, and in some major industries we try to be more professionalize in some certain important industries to explore the way of how we can do risk management in certain key areas. And that's why we have launched an idea and for accommodating, we are moving towards 5 directions and the new [indiscernible] manufacturing [indiscernible] or the specialized industries certain areas and also precise industries. I think we are following the culmination industry operating structure. And that is what we have to form this 5-year on balance sheet or where we are or we need to work for. And at the same time, in the past year after years of efforts. We have formed our own professionalism in this regard. So these are the areas that we are kind of moving towards and where we're trying to originate more assets. And after the efforts that we have made, we think that we have some good results in this area. Firstly, you can look at the customer growth. For these 5 directions, after our analysis into the 5 directions, we have picked up name list of quality customer in these areas, and we look at the account opening range. Over 50% of these -- our target customers have open account with CMB. So these 5 directions are also where the capital markets are chasing for. An end of some of the year for IPO account collection, you can see for the accounts for IPO collection is 62% of the market share, they are with a bank and in the newly IPO'ed company choose CMB to the front bank that they work for and the propulsion is over 62%. It show that our capability is improving and is in the same trend where the capital market is chasing for. And we look at the deposit side, the deposits from these 5 operations is over 20%. And asset originated in these 5 directions are increased by 14%. And also NPL is very low. It's a slow and slow, much lower than the average one. So whether you have the doubts and -- you have the doubt and wondering if CMB have the capability to achieve results in these 5 directions. I think that our capability is shown in 2 aspects. The first one is professionalism [indiscernible]. With these 5 directions, our knowledge into the industries and our product and service innovation for this industries as well as risk knowledge about this know how about these industries are all improving, and we'll try to provide a holistic solution to companies in these industries, and these are the capabilities that we want to build in these 5 directions. So it's not only a direction but CMB want to origin asset, but is mainly from the front, middle and back office trying to build capabilities for. If you look at our structure or our team, we have tried to optimize our team, our staff for talent structure for this. And we have 8 strategic departments, and to do the professional business with our different industries. Then the top enterprises in the 5 directions has been concentrated for one of these professional strategic departments. And it has been 10 years we have accumulated experience, and we have nurtured talents, or professional talent in these areas. And thirdly, in regional market, we have formed our teams to targeting at our advantages industries. These are very strategic and also specialized team who are servicing these specialized industrial corporates. So from our head office to our branches, we have specialized team to service corporates in these certain specific industries. Certainly for the capability to watch and built is we have formed our integrated a holistic solution, including investment banking, commercial banking, private banking and also a fintech. This is the solution that we are building on. Based on the different characteristics of different industries and customers, we are kind of ready on the flywheel of the bank and to form a holistic solution for the customer. Here, I want to emphasize that 5 direction is a major direction that we want to upgrade our customer structure. It doesn't mean that we do not do our business outside the 5 directions. In terms of the relative directions mainly is the area on a trend for the future. But we think that we need to keep a balance between the traditional industries, that with our new industry, even for the traditional industries after industry operating after supply side perform they're sure very quality corporate we can work with together. So it's the balance, it's a relative structure, and also, we do believe that we will have a more balanced and more structure for our corporate customers. So as to support the high quality customers. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- The next question is from Morgan Stanley Xu Ran. -------------------------------------------------------------------------------- Ran Xu, Morgan Stanley - Research Division [13] -------------------------------------------------------------------------------- And thank you for your detailed illustration on the NIM question. I have another question on the loan pricing. We see fierce market competition in the loan pricing and the policy also support banks to provide further beneficiary policies to support loan extension. And I have a question on how CMB do balance between loan pricing and deposit -- loan extension and pricing? And will you slower your pace of loan extension and to manage the balance between pricing and extension? And what's your strategic consideration in terms of this problem? And what is your outlook for the next half? -------------------------------------------------------------------------------- Unidentified Company Representative [14] -------------------------------------------------------------------------------- Thank you for your question. Current stage, real economy is encountering difficulties. And the loan interest rate is indeed declining to support the development of real economy. And we regard that many of the enterprises are overcoming pressure in terms of liability and they are facing pressure in the repayment of interest and the principals, and therefore, banks is following the national policy to provide more support on loan extension and policy and pricing to the enterprises. The central government at their working conferences have mentioned that when financial development is stable, the economy will be stable. And the two are closely connected with each other and have mutual influence on each other. When economic development is facing difficulties, so is enterprises development, and it is necessary for banks to wait fees and conduct fee reduction for better and healthy development of enterprises. As long as the enterprises are having good development, so will the bank having good development. There is an old saying that the skin and the fur are connected with each other and the banks and the enterprises are reliant on each other in terms of healthy development, and therefore, we will indeed maintain a balanced development between the bank's internal coordination and to provide sufficient support for the enterprises, our enterprise client development. It is also embedded within our actual practice to realize a coordinated balanced development between ourselves and providing support to real economy clients. We see many SME clients are under huge impact of the COVID-19. Some of them have already gone close of business, and there are also unemployment pressure within the market. For young people from age 16 to 20, there are only 19% of the unemployment rate within the market. So we see a lot of pressure in the market. And faced with this condition, CMB will definitely provide our support to the society and strengthen our encouragement in terms of our recruitment for newly graduated students and providing more position for these newly graduated students. We will closely and actively implement support and the policies provided by the regulator to lower our loan pricing level to provide more support to the real economy and to survive this difficult time. It is definitely a temporary situation. Chinese economy will remain stable and healthy and high-quality development. We need to work closely and jointly to survive this difficult time. And under such circumstances, CMB will strive every effort to fulfill our social responsibility, lower financing costs. And we will uphold the commercial principle to balance our improvement along with our support to enterprises. And first of all, we will maintain a stable asset quality. And we believe that along with this good asset quality, we can have future development, and we will not let the relationship between us and our clients to break just because of not [indiscernible] asset quality during the recovery process. And secondly, we need to cultivate and nurture good relationship with our clients and enhance our comprehensive return as we can gain from our client. We will provide good service to our clients, win their trust and win their long-term support to CMB. And we aim to provide long-term service to our clients. And in terms of long term, the idea is that we can gain their support in a long run, and I believe it is a reasonable choice we can make. And last but not least, we need to control better on our cost management. Loan pricing liability, and these are all indicators we need to consider. Tax risk, operations asset costs, these are all variables we need to take into good consideration to strike a balance between making profit and providing low-cost loans to our clients. It is also relying on how we can maintain a very good internal management. And these are also measures that we can take to carry out our policies. The target is that we can follow the guidance provided by the central government and can stick to our commercial principle to realize the increment in efficiency, revenue and value for our clients and create our cyclic chain of value. These are basically my answer. Thank you. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- The next question is [indiscernible], HSBC. -------------------------------------------------------------------------------- Unidentified Analyst [16] -------------------------------------------------------------------------------- My question is about retail strategy. Just now, you have mentioned that a lot of development directions. During the economic downward development phase, there will be more difficulties in the external environment. And I see that retail has become the cornerstone of many foreign banks, and I'd like to know more about your development direction in retail finance. And for instance, your credit card business, for instance, your wealth management product layout and what about your agency sales distribution during your business -- business development? And this is basically my question. -------------------------------------------------------------------------------- Unidentified Company Representative [17] -------------------------------------------------------------------------------- The question will be taken by Mr. Wang. -------------------------------------------------------------------------------- Liang Wang, China Merchants Bank Co., Ltd. - President, Secretary of the Board, CFO, Joint Company Secretary & Executive Director [18] -------------------------------------------------------------------------------- Thank you for your question. In the economic downward pressure, retail development is basically still our mainstay of the bank's operating philosophy, we still take retail finance as our basis. As for the retail strategy, first of all, from the asset organization side, in these retail assets is the cornerstone of our total assets in terms of 2 assets: credit card and retail loan. In the economic downward pressure, my strategy -- our strategy is that credit card business will remain stable and low volatile operating philosophy. 2 years ago, we have taken a strategy in credit card business, which is we have changed the client structure in client structure and credit card business. In terms of gaining more benefit in the credit card business, we have to pay more attention to the credit card transaction volume. And this is the major resource of getting benefit. And this is what we have done 2 years ago to change the client structure, the client base of our credit card business. We have enhanced our efforts in the branch development of credit card business in card issuance. The card issuance on the online level and the branch level has around half-half proportion in terms of their issuance. For debit card referral to credit card and for credit card referral to debit card, and generally has been giving us very good performance compared with other channels of customer acquisition. So for credit card assets, we understand that -- we are enlarging a very -- we're enlarging our client base of acquiring quality clients, which is demonstrating in the following aspects. First of all, in terms of trading transaction, we are ranking among the top -- the first in the market. The credit card logic is that, it is connecting the dots between transaction to assets, to clients and it is sitting within our logic of operation. Credit card asset remains stable because of what we have done for the previous years. For the next half, we see asset growth in credit card business, which is mainly due to our low volatile and stable operating philosophy. That is basically the condition we have in credit card business. So retail loan business, we focus more on quality than quantity. In terms of residential mortgage loans, the scale is relatively large. For the first half, the growth rate fall behind our expectations, it is closely related to the market condition, as you have also been clear about that. The real estate sales has declined sharply. So is the residential mortgage loan. It is mostly related to the sales volume. So the increment is quite limited. The mortgage repayment due to our existing volume is still large. We have taken a lot of measures to cope with this condition. But one may say that we always put quality ahead of quantity. For the next step, our strategy for residential mortgage loans, we will enhance our efforts in the second-handed housing. Previously, we have done a good job in the firsthand house and customers' responses are also very positive. The asset qualities are good, but we have not put enough efforts in developing second-handed house. And therefore, it will become our target for the next half. And second, as like I said, for SME loans, we have CNY 600 billion existing volume, and we see positive growth for the first half. We have also prioritized quality in developing SME loan and follow the national policy guidance to keep providing more loans to SME clients. For consumption loan for the first half, the increment of the first half is higher than before. The consumption loan is based on extensive wealth management, a digital platform operation, asset quality is very good. Under such circumstances, we will continue in the first half -- we will continue to carry out our policy in the next half, and strengthen our attention on quality asset quality control. And for consumption loan, we noticed that there are many quality clients in the platform, and we aim to cater to the need to these quality clients so as to enlarge the quantity of these quality clients through acquisition and providing more services to these type of clients. And generally speaking, in terms of retail loans, we still -- there are a positive growth towards this development for our wealth management business. During the economic downturn, the business structure has experienced changes. And generally speaking, our strategy will focus more to enlarge our client base. We have 167 million retail clients. And we have only set a 40 million clients holding wealth management products with us. We aim to change those retail clients into our wealth management clients. And the key is that how to improve our efficiency to deliver online operation and online services. We have very limited physical outlets. We have very limited relationship managers and how can we match this increasing demand from our clients and the key is to increase our efficiency of online service delivery. That is also what we have been doing. From online to offline, how can we guarantee to our clients a very smooth experience from the online service center to our physical branches, how are we going to deliver a very integrated solution, a customer one-stop experience to our clients. This is what we have been doing and what we have been exploring these days. How are we going to transfer more and more clients to our online operation to lower our cost, to improve our efficiency. And these is what we have been exploring, and we are experiencing very smooth operations. This is about enlarging our client base. And secondly, is about a tailor-made solution provided to our clients. How are we going to better understand our clients' risk appetite, their preference and to make ourself a real financial consultant to our clients. And generally, we have applied a policy of low volatile philosophy from the head office to the branches, wealth management allocation capability is what we have attached great importance to and we aim to improve our capability and system capability as well. And we aim to strike a better middle-office capability. This is also what we have been doing lately and both products we offering, we offer to our clients. CMB has constructed an open platform to put on our shelf, good products from the market. For instance, we have introduced many products from other banks of their quality wealth management products and the quantity is very large. So we have been striving effort to select quality product from the market and put on our shelf to provide it to our clients. During the economic downturn, we aim to provide to our client solutions offerings, catering more to their appetite. And major characteristics of the solutions we provided to clients are, of course, very low volatile -- of low volatility. And for some clients that are willing to bear risks or take more risks, we will also have abundant high-risk and high-return products for these type of clients. But generally, low volatility is the mainstay of our products. So through wealth management, our clients will be able to remain and add value to their assets during the whole process. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- The next question. Next question is from [indiscernible], an individual investor. -------------------------------------------------------------------------------- Unidentified Participant [20] -------------------------------------------------------------------------------- Thank you, senior management for giving me this opportunity. As a long-term investor of CMB,you have -- you have mentioned that the deposit cost is relatively rigid in the banking industry, it is a common sense. And I've noticed that many banks have also relying on the gain of fair value -- gain from fair value change to pull up their revenue. And to see from interim the report, I see from your balance sheet that the expansion of your asset is lower than the average of the industry. You have enough capability in your liabilities. So I'd like to know whether you have taken into consideration to increase the trading -- to financial assets help the trading to win more revenue from the changes of the bond. It is good -- it is a good method to offset the risks coming from the revenue decrease. I have another question regarding derivatives. And how are these derivatives offset the risks coming from the revenue decrease? -------------------------------------------------------------------------------- Unidentified Company Representative [21] -------------------------------------------------------------------------------- Thank you for your question. Thank you for your attention for CMB. And thank you for your critical comments to our performance. I have paying much attention to your articles posted on the WeChat platform. I think your analysis is very accurate. You have just mentioned in your first question that for gains from fair value changes will we consider to put a higher proportion, we have around CNY 300 billion assets in terms of investment assets. In the beginning of this year, we have acted according to our asset allocation strategy, and we have built certain pressures. We have strengthened the investment in terms of bond assets. And it is relevant to 3 type of accounts, which is for the first type of accounts, that it amounts to CNY 160 billion, which is account calculated at amortized costs, it is tax-free, which is very good for our profit, especially for us to remain in a relatively stable level of our return. The second aspect is that the gains from fair value change [indiscernible] so you can see that for these kind of trading accounts and also accounts that are accounted for the other comprehensive income. We don't have much allocation to that because we don't have much volatility to the operational income. So because in the interest of [indiscernible] declining period, you might see that the valuation of these assets may have posted a positive impact on the operational income. But when the interest is coming up again, we will have a negative impact on that. So we want to reduce the volatility to our P&L and we want to reduce the risk to [indiscernible] through our book. So it's kind of a balanced allocation of our [indiscernible] as you know, even though we have a lower [ volume ] total allocation to these kind of P&L account, we -- the growth rate is quite high. It's around 20% growth for our [indiscernible] cash. We know that this amount is not much growth. This had to be consideration of volatility and also into the [indiscernible] balance among these different accounts. And also, we have invested some interest rates bond because we think it's more safe [indiscernible] in the market [indiscernible] of interest rates. It's becoming more volatile. So how to offset [indiscernible] yes, [indiscernible] we have done a lot of measures in the center dependent [indiscernible] they are working together to more offset -- to have the ability to offset the risks coming from exchange, for exchange or coming from [indiscernible] so to reduce volatility, which might be caused by the policies, [ then in the first half ], we are changing a fixed rate synergies of volatility coming from [indiscernible] interest rates [indiscernible] -------------------------------------------------------------------------------- Unidentified Analyst [22] -------------------------------------------------------------------------------- My question is the [indiscernible] exposure to what is your NPL [ formation ] ratio and when you will peak? And I know the local government and also the [ provincial ] government that [indiscernible] a delivery or houses, whether CMB has adjusted your credit policy, whether you have involved in a strong [indiscernible] property companies in the local government. What is your coverage ratio for the public sector [indiscernible] -------------------------------------------------------------------------------- Unidentified Company Representative [23] -------------------------------------------------------------------------------- This question will be answered by Mr. [indiscernible] -------------------------------------------------------------------------------- Unidentified Company Representative [24] -------------------------------------------------------------------------------- Thank you. I will answer your question one by one. [indiscernible] first half of the year, our corporate [indiscernible] has formed [indiscernible] CNY 7.4 billion. CNY 4.7 billion in the first quarter and CNY 2.7 billion in the second quarter. So you see that [indiscernible] and they focus on our head office and branch level strategic customers which [indiscernible] for 65% of our total assets. And in regions, we will be more concentrated in first and second-tier city such as first and second-tier city is already over 85% of our total asset. In terms of business structure, we are optimizing [indiscernible] the business [indiscernible] is only 1.4%, which is there is full propulsion. We are optimizing our structure. In terms of if we look at our [ provision ] level, the [indiscernible] it's almost twofold of our average level of corporate loan. And it's been -- has been kept at a very high level of the [indiscernible] so if you see we have a plan for [indiscernible] value to the loan is over [indiscernible] 70% of the projects have this kind of a higher [indiscernible] loan value. And also anything how we have a close [ team ] management for these projects. These are the 5 major [indiscernible] we have. And for the whole year, our judgment for the real estate sector, the [indiscernible] in 2022. So in the future, the risk will become more [ stable ]. And lastly, about [indiscernible] that we do not take any credit risk. We have done jobs in [indiscernible] the first 1 is for [ risky projects ] we strengthened cooperation and coordination with our product issuer to -- kind of to monitor them to perform their duty. And secondly, we cooperate with our product issuer and to ask them to coordinate with the asset side. And to try to have the best [indiscernible] for our customers [indiscernible] to coordinate for that to our customers and try to [indiscernible]. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Next question is from CICC, [indiscernible]. -------------------------------------------------------------------------------- Unidentified Analyst [26] -------------------------------------------------------------------------------- I'm [indiscernible] from CICC. I have 2 questions for the management. The first question is that you have -- well, the idea including potential management is in [indiscernible] but we see [indiscernible] could you please share your [indiscernible] behind your [indiscernible] progress and your outlook towards this aspect. -------------------------------------------------------------------------------- Unidentified Company Representative [27] -------------------------------------------------------------------------------- Thank you for your question. The second question will be taken by Mr. Wang and the first question. Regarding the extensive wealth management [ model ], it is a very important aspect we need to improve. For instance, JPMorgan is a good example. They are very comprehensive in terms of their general development, and that is what we need to learn from them. Influenced by the requirement from our regulator that we need to separate -- we are under the separate license management, which is not that realistic for us to conduct a holistic development across all fields in the financial sector. And this is the idea we need to make further improvement for an extensive wealth management business landscape, investment banking, asset management, as a custody and these are important areas that are new fully influenced with each other and closely linked to each other. They're integrated in one body, and we need to give full play of our feature as a commercial banking to develop further our investment banking business. We consider our bond underwriting business quite competitive in the market. And secondly, for the M&A business, based on our client base, our service capability as a commercial bank, we are able to realize commercial lending, M&A and bond underwriting to our clients. Our private banking business. This is also a factor that can be connected with investment banking. For instance, PE investment, investment management and these high net asset value cliets demand are also relevant with the development of investment banking business. In the later period, we will closely coordinate with our PB department to provide integrated service to our clients and at the same time, bring more projects to the investment banking department. These are all what we can do to further develop our investment banking business as a commercial bank. Basically, under the policy environment we are faced, investment banking, commercial banking, fintech, our research and institution department, we have large room to grow. The second question will be answered by Mr. Wang. -------------------------------------------------------------------------------- Liang Wang, China Merchants Bank Co., Ltd. - President, Secretary of the Board, CFO, Joint Company Secretary & Executive Director [28] -------------------------------------------------------------------------------- Thank you for your question. Last year, we have launched a new wealth management system in July. By then, we consider the launch of the new system to enhance our general competitiveness in the market. Frankly speaking, doing wealth management business, the key is to find a good way to provide customer companionship to follow the customers' journey and be a good companion to our clients during the whole process. How can we deliver better experience to our clients. It all starts from investor education to investment to asset allocation from single to mixed product and to deliver a one-stop experience. The key is to better understand your clients to educate, to provide guidance, to help them realize the reserve and the value of their assets. We believe we're doing jobs in the following 4 aspects: the management of cash, stable health management, aggressive management and et cetera. Basically, we are divided client investment behavior into several categories from the daily management of cash, from steady and healthy investment to a solution -- a general investment solution and then to aggressive investment management. And it is closely related to customer companionship or construction of our middle office, our system capacity building and to -- and all the way to the assessment of our customers. We have conducted a plan called [ original aspiration ] and surrounding this plan, we uphold the philosophy of customer centric. And we have launched several marketing opportunities and activities to enlarge the customer base and generate a landscape of this [ 3 ] system. All the way from head office landscape design to the branches system setting, we have basically finished the process. And at the same time, we have built a new system for small and medium-sized branches. The head office will provide direct support to them based on an online platform. This new system, it's establishment is also closely related to our planning that we need to increase our efficiency, how can we maximize our level of efficiency. Only by increasing our level of efficiency, can we truly realize our companion to our clients and reaching our goal to providing [ exploration ] service to our clients. These above-mentioned 4 aspects is beneficial to our direct online operation of the wealth management platform. Many of our clients, we figure will not require the reach out from our relationship management. They are okay to follow the guidance provided online to self-operate to self-manage its assets, which, to some extent, increase our operating efficiency, and we find the overall process to be quite smooth. And for CMB, retail extensive wealth management, the integration of online and off-line is very important to us. It's also our competitive edge in the market. Compared with the [ Internet ] financial platform, they are in lack of the physical outlets. They are in lack of the companionship from our relationship manager to our clients. So in this way, we are better than them. In terms of our online operational efficiency, we are performing better than our banking peers in terms of increasing efficiency and cutting costs. This is what we are better than them. So it is good for us to use -- to utilize less manpower and reach more and larger client base. This is the plan for our construction of the wealth management system. The third point is that it's about the chain, the cyclic chain of value. We have built up the chain from retail to investment banking to asset management, to corporate banking and these aspects have all linked together, and have created synergy in product offering and customer acquisition to the efficiency improvement and these have all contribute to the integration of our development, and thank you. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Next question is from [indiscernible] from China Securities. -------------------------------------------------------------------------------- Unidentified Analyst [30] -------------------------------------------------------------------------------- I believe many of -- the question has been answered in the previous rounds of communication. Looking into long-term development, especially in the real estate sector, I believe that real estate assets has been one of your major category assets in your loan extension field. It has been quality asset in terms of retail in terms of corporate. And I'd like to understand the long-term trend from the senior management that whether it is going down in the long run, and what about the excessive funds you get that originally you would like to invest in real estate market? And then what other fields are you exploring? I've noticed you have also mentioned new builds such as new growth engine, the green economy, the quality, manufacturing, et cetera. I've noticed that these are all very competitive industries. Based on your very strong client base, you have a very good real estate portfolio and when you are making investment in other new industries, how are you going to maintain your previous competitive edge that you have realized in the real estate sector. So basically what is your understanding towards the pressure you are facing on the asset end? What is your outlook towards these perspectives? -------------------------------------------------------------------------------- Unidentified Company Representative [31] -------------------------------------------------------------------------------- Thank you for your question. Real estate financing, indeed is a very important source of the bank's financing. It has high loan pricing and relatively low risk level and it's also a biased market. And the bank has a relatively strong position in the real estate mortgage loan market. And I believe that in the following stage, as the real estate industry, experiencing sluggish development, there is a turning point inside. As you have mentioned earlier, previously, real estate asset is a very important fraction of the bank's asset. For instance, the residential mortgage loans, developers loan and et cetera, and these are all experiencing a turning point. What about the next stage plan, and how are we going to cope with these changes? And second perspective is that we are also faced with 2 major changes under the pandemic circumstances. Firstly, direct financing is replacing traditional financing. If the banks are still lagging behind, they're stick to the traditional financing methods, the shock will be huge. We have talked a lot about financing this intermediation. We see a huge and a faster pace in the past half year in terms of direct financing replacing traditional financing. And the second perspective, I see is that as that organization determines the resource of liability, we used to talk about the resource of capital determined the utilization of the capital. And now we consider liability organization would be harder than as a organization and now it's not the case. This is also a trend we see in the following stage, not just about real estate challenges brought to us. And these 2 changes are also what we see. As commercial bank at CMB, we need to take careful consideration and react actively. These changes are trend. We need to carefully select and make assessment that which kind of changes are trend, which changes are political-based and which trends are just a cyclical changes. And I believe, a direct financing major role will be a trend as a necessity of economic development. Just like European countries, U.S. countries, direct financing is a major financing resource in the market, not traditional financing. And as we are facing with such kind of changes, how are we going to enhance our capacity or capability of providing direct financing actually determines our future development. And CMB has actually acted in response to this trend by construction of the integration of ICPT development. The second perspective is that targeting at the real estate turning point. How are we going to cope with this situation? I believe it is both [indiscernible] based and cyclical based. For European countries, European -- U.S. countries through a price hike in the real estate market and bubbles actually busted in the market. And the financial crisis actually consume and digest these bubbles, and we see a new round of real estate development. It is very typical as we can see from the subordinated debt prices have gone, the real estate market actually thrive after that. And for China's real estate market, through decades of vast development, [indiscernible] Shenzhen has began its price hike in the housing market since 1992. [indiscernible] helping stripped to the 1,000 provinces. The second round is that -- we see some price decline in housing market. And since the year 2008, we begin to see the bubble blasting after unhealthy development of the real estate market. After these adjustments, we consider the previous development is not sustainable. And in the following phase, we believe the real estate market will enter into a new cycle of more healthy and more stable development. The real estate companies are also differentiated from each other. The winners will be the king. And the strong enterprises will even become stronger and the weak will be kicked out of the competition. The Yangtze River Delta and Pearl River Delta, these real estate markets in these regions will still be competitive and strong. And for places where supplies is larger than the demand and the population is getting less and less for these regions, the real estate market will entering into a sluggish development. So for banks, we need to find our positioning in the market. So through this round of adjustments, we believe that the real estate market in China will enter into a new era of healthy and stable development. It is very important for banks to find the right region, to find the right project and find the right customer base to provide service with. For the third characteristic as a organization, firstly, we will make good use of the capital resources. And it requires banks to enlarge -- enhance the capability of asset organizations and risk management. Risk management capability is a core competence of a bank. And this is what we need to face in our future operation to better serve our clients, to realize profits, to realize a stable margin. Without risk management capability, these are all blank talking. I believe CMB are equipped with these capabilities. And on the one hand, we will continue to enhance our risk management capability, and it's the most urgent task. And it can greatly promote our capability to organize assets, which can provide strong support for our future development and the development of extensive wealth management. The second aspect is that asset allocation capability. In the future, asset allocation capability requires refined management. Residential mortgage credit card loan cannot easily be served as a fraction of a solution of a portfolio. We will focus more on regional industry client, pricing, term risk, these factors add altogether and there becomes our asset allocation strategy. We will stick to the value return philosophy and maximize the value through appropriate asset allocation. This is a key to our management. Currently, as we are faced with the insufficient asset supply, we need to solve the problem. We aim to increase our client base, increase the quantity of loan we invest and make every effort to create assets to find good assets for us to invest in. For instance, we need to focus more clients that are [ long held ] that are not top-level clients, but with very good management of our risks. And second aspect is about pricing. We will take more consideration of customers' comprehensive return. It is a very important metric for us to calculate returns. And what's more important is that we will always put asset quality in priority. So the urgent task and for the following phase we need to pay special attention to asset organization capabilities. So to respond to your question, these are basically what I consider. We have reached the time limit. I know there are a lot of questions coming from investors and [ analysts ]. We will save more communication for future communication, both in written forms and both in other forms of communication. We will conclude today's meeting. For more detail, please, refer to our already released interim report online or further contact with the Investor Relations' team [indiscernible] continue to describe every effort to deliver stable and sustainable return to our [Audio Gap]. [Statements in English on this transcript were spoken by an interpreter present on the live call.]