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Edited Transcript of 601939.SS earnings conference call or presentation 29-Aug-18 8:30am GMT

Half Year 2018 China Construction Bank Corp Earnings Presentation (Chinese, English)

Beijing Sep 10, 2018 (Thomson StreetEvents) -- Edited Transcript of China Construction Bank Corp earnings conference call or presentation Wednesday, August 29, 2018 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lin Liao

China Construction Bank Corporation - Chief Risk Officer

* Yiming Xu

China Construction Bank Corporation - CFO

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Conference Call Participants

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* Jia Wei Lam

HSBC, Research Division - Analyst & Head of Greater China Banks Research

* Judy Zhang

Citigroup Inc, Research Division - Research Analyst

* Shuo Yang

Goldman Sachs Group Inc., Research Division - Research Analyst

* Yaoping Wang

China International Capital Corporation Limited, Research Division - Analyst

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Presentation

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [1]

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Dear analysts, good afternoon. I'm very happy to see you all again, I welcome you all to the 2018 Interim Results announcement for China Construction Bank. Today, I'm hosting this announcement together with Mr. Xu Yiming, Chief Financial Officer, My name is Liao Lin, I am the Chief Risk Officer. Today, we also have some management from Beijing, Mr. (inaudible); Credit Department, Mr. (inaudible); Financial Regulation, Mr. (inaudible); Mr. (inaudible); and Mr. (inaudible). From our main office, we also have Mr. (inaudible) from Hong Kong branch. Why am I introducing them to you? Because today we have a lot of analysts here, you are our old friends, you pay a lot of attention to our company. So we hope that in today's session, not only it's result announcement but also more like a roadshow, we can answer also some questions, and this is open form of result announcement.

So first of all, we invite Mr. Xu Yiming to give us a brief presentation of our results.

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Yiming Xu, China Construction Bank Corporation - CFO [2]

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Dear analysts and friends, good afternoon. Actually, Mr. Liao is already our Vice President, yesterday afternoon, the board has approved his new position. Mr. Liao has taken his time to meet everyone this afternoon, and he wants all the analysts who are very hard working, he hopes that you can liven up in the PowerPoint. This is a very -- actually is a very strict document and how do I liven up the room? Well, I believe that you all have seen the results, I'm not going to talk about the specific figures, I'm going to talk to you about my understanding of this figure. So on Page 1, we talk about financial performance, and why is it, overall, great momentum? This is something that we talked about last year and the year before last year, so for all these figures, those which need to go up have come up and those need to come down, they have come down. For example, NPL has decreased by 1 bps. In terms of our financial indicators, for example, net profit in the beginning of this year, we did not expect it to be this high, and last year was less than 5%. For first half of this year, is actually 6.1%.

Page 2. If we look at this figure, this is the situation inside these shape, the -- is the situation of 2017, and the external figure shape is for 2018. So we have 9 indicators for comparison, and we have this chart as stable indicate -- core indicators. Again, great momentum and stability, what does this mean? You can see actually some of the figures, they are limiting each other, for example, when your ROE is too high, that means your CAR ratio may be very low.

However, for us, we haven't seen any very obvious weakness, we have great synergy. In addition, the figures inside and outside, we can also see those which need to go up has gone up, and those which need to come down have come down.

Third, PowerPoint. This further illustrates the previous page. Overall speaking, asset liability, it is very stable. For example, on asset growth, 3.1%; liability growth, 3%.

Page 4, net profit, left-hand side, net profit grew 6.1% year-on-year. We have realized net profit of RMB 147.5 billion, where does this come from? It mainly comes from our interest income. On the right-hand side, this is our NIM, it has improved year-on-year by 20 bps. Last year, it was -- same period it was 2.14% and this year 2.34%. The figures in the next page has further illustrated our operating income is very stable and enjoys a steady growth.

Net interest income has increased by almost 10% to RMB 239.5 billion and on the right-hand side, for fee and commission income, it grew steadily. It has grown by CNY 1 billion, the speed is not very high, about 1% something for the growth.

In terms of cost control. Besides income, if you can control your cost well, your profit will go up. So if we look at it in terms of cost income ratio, it continues to be stable. For last year, first half 22.3% and at the moment, 22.15%. Again, another slight decrease compared to last year for the same period, a decrease of almost 15 bps. Credit cost, credit cost actually cannot really illustrate the cost management, when the market is going well, you would be able to put up the credit cost.

This year, you can see our credit cost has fallen, however, the fallen percentage is not very big. Last year is 0.96%, this year, 0.94%. Whatever methodology that you adopt to calculate this figure, it is 2 bps lower compared to last year for the same period. This is because of the implementation of [I 9] and which means that we need to improve our provision coverage. To have realized this results, this is thanks to the support of technology.

For this next chapter, I will talk to you about our strategies. We have put forward 3 strategies from second half of last year and first half of this year, this is something that we have focused on. In what areas? First of all, we call it the Blue Ocean strategy. Perhaps in the future, when the analyst look at CCB, you may ask the question of why is our profit still going up despite a bad market. The Blue Ocean strategy, this is a market for the rental market. We have made our stride from the real estate sector into the leasing sector. And in the past, we have said that if you want to buy apartment, go to CCB. And now we say to lease a home, go to CCB. This is a market that is undernurtured at the moment. In mainland China, in this rental market at the moment, it is not as developed as the housing purchasing market. So we believe that it has great potential. On one hand, we serve society; on the other hand, we also hope we could nurture this market and to nurture more clients for our business. For example, we have CCB Jian Rong Jia Yuan, this brand, we are working with others to develop rental housing. In addition, we also have rental housing comprehensive service platform in which there are 5 sectors, for example, the monitoring of the government, the housing resources and transactions, et cetera. So we are utilizing the internet to do this. In addition, we also have some products, for example, in PPT, it has mentioned about the house leasing loans, asset management, investment banking, insurance, pension, trust, et cetera, and these products are all moving in tandem.

Second is technology, fintech. Fintech, again, speaking from a strategic point, we have formed our 5-year fintech strategic plan 2018 to 2023. Once having this consensus, and how do we promote this, first of all, for technology, at the moment, it is Artificial Intelligence including blockchain, cloud computing, Big Data. Data analysis, going forward, will become a very important application in the future, including the obtaining of data, the sharing of data, the mining of data as well as sharing data with customers. The development trend, we hope that this will be driven by AI.

Third part: inclusive finance. This is connected with fintech. This is being realized through digitalization. At the end of 2017, the reason why we were able to see fast growth in inclusive finance loans by 10%, and we were the only one to have benefited from the policies of PBOC, we were the only one. If you look at this, actually, there are many risks involved, and we have also learned our lessons in the past. How do we do this now? We basically rely on data analysis. Once we have the data, we will use models to help us to separate the customers into different tiers to help us to decide how much loan to lend them and the interest rate, and this will help us with the matching of the loans of the customers. And at the moment, NPL, for inclusive finance loans, is very low. Of course, this has only been a short term, we still need more time to prove this. Only with our current data, own data is not enough, we need to obtain external data from others, for example, from the customs, from tax bureaus, et cetera. If we are able to collect such data, that means we would be able to expand our coverage of clients on a lot much larger scale.

While promoting these 3 strategies, we continue to carry out our existing business and move towards retail business, and the speed that we are conducting our retail business is very steady. On this PowerPoint, you can see this is for our largest retail credit bank. If you look at the right-hand side, you can see, for the balance of personal residence in the middle -- oh, the first one, we have the balance of personal quick loans, in the middle balance of credit card loans and in the last part, it is the balance of personal residential mortgages. And it has already exceeded CNY 4 trillion.

Corporate business, the future, is on transaction business, is not only a deposit and loan business, this is a traditional business model. What we would like to do is to discover the transactional finance services that our customers need. On the right, as you can see in the bar chart, this is looking at the income, say, for asset custody business, and on the far left, it would be syndicated loans business income. In the middle, it would be asset custody business and on the right is the corporate settlement business income. This represents we are now focusing more on the transactional business of our traditional customers and an enhancement of our capabilities. This is a very important direction, and we feel that we have not yet done enough and needs to do better.

Now with risk management. This slide talks about the 4 main areas that we cover and the 9 different types of risks and our proactive management of it. We have set up the first risk metrics center amongst commercial banks, and I think our technique and our expertise is first class, and we can actually export this capability. This is a core capability of a bank. In the Chinese market, it is very important to be able to tell the different risks that comes with different customers and different types of business models. Our entire management can actually calculate this risk and also to apply this risk understanding to measure the ROE of our subsidiaries. Without these data, you probably cannot do a lot of detail work around this. Now this is the work of Mr. Liao and his department. And also our risk management platform, the entire credit approval and compliance and audit and business mechanism as well as the compliance management mechanism has been built quite fully. Now that actually allows us to enhance the structure and the quality of our entire credit portfolio.

Let's take a look at our loans and our credit, this -- these bars actually goes from left to right. This means that we have been moving from -- we have a high percentage in personal mortgage, and we are also into green credit and strategic emerging industries. The thing that we need to manage is the overcapacity sectors, we need to avoid that. So we have been keeping this up, and we also enter inclusive finance, now if you look at these 2 lines, the top one is our NPL ratio, and the red one, which is the provision coverage ratio, goes to the right, is increasing, and the NPL ratio is coming down. So you can see that our asset quality on an ongoing basis would be stable, and there won't be a lot of surprises that you can expect, there won't be any surprises. I would anticipate that we would remain at 1.3% or 1.2% as it relates to the NPL ratio, and we have to keep our liquidity at a reasonable level. In order to ensure that there's nothing that goes wrong and then try to stringent your liquidity, then it's not the way to go because your business would be impacted. Now the only bank in China that can manage liquidity on a same level and same platform with the PBOC would be our bank. We have 600 sales points, which are all managed under this liquidity platform. This is daily management, and of course, our liquidity management, we can look into short-term, medium-term, long-term and/or -- and strategic management. And we have a lot of indexes, a lot of anticipation forecast of cash flow, quite complicated, which I cannot explain in detail here.

Capital management. Just now when I talked about our KPI, I talked about the ROE and the overall capital management has to rely on a balance between business development and risk management. We are trying to manage that finely. Our capital adequacy ratio is higher amongst our peer. It is at 15.64%, so that includes first year capital and our core capital. Now within Mainland banks, we are at the top. And of course, when compared with Europe -- European and U.S. banks, the CAR has been enhancing for the last several years. So when compared to them, we may still need to improve. On the one hand, we cannot finance in a big way from the capital market in order to boost our capital. So we need to ensure that our capital continues to grow while taking care that our liabilities do not grow in the same way. This is always a dilemma. Then we have to enhance the efficiency of our capital use, so this is something that the bank would have to focus on. And the standardization of our capital management is a key, we have a 3-year capital deployment plan. We have already submitted the capital plan from 2018 to 2020, and the board has already approved it. Now this is a strategic plan because your business and your needs and your liabilities may -- has to be a plan way ahead because if you were to issue a bond, you would need a lot of time, and you were -- if you were to finance from the market, it takes even longer time. So a balance need to be kept here.

Last but not least, I'd like to share with you -- our efforts apart from making the business and making profits, what is our contribution to the society, our social responsibilities as a corporate citizen. We are assisting the government to alleviate poverty, including some poverty stricken areas in the hilly areas in the West. Especially the health of the women, children and the elderly, and we have launched Caring Stations on a national basis in Guangdong province, and in 5 to 6 cities in the Guangdong province, we have already launched this. We will try our best to provide those services that the society needs. For example, the policeman, workers who work outside, especially during very hot weather, we'll provide a drink and a place for them to rest and relying on our Internet access in order to provide them with a moment, with a break, so called. So this is something that we have just started. The -- I think our management and our performance has been quite well, and we have been externally recognized. This slide tells you about some of the comments that we have received, well, this is only a few of the examples, and I won't go into detail.

In the future, we hope that we can both grab the opportunity and tackle the challenges that is in front of us. We have listed some opportunities and some challenges here, which I will not repeat, which means that at any time, we have to consider both the pros and the cons, both the challenges and the opportunities, the difficulties and the efforts. So one is our -- the implementation of our street strategy, and the balance in -- to keep a balance in our operation such as the risk management, transactional business and also finer management. This is something that President Wang has always been focusing on. And including the future risk management capabilities, asset quality, customer service level and fine management, these are all factors that would ensure the further development of the bank. So thank you for your attention. I -- This is my report, thank you.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [3]

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Thank you, Mr. Xu, for your introduction. Now we go directly to the QA session. Before you ask the question, please let us know who you are and where you come from. [Operator Instructions]. This handsome gentleman over here.

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Questions and Answers

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Yaoping Wang, China International Capital Corporation Limited, Research Division - Analyst [1]

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Mr. (inaudible), I am Wang Yaoping from (inaudible), and my question is about interest spread, and this year we have [IGO] implementation. In Q1, is audited results and for interim, that might be an impact, so for -- what is the difference between the quarters, and was the impact going forward for second half of this year? How does CCB consider the general trend for interest spread going forward in the next 6 months to 12 months? And what about any changes for your asset and liabilities?

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Unidentified Company Representative, [2]

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For interest spread or NIM, this is a perpetual topic of analyst, every time you all pay attention to this. If you look at the 6 months situation, interest rate compared with same as last year has gone up by a certain percentage and for NIM has improved by 20 bps. And you ask about what is the composition of this, and what is the situation for the next 6 months, and why we're able to have the increase of 17 bps and 20 bps respectively? This is because of the changes for the asset pricing and the structure. Do you know what is the increase of the pricing for CCB? Whether it is credit or personal credit, they have both gone up, this is very important. Second, structure. Asset structure, for example, as I said, we have obtained the inclusive finance policy, PBOC has said, for inclusive finance for your loans, if it exceeds 10% of your new loans or exceeds 10% of your remaining loans, you would be able to obtain a 1.5% cut in your interest rate, and we were the only one which has met this requirement, and we enjoyed the policy. In beginning of this year, they had given us a RRR cut of 1.5%, about [RMB 230 billion], which means that our NIM would be able to improve by at least 3 bps. If you put this in PBOC, is 1.62%. So for me, I would at least add another 2 percentage points on top. There are other factors, for example, credit cards. Credit cards, end of last year, had you attended our annual results for credit cards business, installment business, actually, it's credit card installment loans. When we calculate the NIM it is at the denominator. However, the income comes in as the fee income, so it is not on the top, so it's not balanced. Therefore, we need to straighten out this calculation. Last year, we have taken away the credit card business from the denominator, which means that why the NIM has improved, this has given us another improvement of 3 bps. I have seen this is what all the other banks are doing, we actually did this slightly later, so these are some specific calculations. There are also some factors for decrease, which is that, for my first half of this year, my liabilities interest rate for deposit has also gone up, so I have negative 5 bps, which has strucked on the NIM and which is why we have resulted in a total of 20 bps increase. Second question about trend, just now before you attended this meeting, we had a meeting with the media. For second half of this year, our NIM will be able to remain at the present level. It will not go up by another 17 bps or 20 bps, this is not something that will happen. But it will remain at a current level, it will not go down.

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Unidentified Analyst, [3]

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What you are concerned about now is the liquidity in Mainland China, and you are concerned that the price will come down, and does this mean that your NIM will take another turn?

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Unidentified Company Representative, [4]

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A lot of banks may suffer from this but for CCB, my judgment is that it will not go down, it will not go up either, it will just stay at this level.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [5]

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Lady on the fourth row, well, we will take a right and -- a question from the right and then from the left.

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Unidentified Analyst, [6]

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I'd like to ask about asset quality. We have seen that, overall, NPL has come down. However, if we look at retail loans, say, credit cards and -- on consumption purposes, there has been a small increase in NPL and also loans -- credit loans below a year. You have actually seen an increased default or delayed payment. So what is your view about this NPL in this particular segment? And also, why is it that we have sold the Shenzhen Bank?

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Unidentified Company Representative, [7]

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Asset quality, I have already answered the media's question, and I think we have also talked about that in our PowerPoint. We have 1.49% this year, and we -- for the first half, it is at 1.48% I don't know about other banks, but for CCB, definitely, we are keeping it stable and improving it, now this will not change. Why is it that we have this judgment? First of all, well because you are analyst, so we talk about numbers, we talk about the KPIs. We have a core index, and we have a result index, and we have a procedural index, so for the procedural, you will look at the new loans and the older loans, and this is about the procedure. And if you look at also the core index, including the PCR and the loan-to-debt ratio -- I mean, loan-to-deposit ratio, now if you look at all these indexes, you will see a pretty picture, a very stable picture. It's not only at the H1 report and the annual report that is a good picture, every quarter also shows a good picture. We are confident about this. Now if you look at this from another perspective, look at the structure of our asset. Just now Mr. (inaudible) has talked about this. I think it is very easy for you to understand this. If you just perform on one result performance, perform well, then you have to relook on a consistent basis. With our infrastructure loans, the NPL ratio is very low and in the future, that won't change a bit. That won't change in a big way. Our home mortgage loans also enjoys a very low NPL. So these are the 2 big segments of our -- and they are all very stable. And the third one, look at our third segment, with the large industry and large corporation, the asset allocation is also bigger. If you look into better details, the corporate loans, our customers are graded in a grading of 7, they are actually graded very highly. Now if you look at this structure, the CCB asset quality is a very good one, a very stable one, and we also have apartment leasing and inclusive financing and well, you may care -- you may want to know about our -- [the way] our small and micro smart financing, we are changing our strategy, and this is something that is very revolutionary as far as the industry is concerned. So as far as our management's concerned, we have set up an entirely comprehensive risk management mechanism to manage it from not only a historical perspective but also manage the process and the results. So I think CCB is amongst the best in its peers in this area. We have already studied in detail about our asset quality since when we became listed in 2005. So would it come down? Now -- just now Mr. (inaudible) has said that this is not very possible. Now given this, our management goals is to keep our asset quality at a stable and improving trajectory. You may ask -- well, you are looking at NPLs, this is where you focus on, our NPLs have gone up for a particular segment. And last year in our report, we have already said that for all the indexes to come down may not be a realistic anticipation. Our NPLs has a little bit of increase, and that's mainly because that our nonperforming loans would become fulfilled in the future, and you have to look at our disposal. Comparing year-on-year, that had been reduced by CNY 10 billion. And I was talking about the default rate, default rate would be improved, and the disposal also was -- the volume of disposal is also smaller than last year. So this is an area that supports our asset quality, so we would not be overly concerned that I am having a lot more -- and nonperforming loans, et cetera. Just now, you have talked about an individual default area, and that's because -- that's a full cycle we have -- we started to launch it in June. Last June, the fast -- the Quick Loan program, and this is a year. So we are doing it as a pilot program, and we are reviewing it after a year. So it is actually performing much better than I expected if everything is under control. You have another question about the rural banking that is something that's being adjusted. Just now, we were talking about inclusive finance and the apartment leasing, these as well as small and medium services. Now these are our strategic moves. Now previously, we were working in Guangdong, now together, these would cover all of the villages. It is entirely reliant on our financial technology, so it doesn't require a lot of people and manpower. So it is not necessary for us to be physically present there, for everyone, every village, and sometimes we don't own majority of equities there. So this is where we keep the balance, this is a choice, a matter of choice. Now this is how we do business, [the buying], the selling, we have to consider how we deploy our capital. I don't know whether I have satisfactorily answered your question.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [8]

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This gentleman in the fourth row.

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Jia Wei Lam, HSBC, Research Division - Analyst & Head of Greater China Banks Research [9]

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I am Lam Jia Wei from HSBC. I would like to thank Mr. Xu for the 6-sided shape that you have shown us, and in HSBC, we also like to use this shape quite a lot. So I have a question which is about mortgages because mortgage is a core development for CCB. In the current stage, the government wants to control the housing price, they also hope that the bank could support SMEs or put in more resources to buy some more local government debt. So in terms of your strategy, what's your expectation for its growth? And for the management team, do you think that the increase of mortgages will continue to slow down, and on the other hand, corporate loans will go up?

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [10]

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For mortgages, we have our colleague here, I'll have him answer your question.

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Unidentified Company Representative, [11]

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Real estate business is a traditional business for CCB, it is also our adventitious business. Regarding real estate, what stage it is in? Overall speaking, it is in a development, in a change of -- a key change of in terms of cycles and demands, et cetera. At the moment, we can see that the growth speed of mortgages is slowing down and at this point, we have seen some structural risks emerging. Therefore, our judgment is that going forward, we are moving from a high-speed growth stage into a long-term, healthy, sustainable growth period. With deleveraging going on and de-risking, the whole of the real estate market, together with finance and with the virtuous cycle of the banks, we believe that it will become more virtuous. This is the trend. You may have also noticed our corporate business -- the growth for corporate business has grown first 6 months of this year. You are very detailed, this is mainly because of the new rules for asset management, with the new regulations in place for real estate sector. The capital have been limited, therefore, we are seeing some of the improvement in the corporate business. Overall speaking, we believe that it will remain stable. Whilst growing, CCB has selected the areas that we are very good at and clients that we know well, so we are very prudent. Regarding personal businesses, even if our personnel business income is coming down, however, the incremental amount is still quite significant. For personal mortgages, you can see the new incremental out of our total incremental is still more than half. Our traditional advantage, we will continue to consolidate.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [12]

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Lady on the third row, please.

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Unidentified Analyst, [13]

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I am from Swiss Bank, UBS, (inaudible). I have a question, which you may have already covered. In the last 3 months, it seems that the government policy is to relax the policy and at least, to slow down on the deleveraging speed. And therefore, we have seen a lot of different policies somewhat support the key projects, and how do we allocate our capital? How much of the reserve would be aligned towards meeting the government's targets? On July 1, PBOC has evident relaxation on the items that are outside of the balance sheet. So how are we doing with this? Say, with asset management, the older products, have we been continuing doing that? How about the volume? And by December 2020, can we expect the volume to continue to decline? And we have started again to -- on some traditional products, should we expect that all of these to come back? Meaning, those traditional items, should we expect it to come back to be increased in the next several months?

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Unidentified Company Representative, [14]

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Well, policy changes -- is for making changes, gradual changes in fiscal and monetary changes on a gradual and stable basis. And as far as reserve projects of CCB, we would follow the basic direction, leaning on the traditional strings of our bank. Just now, I was talking about important -- long stream important infrastructures and projects, mortgage, the Quick Loan and our leasing, our rental loans. And we are also following market changes to adjust our corporate loans. We would be inclined more towards green loans, including green manufacturing, these would be the major adjustments. This is the area, the direction that we are going -- that we're following. So your third question is about the changes caused by the new rules of asset management, we just have a new one, a new rule. You will discover that I think asset management is still based on trying to manage the asset well for people. So there is a transitional arrangement in the past. Now on balance sheet, products and items should disappear when they expire. And with deposit products, for those that are not yet due, then we can replace it with a new product, including -- well, these are measures that we have already implemented. Our non balance sheet part is about 30%, so these transitional arrangements regarding asset management, I think, would be good for our adjustments, especially looking into the medium term. The new rules in asset management definitely does not mean that we can no longer do this business in asset management, it is a matter of transition.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [15]

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Next question, on the right hand side, I can see your hand.

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Unidentified Analyst, [16]

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I'm from Everbright. I have a question, which is related to the previous question for infrastructure and in the second half of the year, with the changes of the policy and for the whole year in terms of your credit growth, where will that reach? Second, in terms of credit, for first half of this year, we have seen a tightening and for second half, with the reviving and overall for the whole year compared to last year, what sort of growth will that be?

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [17]

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I would like to ask our CFO to answer this question.

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Yiming Xu, China Construction Bank Corporation - CFO [18]

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You can see for our loans being granted, the speed for the first half of this year is very stable. In July, it has grown faster and what we are looking at is the figures from the first 6 months. For July, it has not been disclosed, but we have seen it ourselves, it has increased by CNY 20 billion. So partly, the financing is reducing, and some of the companies, they are facing problems in the society. We are also seeing measures being adjusted, for example, for the new rules for asset management, especially the currency policies from PBOC, to ensure liquidity. In the meantime, we were also asked to support real economy and to increase our credit granting. So in July, we have invested or increased our credit extended, and this is in line with the general trend. We still have a few months remaining for CCB, I believe that we will have some changes. We have always been very prudent in terms of loan approvals, and we might increase some of our loan approvals. As regards to where we are investing in, a few directions, as follows: for example, first, inclusive finance; second, mortgages and consumer loans as well as infrastructure loans; SME, for example, some of the areas that we are very good at, SME Quick Loans. This is the volume and speed changes. Actually, for structures, it has not changed much. For volume, it has changed compared to the beginning of the year. I'm not sure if I have answered your question. For the extension to the whole society, I believe that will increase. For second half of this year, we still have another 4 months remaining, but it will not be as fast as July. It will be faster compared to first half of 2018, but it will not increase as quickly as what we have seen in July.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [19]

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Gentlemen in the fourth row, please.

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Unidentified Analyst, [20]

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I'm from Deutsche Bank, my name is (inaudible). I have a question regarding -- we have seen a rebound in the interim revenue. So I would like to understand why is it that your revenue has gone up, and can that be sustained?

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [21]

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I'd like to invite our General Manager, (inaudible), to take your question.

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Unidentified Company Representative, [22]

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It's like this, our revenue for the first half is [1.36] not very fast. Now there are 2 areas, one is our asset management, with the new rules launched, our asset management business is up for reform. And also the regulatory policies also provided some -- also impacted us. As you can see in the first half of the year, we have some good trends in here. Say, our bank cards revenue expanded quickly, and our trustee and our E-banking business also improved. Now it doesn't mean that the second half of the year, we can grow as equally quickly as the first half. There are 2 areas: one is, normally, it should be fast; and the other one would be a book-keeping issue. In the second half, we -- the growth rate would still be fast but not as fast. Now with our reform, including in the 3 areas that we talked about, in all the -- in our consumer financing, our asset management and financing. I think, overall, in the second half of the year, we can keep a stable income growth.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [23]

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I think we have exceeded our time, but we would take 2 more questions. On the left-hand side, we have this lady.

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Judy Zhang, Citigroup Inc, Research Division - Research Analyst [24]

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I'm Judy Zhang from Citibank. I would like to ask about debt-to-equity, I know that CCB is the leader in this regard, and with the RRR cut, we know that some of the capital will need to be used for debt-to-equity, is it year marked? Going forward, with the loosening of debt-to-equity, what is your plan in the next few years? For example, the targeted asset for underlying asset for debt-to-equity is no longer the standard product, there is also the nonstandard ones. And so going forward, will you mainly focus on CCB's loans, or you will focus on some nonstandard ones, or you will also consider working with some of the debt-to-equity products from other banks?

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Unidentified Company Representative, [25]

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Well, for debt-to-equity, we have always been the leader in the market. What you have asked about the future trends, I would like to ask our CFO to answer this question.

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Yiming Xu, China Construction Bank Corporation - CFO [26]

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We have signed over CNY 600 billion, right, and we have about CNY 110 billion completed. For CCB, overall speaking, we still believe in market-driven and where have we competed? For example, in some of our practical business, whether it's others or my loans, et cetera, actually, this is not something that we select. We first look at the companies, look at their underlying asset, we look at the company itself, whether this company has any potential. If this company has good potential and the problems that they encounter, for example, higher costs, higher-leverage ratio, we will help them if these are enterprises that we know well of. Whether it is other banks debt, or it is my debt, I don't think this is the selection standard. We are helping them to reduce their leverage ratio and debt cost. This is my selection criteria. For example, if I help this company to grow better, I will exit in the future and how do you exit, you will utilize the market. So this is not something that I want to exit, and I can exit now. You may have to help them list and if once they are listed, you can exit, or if they're not able to list, perhaps I will find PE fund, I cannot hold this company forever. The direction of this company must meet or be within the ability of CCB. It is not that we are selecting at random. This is my understanding. So if you look at this, we have signed worth -- contracts worth of CNY 600 billion, but only CNY 110 billion materialized. And thirdly, what's most important is the source of the capital. I always ask these people, "If you have CNY 100 billion, where did you get that from?" I hope that they have obtained the funding from public offerings or private offerings. This is something that we are also exploring at the moment, for example, for the CNY 600 billion that we have signed, mainly from our wealth management, and this is also within the allowance of the policy. Actually, we haven't had much from the PE funds or public offerings. So at the moment, for debt-to-equity, PBOC is asking that all of the CNY 600 billion be used for debt-to-equity. We have established a company, right? And this company have also attracted CNY 700 million from the private market and will also have some social equity in this. At the moment, they have not used this -- any of this as of yet, this company. Going forward, all of the PBOC's policies will be applied to that because they want to have [rule of law]. They want to have it be market driven, they want to help companies with potential. This is difficult to do if you want social capital to come in. You must make sure that it has investment potential. This is our nurture of the company's ability.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [27]

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One last question, please.

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Shuo Yang, Goldman Sachs Group Inc., Research Division - Research Analyst [28]

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I'm Yang Shuo from Goldman Sachs. I have several questions, first of all, I'd like to ask about the non-interest income, that is -- that forms part of the interim income. Now deducting that -- deducting the adjustment, the administration fees, so what is the trend for this income growth? And I have a question about deposits, PBC -- sorry, CCB has a larger deposit and at a low price. I'd like to understand your pricing for deposits going forward. And lately, there has been a regulatory measure to adjust risk -- weighted risk from 30% to 0%. This has not been confirmed, it has only been reported by the media, so I'd like to understand what is your allocation strategy in this area?

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [29]

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Well, this is 3 questions. One is the local debt. Your questions are keen. Mr. (inaudible), can you take it, please?

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Unidentified Company Representative, [30]

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Thank you for your question. You have a very good grasp of the information. Media, indeed, they report about this, about the weighted average of the local debt to fall from 20% to 0%, the regulators are still [deliberating]. They have not decided yet. And if this does come down, then it would release some pressure from local debt, and the local debt has always been something important for the government. For the first half, we have adjusted the scale and internally, we have adjusted our resources to increase in local debts. And in the second half of the year, we would continue -- follow policy requirements to accelerate or to add on our investment in local debts. Now the public debts typically comes with a 38 bp increase versus other debts. In the future, it would be 58 bps more because it has a tax benefit. So all in all, after-tax yield is quite good, and it is a positive impact on our income.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [31]

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Now with the non-interest revenue, the overseas department head, please take that question.

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Unidentified Company Representative, [32]

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Now with this non-interest income, it is in accordance with the number 37 of the accounting standards of the MOF. This guideline stipulates that changes needs to be entered as a profit and loss, and in this area, we have transactional bonds about CNY 30 billion, so the interest income is about CNY 5.5 billion. So it has become an income. So therefore, in quarter 1, you have seen some increase. However, you have seen our net interest income actually is not as good as quarter 1, and this is a hedging effect, I guess. So all along, I have been thinking that NIM is an analytic index. Every bank has a different structure, say, if you look at the NIM, despite that we're not the highest, however, you will need to know that our sales cost actually is the lowest. Now some of the sovereign and corporate loans that we have extended, it may impact our income. However, it has no impact on our profit, it is still a positive drive.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [33]

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Mr. (inaudible), please take your question.

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Unidentified Company Representative, [34]

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You have asked several questions, one is, why is it our deposit is lower-priced? Now CCB, we insisted on a balanced strategy between quantity and quality, we do not fight a price war. And secondly, as far as price is concerned, we try to differentiate ourselves so that overall, our deposit level can be enhanced. And in the last couple of years, we have been pushing for systemic network-based deposits so that we can have a low-cost capital. So all in all, these kept us competitive and as far as cost wise in terms of deposits amongst our peers. And you also asked about the pricing of deposits in the second half of the year and its trend. Now there are positive as well as negative factors to this. So several factors would push our cost up. First, the PBOC encourages, starting the second half of the year, the marketization of [interest --] setting, meaning a competition amongst our peers, amongst banks would be more fierce. And then the Internet financing would also add on the cost. The third would be the asset management. So all in all, these are negative factors to our capital cost, however, there are also positive impacts. Now based on our macroeconomic analysis, we have made some adjustments. All in all, we are stable and step-by-step growing. The policy is to keep healthy liquidity. So all of these would mean that capital -- the overall volume of capital would be more in the second half of the year. And also, the interest rate would be kept at a lower level just like now, that would be beneficial for us to lower our capital cost -- our loan cost. So we have studied in detail about this, and therefore, we are able to keep our cost relatively stable.

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Lin Liao, China Construction Bank Corporation - Chief Risk Officer [35]

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So we have exceeded our time, thank you for your patience, and thank you for being here. We would end our result announcement here. If you have further questions, please contact us. Thank you.