(Date: June 22, 2024; Source: 21st Century Business Herald)
At 11:50 a.m. on June 20, shareholders of various sizes gathered in the exhibition hall on the second floor of CIB's headquarters at 398 Jiangbin Middle Avenue, Taijiang District, Fuzhou, to engage in face-to-face discussions with the bank.
A promotional video playing in the exhibition hall showcased "where CIB came from" to the investors. Just two and a half hours earlier, at the 2023 Annual Shareholders' Meeting, the bank's Chairman Lv Jiajin and President Chen Xinjian answered the question of "where CIB is headed."
In the context of the new banking norm characterized by "low interest margins, low profits, and low growth," CIB, as the second joint-stock bank with total assets surpassing 10 trillion RMB, faces the cyclical industry challenges of "asset scarcity," narrowing net interest margins, and rising non-performing loan rates.
Lv Jiajin stated that the new board will focus on the "Five Major Areas," continuously increasing support for the real economy, further advancing the reconstruction of the balance sheet, and promoting balanced development across the three main lines: retail banking, corporate finance and investment banking, and interbank and financial markets.
Chen Xinjian noted, "At the beginning of this year, based on a thorough assessment of internal and external situations, we proposed to strengthen five capabilities: strategic execution, customer service, investment and trading, risk control, and management promotion, to drive the work development in 2024."
Regarding strategic execution, Chen Xinjian emphasized that CIB will unwaveringly pursue a path of asset-light, capital-light, and high-efficiency development, aiming to build a value-oriented bank with optimal efficiency, balanced structure, and appropriate scale.
Summarizing, the main work lines for the next stage remain focused on three key terms: balance sheet reconstruction, digital transformation, and risk control.
Significant Progress in Balance Sheet Reconstruction
For CIB's Chairman Lv Jiajin, "balance sheet reconstruction" has been a critical task in his three years at the helm of the bank; for CIB itself, this work is also pivotal for navigating through cycles.
What progress has been made in this crucial endeavor? At the shareholders' meeting held that morning, Lv Jiajin stated that significant progress had been made in the balance sheet reconstruction. The bank has gradually “transitioned” from the old "real estate-infrastructure-finance" triangular cycle to adapt to the new "technology-industry-finance" triangular cycle, reflecting the new logic of bank operations.
The reporter learned that to adapt to the shifting dynamics of economic development, the bank proposed the strategy of "consolidating the fundamentals and laying out new tracks" at the beginning of 2022. In terms of "consolidating the fundamentals," the bank primarily focuses on promoting the transformation and development of real estate and local government financing platform businesses. "Laying out new tracks" refers to the five new tracks: Sci-tech Finance, Inclusive Finance, Energy Finance, Automotive Finance, and Park Finance.
According to Lv Jiajin, over the past three years, the proportion of real estate loans in CIB's corporate finance loans has decreased to 13.82%, and the scale of local government financing platforms has been reduced by more than 50%. Loans in emerging fields such as the "Five New Tracks" have grown by more than 50% in the past two years, significantly outpacing the growth rate of total assets, and pricing has also maintained a good level within the industry.
Regarding the next phase of balance sheet restructuring, Chen Xinjian revealed at the meeting that on the liabilities side, efforts will be made to "stabilize scale" and "reduce costs" of deposits. On the assets side, the focus will be on "supporting the real economy" and "adjusting structure" by leveraging "regional + industry" strategies and the alignment of the "Three Pillars of Our Businesses," the "Five New Tracks," and the "Five Major Areas" to continuously increase resource investment in key fields and regions.
Net Interest Margin Expected to Perform Better Than Early Budget Target
The balance sheet restructuring has also helped CIB address the challenge of narrowing net interest margins
Net interest margin is a critical metric for the banking industry in the current low-interest-rate environment. For CIB, the stability of interest margins will primarily hinge on the liability side.
Lin Shu, General Manager of the Planning and Finance Department, introduced that from January to May, CIB's interest payment rate for domestic and foreign currency deposits was 2.07%, down 5 basis points from the first quarter and 18 basis points year-on-year. The interest payment rate for domestic RMB deposits has already fallen below the median level of similar joint-stock banks. Additionally, deposit growth in May was robust, outperforming peer banks.
Lin Shu also mentioned that CIB will further optimize its liability structure through three main initiatives: strengthening the control of high-cost deposits, accelerating the replacement of high-cost liabilities when the opportunity arises, and advancing the "Web Project."
Regarding high-cost deposit control, it is reported that CIB will replace 55 billion RMB of high-cost agreement deposits gradually from the second to the fourth quarter of this year.
In terms of liability replacement, CIB issued 30 billion RMB of Tier 2 capital bonds in May at a cost of 2.50%, which will be used to replace 50 billion RMB of Tier 2 capital bonds maturing in August and September (costing about 4.15%).
For the "Web Project," CIB aims to enhance its ability to attract low-cost settlement deposits by focusing on payroll payment, acquiring services, supply chain finance, and scene ecosystem platforms. From January to May, the liability cost decreased by about 5 basis points compared to the first quarter, achieving good results in liability cost control, and further optimization is expected.
On the asset side, Lin Shu noted that the adjustment of existing mortgage rates and the reduction in LPR will continue to impact the yield of existing loans, and the pricing of new loans will continue to decline. In the next phase, CIB will maintain effective credit issuance, increase the proportion of high-yield assets in interest-earning assets, and alleviate the downward pressure on asset yields.
As asset and liability optimization continues, Lin Shu disclosed that from January to May, the bank's net interest margin was 1.87%, remaining stable compared to the first quarter, with the year-on-year decline narrowing further. The net interest margin for the second quarter is expected to be around 1.86%. Looking ahead for the entire year, the net interest margin performance is anticipated to exceed the initial budget target of 1.80%, outperforming the market.
Despite achieving expected results in interest margin control, the bank's president, Chen Xinjian, stated that CIB needs to make continuous efforts in certain areas. For instance, retail assets have shown weak growth due to early repayments and fee policy adjustments; fee and commission income growth has not met expectations due to a series of fee policy impacts.
Risks in Real Estate, Local Government Financing Platforms, and Credit Card Business are Overall Controllable
Apart from the restructuring of the balance sheet, risk control is also a key focus of CIB. The real estate sector, local government financing platforms, and credit card business are the three major areas of risk control for the bank.
Regarding the real estate business, Lai Furong, General Manager of the Risk Management Department, stated that the overall real estate risk is controllable, the loan-to-value ratios are reasonable, and provisioning is adequately accounted for.
As of the end of March, the non-performing asset ratio for corporate real estate loans, both credit and non-credit, was 3.16%, with an impairment provision ratio of over 4.5%. For corporate finance loans secured by real estate, the average loan-to-value (LTV) ratio was 41.76%.
However, he also mentioned that since market recovery will take some time, some real estate companies will continue to face significant pressure on their capital chains, and real estate risk exposure is expected to persist for a period.
Concerning the risk associated with local government financing platforms, Lai Furong noted that the overall risk of local government debt has been alleviated, and market confidence has significantly improved.
"CIB's government financing business is reasonably distributed by level and region, with stable risks. Clients are mainly concentrated in economically developed and fiscally strong eastern and central provinces. High-risk regional low-level platform businesses account for a small proportion, most business risks are controllable, and asset quality remains stable," he said.
He explained that the negative impact of debt restructuring on revenue is mainly due to interest rate cuts. Based on the existing rate cut businesses and their extent, as of the end of March 2024, it is estimated that the annual interest income reduction from the rate cut for existing implicit debt customers and financing platform customers will be approximately 1.127 billion RMB, which is only 0.77% of the bank’s net interest income in 2023 (146.503 billion RMB), indicating a limited impact.
However, debt restructuring also helps to reduce the risk of existing businesses, minimize the bank’s losses or provision requirements, and enhance operational performance. In 2023, the bank released 3.7 billion RMB in provisions by refinancing and swapping out existing businesses.
Regarding credit card risks, Lai Furong stated that in the second quarter, the bank continued to leverage the agile risk prevention and control team, strengthening risk control throughout the entire loan process. The early delinquency risk of newly issued cards has been mitigated, with a 31% year-on-year decline in newly occurring non-performing loans from January to May.
"With the further effectiveness of various risk control measures, the overall risk of the credit card business is expected to be controllable in 2024, and the incidence of new non-performing loans is anticipated to decline year-on-year," he said.
It was revealed that the bank's credit card business will adhere to the general strategy of "controlling non-performing loans, building systems, and accelerating transformation," using multiple measures to "control new risks and reduce old ones," continually clearing out risk assets, introducing high-growth assets, and improving the quality of credit card assets.
Digital Transformation Begins to Yield Results
Digital transformation has also been a key focus for CIB in recent years.
At the shareholders' meeting on the morning of June 20, Chen Xinjian stated that the bank will strengthen its capabilities in strategic execution, customer service, investment and trading, risk control, and management promotion.
The enhancement of customer service capabilities, risk control capabilities, and management promotion capabilities all rely on digital empowerment. Digital transformation is essential for the bank to achieve a value-oriented, balanced structure, and appropriately scaled value banking model.
"Digital transformation has begun to yield results," said Lv Jiajin at the meeting. Over the past three years, the bank's digital transformation has started with reforming systems and mechanisms and increasing tech talent, addressing the shortcomings in digital operations. The digital transformation has reached a stage where it supports development, controls costs, manages risks, and improves operational efficiency. With the renewed upgrade of the "Five Online Platforms" (CIB Inclusive Finance, CIB Butler, CIB Life, Money Manager, and CIB Platform for Integrated Banking), the construction of ecosystem scenarios is progressing in an orderly manner, effectively promoting the expansion of corporate, retail, and interbank customers.
At the same time, Chen Xinjian also mentioned that the number of customers and business volume on the mobile banking and the Five Online Platforms have made significant progress. Digital transformation has transitioned from the planning and construction phases to the construction and harvest phases.