BOC Hong Kong (Holdings) Limited (2388) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. Welcome to the 2021 Interim Results Briefing of Bank of China Hong Kong (Holdings) Limited. I'm Kenny Luo, Company Secretary of BOCHK. In light of the current COVID-19 situation, our presentation will be conducted via webcast and teleconference. We apologize for any inconvenience caused. Let's now kick off our results briefing. First of all, I would like to introduce our senior executives with us today: Mr. Sun Yu, Chief Executive; Madam Jiang Xin, Chief Risk Officer; Madam Wang Qi, Deputy Chief Executive; Mr. Yuan Shu, Deputy Chief Executive; Mr. Zhong Xiangqun, Chief Operating Officer; Mr. Wang Bing, Deputy Chief Executive; Madam Sui Yang, Chief Financial Officer; Mrs. Ann Kung, Deputy Chief Executive. Today's meeting consists of 3 parts: Mr. Sun, our Chief Executive, will brief you on the implementation progress of our strategy in the first half of the year. Then Madam Sui, our Chief Financial Officer, will present the financial and business results for the period. Finally, CE Sun will discuss the group's outlook and key priorities in the second half before we begin the Q&A session. Now I would like to hand over to CE Sun.

Good afternoon, ladies and gentlemen. Now I would like to provide you with our strategic review for the first half of the year. During the period, the bank's operating environment remained challenging owing to the volatile COVID-19 pandemic situation globally and near record low levels of market interest rate. Bank industry are still under tremendous earnings pressure. On the bright side, the Mainland economy witnessed a solid growth, while the Hong Kong economy also recovered from its trough. We strengthened our strategic execution to seize new business opportunities, while adhering to strengthen risk management. We outperformed the market in the core business areas such as customer loans and deposits and maintained our capital resource as well as other financial indicators at solid levels. Stripping out the high base effect of disposal gain from debt securities investments in the same period of last year, operating profit before impairment allowances dropped by 8.4% year-on-year, but by rebounded by 13.7% half-on-half, which indicates early signs of stabilization and the solid core profitability. In face of a challenging external environment, we endeavor to provide a relatively stable return for our shareholders. The Board has proposed an interim dividend per share of HKD 0.447, which is unchanged from the same period of last year. Hong Kong is always our core market. We captured market opportunities to consolidate our traditional advantages and create new growth drivers by optimizing our customer and business mix. We refined our wealth management customer brand segmentation. In the first half, the AUM and wealth management income from mid- to high-end customers increased 18% and 33% year-on-year. We stepped up efforts to develop home purchase business ecosystem and improved our Home Expert mobile app. Our leading position in new residential mortgage loans was well maintained with online mortgage applications more than doubled. Our corporate banking business continued to lead the market. We sustained our competitive advantage as the mandated arranger in the Hong Kong and the Macao syndicated loan market as well as in the IPO receiving bank and cash management businesses. At the same time, we were dedicated to expanding our fee income business with a 36% growth in bond underwriting volume and a 6.2% growth in assets under custody. Our competitiveness in financial markets was further enhanced. We grasped the market opportunities and achieved the 34% growth in RMB-related client trading volume. We also upgraded our online trading platform to improve the service capabilities with online client trading income rising by 14% during the period. We made further progress in improving our integrated service capabilities. BOC Life ranked first in bancassurance sales for the first quarter. BOCI-Prudential Trustee maintained its forefront position in Hong Kong's MPF market, while BOCHK asset management steadily grew its AUM. In our key market of the Greater Bay Area, we enhanced collaboration with our parent bank, Bank of China, to solidify our cross-border integrated service capabilities. We further optimized the customer experience of our GBA account opening service, and the total cross-border remittance amount and transactions volume under GBA account surged 1.4x and 1.2x in first half. We jointly launched the GBA Youth Card, which aims to provide young people with integrated services. In our cross-border mortgage service, we resolved the customer pain points by continuously optimizing our service flow and launched a series of loan products. We have also made full preparation for the launch of cross-border wealth management service to take advantage of favorable opportunities in the GBA market. Capturing policy and market opportunities, we provide our corporate customers with financial facilities to meet their cross-border business needs. This led to an 8% rise in our GBA loans. At the same time, we cooperated with universities and technology research institutes to support the technology and innovation-driven firms, achieving an 11% increase in related customer numbers and a 7% growth in loans. We see Southeast Asia as a potential growth market for us. During the period, we continued to pursue regional integration and strengthened our unified management and guidance to promote differentiated development and ensure solid business growth in this market. Following the opening of our Myanmar branch in the first quarter, we opened a representative office in Hanoi, Vietnam in June, which further improved our regional footprint. In addition, we fully leveraged our role as BOC Group's syndication loan center in Asia Pacific and increased our regional business collaboration. We successfully completed a number of syndicated loan deals with large Southeast Asia corporates, which elevated our position in the market. Meanwhile, we also enriched the financial products and services of our Southeast Asia entities by exporting more than 40 corporate financial products from the Hong Kong market. Furthermore, we promoted the local mobile banking and wealth management services and strengthened customer referrals to gain mutual recognition for wealth management brands across the region. As of the end of June, our Southeast Asia entities grew their deposits and loans by 9.4% and 2.6%, respectively, maintaining a solid and healthy growth. Asset quality was stable with NPL ratio at 1.75%, standing at a better level compared with local market average. Capturing the opportunities from the latest RMB policy developments, we expanded RMB usage scenarios to advance the RMB business development. As at the end of June, our RMB customer deposits and loans grew by 14% and 24%, respectively. We further optimized the RMB business management mechanism. We appointed a Managing Director of RMB business and established a flexible organization to steer RMB business development. We consolidated our leading position in the offshore RMB clearing business and officially launched the RMB clearing bank business at our Manila branch. Total RMB clearing transaction volume handled by BOC Hong Kong grew 28% year-on-year to RMB 1 point -- RMB 178.4 trillion, accounting for 75% of the global total. In order to boost customer demand for RMB business, we increased the intragroup collaboration and expand RMB business in our financing, settlement, commodities trading and cash pooling business. We innovated the personal cross-border RMB settlement business and launched the RMB salary direct remittance service. Our Jakarta branch achieved 82% year-on-year growth in business volume. At the same time, we built up a digital platform to provide fast, convenient quotation and transaction services between RMB and domestic currencies. With all of these efforts, we strive to [ embed ] RMB in full service and business process to activate the offshore RMB market with incentives for major market participants. In line with our customer-centric principle, we deepened our digital transformation strategy. Our business operations and risk management were further enhanced by strengthening of digital infrastructure. The transaction volume increased by 60% year-on-year on our mobile banking platform. We extended our intelligent global transaction banking platform to our Southeast Asia entities. Over 90% of local corporate clients have already moved online. By automating of middle and back-office operations, the processing efficiency of relevant business was enhanced by 50%. Moreover, we further upgraded our smart risk management capabilities and introduced a cybersecurity surveillance service that helps to identify potential weakness. We also extend digital application. A series of online wealth management services were newly launched such as RM Chat, online investment and online insurance. Additionally, we launched the one-stop wealth planning service PlanAhead to meet the needs of young wealthy customers for quick and convenient investment services. In the first half, the online transaction volume of our investment products was doubled. While BOC Life continued to rank at the top in the e-sales channel measured by standard new premiums, we continue to develop our ecosystem in charity, education and transportation sectors to deliver financial services to a wider spectrum of customers. Our BoC Bill service now supports 12,000 public parking meters in Hong Kong. As of the end of June, the network coverage of BoC Bill increased by 7.9%, while our FPS customer increased by 20%. During the period, our BOC Pay transaction volume increased by 69% year-over-year. Our promotion of green and sustainable development has been part of our ongoing efforts to put ESG into practice. In collaboration with the Hong Kong Quality Assurance Agency, we became the first partner bank on its brand-new Green Loan e-Assessment platform and launched the SME green financing incentive scheme. In the first half, our green or sustainable loan expanded by 1.6x from the end of last year. We also launched the 3 green deposit schemes, which took up HKD 1.9 billion, the RMB share class in Hong Kong market. In addition, we launched the first ESG multi-asset retail fund with RMB share class in Hong Kong market and successfully issued our Sustainable and Smart Living themed green bond at a total size of RMB 1.5 billion to provide financial support to customers for meeting their carbon reduction targets. In the near future, we will introduce the first green mortgage product in Hong Kong to support sustainable property and push forward the green and low carbon transition together with our customers. We also provided full support to various financial relief schemes and economic incentive measures of the Hong Kong SAR government. Our market share in the 100% personal loan guarantee scheme reached 30% in terms of number of approved applications. The subscription of both iBonds and Silver Bonds through our network ranked first in terms of customer numbers. In this May, we officially enrolled a supporter of the TCFD. We will continue to improve our climate risk management and steadily enhance our relevant information disclosures. This concludes our strategy review for the first half of 2021. Next, our CFO Madam Sui will walk you through our financial and business performance.

Thank you, CE Sun. In the first half of this year, our profit after tax was HKD 13.6 billion, down 15.9% year-on-year, mainly because of the net interest income decreasing due to the lower market interest rate. In face of challenging environment, we capitalized on some market opportunities to achieve favorable fee income growth and maintained stable operating expense, partly offsetting the adverse impact from the lower interest rate environment. On a half-on-half basis, our profit after tax rebounded by 10.4%. We continue to expand our mid- to high-end customer base and deepen business engagement with large corporates and governments and central bank on a diverse range opportunities, including e-payment and collection, IPO receiving banking business, cash management, cash pooling and payroll service. We leveraged the market trend of customer funding flowing into wealth, insurance, stock and structured products and further grow our CASA deposit to optimize our deposit mix. At the end of June, excluding the impact of IPO activities, our customer deposit grew by 5.2% to HKD 2.3 trillion, taking our local market share to 15.21%, up 0.22 percentage points. Our CASA deposit grew by more than HKD 120 billion or 8.3% with CASA ratio rising to 68.8%. We captured market opportunities in Hong Kong Greater Bay Area, Southeast Asia and overseas markets and strengthened the collaboration with our parent bank, BOC, to explore new customers and new industries. At the end of June, excluding the IPO impact, our customer loans increased 6.1% to HKD 1.6 trillion with market share increasing by 0.23 percentage point to about 14%. Solid growth was seen across different loan types. Since the start of this year, market interest rates stay at about 10 basis point level for a long period. The average 1-month HIBOR and LIBOR fell by 129 and 78 basis points, respectively. [indiscernible] competition for loans and deposits was intense. As a result, bank's loan-to-deposit [ supply ] further narrowed, whereas asset yield of debt security investment and the interbank business reduced significantly. In response to these challenges, we steadily increased our average interest-earning assets, which grew 12.3% year-over-year. We optimized our asset and liability management by expanding loan book, increasing debt security investment and improving deposit mix, therefore, striving to reduce the margin pressure in the first half. Excluding the swap impact, our net interest margin was 1.1%, down 40 basis points year-on-year and down 6 basis points half-on-half. Capturing the opportunities from a strong capital market, mutual market access and cash management business, we realized a strong growth of 26.4% in our investment and insurance-related fee income. Loan commission also increased by 29.1%. At the same time, with the recovery of cyclical industries such as retail and import and export trade, our income from traditional fee businesses broadly rebounded. During the first half, our net fee income reached HKD 6.66 billion, up 22.5% year-on-year and 23.1% half-on-half, which indicated a gradual pickup in the growth momentum. While ensuring enough resources available for staff expense and key strategic projects of digital transformation, we adopted low carbon, we planned an intensive business operation. Our total operating expense fell by 0.1% year-on-year. And the cost-to-income ratio was 13.3%, which continued to outperform the local market. We will adhere to our prudent risk management principles and continue to strengthen risk management. Our asset quality remains solid with [ service provision ]. Excluding the IPO impact, our NPL ratio was 0.32%, up 5 basis points from the end of last year. Our annualized credit cost was 0.16%, dropped 2 basis points year-on-year. Overall provision remained adequate, and NPL coverage ratio stood at 201%, staying at a relatively high level in the market. Our capital and liquidity position remained sufficient. Our CET1 ratio was 15.95%. Our total cap ratio was 19.79%. Both suffered a temporary drop due to the impact of IPO financing. Our average LCR and NSFR continue to stand at a solid level. This concludes our interim results review. CE Sun will now share with you our outlook and the priorities for the second half of this year.

Thank you, CF Sui. In second half of 2021, the external operating environment will remain complicated. The global pandemic situation will continue to evolve, and the economic recovery process will become more unbalanced. Major economies are contemplating a potential shift in their monetary policy, which might lead to a more volatile financial market. With ongoing low interest rate environment, the acceleration in digitalization and low carbon development, there is a need for banks to speed up their transformation. On a more positive note, the Mainland economy has recorded stable recovery and solid growth with new achievements made in high-quality development. As Hong Kong's pandemic situation gradually comes under control and the labor market continues to improve, the local economy will sustain its recovery. Guided by the nation's 14th 5-year plan and the dual circulation economic development strategy, the interconnection between the Mainland China and Hong Kong will continue to expand. This will add new impetus into Hong Kong's economy and create new opportunities for the banking industry. In the second half, we will remain committed to our strategic goal of building a first-class regional banking group and development of 3 key markets of Hong Kong, the Greater Bay Area and Southeast Asia. Sticking to our customer-centric approach, we will deepen the transformation of our personal banking business and enhance our traditional advantages in the RMB business, while strengthening our integrated services, regional management and digital capabilities. We will also stick to our prudent risk management principles and push forward our low-carbon transformation, striving for sustainable, high-quality development. Despite the challenging environment, we are confident to maintain our market outperformance in loan and deposit growth while keeping the asset quality and ask risking other risk indicators stable. We will endeavor to expand our income sources and improve our cost efficiency, thus, to continuously create value for our stakeholders and make a positive contribution to the local economy and the social prosperity and stability. This is the end of our presentation. Thank you. We will now open the floor for the Q&A session.

Thank you, CE Sun. [Operator Instructions] Now let our operator to give us the first question.

[Interpreted] This is Yafei. Citibank, Yafei. I have 2 questions. First of all, for asset management of the company for this quarter, the CET1 ratio is significantly impacted partly because of the IPO financing. And the DPS is the same as last year, which is the reverse for the industry. So in terms of DPS, when will you go back to pre-COVID levels? That's the first question. The second question concerning the quality of assets. The COVID, as we can see that it had formed more NPL by sector and by region, perhaps Southeast Asia and trade finance property, these are the sectors impacted. Is that correct? Thirdly, when will we be able to see collective provisions for COVID reversing so that the credit cost will be -- will not be impacted?

First of all, Mrs. Sui will answer the question. And Jiang will answer the second question.

[Interpreted] Yafei, concerning the first question, at the end of June because we had a major IPO that we handled, for IPO, it is about HKD 150 billion or so. And therefore, it has pushed up our assets significantly. In this situation, there has been a short-term lowering of CET. Now taking this away, it is actually the capital drop had been 0.6% to 0.8%, which is really normal. So overall speaking, our capital situation, you can see, is quite strong and sufficient. As for dividend payment, the Board believes that for interim, it is $0.447. And this considering the overall situation, profitability, regulatory and also shareholders' expectations. And this is in line with last year's interim. So as the profit had lowered or been under pressure, our dividend payout has been stable. As for future dividend payout, we have been maintaining our present payout principle. First of all, we will be considering and balancing the long-term development of the bank and shareholders' expectations and interest. It is between 40% to 60% payout rate. As for 2021 whole year expectation for dividend, we will be looking at our CAR, which is very strong. And also in the second half, we will be meeting with certain risks and regulations -- regulatory expectations, macro operation environment. We'll take these into account before we decide on the dividend payout and at the same time, take care of shareholders' returns.

[Interpreted] Let me answer the second question you had just now. Concerning this question, I will be answering in 2 parts. First of all, the quality of our assets. For the first half, the quality of our assets had been stable. Our NPL at the end of June had been 0.32%, which is slightly higher by 5 basis points from same period last year. And this is because of a few individual customers, which had been impacted by COVID and they had been adversely affected, and therefore, they had been classified as NPL. But overall, our NPL is higher -- better than the 0.89% average of Hong Kong. It is much better. And there had not been any industry systemic or regional risk in this regard. Overall risk is controllable. And another situation is in terms of impairment and provisions. In the first half, it is HKD 1.19 billion, drop of 8.7% or HKD 114 million, and this is partly because of the changes in certain parameters. And in the first half of this year compared to the second half of last year, the COVID situation is still continuous. And overall speaking, our overall impairment balance compared to last year had been HKD 1.02 billion increase, which is an increase of 11.2%. And basically, the COVID situation continues and alleviation measures continue, and we have been helping or supporting some of the customers. And so these measures continue. So it is also affecting our NPL. Over the first half, there had been an increase because of certain impacted customers, and we continue to provide the support to them. And secondly as for COVID, with more vaccination rate increasing, Hong Kong and the other countries are returning in the economic development. And also, we will be changing our parameters in this regard. And according to our provisions, accounting measures, we will be adjusting the NPL overall as well. As for geopolitical situation and some countries suffering instability politically, some of the regions and some of the industries are unstable in their recovery. We highly -- we will put a focus on these regions and industries. We'll put in strong risk management measures and also in provisions and in other measures and also alleviating COVID situation. After the COVID situation has been improved, we will be lowering our pressure for provisions. But overall, the situation is better than the industry. Our provisions had always been sufficient and also prudent.

[Operator Instructions]

Our next question is from Gary of HSBC.

[Interpreted] I'm Gary of HSBC. I have 2 questions. First, about interest margin. So in the quarter, it may be because of the IPO, the market still declined. So in the last quarter or in Q3, is there an opportunity of NIM rising? For example, if you deduct the IPO impact, then you will see a better performance in NIM? Another question is about recovery. So loan growth, loan increase, we understand these numbers. In the first half, there was pandemic affecting demand for loans. In the future period, are you going to get some loan demand from Mainland China? Or will there be growth in local demand for loan? In the past, usually, growth is faster in the first half. And this year may be a bit more exceptional. So what is the loan growth target for the whole year?

First question about NIM will be answered by Ms. Sui. The second question should be taken by Mr. Wang Bin.

[Interpreted] Thank you for your question. If you look at NIM, as you said, there was the IPO diluting the NIM performance. If you exclude the IPO impact, then NIM will improve slightly. Actually, the decline in NIM is caused by the overall market. We can refer to the figures. Last year, in Q3 and Q4, HIBOR, 1-month HIBOR was 0.34 and 0.26. But this year, in Q1, it changed to 0.14. In Q2, 0.09. So it still continued to decline in July and August. Right now, 1-month HIBOR was only 8 bp and 7 bp. So the same happened to LIBOR as well. LIBOR, in the first half this year, 12 bp and 10 bp. That's the monthly average. And then in Q3, 2 months before Q3, it came down to 9 bp. So interest rate decline was very fast. As a result, there was a very unfavorable impact on our NIM. So currently, what we can do is in a few areas. Your second question, you mentioned loan growth. This is also something that we are most concerned about. So in first half this year, we expanded our overall asset scale, almost 3 trillion, and the growth is 12.3%. So given the overall scale or condition, we continued to increase the scale of -- I mean the share of loan. On average, the loan growth increase is at 8.5% bigger than the overall amount of loan increase. So it increased the yield of assets. We also see opportunities from RMB. Right now, the market has demand for RMB. We made use of our service, product and network advantage. We increased our RMB business layout. RMB NIM has seen a year-on-year increase. And also RMB assets accounted for a bigger share of the total. Thirdly, we compressed the fixed interest deposit scale. CASA is rising in terms of share. Right now, it is at a historical high, 68.8%. For Hong Kong dollar, overall funding cost at 0.16%, lower than the market average of 0.21%. So if you look at overall NIM, we think that while the interest rate is coming down, BOC Hong Kong is still able to make good layout in assets and also we did deposit control and also overall arrangement, we're able to offset the impact from the drop in interest rate. Then if you talk about the overall situation, interest rate is at a low level. It is still slowly declining. The Federal Reserve had made some remarks, and you can have some anticipation whether or not interest rates can rebound sooner. But now the timing is something that people have mixed view. If interest rate goes up, it is beneficial to BOC Hong Kong's NIM and also net interest income improvement. Given this low interest environment, we will still do a good job with our own assets and liabilities. In the second half, especially if you look at yield for loan, we will continue to work hard. If you look at cost of deposit, CASA accounts for a big share. And for interest expenses and fixed interest deposit, well, the room for decline is limited. So we will further control the pricing of fixed deposit and also other related indicators. Now our target is to look at changes in the overall interest rate. Our own goal is that we hope NIM can maintain stable on a half-on-half basis.

[Interpreted] Now let me supplement and talk about loan growth. Just now when CFO answered your question on NIM, she also mentioned that in first half this year, when global economy gradually improved and when the pandemic in Hong Kong was gradually under control, the business environment in Hong Kong improved. Overall market loan growth recovered at 4.4%. BOC Hong Kong achieved growth of 6.1%, 1.7 percentage points more than the average market. And then market growth, 0.23%. Apart from this, our average outstanding balance increased faster than the total 8.5% growth. So loan growth rate is quite balanced. No matter whether you talk about Hong Kong or outside of Hong Kong, we exceeded the market. In Southeast Asia, various organizations overcome the pandemic impact and political impact. And under stable implementation of strategy, they achieved loan growth of 2.6%. So when the scale increased, actually, the structure of loan growth, overall speaking, was also satisfactory. For new loan growth, basically, it is related to those organizations, which we have long-lasting relationship and those good customers in Hong Kong, China and Southeast Asia. And then for personal mortgage loans, we are also leading the market, asset quality or overall loan quality is stable. Looking at the moment, even though there is the delta variant leading to impact globally with anti-pandemic work in all over the world and also vaccination rate going up, global economy can further recover. IMF has also got more optimistic forecast. So global economic growth would reach 6% for China. China's steady recovery can be further reinforced. People are of the view that this year China's GDP growth can exceed 8%. For Hong Kong, our vaccination rate is also improving. For the labor market, we also saw some improvements. There are measures like consumption vouchers boosting the economy. Right now, the estimate is that for the whole year, Hong Kong economic growth can reach 5.5% to 6.5%. So we believe that in the second half, the external environment for banks can improve. BOCHK has sound customer base. Our product and service capabilities are diversified. Our teams' professionalism is well recognized by the market. So we will further seize the opportunities in Hong Kong, the Greater Bay, Southeast Asia and Asia Pacific. We will balance asset quality, loan growth and customers' demand. And on that foundation, we will continue our good performance in the first half of the year. We are confident that for the whole year, loan growth can still exceed that of the market, and we can achieve the target of mid- to high-single digits growth. And in the remaining 4 months of this year, we will do a good job in the following 4 areas. First, we will further play our role as cross-border business arranger. And we will step up interaction with our parent company so that we will be a leader in the industry, especially in the field of science and technology. Besides, we will follow closely China's 14th 5-year plan. And we will beef up our teams, analysts, establishment, and we will work more in the emerging businesses and new business models. We will focus on new generation health care, advanced manufacturing capabilities, new energy, greening and environmental protection industries. In the first half, these industries achieved satisfactory growth. And we are confident that in the second half of the year, more will be done in order to promote cross-border loan scale increase. Besides, we will seize the opportunities from Asia Pacific economic development. On one hand, we are regional headquarters, and we will play a leading role to achieve synergy among Southeast Asian organizations. We will achieve growth amidst stability so that there will be stable loan growth in Asia -- in Southeast Asia. At the same time, in Asia Pacific, we will reinforce our parent bank's synergy with Singapore, Sydney, Tokyo, Seoul organizations and other organizations. In Asia Pacific, we will have all around collaboration. We will do M&A in terms of syndicated business so as to drive regional loan growth. The third area is about RMB. We'll continue to reinforce the advantages of RMB. We will seize the opportunity of RMB internationalization opportunities. And we'll focus on trade-related businesses. We will promote use of RMB offshore. And then we will do more in RMB product innovation, and we will expand the friends circle to promote RMB loan rapid growth. Number four, we will seize the opportunities in Hong Kong and China under the new carbon targets and also the development of green finance. We'll focus on low-carbon transformation. At the same time, we need to deepen cooperation with customers in the area of green and low-carbon development so that we can seize the opportunities from low-carbon development.

[Operator Instructions]

[Interpreted] This is JPMorgan. First of all, on service fees. We see for loans-related service fees, it is significantly increased for the same period last year. This increase is higher than some of our loan increase overall. My question is for fees increase is -- does that include IPO effects? Or would you say it is because for the first half of the year, syndicated loans have been much greater in size than last year. Is that the reason? The second question, concerning the strategy for loans. If we look at 33 of our presentation, there are certain industries that are more impacted during this period. And for these more impacted industries, what is the -- loan size is still increasing for the exposure to these industries. And the exposure seems to be relatively high. And is this has been a result of the relief measures? Or is it because of certain strategic thinking on the part of the bank?

All right. Ms. Sui will answer the first question, and Mr. Wang will answer the second question.

[Interpreted] Your first question concerning commission fee for loans, the growth is relatively good because we have [ vast ] market opportunities and also because of certain reserves opportunities, and therefore, this is the reason for the growth. Overall [indiscernible] for our loan increase, the numbers compared to the first half same period last year is more or less the same. But the overall effect is relatively positive, and there is no major IPO impact at all.

[Interpreted] Yes. As for your second question about the industry impacted by COVID and the loans exposure there, for our bank, concerning our loan customers, we basically focus on our major customers even though some of the industries are impacted. But for the large customers in the industry's credit situation, the finance situation are robust. So for increased loans are basically focused on mid to larger customers who have been cooperating long term for us. As for the SMEs, they do not take up a big percent. And whether there's a number of clients or the amount of balance, we have been monitoring very closely. And we have a name list of red, yellow and green system. And for the COVID, for entities that are impacted by the COVID, we very closely monitor them. Overall, it is in a controllable situation.

Time limit. I think we only have the time for 2 more questions. [Operator Instructions]

Our next question, Gurpreet Sahi with Goldman Sachs in Hong Kong.

I have 2 questions. First is on the credit charges. So in the second quarter, although asset quality was stable, credit charges went up more than double versus the first quarter. Can I understand which sector or geographical exposure required higher credit charges in the second quarter? And then my second question is related to overall ROE of the group. It is around 8%. So of all the strategic initiatives that the management is focused on, can I ask what can be the path to earning more than 10% ROE? Like if interest rates remain at this very low level, how can ROE be reached to more than 10%?

Okay. Thank you for your questions. I think the first one is the credit charge. Second one is ROE. I'll translate first. [Foreign Language]

Ms. Jiang will take the first question, and then Ms. Sui will take the second question.

[Interpreted] Right. You are concerned about the impairment provision expenses in Q2. So in Q2, in terms of asset quality, well, basically, it is stable as compared to first quarter, and we increased the provision for 2 reasons. First, in Q2, the overall situation is related to the pandemic. There are implementation of anti-pandemic or relief measures. So there are customers related to those with relief measures, and they still faced heavy financial pressure. Now in the future, when there is exit of these relief measures, then we want to guard against the default risk of these customers, so that's why we increased provision. So we targeted customers with a long repayment tenor and also those which have gone through a number of refinancings. So we increased provision for these customers. This is a preventive measure. In Q2, there are some specific customers showing a decline in asset quality. And in Q3, because of loan growth, there was also increase of provision. These factors added together led to the increase in provision expenses. So the expenses increased as a result. We think that the asset quality and also the provision is at a controllable level. And overall speaking, we are able to maintain a satisfactory control. Thank you. What about ROE?

[Interpreted] Let me comment on ROE. At present, ROE is 8.42%. Year-on-year speaking, there is a decrease of 2 basis points in ROE. That's because we showed high after-tax profit, HKD 13.264 billion. So in other words, we achieved an increase of 3.3%. But as such is now, in terms of decline in net interest income and also the negative impact of the low interest rate environment, these are some factors. So our overall profit had declined by a big amount. And then looking into the future, our goal is that we'd like to stabilize equity. And at the same time, we hope to increase our profit. As said earlier, our own strategy and also our layout in the 3 main markets and also customer development strategies, with all these measures, we hope to improve our profitability.

There's still time for a last question. And we also have some analysts and investors online. I'd like to let our colleagues to read the questions from online investor.

[Interpreted] There are 2 questions. First of all, IPO impact on the repayment of loan and also the IPO amount, the funds can it be accounted into deposits of customers?

[Interpreted] Well, for IPO, its impact on our overall loan is HKD 150 billion or so. And it does go into our loans. And for deposits, it would also -- that is IPO deposits would increase our overall deposits as well. At the end of June, for IPO deposits, it was about HKD 380 billion or so. So with this amount of -- and also HKD 150 billion of loans overall, because of such impacts, we have actually taken out the effect of IPO in our calculations.

And all the senior management, today's interim result briefing has come to the end. Should you have any further questions, please contact our Investor Relations team. Thanks for your participation, and see you next time.

Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]