China Merchants Bank Co., Ltd. (600036) Earnings Call Transcript & Summary

Now let's move on to the Q&A session.

Thank you, Chairman Miao and President Tian. Now we will enter into the Q&A session. We will now invite questions from investors and analysts and then from the friends of the media. Please state your name and the agency you represent before you raise the question. Please raise one question each time. We will now have the first question. Now we will now -- we will enter into the Q&A session. [Operator Instructions] Please limit your question to one only as we have a lot of participants in today's conference. [Operator Instructions].

I'm [ Zhou Xianshi ] from Guotai Asset Management. My question is for the Chairman Miao. I noticed that your vision for CMB is -- has made some changes, mainly to become the best value-creating bank. In your view, what do you mean by value-creating bank? And why do you make the changes to the vision of CMB?

Thank you very much for your question. It's really a good question. Last year, when we were making our 14th Five-Year strategic plan and we have redefined our vision for the next 5 years, namely, to driven by innovation and also have more characteristics and to become the best value-creating bank. And we think that the vision should follow the trend of the time and also the trend of the industry and also, at the same time, to state our -- to strengthen our -- the characteristic of CMB. So as you can see in my words in our annual report, I said that the destiny of the country also represents the destiny of our company. And in our 13th Five-Year Plan, we have -- in the past, we have made great achievements, and this is also the major contribution or background. We are benefiting from the time and the opening up of China. So we think that we need to follow the trend of the time, and also, the vision also represents the long-term development trend. As you can say, wealth management is the core competitiveness of the bank and also is the core competition field of the banks, and our vision also represents this area that we want to be more strong in. And we say that a 3.0 model, the business model, we want to build our new competitiveness and also Malik Curve in this. Mr. Fredmund Malik in Europe has the idea of the Malik curve, namely the company needs to have a strategic vision or choose the right strategic path in very critical times. We think currently, it's the right and critical conjunction that CMB needs to make the right choice to have the right transformation of its strategy. So we think that it's very important for an enterprise to follow the time of the trend and to adjust its strategy according to the changes of the external conditions. But it also needs the company to have determination when you are promoting or proceeding with your strategy, and you need to be very determined in this regard. That is why when we're making new highs, we also need to be highly aware of the challenges around. So that is why I think this is the background we are launching the 3.0 business model. And also, the vision represents our value proposition, namely customer-centered and creating value for our customer. And the mission said we want to creating the values. This also represents our value proposition. Value actually means values for different counterparties, means value for customers. This is the core one. And secondly, we need to create value for our shareholders; and thirdly, creating value for employees; and fourthly, also creating values for our counterparties and cooperative partners; and fifthly, very important is to creating value for the society. This is also why we -- and we think the core of this is to -- or the root is still creating value for customer. We need to service different kinds of customers to make sure different clients from different asset classes, they can enjoy our customers. But -- and also at the same time, we need to create value for them to make sure their assets will be -- the value of their assets will be maintained or even value-added, so we can earn more trust from our customer. So we think that it's also one of the value we want to create for and also is the root or the most important one for all the values we want to create. If a bank cannot create value for the customers, then let aside that you can create value for shareholders or even for the employees. So we think that is the most important thing or the basic for other values. Secondly, we need to create value for our shareholders. Why the shareholders want to invest in one bank, because the bank can create value for the shareholders. So it's very important. And also, at the same time, we also need to create value for the employees. It is also the basis of the value we want to create. We need to provide a healthier and career path that our employees can also develop themselves or grow themselves in the bank. So as long as the employees can also enjoy the work and to devote themselves into work, we think that the bank can have the sustainable growth. So we think it's the foundation of the value that we can create. And also, we need to create value for our cooperative partners. When the partners are working with us, we want to also create an ecosystem and also expand our friendship circle. So it's also very important to expand the value ecosystem. And also, last one is to create the value for the society. So this year, we also have launched our sustainability report and also described what we have done in terms of inclusive financing and growing financing and social responsibility and also charity and also consumer conduct as well as employee conduct and consumer protection. And also in terms of our ESG rating, and our rating has been upgraded from BBB to A. This also represents what we have made progress in terms of ESG. And that is why I say our value represents the trend of the time and also the trend of the industry. So we think that it's -- we are following the trend of industry and even we want to lead a trend of the industry. So it's really a very good question. Thank you.

Next question, please. Next question is from [ Mr. Malcolm Tong ] from CITIC.

I'm [ Malcolm Tong ]. Actually, I read the annual speech of Mr. Tian Huiyu that you raised the idea of a service system, including investment banking, commercial banking, private banking and also technology altogether to provide an integrated service to the customer. I think you are prepared not only to compete with your peers but also internet platforms. So I think when you are promoting with these 4 for areas, are you going to use the 4 all together or facing different -- when facing different customers? So which means that how you can integrate all the services from these 4 areas.

Thank you very much. As we said, the investment banking, commercial banking, private banking and also technology are integrated service all together for -- including the 4 areas, we think that it's a very important thing that when we are describing how we want to do the 3.0 business. In other words, it means it's an integrated solution for customers. But for CMB, we think that investment banking, commercial banking, private banking and also technology are all the advantages of CMB. That is why we use this kind of a description. But it's not the new thing. It's just something that describing we want to be customer-centered and, under these circumstances, how we can best perform our characteristic. Actually, we are going to provide the services to all kinds of customers such as for the customers in new driving force areas. These kind of customers not only requiring loans from the bank or -- they also need direct financing or even services for the employees or senior management of the companies such as the pre-IPO financing or incentives for senior management. I think this business are highly related to investment banking and private banking business. So in order to provide integrated services to customer, we need to do the 2 following things. The first one, we need to have a deeper know-how for the industry. For the past years, you know that China has enjoyed quite fast growth. And it's quite easy for a bank to do a good job, especially for property financing and also for financing for local government vehicles, and that is where the bank were strong in. But for the new industries, especially for new start-ups, we are not very familiar with or we're only familiar with a few companies or a few industries, and the employees or relationship managers are not fully prepared in this area. So this is something -- this is a difficulty or challenge we need to tackle with them. Secondly is for the internal integration of our internal organization. So that is why I would say the culture should be integrated, should be opened up. And if you do not yourself, and you cannot integrate it yourself to -- so that will bring a bad choice or experience to the customer, and you cannot touch the itchy point of the customer. And also, for the bank internally, it's kind of a gridlock. For different business departments, for different harvest centers, they have their own interests, and they only care about their own performance or own KPI. They are not only -- they are not focusing on customer. Rather, they only focus on their own KPI. So we can afford a synergy to provide integrated service to the customers. So when you are saying it's quite a easy idea to say we want to provide an integrated solution, but actually, when you will deliver that, you need to have a very sound organization in place. And thirdly is the value proposition, which means that just now, as Mr. Miao said, we need to be customer-centered and creating value customer. It should be -- everyone in the bank should have this value embedded in his heart and to -- when they are delivering service to the customer, should represent this value proposition. That is how we can achieve this goal.

Thank you. Next question, please. From Gary Lam from HSBC.

For the property market due to the policy or also due to the property market and also the implication from the market. So for the first quarter or for the first half of the year, how about your fee income projection for 2022? Will be -- will the fee income be slower? And as for your loan structure in the past, around 60% are coming from the retail banking. So what is your view on the asset origination side for 2022? And what will be the speed of the asset growth for 2022?

Thank you very much. I think you have raised 2 questions. The first one, you are interested in how we have -- what is your performance -- what is our performance in first quarter. I think that in the first quarter, we are facing severe challenges from the overall economy, and also, we are facing challenges in terms of the risk side. So how can we guarantee or how can we make -- how can we sustain our growth rate as last year, we are facing challenges? And actually from the start of the year, we think that we are still following our plan and our budget where we have sustained stable growth trend. And both for deposits and loans, we think are within our budget or within our plan, but now it's only around not -- less than 3 months so we still need to observe, but definitely, we are facing challenges. The first one is for the cuts of LPR rate, both in December last year and January this year. This has posed downward pressure on the asset yield and also on the NIM side. So it's quite a pressure and also a challenge for us to maintain our NIM advantage. Secondly, for the deposit side, the competition for deposits is even more fierce, and the cost is a little bit rising up for NIM, and this will also pose a challenge to the maintenance of NIM. And thirdly, for the fee-based income, as you have seen the very strong volatility in the market even for the mutual fund agency sales for the whole market, it's really a great challenge for the new issuance of funds and also -- which means that will pose the challenge or downward pressure on the fee income from the agency sales of funds. But if you take a longer view, we are confident that we can keep our operation stable and to maintain a stable growth for the noninterest income. As you can see from the macro side, the GDP growth rate is expected to be 5.5%, and also fiscal policy, our monetary policy will have a better play or even stronger. As you can see, the loan growth margin for the whole is around RMB 20 trillion for the whole society. So if you take CMB, it's only a very small part of the whole macro picture. So for the incremental part, we think that we are confident with that. But what we need to be concerned -- we need be pay attention to is for the cost of deposits, namely, to pay attention to the growth of the core deposit and to control the cost of the cost -- the deposit to make sure the cost will be stable. In terms of loans, we need to be -- very much pay attention to the stable asset quality of the loan and also to continuously optimize the loan structure in terms of the loan allocation to insist on the growth of retail loans such as credit loan, microloan and also for the consumption -- consumer loan. As you can see last year, we have enjoyed quite sound growth for that. So this year's budget, we are continuing to have a strong growth in this area. And with the optimization of the loan structure and the stabilization of our deposit cost, we think that we -- these 2 ways, we try to maintain our NIM advantage. In terms of the noninterest income, even though the volatility in the market is very strong, it might affect the market in the short term. But last year, the FSA, Financial Stability Association, has also delivered a statement to the market to stabilize the market. And we think that especially for fee-based income, it's not only the fund sales but also including the insurance sales. We need to have a better performance in terms of asset allocation, including all kinds of products. So overall speaking, we think that we are confident about the growth trend of this year in 2022.

I want to add something. If you look at the macro side, we are facing group pressure in first quarter. Last -- the fourth quarter was the quarter that we are facing the severe challenges for the downturn of the economy in entering the first quarter. And still, we are seeing scattered COVID-19 happening, and some regions have taken quite strict measures. Just last week in Shenzhen is quite a lockdown, and it really dealt a blow to the consumption. But for the macro side, there is ample room for both monetary policy and fiscal policy for -- the deficit rate is only 2.8%. So there is a room for fiscal policy. And if you look at the monetary policy side, now the inflation rate is still low so I think there is also still room for monetary policy. It's different from Europe or America. We think they are facing high -- very high inflation. So it's kind of the policies facing dilemma both for controlling the inflation and to have maintained growth. It's quite different from what we have now in China. Secondly, I think local governments are trying to implementing the central government's policies. In the past 2 years, the income investment has seen quite a strong momentum. So first quarter is quite a difficult quarter for the whole year, and for the bank, first quarter will also be quite hard. But for the whole year, I'm still confident about achieving for the GDP growth rate about 5.5%, and I think the bank can also achieve a reasonable growth for both operating income and also profit.

Next question, please. And from Haitong Securities, Lin Jiali.

I'm chief banking analyst, Lin Jiali from Haitong. In your annual report about the data for the provision and also your announcement is different. The coverage ratio is different for your results quick announcement and your annual report. We have seen a big increase from that. So why does the change for that? And what is the -- what is your thinking of why you have made the changes that have resulted in a difference between the coverage ratio for your results announcements and on your annual report?

Thank you for your question. I think I didn't open the microphone. I was just muted. Firstly, as for the quick results announcement and also for our annual report, for the coverage ratio, we have the same calculation method. And in -- the second question is about why you have an increase about the provision for loans in your fourth quarter. And last year for the central government's economic conference and also for the -- we think that we are still facing downward pressure for economy, and also, we have many -- facing many uncertainties such as for the confliction in Russia and Ukrainian -- Ukraine and also volatilities in the commodity markets and also the pandemic and also risks even in some local regions. And so we have made some forward-looking and provisions in terms of -- for the loan assets and also for the provision for other kinds of assets, except for loans. As you can see, compared to 2020, we think we -- you have seen quite a sharp rise for that. The reasons are the following. So the first one is for external environment. And secondly, as you can see for quite a long term, the provision for other kinds of assets is quite low, at a low level compared to the provision to loans. So that is why last year, according to the precautious manner, we have made a higher provision for that. Thirdly, we think that a risk for small- and medium-sized financial institutions is rising. And fourthly, last year was the last year for the transition period of the wealth management subsidiary. So we have made provision for onetime arrangement for that. Fifthly, in terms of -- from the group level, for the operational risk, we also have made some plan for that. And based on these following reasons, we have made higher provisions for other kinds of assets. And also, we noticed that last year, fourth quarter, we have seen some write-back of the provisions for other kinds of -- these kind of -- kinds of assets. This is because for the first 3 quarters, we have made a higher provision for that, and in the fourth quarter, considering that the situation is becoming more clear, and that is why we have made minor -- we have to have some write-backs about the provisions for the other kinds of assets in the fourth quarter. As for -- when we look into 2022, our coverage ratio will be quite stable, and provision-to-loan ratio may see some downward trend. Thank you.

Next question, please. Next question is from Guosen Securities, [ Martin Dee ].

I am [ Martin Dee ] from Guosen Securities. I would like to learn about -- on the real estate exposure. I understand you have very limited exposure but the NPL ratio has increased. That is -- I would like to learn the reason behind it. And is it able to disclose some details about exposure and project loss or disposals? And how do you view the tendency -- the risk tendency of those exposure? Will it continue to increase? And relevant exposure, when is the top of such exposure?

Thank you for your question. In terms of the real estate exposure for the first thing, let's see the change of the total scale according to our annual report data. For bank-wise, the total number is CNY 920 billion in CMB. For those, the group assume credit risk, the balance was CNY 514 billion, up by CNY 12.7 billion compared with the beginning of this year. For those, we do not assume credit risk group level. It has down by CNY 106 billion and totaling around CNY 400 billion. So basically, these are all the balance for the bank. And to see -- generally, we have a CNY 90 billion decrease. Likewise to see from the asset quality level. For the on-sheet level, corporate real estate loan that we assume credit risk by the end of 2020, the NPL ratio was 1.39%. It is increased compared with the industry's NPL ratio, and it's highly relevant with last year's industry risk level, which is in line with the industry tendency. For those, we do not assume the credit risk bank-wise, and it consists of 2 parts. For the first part is WMP. The second part is agency sale. WMP related to real estate amounts to CNY 10.8 billion, accounting for less than 6% of the total WMP scale. The default rate was 0.2%. For agency sales of real-estate-relevant business, CNY 98.8 billion, among which PB's agency sale amount to CNY 39.9 billion. The major default clients involved are actually [ Hongda ] and China Fortune Development (sic) [ China Fortune Land Development ], and we have maintained active communication with the 2 parties. And according to information provided by them, the current existing asset value of the position we held is actually quite sufficient, and the government has also been involved in the settlement solution. We will pay close attention and maintain active communication with the manager and speed up the risk solution and asset disposal of the cases involved. On the other hand is the agency sale of our corporate retail loan -- real estate loan-related business, amounts to around CNY 3 billion. Specifically speaking, our management was the real estate industry is mainly in the following 6 aspects. Firstly, in selected real estate customers, we stick to the head-office-level and branch-office-level strategic clients and put them on our selected name list. And below the category, we have also established A, B, C, D level and apply different strategies targeting a different level of clients. And secondly, the methods of guarantee, around 1.7 -- 1.4% of the clients are under credit guarantee, and for the other part of it, they are fully guaranteed by actual assets. And for the -- thirdly, 80% of our assets are covered by sufficient asset value. And fifthly, the provision ratio provided to the real estate industry remain 2x of the bank's average provisional level. And lastly, our management was -- the real estate industry, we adopt a specific management towards individual clients and follow specific and dynamic monitored towards our own clients. These are how we manage these real estate clients. For the industry, my understanding is that it is still in a risk uprising trend, and risks will be further released. The industry NPL ratio will further increase for CMB, I think. In 2022, real estate industry risk will be similar to the environment, to the market. But I believe that together with the measures we adopt, as abovementioned, we can put under control the NPL ratio within a reasonable, acceptable range for the industry. When can we see the risk reaching the top? We should closely follow the firsthand and secondhand market sales trend, and this is how we think and our idea, our view towards the real estate market.

Now let's have the first question -- last question. The next question is from Xu Ran from Morgan Stanley.

I have a question for the wealth management business. We see more volatile market this year compared with last year. So I'd like to know what about the outlook for AUM. And I'd like to learn what is our allocation towards assets, especially when providing service to our clients. Will it be a good opportunity for CMB to develop your own wealth management products? And what is your view towards the influence towards the fee and commission income? Under the complicated circumstances, how do you maintain your own strengths?

I'll first answer part of your question, and then EVP Mr. Wang will take the next half. Well, this is the first year when we initiate the extensive wealth management cyclic chain of value. We have proposed this new opportunity according to the logic and the trend of the market change. I'm a little bit worried that people might have larger expectation on us. Extensive wealth management business income has wealth management, asset management and custody. These 3 aspects has increased by 33%, which also increased our noninterest income, increased by around 40%, which may let people have higher expectation on CMB. I would like to take this opportunity to clarify that. Our wealth management is far from being an actual professional wealth management institute. For the one hand, the Chinese -- in the Chinese market, we do not have enough abundant wealth management products, WMP, insurance, funds products, trust products and the precious metal products, basically, these 5 main types. In these big markets, when we are doing wealth management business, we need to further nurture the market and wait it to grow more mature. It requires the efforts from different players, from different institutes, from different participants. The Chinese market, especially Mainland, compared with our foreign -- our peers in the foreign market, I think they are more mature, and they have more abundant product matrix. If you look at the product structure, the income structure of our wealth management product, over 1/3 of them are coming from the fund product. But as you can see from this year's market, it's not very promising. And that's why for -- as we can see from the first quarter, it is not very promising. That will make us not easy as well in the all years development. To some extent, CMB is a sales agency. Our capability, our advantage is basically our channel. Our distribution channel is not our investment research or asset allocation. If we cannot increase our capability in research and investment, in allocation, we cannot boast ourselves as a professional and real asset manager. This is what we need to take as a goal and requires a long way to go, and we will have enough patience to build ourselves an actual asset manager. Thank you for your question.

Just now President Tian has basically introduced what difficulties we overcome at the beginning of this year. For the next step, what to do? In the last year, the capital market is volatile, and until the second half, although we have made good results, achievements, the wealth management products still accounts for a large proportion of our wealth management business. But for this year, as we can see, we have overcome difficulties, both in the stock market and the bond market, and therefore, WMP's volatility has also bring pressures to our clients. I think basically, our clients are acceptable to the current volatility, and I believe we will also promote investor education during this period. And we aim to nurture our client base this year and remain positive, especially for wealth management client base. In 2021, application -- in CMB application, we have 37 million wealth management product, a hold position with CMB. It is quite good. It is also a way for us to obtain a low cost of customer acquisition. That is what we will still maintain. This is a strategy we will still maintain. And we set a positive budget for the growth of wealth management. Last year, it's 30% to see from the product strategy perspective. In terms of insurance arrangement, we will maintain our high speed. Last year, the growth rate was 40%. This year, we also see very good progress in the insurance products arrangement. In terms of fund products, to see from the whole industry, I believe, same as the industry, there are difficulties. But based on the category-based approach, I believe that we will still stick to the pro-cycle approach, and that through times and as we believe in long-term investment value, the results will still be satisfying. And generally, we will stick to a value-based approach and take customer at the center to create value for our clients. And in a specific strategy, we will pay special attention to those low-volatile monetary funds at the underlying assets. For the fixed income+-type products, I believe it might be part of the root that caused the volatility in the market. So therefore, in 2022, I believe we will reduce the amount of fixed income+ products and then increase the total amount of low-volatile nonmonetary -- monetary funds in the product asset allocation. Our strategy will also fluctuate or change in line with the fluctuation of the capital market.

The next question is from CICC, Shuaishuai Zhang.

I am CICC -- Zhang Shuaishuai from CICC. I have a question for the corporate loan branching. I believe that to stabilize the growth, to stabilize the status, one of the key supporting materials, supporting aspect is the corporate loan branching as we see quite weak prospects. What is CMB's investment strategy or direction of corporate loans? Another question is about the real estate financing as it is relatively restricted. And how do you develop the investment capability as a nonreal estate broker? As I can see -- there's another question that I can see from the annual report that we have several M&A progress made for the past year. I would like to know the role of CMB in relevant cooperational model.

Thank you for your question. CMB's corporate business transformation, the core of which is to realize our optimization of asset structure and client structure along with the national economy's optimization. It is a continual progress and cannot be achieved within a short leap. Although we see difficulties, I believe it is a tendency, it is a trend, we shall not overestimate or underestimate the long term or short term effect brought by this change. I believe it is also a change lying within our own economic structure. We remain to be prudent, professional and reasonable, strictly select clients, projects and regions. Within a short term, we remain our policy. And we can also see risks and danger, but we also see structural opportunities even with such complicated external environment such as we will take part in M&A business opportunities. We hope that the market will not overinterpret our business opportunity of M&A. It is same as the market practice. It is simply because we see the opportunities, we take part in it, and that's all. I believe it is a good way of soft lending for real estate businesses. It is my view on the real estate industry. In terms of our asset structural transformation, it is a gradual process. In 2020, 2021, we have increased our loan granted in green finance and strategic manufacturing industries and et cetera. The loan growth is faster than that of the overall corporate loan. I believe if there is no significant change in the external environment, we will continue such policy, such arrangement. I believe our practice is based on our own understanding in the industry and we'll not invest just for making enough investment. So much for my answer.

And now we will have the next question. [ Ong Jialing ] from [ Shutong Investment ].

Thank you for your effort to bringing 70% return to all shareholders. My question is for fintech. For the past year, in terms of fintech, in terms of empowerment, in terms of its operation under the extensive wealth management, fintech has played a big role, an important role. I would like to know the future strategy of your fintech development. I've also learned that you have invest 4.37% of your net revenue into fintech development. I'm quite impressed by this indicator. How do you continue or arrange your budget in terms of fintech in the following 2 to 3 years?

The question will be answered by CIO, Mr. Jiang Chaoyang.

Thank you for your question. CMB has always attached great importance to fintech strategy. As President has just mentioned, we will maintain our investment in fintech. Chairman Miao, the senior management has -- all take fintech as the 3 pillar of our major work. So the investment has always been guaranteed. For the last year, it's 4.37% of our net operating income. So in the future, we will continue to make such investment in fintech development. The second question is about our achievement. For the past few years, our investments are mainly in the following 3 aspects: customer, staff's experience and the organic interaction between the 2 experience. Following -- surrounding the 3 priorities, we are making our fintech transformation. It's hard for me to explain how we do -- how we develop our fintech strategy within just 1 to 2 sentence. So I'd like to briefly introduce to you about our achievements. Firstly, in terms of customer experience, we have preliminarily achieved customer interaction interface digitalization; for instance, retail banking business. 84.8% of the wealth management product sale is conducted on our application, CMB application. The daily active user of CMB application, we have achieved 17 million of DAU, which has been the mainstream of our customer service channel. For corporate service, 96% of the business fundamental corporate business has been migrated online. The second aspect is that products and service innovation that we are facing the customer is placed on digitalization. For instance, last year, we have launched the AI smart counselor, providing more convenient, more inclusive wealth management service to our clients. In December, as we launched this service, we have accessed 0.34 million clients just in 1 month. It is a very good approach to serve our clients. In corporate loan, we also have star flagship products such as Flash Loan series products, which supports clients' immediate financing needs. Corporate financing process has been migrated 60% online. That supports the whole process online. In terms of customer experience, we basically have achieved internal work experience. We have migrated the internal work experience online, and Big Data, AI has become our important approach to increase the working efficiency of our staff. Just now, President Tian has mentioned that we will continue to use AI to replace manpower. Around 600 manpower was replaced through using AI. So another figure is 40%, which is that it helps our clients to use the components to construct the data middle office. 40% of them could make good use of this tool to support their daily work. Cloud plus middle office, people + digitalization has become the mainstay of the fintech strategy, and the host machine cloud and application cloud migration progress is now 75%. The data and tech middle office has also made good achievements. Over 2,800 components were able to support daily work. Our daily use of these components has achieved 1.6 billion, which equals to 700 manpower. So what mentioned above refers to our tech support, our tool provided to our clients and can assist them in their daily work. This is basically our achievement made in the fintech strategy.

In order to guarantee the interest of shareholders and -- we have collected questions before this meeting, and I'll pick up 2 representative questions. The first one is about the cash dividend proportion. "Will you increase this cash dividend?"

For these years, actually, for the cash dividend payout ratio, it's always over 30%. And for these past 2 years, it's around 33%. And I think in the future, we think we will continue to stick to the principle. If the payout ratio is too low, it's not good, but it also doesn't mean that it's -- the high is better. If you -- if the payout ratio is too high, it's not beneficial to the indigenous growth of the capital. Actually, I have just said, we have a raise from the capital market for common shares for 9 years. It doesn't mean that we can't, but it's just we don't want to do so because currently, the valuation PB is around 0.9 in the Chinese market for the Chinese banks, and we didn't want to do the -- this financing, which will also dilute the interest of our shareholders, and it will also have a negative impact of our price. I am the Chairman of China Merchants Bank and also the Chairman of China Merchants Group. We are able to increase the capital of CMB, but different shareholders have different thinking. So I think we need to keep the dividend payout ratio at a proper level, which is about 30%. We think it's a proper level, and it's quite an appropriate range, and it's quite a high level and also, at the same time, maintain our capability to grow capital from our own profit. And also, we are not resorting to the capital market to raise capital and also to make sure there is a balance amount, the larger shareholders, small shareholders and also the regulators.

The second question is more recently, we have seen a drop in this market. And also, we have seen the NAV has a drawdown for the products of the wealth management products was the reason behind that. And how do you do the risk management for wealth management products and to build a good reputation? So I will answer these question. Yes, just as you said that recently, actually, the NAV of the wealth management products, we have seen some drawdown and even below 1. And actually, this is highly related to the volatility of the capital market, and also, it's related to the innovation of the products of the wealth management products because last year, and the wealth management banks, wealth management subsidiaries have set up efforts in terms of the fixed plus equity products. So the downturn of the capital market has led to the volatility of the wealth management products, and also, it's quite the same with us with CMB Wealth Management. First reason is about the transition about the wealth management, namely after 2018, the wealth management products need to be NAV-based. And actually, the NAV, net asset value, will be the same as this will be a new norm. And especially products, which are including both fixed income as well as equity, there is some investments into equity for the underlying assets and which means higher volatility for these kinds of products. And actually, our wealth management subsidiary is starting and doing more research into that and hope that we can have a better performance for our shareholder or for the investors. And also, we also need to have more allocation or more products, which is more fixed-income-based and is -- are in line with the risk appetite of the customer of the bank. And also, thirdly, we need to improve our capability for research and investment and also to expand or have a longer duration of the products or even closed-end products with a longer duration to help the customer to have a yield over a longer term. And also, fourthly, to reduce volatility, reduce drawdown for our customers and reduce to -- concern of the customer. And fifthly, we need to step up efforts for customer education. Especially, they need to know that after the transition of the wealth management, they need to know that volatility will be a new norm for these kind of wealth management products. And also, for the product that is already under the NAV below 1, we are also need to take measures to deal with that. And I would also like to share with you what we -- the newest progress -- updated progress of our wealth management subsidiary. Now we -- our AUM is CNY 2.78 trillion, and also, among them around CNY 2.6 trillion are according to the new -- are new products, which accounted for 93.5%. And the rest ones are the old products, which investing in assets which have a longer duration or equity products. So this will be resolved in a longer run to 2025 according to the regulation. And secondly, another concern from the market is about the cash management products, restructuring, and we think that cash management products are very popular in the market. It has quite a stable return, and also, it's very liquid. And according to the regulation, if we have the risk reserve enough so as to support this kind of a -- such a kind size of the cash management products, so our risk reserve now is around CNY 5 billion. We think that at the end of the year, you will reach CNY 6 billion. So the risk reserve can support our cash management product size totaling around CNY 1.2 trillion. So I think I can -- you can assure about the size of the cash management products of the bank. Thank you. Okay. There are some investors want to have one more question. I think that will be the last question from investors because we still have questions coming from the media following the investors. Yes. Next question is coming from Yan Meizhi from UBS.

My question about the cost-to-income ratio. For the fourth quarter, the cost-to-income ratio is a little bit up on a sequential basis. So what will be the trend for the cost-to-income ratio? And another small question about asset quality. Just now, you have mentioned that we are facing downward pressure from the economy, especially from fourth quarter, but as you can see, all the indicators for your asset quality is showing that it is very good. And even though in North and Eastern part of China, even though the economy is performing very bad there, but the indicators or NPL ratio in this region is still dropping. So what is the reason behind that? And secondly, for retail and consumption loans for credit card, you have seen a rise in terms of the special mention loan. So my reason is what is your explanation for the very sound indicator for asset quality and bad performance of the economy.

And I will answer the first question. First one about the cost-to-income ratio. Just now, Mr. Tian has said that for the past years, the first time our cost-to-income ratio seen a turning point, has reduced for the first time. This is mainly benefiting from the higher growth from our operating income. But also, at the same time, the growth rate of our cost is around 13.4%. And it's -- actually, the expense is higher than what we have in 2020, around over CNY 13 billion. So from the cost side, it's quite fast. I think the main reason of the drop into the cost-to-income ratio is still benefiting from the higher growth of operating income compared to the expense growth. And the growth -- higher growth of operating income, first is we have seen a very rapid growth in all businesses. And from the cost side, the salary is growing about around 15% last year. And secondly is from our higher investment into technology, the growth rate is about 11.5%, which is -- the speed is quite the same as what we have before. And thirdly is from -- namely, regulators is requiring more regulatory requirements from the bank. So these are the main 3 reasons why you have seen a higher speed of growth of costs in the fourth quarter of last year. But we think that the salary and technology, even though the growth rate is high, but it's necessary for us to maintain a sound talent team and a sound technology basis. I think investors have understanding for that, but for other traditional expenses, we will have precise cost-control measures. So overall speaking, for the year, we want to stabilize the cost-to-income ratio expected. I hope that it can decline some bit.

And secondly, as for the -- for your second question, there might be some reasons for that. First one is for the continuous optimization of our customer structure. For this year, we stick to our customer structure, and then we're focusing on strategic customers at head-office level and also branch level, and we are trying to provide different services to different class of customers. And thirdly, we are improving our know-how into different industries. And fourthly, we have integrated teams for big projects. So this is what we have done in terms of customer base. Secondly, for asset structure, over 50% is coming from retail side and is -- that is -- it's not that procyclical, and it's quite resilient when we are facing downside of the economy. And thirdly, we have seen a sound growth rate for the assets and -- which is an average level of the shareholding banks. So it's -- and fourthly, from technology empowerment for risk management, and in our risk management system, we have approaches or measures that have been taken for us to monitor our risk management such as for intelligent rating or intelligent early warning, intelligent postloan measures. And when you look at our retail loans last year, we need to take 2 factors into consideration. The first one is we have even -- have a stricter recognition of the NPL, namely, move forward from 90 days overdue to 60 days overdue. Secondly, for the recognition of overdue loans of credit card, the timing of the recognition has been moved forward around average fee for 8 days. So if we remove these 2 factors, then not only for retail loans but also for credit card loans, the special mention loan or the overdue loan ratio is on a downward trend on a year-on-year basis. And I know another concern from your side is about credit card risk. For last year as a whole, the preliminary risk indicators such as overdue rate on M1 to M3 collection rate, and also, there were over rate M1 to M3, these early indicators, we think that we are already back to the standards or the level before the pandemic. So for credit card risk, it's stabilizing and is becoming better and better. And for the overdue condition of credit card, this is mainly because the reason I said just now, namely, the recognition of the timing of the overdue loan. And there might be some volatility about the overdue loan ratio about credit card, but it's a seasonal reason. So if we look ahead into future, we think that the external risk situation is not turning better, and we are expecting rising risks. And we are going to step efforts to focusing on important regions and important sectors such as real estate and such as local governments, vehicles and some enterprises that doesn't have a very sound corporate governance structure or which are highly leveraged and even the small and micro finance. These are areas we will have taken even stricter measures in. And for the year as a whole, we are confident to have a stable asset quality. Thank you.

Now we will have questions from the media. The first one is from Xinhua News Agency.

And I'm [ Ooson Su ] from Xinhua News Agency. My question is for corporate business. Corporate banking, last year, for your manufacturing loan is up by 16%, and for loans to new emerging industries is also up very much. And just now you said you will have solid growth for green finance for manufacturing this year in [ 2020 ]. So what would be the proportion in your whole portfolio? And when you are mentioning new strategic areas, what will be the concrete areas? Can you name that? And also, you said that you need to improve know-how about the industries. What will be the detailed -- can you share with us some details on the other measures you are going to take?

These questions were answered by Mr. Li Delin.

There's quite a lot of questions, actually. Actually, this year, we will follow the direction of green finance and also industries in new emerging and strategic areas, namely, we will do -- our principle is to service the top players and the players which have best competitiveness. And also, at the same time, we'll build our own capability to service them, and we will follow the 3 major areas is for high-end manufacturing, green finance industries for the major strategic industries. As for just now your question about what will be the specific areas or industries for new emerging industries. The first one, I think, is the high-end manufacturing. And also, the second one is for automobile and also it's -- and also biometrics such as -- and also the [ ITC ] and also logistics, manufacturing and just named a few. I think these are in line with the national strategy.

Actually, from the regulator's view, it has a requirement for the bank to improve our guidance for the bank to improve green finance, micro finance and to require the bank to set up efforts in these areas. We think will follow the regulatory requirements and to do our asset allocation. Actually, it's true, last year, we have seen quite a rapid growth in these areas. And definitely, this year, we'll also set up our efforts in this regard. It's in line also with the guidance from the regulators. Thank you. Next question, please. Next question is from Securities Times, [ Ms. Liu Xiaoyou ].

My question about the asset and liability management. First one, we noticed that your core deposit growth rate is over 18% and which is higher than the total deposit growth. It seems that your advantage is still very strong in this area. So can you sustain this advantage this year? And how can you control the cost uprise of deposit? Secondly, for the -- your projects reserved in pipeline for the mergers in the property market.

First one about the cost of the deposit, yes, indeed, last year, our core deposit growth rate is over 18%. It's quite a high speed, and the quality is very good, mainly relying on the growth of core deposits. And the pricing is going -- moving downward. The pricing of our -- the cost of deposit is down by 14% and -- 14 bps and also from customer deposits down by 12 bps. So this is a major contributor to the NIM of the bank. Indeed, it's the advantage of CMB, and we are going to stick to this direction of the deposit and to maintain our advantage. Overall speaking, the deposit wealth this year will be -- our budget is -- namely, our budget for deposit growth is -- will be M2 plus 2%. Last year, our budget is also the same, but actually, we have beat our expectation. So the budget will be quite the same following the general principle, namely M2 plus 2%. And also, for -- from the -- when you look at the structure of deposits, still, we will focus on that growth of core deposits and which mainly coming from the settlement accounts, and also, costs will be lower. And thirdly, we still need to control the cost of deposit, even though there is more fierce competition from peers, but still we need to rely on our settlement and clearing products and relying on expansion of our customer base, relying on better wealth management products so that we will have more flows at the bank and to have more remaining balances in their accounts. And I remember there's a report about CMB, how CMB can grow their deposit, grow in a healthy way. It's said that the major advantage of the bank is not focusing on the deposit itself; rather, on products, customers, then it's a natural result that we will have a good growth in deposit. So we will continue to do so in 2022 to maintain the advantage of our deposit advantage. Secondly, about the merger loan, M&A loan, for property enterprises. I know that there is some reports about the announcement of strategic partnership between CMB and some enterprise or enterprises and to support these quality enterprises to help -- to support them, to help some property enterprises, which are facing difficulty so as to maintain a healthy growth of the property market. We think for this industry, we need to separate, have taken a different view, firstly, that this industry is a supporter industry for the whole society. And also, for the enterprises, we need to take a very objective view. Some enterprises are healthy, and some enterprise -- property enterprises are facing difficulty. So we need to choose the sound ones to work with to help to mitigate the industry risk. And thirdly, we need to divide -- have a different view on mortgage loan and also for developer loan. Mortgage loan is a rigid demand coming from households. We need to support that, but at the same time, we need to see that the pandemic is still spreading. And even for the property companies, we also need to see into different projects based on the actual situation on the ground. Next question, please. Now it's from [ Mr. Shinji Cao ] from 21st Century.

I'm [ Mr. Shinji Cao ]. I have 2 questions. The first one just now is for your stock price. Actually, a big volatility for the stock price in banks. And also, I know the market cap of the -- or the price -- share price of CMB is encountering big volatility. And are you satisfied with your share price? And last year, you have said it was the first year of extensive wealth management, and I think it's a very important logic why you have enjoyed such a high valuation. And secondly -- what's your view on that? Secondly is we have seen spreading pandemic in the whole country. And what is your view on the momentum of retail loan? Do you have any detailed measures for that? And thirdly, for the off-balance sheet nonstandardized assets, what kind of assets are you looking for in this regard?

And recently, the market is really quite volatile. Many reasons to name. In 16th March, the Financial Stability Board, they have made very clear position on the policy direction, especially for the Chinese board in U.S., such as for -- and also for property companies. And even before this meeting, I know investors from home and abroad, they have very many misunderstanding for all the policies. And also, for the confliction in Russia and Ukraine, the market doesn't know how to price the assets. And fourthly, about the spreading pandemic, many locality, local governments have taken measures. And I know the market is not very confident about the economic wealth this year, especially for investors overseas. And they think that the risk of the Chinese assets is higher, and they are blindly kind of the -- blindly choosing to offload, to sell their Chinese assets. So actually, it's very important for the Financial Stability Commission. They have made clear statement about these concerns in the market and responding to the concerns in the market and stabilize the market. I think among the Chinese banks, CMB is a bank that have a higher shareholding from the overseas investors. That is why when the market is facing big volatility, you have seen -- you also have seen the price -- share price of CMB is quite moving down, up and down quite sharply, and it's also recovering after 16th March. So do -- if you ask me whether the valuation is reasonable, I think it's always reasonable because it's based on the market. And now we -- in Chinese banks, we are the second-largest bank in terms of market cap. I think we are pursuing a high-quality development, but we are not pursuing high market cap. Just now the second question about whether extensive wealth management has changed the logic of the pricing model of banks. I think bank is always -- bank's extensive wealth management is a part of the business bank. But in some turn or to some extent, it has changed the pricing model or valuation model of the bank just at CMB that the fee, noninterest income is over 80 -- 38% of the total income, it's taking up a larger share, and it's moving up. It's growing quite fast. So it means that we will consume less capital. That is why compared to other peers, our PB rate is higher, and also, PE is also higher compared to peers. I compare our PE and also the top 3 banks in U.S. JP, Merrill Lynch Bank of America and also Wells Fargo, it's quite the same. If our fee-based income, the proportion has continued to rise, then means that our capital demand will be even smaller, which means that we will enjoy even a higher PB. So extensive wealth management, we need to be stronger in this regard. And in some turn, this really can change the PB valuation of the banks, but it's not a fundamental change. And that is why I said we need to deal with the 2 relations, the light -- capital-light business and also the capital-heavy business, means that we need to have high -- better sound quality for high-quality business, which means we are naturally strong in terms of asset quality. Second one, we need to be big in terms of the light capital business. So if we can doing a good job in terms of the 3.0 business model, we think that we are able to weather the cycles and have a sustained growth.

Secondly, about the wealth management asset allocation. I will answer that. Your first question is about during the pandemic situation, what will be the detailed measure for you to grant retail loans. Yes, indeed, as you have seen, the first one is the spreading of the pandemic, and also, the situation in the property market really has an implication on the retail loans. First one is for mortgage loan. Last year, we have seen a stable growth, but this year, the growth of our mortgages is quite weak and difficult, and it's related to the spread of the pandemic, and it's related to the expectation for the property market. And recently, we are stepping up our efforts in terms of the retail loan extension and to maintain proper growth. And also, we want to have a more direct contact and swift contact with customer from online and also have some better price for our customers, so to maintain the volume or size of the retail loans and also mortgage loans. As for the microloans and consumption, we are doing our business according to regulatory requirement, namely, we are maintaining our strength and efforts in this regard and maintain growth in this regard. And quality is good. And thirdly, for consumption loan, really, the demand is weak, and I think it's highly related to the pandemic spreading. And especially, at the beginning of the year, for consumer loans, we are focusing on quality customers and have to continuous promotion on that. We think that we have achieved good results. So the growth, it's kind of stable. We don't see much reduction in this regard. And at the same time, for credit card, risk is the top priority for the short run. In mid-run, we are adjusting the asset structure, and in the long run, we are adjusting the customer structure. This strategy is working and was working for the past 2 years, and we have seen an optimized customer structure, and the asset quality is improving. And for some customers, we are providing a rate between 6% to 9%. In terms of the product side, we have more installment payment products, and these have all achieved good results. So the -- even though under this severe pandemic situation and the credit card, the top priority is to maintain the risk. And our strategy for our credit card remain the same, namely, short run, we will control the risk. And also, mid-run is to optimize the asset structure and, in the long run, to optimize the customer structure. And the second question is about the agency sales. Actually, for agency sales of products, we have classified our customer into different groups and adopt different strategies for that. We are kind of reducing the sales of those products, which is with the underlying assets of nonstandardized assets, it's dropping sharply, and we have -- now we have a low balance for that. And quality is sound for these kind of products. And now only -- it's only 2 cases just now, as Mr. Zhu said, and we are following that very closely. And what is the future direction, namely, definitely will move to the standardized assets such as wealth management products. And now we have a wealth management platform. And also not only -- we are not only selling products from CMB's own wealth management subsidiary but also from other 8 wealth management subsidiaries from other banks, and it has reached quite a high size, high volume, and these all contribute to the growth of the AUM of CMB. Secondly, as for mutual fund and private funds. For the balance of the equity fund for CMB, now we rank #1 in the market according to the Fund Association, and our customers' experience is still better than other sales channels. And we are taking a professional manner and classify our customers and providing different asset-allocation solution to a different customer. And the drawdown is, I think, is controllable and is limited. And thirdly is insurance. And fourthly, as for private funds, and we have tied up our efforts for private equity funds and also equity trust products, which invest in standardized assets and invest in standardized equity assets. And some are investing in the secondary market and some investing primary market, all kinds of products. So overall speaking, I think that we are moving towards the standardized asset direction and focusing on the capability of the asset managers and also the appropriation of the customer, namely, to sell the appropriate products to appropriate customer.

I think last question from media, please. From [ Woo Xiaomong ] from [ Taixing ].

I have a question from -- for liability. In February, especially there is some regulations on the pricing of deposit, and what is your view on that? Secondly, what's your view on the implication from the conflict -- for the conflict from Russia and Ukraine on your business?

Firstly, about the liability. For the agreement -- agreed deposit, actually, we are focusing on core deposit, we control the volume of the high-cost deposit. So for us, the volume is not very big. It's only around CNY 200 billion. So we are trying to reduce this kind of structure deposit and to reduce the high-cost deposit, so maintain a high proportion of core deposit. So we think that it will have very limited impact on CMB's liability. It's not a major way for us to attract deposits. Our focus is still on core deposit. Thank you. Secondly, for the impact of the confliction in Russia and Ukraine on CMB. Actually, after the conflict outburst, we have reviewed all of our business, especially the international -- the trade business. And as you can see, our exposure to Russia or Ukraine is very, very small or even you can ignore that. And I will -- I can assure you that please be assured about that. Thank you. Due to time constraint, now is the end of our annual results announcement, and you may reach out to our IR team or to search on our reports online for further information. And thank you very much for taking your time to join our results announcement. Definitely, we will do our best to have a sustainable return on shareholders. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]