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

Thank you for your introduction. Now we are going to the Q&A session.

Since there are many participants today, so everyone should raise only one question each time. And we will have 2 questions raise by on-site and one from online. Please state your name and the institution that you present before your question. Now we will have the first one.

Thank you very much for giving me this opportunity. I'm Richard from Morgan Stanley. My question is for Mr. Wang. And this is also a question I'm very interested in, as you just said, now we are facing quite a complex overall economy and the pricing of the loans is a little bit complex. A very mixed situation and some pricing are very low. So if we look at other countries, like in the United States before OH, many banks, they don't have any expansion of balance sheet. So for the banks who are reluctant to expand in a hard time actually enjoy quite a brighter future when the economy bounce back. So what is your strategy towards that?

Thank you very much for your question. And you have noticed that from the loan growth, for the banking industry in the first half is around 16 trillion. It's quite a fast speed and it's a historical high level, but it's true that there are some irrational competition in it and is a kind of a chaos. Some of the loan pricing is even lower than the deposit rate. So the NIM of banks is coming down rapidly and transaction of NIM is very obvious. For CMB in the first half of the year for as an origination. We actually have done quite well. We have loan growth over RMB 300 billion, and we invest more into debt investments and it's up around RMB 200 billion. And our feeling in the first half year is very obviously namely asset decides liability. This is the rule is becoming more determinant currently. And in the first half of the year, we have a deposit growth, grown over RMB 800 billion is higher than the loan growth, so which means that asset growth should decide a deposit growth. The other thing we are feeling very obviously in the first half of the year is that how a bank can manage its asset and liability structure is becoming even more important. For loans is an important part of the asset allocation. So when we are getting the deposit, how should we allocate into different asset classes and have a better yield is very important. So actually, for the liability side, we are having multiple channels, including deposit, financial money market funding and also from financial institutions. So to keep a balance of the cost of the liability. In terms of the asset side, we are still focusing on retail loans. But for mortgage still negative growth. That is why we are making more efforts in terms of micro loan and also consumption loans for corporate loans in the first of the year is around RMB 200 billion growth for the first half, but we are optimizing our allocation in terms of regions and also customers when we are making more efforts in inclusive financing and also growing financing. This is what we have done in loans for more effectively manage our loan portfolio so as to both ensure the asset quality as well as the loan yield. And secondly, importantly is to stick to an optimized asset allocation. Thirdly, very importantly is we think that commercialized and market-oriented is a very important principle, only grow in asset size is not -- does not have any meaning for us. We still need to bear in mind the risk and also the pricing of the underlying loans, namely the loans we should create value for the bank, should cover the funding cost the operational cost, the capital cost and also the risk cost since we are trying to be very rational in terms of the asset pricing which means that many assets doesn't meet our criteria. And that is why you are seeing that we have strong growth in corporate loan in first quarter, but slow down in second quarter. But still, I think we need to stick to these commercialized and market-oriented principle, risk reward principle is the right path for us. Just now you mentioned that is whether we need to consider a relatively rational growth rate of corporate loan. Yes, I do think, for us, most important thing, we should prioritize asset quality and also proper reasonable growth size of asset size. And also, we need to open your attention to the pricing.

Next question, please.

Thank you for giving me this opportunity. I'm May from UBS. My question is regarding asset quality. First, congratulations on the midterm results and the solid results you have in the mid-run. I know that many are very interested in asset quality. The first one is real estate developer loan. Just now Mr. Wang said that in a presentation that your exposure for real estate is coming down, but actually, we are continuing to have risk coming out from the property developers. So when do you think your new formation will peak for developers, especially such as Country Garden, like in 2021, I heard that CMB has around RMB 30 billion exposure in Country Garden. And secondly, how do you classify the underlying assets whether it already been classified as NPL? Or is still in the normal loans and also for other developers like fully and other privately owned property loans, what is the asset classification for them? And my second question is about the risk of retail loans, you have quite a rapid growth of consumption loan, whether you will have potential risk inside that. I know that your credit card business is doing very well, and it's kind of de-risking in these consecutive 2 years. And another consumption loan is from the China consumption company. They are also doing consumption loan, whether there will be potential risk. And thirdly, my question regarding local government financing vehicles. Are you seeing any projects relating to LG, Local Government FV, are they going to rollover and also current interest rate that they [ pay ] to the bank? Sorry for that, there are so many questions.

Yes. Mr. Zhu will answer the question.

Thank you for your question. The first one is risk relating to real estate. Our view is that from policy side, as you can see, as for the [indiscernible] conference, they have a new statement, namely in order to be in line with the new circumstances, we need to readjust our policy in real estate, namely, I think the central government is sending a more positive signal to the market. But from the launch of policy to the recovery of confidence and also in return to the recovery of the buying power in the market. It takes time. In the first half of the year, if you look at the sales volume, it's down by 5.3%. And in July, sequentially and also year-on-year, is falling down from these 2 aspects. So from this year, I think that there are more new default entities just as you mentioned, some big developers before. So we think that, there is continuous diversification of these entities developers. In the first half of the year, we have new NPL around RMB 4.8 billion. It's much less than the same period of last year. And in the second half of the year, we think that the new NPL formation the amount will be larger than the first half of the year. But compared to the same period of it, will be less than the same period of last year. So overall speaking, our NPL formation for real estate this year will be smaller than that of last year. And if you look at the NPL by the end of midyear, it's over 5% is slightly up. This is mainly because we have a slower disposal of NPL process. So it's also within our judgment at the beginning of the year. Overall speaking, our peak of NPL formation is in 2022. I think I can make this judgment. And for NPL ratio is affected by multiple factors. If we take a more optimistic view, I think our NPL ratio, we are going to see the turning point within this year. Secondly, for Country Garden. As for Country Garden, our exposure to a Country Garden, we have cooperation with Country Garden. We didn't disclose the exact amount in our midterm report. So what I can say is that the amount that we are cooperating with Country Garden is equivalent to CMB's market status among our peers. if we look at the structure, 87% of our corporation is concentrated in the bank namely from the loans from the bank. And the coverage ratio of our loans to the underlying -- to the collateral coverage ratio is around 1.5x. For overseas investment in Country Garden is around 5% of the total, is clean loan. So if there is a default, then these will be more at risk compared to the ones that we have in domestically. And we also have one trust products that is agency sales from our private banking, and it will be -- this one will be settled within this year and another part, around 4% goes to the underlying assets of CMB Wealth Management and the risk is already affected by fair value in the products. Overall speaking for real estate, for the whole property sector, our allowance to loan ratio is around 15%. It's 2x over our average corporate allowance to loan ratio. And by the end of the midyear is continued to rise. And as for how we classify the assets, our principle is as follows. First one, we need to look at the corporate entity itself, whether it's default in our market. Secondly, we need to look at the underlying collateral whether it has more better coverage over our loan. And thirdly, we need to look at whether the project is overdue or not. Fourth, we also need to look at whether the company is facing other litigations. By combining all these factors, we will consider how can we classify these assets relating to property. And I think that the amount that is not -- has been not reclassified as NPL is around RMB 7.3 billion. So, secondly around the risk for consumption loan. And we are concentrated in collateral retail loans. This is our main strategy among our retail loan, collateral loan is over 80%. And the asset quality of our retail loan is overly stable, including credit card, our amount of NPL and also NPL ratio are all coming down. And for consumption loan, we do have a more rapid growth this year. This is mainly because when the consumption is recovering. And secondly, mortgage is coming down. So compared to us, we ourselves, the consumption loan growth is quite rapid. But compared to the home market is now the rapid growth. And the asset quality of our consumption loan is also stable. Our NPL and special-mention loan ratio are all coming down slightly on a year-on-year basis. So why we need to increase the proportion of our consumption loan in our overall retail loan portfolio. This is mainly because we are confident of the asset quality. Firstly, we think what decides the risk is not only -- risk is not only decided by the underlying collateral rather, it's more decided by the customer. And sometimes there are clean loan with better customer have a better asset quality than the assets with -- even with the collateral. And secondly, very important is we highly emphasize on high-quality customer, which means coming from high good industries and have a good career and also have assets with CMB. And thirdly, risk pricing is very important, namely with a higher proportion of clean loan, we will have a higher yield as well. And if we look at the risk reward namely RAROC perspective, consumption loan is higher, the RAROC is higher than mortgage. And at the same time, we have a risk measure in this overall very complex risk circumstances, we are able to maintain the risk stable. And even within the COVID times, we have maintained solid asset quality and have already undergone these volatile times. So based on this, we are confident that we have the confidence to do better to have maintain risk the asset quality. But currently, it doesn't mean that we need to lower down our guard against risk, we will continue to choose the better customer quality will not lower down our criteria for customer onboarding and to improve our risk model for these consumption loan and to better identify the potential risk. Finally, I would like to say that in growing -- for growing our assets for the impossible triangle quality, volume and also pricing. The top priority is always risk. And thirdly, I would like to continue with the risk for local government financing vehicles by the end of the midyear, the NPL of LGFV is 0.14%, the same of the last year. Special-mention loan ratio is 0.63%, slightly up compared to the period of last year, but still at a very low level. And that is why, I want to say the risk is under control. And second, if you look at the structure of our business relating to LGFV for high-risky regions, the balance the proportion of exposure to high-risk regions is less than 10% of the total balance. And it's mainly in the transportation and also public utilities for industries. So our principle for doing business in this area is to select better regions. We have differentiated regional policies. Secondly, we choose the LGFVs choose the better ones, namely we emphasize on transportation and public utilities. Thirdly, compliance is an important -- very important thing for us all business should be compliant. Namely, we will not touch the hidden debt business. Fourthly, commercialized principle is the top priority for us for doing this business in local government financing vehicles. So overall speaking, risk is under control. And definitely, we will continue to do risk management in this area, especially for risk relating to high-risk regions.

Next, we will have a question from an online participant. [Operator Instructions] We will have the question from Guotai Junan Securities, Mr. [indiscernible] for his question.

Can you hear me? Thank you for giving me this opportunity. I'm [indiscernible] from Guotai Junan Security Asset management. I have a question for the strategy. Around 2 years ago and around the 2020 annual report, we proposed the major direction of our strategy. And I have noticed that in the recent 2 years, under such economic and political environment, we see a lot of changes. I would like to learn from the senior management in the future development of CMB combining the 2 years changes, do you have any new thoughts and there are there any possible changes, directions for the future development.

Thank you for your question. As you said, 2 years ago, CMB has propose our 14th Five-Year plan, our position is to build a model leading bank with distinctive features and a bank with value creation. This is our strategic objectives, and we will follow our direction to build a value creation bank to the extent our business operation. The strategy remained unchanged. We will maintain our strategic determination. In terms of our strategy, we will closely follow the changes in the external environment and adjust accordingly to further implement our strategy. As we stick to our strategy objective, this is our core value also our philosophy for the whole bank. So this objective is also in line with our future development trend, so as to realize a high-quality growth for the bank, in realizing the strategy of value creation bank, we need to act accordingly to the macroeconomic situation and according to the development phase of the bank to conduct further optimization and to implement new countermeasures. In last year's result announcement, I think we have mentioned that the strategy is constructed based on our previous retail banking and light operation bank strategy. We will further consolidate our advantages in retail banking strategy. In our current base, retail banking strategies will be further innovated in terms of our service model, business model so as to maintain our market position, this is our mindset. That is to guarantee our systematic strength in retail finance business to transform our strengths to better respond to the changes in the macroeconomic situation. Secondly, the light operation banking strategy we have previously summarized it as it is one of the major solution that is to leverage the utilization of capital-light business to realize capital endogenous solutions. And leveraging on this, we have in 10 years, not raised external capital to increase our internal capital growth. And therefore, in terms of our operations and business positioning, we will stick to an operational manner of low capital consumption to bring better returns to our shareholders. So in current stage, these -- the 2 above-mentioned strategies previously used, the new strategy is proposed based on these 2. In the following page, combining the external environment, we propose to deepen the regional-based development strategy to especially focus on Yangtze River Delta, Pearl River Delta, Chengdu-Chongqing, Western Strait region and other developed principles -- provinces and cities to enhance our core [ competitiveness ] to bring more value to CMB. So since last year, we have extended such kind of strategy, although it has not belong, but we have still see full outcomes. And secondly, we will further promote the CMB strengths and develop in the niche markets, in segmented businesses and to build up our strengths. In key products such as credit card, wealth management, asset custody, private banking, these are all our competitive strength among our peers. What about the next step and how to accumulate our strength? We need to study further on the market changes and act accordingly, combining our own strengths and forge a new competitive strengths. In fintech, Green Finance, auto finance, pension finance and digitalization of fintech capability. How could we further innovate and build up our competitiveness in above mention field and outperform our peers and maintain our strengths. So in the head office level, we have especially established teams to understand, to learn better and to cultivate the strengths mentioned earlier to lay a solid foundation of our future development and to build up our new capability. This is what also proposed by Jianmin Miao to combine capital-light, capital-heavy business is the foundation and capital-light and capital-heavy business shall be combined together. We need to build the new Malik Curve of growth. The new growth pool is extensive wealth management business. It is a capital-light business with low capital consumption with high potential of growth and will bring better contribution to CMB as well. And this is what we need to cultivate in building our new growth pool. We have large market space. We have the strength, we have the capability to find a new growth area, we need to make enough investments in such feels to realize us as a bank with lean model distinctive features and value creation. This is what we will do according to the external environment and made flexible adjustment accordingly and realize our strategic objectives.

Thank you, President Wang. And now we will have the next question from an on-site participant.

Thank you for giving me this opportunity. I am Zhang Shuaishuai from CICC. I would like to have a question for Ms. Wang Ying, as you have taken in charge of the retail business for quite a period of time. It's also my first time to meet you. I understand that retail finance is the advantage strengths business of CMB, also where the market valuation are coming from? Currently, the asset business, the wealth business are influenced by the economic and market cycle, and we see insufficient demand in the market under such backdrop, what do you see about the future development of this business? Where is the future efforts in the retail business in CMB, and how will it grow in the future?

Thank you for your question. I have been notice to the articles you published and the question you asked is quite a big question. I will try to divide it into 2 aspects to address it briefly. The first layer is that the future assets of the retail business growth is that to see from retail business itself, we have taken careful consideration that CMB's retail business developing into today's results with such leading advantages, it's because under such a system, we have developed actually leading advantages in each subsegment. Retail, PB, retail credit, credit card regarding AUM, MAU, these all aspects are all leading and together, they construct our overall strengths. Therefore, the future assets, the future growth pool of retail finance is not a single growth point, but a growth of overall. These aspects are all what we need to consolidate and intensify. For emerging areas, pension, wealth management, buy side, consultury, companion service, family trust business, these are new areas we need to pay attention to. Why are we doing so? I'd like to answer this question from 2 aspects. On the one hand, retail is a system-based operation. Strengths in one single point cannot support systematic development only by an overall strength, can we support the retail finance to be a strong business. Sunflower-level and above clients nurture diamond level customers and level by level, these clients support with each other. Another consideration is that, on the other hand, in the future, probably long -- long form present as we are strong enough in retail finance, we might have selected based operation. We might have specific focus on specific areas, 1 or 2 or 3 areas, but not an overall development in today's stage. However, regardless of CMB or other banks regardless of different business segments in retail banking, they are all in an early stage of development. We have no reason to give up any sector under retail finance. It is only little strengths that we accumulate today. Retail, in retail finance, credit card, in retail finance and retail credit in retail finance, they are all making just little steps, little progress. They are just the beginning of our development. We might even fall behind in the traditional payment business. So therefore, we need to correctly value what we have achieved in these segmented business, and we have acted accordingly to President Wang's requirement to have a 3- to 5-year plan. We need to carefully evaluate what we have achieved in these niche markets and to carefully evaluate the progress we made in the market. And I believe that they have a different path of development, different standards of criteria in the Retail business segments. We will further consolidate the foundation of quantity that is referring to 3 aspects: customer base to expand our customer base, 190 million. We have only 44 million customer for clients holding our wealth products. APP clients, just 111 million. These are all opportunities with large growing space. We have a large number of RMs covering hundreds of thousands levels of clients. We have over 350 asset managers to form our open wealth platform. This is what we call about quality. We need to further consolidate the platform. In increasing the quality, we will continue to construct our 4 systems and One support. Due to time limit, I won't illustrate too much on that. The product, the asset allocation, the human plus digitalization and the outlets plus online service and the RM covering customer service group system. This is the full system I mentioned. I would like to pay special attention and especially mention the Fintech capability, the support that is Fintech. CMB's retail business development or CMB's development in history is relying on Fintech. We could call it a history of Fintech. Every leap we made, every development we have, is based on Fintech, our leverage of Fintech. The all-in-one card, the segmented and classified service system, the all-in-one Net, the CMB application and CMB life application, these are all because of the Fintech capability we have. Our AI lab is now utilizing one of the top-tier companies and universities, we are leveraging these intellectuals to promote our AI capability. I believe this is the foundation where we can promote the development of retail finance. This is to see from internally what we need to grow in the retail finance sector. And secondly, we aim not just to deliver efforts from inside of the retail finance but also outside from the finance, retail finance. We need to strike a balance between development of different business segments in the past practice, where we can see good performances. In the top level of financial institutes, we need to see a flywheel, a coordinated development between corporate finance, asset management, asset custody and et cetera. And all of these segments will work together to further promote the development of retail finance business. To see from the 2 perspectives, this is what we want to address your question regarding retail finance. So frankly speaking, your summary or your analysis of current situation is quite precise. And currently, we see a downward trending of the economic situation. It is also casting influence to CMB's AUM especially for CMB's feature of light-capital operation. As we see retail finance developing in today is an adjustment period under such rather unfavorable environment, I don't think it's a bad thing. In the past, we see very progressive development. And I think during this special period of time, we can be quiet, which can also let us to think deeply to see what is our future development path. We see difficulties in the market condition. But our aim, our trend and our development objective to expand and to strengthen our retail banking business, we will continue to invest in resources into this business segment. And for us, our requirement in the total volume, we wish that we could develop our retail finance business. The total asset -- the total revenue contribution, the net noninterest income contribution could be increased from 50% plus to over 60% above. We can also expect higher contribution from retail finance to the group's total revenue, total interest income and total noninterest income. So for CMB just as President Wang has mentioned, Retail finance is the foundation and the main position of our strategic position and let retail finance become the platform of our ecology, the cornerstone of our asset business and the leader of our value creation. In doing retail finance business in CMB, we have both honor and responsibility. Me and my team, among 100,000 CMBers, 60% of them are coming from the retail finance business line, we will strive our best effort to promote this development. I think doing retail banking business in CMB is quite different from that in other banking -- in other banks. We believe it is a bank that every employee could talk about, could introduce, could present, could introduce such retail solutions to our clients. This is the essence within the banking culture, it is a proactive measure taken by every employee that they could, they want to and they have the capability to conduct retail banking business marketing. At present, we are quite clear about our strengths and our disadvantages. We have clear understanding, and we have in-depth analysis, and we have very good preparation. I hope that our dear analysts and investors, at the same time when you're analyzing our individual financial capital, we can also work together to see from CMB in terms of our overall performance, and we will prove ourselves. Thank you.

Thank you. Next question please.

Thank you for giving me this question. I am Katherine from JPMorgan. My question regarding NIM. We noticed that in second quarter, we are seeing the contraction of NIM is bigger than the first quarter. So what is your expectation for the NIM performance in the second half of the year. And second question is for Mr. Zhong for Corporate Banking. For deposits, especially in NIM, the term deposit rate is up compared to last year, so what will be the trend for term deposit in corporate banking. And for corporate banking, many banks are saying, they were emphasizing on developing manufacturing or green financing. It seems that everyone is moving into the same direction. And what is CMB's strategy in terms of pricing? How do you make a balance among risk and reward and also customer strategy.

The first question will be answered by Mr. Peng. And second one for Mr. Zhong.

Last year, banking in China are facing NIM contraction. And every time when we are discussing the performance of CMB, I always say that the NIM is always under pressure. And in first quarter, I said that we are facing a contraction in the second quarter. And as we can see now, not only CMB, but also other banks according to the information disclosed that is quite obvious. The NIM is under pressure. In second quarter, our NIM is 2.23%. We definitely have seen very obvious contraction sequentially down by 13 bps to 2.16%. And the level of the contraction is quite big. So I would like to make some -- my view on that. And also, I would like to analyze the reason behind that. There are some common reasons, but some are unique for CMB. Firstly, for the factors affecting NIM, One is a structural factor. The second one is pricing. NIM is decided by both structural and pricing. And structurally, we can see from asset side, CMB has a unique feature, namely, we have a higher credit card proportion and also mortgage. In the past, they are contributing a lot to the whole asset structure. In the first and second quarter, they are facing greater pressure for mortgages down by 0.76% even though it is decreasing, but still we are maintaining our market share. But for CMB, we have a larger proportion for mortgage compared to other banks. Second one is credit card. Credit card also have a higher yield, but for CMB, even though we have the highest growth volume in the market, but for existing amount is only up by RMB 20 billion and the growth rate is only a little bit above 2%. So the slower growth rate of credit card and also negative growth of mortgage definitely have a very negative impact on our NIM structurally. Second, if you look at the liability side, you can see the proportion of our demand deposit lease change. definitely, many banks are seeing the trend, namely demand deposit proportion is coming down, but it's more devastating for CMB because we have a higher liability coming from the retail side. And some of the deposits can also be regarded as also as well products. That is why the cost for our savings deposit is coming down because many customers are choosing to place deposits with us as one of the choice for wealth management. And for common reasons, I think if you look at the second half of the year, the cutting -- the LPR decline, continuous decline of LPR will lead to a decline in the loan rate. Secondly, for supply and demand. Now we are still a lack of efficient assets when everyone is chasing for the same I said, definitely will lead to a lower price. So that is quite obvious in corporate side. And secondly, for retail, the risk price risk is -- the price is also coming down sharply by the credit card like the micro and also consumption loans and also mortgage. They are all coming down. Some are macro reasons, but some are due to supply and demand. So the pricing of assets have also negative impact on inside. Overall speaking, I think that many of you are interested in the sequential changes. We lay a high emphasis on analyzing sequential changes in NIM because it shows some trend. I know you have noticed the difference of our sequential change compared to our peers. The first one is quite of our peak for loan growth in first quarter. So last year -- at the end of last year, we will set up efforts to prepare for loan allocation, loan growth in this year. So a very strong momentum in first quarter. But in second quarter, the growth pace is coming down. Secondly, sequentially speaking, the liability continue to rise sequentially. And it's quite obvious in second quarter, we have even more term deposit and the demand deposit proportion continue to decline in second quarter. But it's not unique for CMB this year, but if you look at the past years, quite the same. And if you look at the first quarter NIM, first quarter year-on-year basis is down by 22%. But if you look at the first half, it's down by year-on-year 21 bps, so which means that last year's second quarter is also down by 14 bps sequentially compared to first quarter. So the bigger contraction of the NIM in second quarter is both, a unique -- is kind of a unique thing for CMB. And if you look at, I prefer that you can also -- I suggest you can look at the [ NII ] growth. So for the banks, we have disclosed the midterm reports as you can see, we are the only one to have positive growth in [ NII ] up by 1.12%. And for NIM, it's down by 21 bps. We are -- one of the largest decline. But what is the reason behind the positive growth of [ NII ]. Our RWA growth is 6.8% compared to last year is down by around 1% compared to last year. So which means that our growth in [ NII ] is not coming from lowering down the risk and bluntly expanding asset size because you can see our RWA is also declining compared to the same period of last year. We are bearing in mind the external environment and now to blindly expand our balance sheet. So these are -- I would like also to elaborate on things that you make interesting such as the rise of the funding cost, deposit cost. I think one of our advantage is we enjoy quite a lower deposit cost. So deposit cost is something that we're always paying attention to. But from the first half of the year, it's coming up, it's rising -- year-on-year basis. If we take another angle to analyze it, we can see that for corporate and retail is mainly because the retail deposit cost is rising. And -- but if you look at the term and also demand side, term deposit pricing cost is coming down, but demand deposit cost is coming up, is rising. Thirdly, if you look at RMB and also foreign currencies for RMB-denominated deposit cost is coming down, but the RMB cost is coming up. So foreign currency deposit is also another reason that has showed up the deposit cost. But I don't think we need to emphasize on the foreign currency cycles, you are also gaining more yield on the U.S. dollar-denominated assets, which can offset the cost. So I think overall speaking, cost -- why this mainly come from the retail side. And one thing is because of the rise of the cost of demand, retail demand deposit. And also at the same time, we have more term deposits from retail side. These are the mainly 2 reasons for the rise of the deposit cost. I know there are many reasons and also phenomenons like the -- can see that our customers' risk appetite now is still low and very prudent. That is why they choose more deposits over other financial products. Just now Ms. Wang Ying said, everyone in China, now we are emphasizing on retail banking -- I as a CFO is also a choice for me. Whether we want to maintain stable growth of customer base, if we choose to do so, sometimes we need to sacrifice some financial, we need to have some financial cost. So this rise of the retail deposit cost is still within our budget and within our expectation, this is something that we have already judged at the beginning of the year. And according to our internal arrangement, we want to keep a balance among the customer demand and also deposit cost so as to maintain a stable growth of customer base and also our AUM. And for the rise of cost for demand deposit, you may know that some other banks, cost is coming down, but CMB is rising. So the reason is for the cash management, wealth management products, we are the first bank to regulate our cash management, wealth management products. So we have offered more time deposit products to make sure that the customers' demand should be satisfied. So it's a temporary thing for us. And we still have a very strict regulation on demand deposit cost and is within our expectation. And secondly, about the trend of NIM. Overall speaking, I think that we are still facing great pressure in NIM. One reason is because the quite a complex external environment. And secondly, from policy side, there is still room for LPR to continue to come down. And secondly, for the existing adjustment -- for the adjustment of the existing mortgage rate, it's highly possible that the rate for existing mortgages will be downward adjusted. So with the interest rate liberalization against this backdrop, the NIM come for Chinese banks definitely will coming down. And now we are facing a very low yield on asset side, and I think that the self mechanism, the banking self-disciplinary mechanism will take more active moves to maintain a reasonable deposit cost for banks. And thirdly, I would like to respond to the another thing that you are very interested in. If you look at the policy side, we can see that PBOC is guiding banks to adjust the existing mortgage rate is very highly possible. And for CMB, we have made plans for that, but it's not finalized yet. And because we need to consider manufacturers such as for different policies for different cities and also how to be fair for different policies among different cities. And thirdly, whether our system can support these different policies. It's a very complex thing. I think with the guidance of the PBOC, we will do under the market principle and also law-based principle. And actually, for our internal analysis, we have 3 scenarios and from the better one and also mediocre one and also the worst one. But I think the overall impact is within control. But it's not only have negative impact on bank but also have some positive things. Why we want -- why the policy side want to adjust the existing mortgage rate? This is mainly they are seeing a very big flow of the early repayment. So if the existing amount -- rate of the mortgage has been adjusted, then we will have less early repayment. And also, at the same time, it will help us to maintain our relationship with our customer. So it's not the -- I think that we can -- we also need to look at the long-term benefit from the reduction of the existing mortgage rate. Yes, definitely, pressure is big, but we will try our best to balance the risk, volume, size and also the pricing side. I hope that our NIM in our deposit costs can maintain our bidding position in the market.

And I will answer your second question. The first one is about the term deposit trend of corporate side. It's quite obvious. The reason is quite obvious. This is mainly because the economy in the first half of the year is quite weak. So investment and also operation for some enterprises, the activity is lower or smaller. So some enterprises choose to place with the bank as a term deposit is highly related to bank's operation and also highly related to the overall economy. If we look at the second half year's trend, the central government has many policies to stimulate the economy and is -- when the policies are taking effect, I think next phase, this trend can be improved or mitigated. For CMB, for corporate business, we highly emphasize on customers' settlement business, namely, we call us to be a primary bank for corporates. So our demand deposit proportion is higher -- is the highest among our peers. And next, we're making efforts for Fintech. And I think that the demand deposit proportion of our corporate deposit will continue to rise which will strengthen our advantage in corporate side. This is for your question regarding term deposits. Second, your question is quite big as for the competition among the banks in corporate banking. Or what is our strategy, namely peers are doing the same thing for corporate banking business. I think there are mainly 2 reasons behind that. The first one, commercial banking, corporate banking business is quite the same for all the banks. Yes, it's true that all the commercial banks are doing the same thing in the corporate banking because when we look at the national economy, we are seeing the same trend in the industries, growth momentum. So it's reasonable for every bank to choose the same industry that enjoy a better momentum. And for CMB, we do have our own positioning and our strategy, as Mr. Wang Liang said that we need to build our advantage in niche market such as for in corporate banking business, we need to strengthen our capabilities in some niche markets and find our differentiated way. At the beginning of the year, we said we need to have 7 financial capabilities, financial areas, I think there are mainly 2 directions. The first one, 7 financial areas means represents the main trend or direction or the areas that may enjoy a better momentum in the future. And secondly, it's also based on the existing advantage we have, such as, I will not elaborate all the 7 financial areas, but I would like to choose two. The first one is digitalized intelligent service mainly based on the enterprises digitalization, how our financial service can engage with them. And this is a specialized thing for direction. We have, secondly, is another advantage that we have accumulated for many years, around 15 years ago, we started to do cash management business for enterprises, namely cross bank cash management for enterprises. I think for the years past, we have accumulated more experience and knowledge in these areas. That is why, we have launched our -- this kind of digitalized cash management business for our corporate customers. Secondly is for technology finance is also 10 years ago, we have a small enterprise program, namely [indiscernible] these program to help these technology firms to go IPO to go public. And this -- we have built up our strength also in this area, we serviced over 1,000 these kind of companies in the past 3 years and the 85% of the tech companies that went public have already opened primary account with CMB. So against these national backdrop, how we can choose a diversified way to develop our business and to maintain our advantage and to build up the advantage in niche market is really key for us.

Thank you. Next question. We're having a question from an online participants. The next question is coming from an individual investor side.

Can you hear me? Thank you, senior management for giving me this opportunity. My question is regarding, President Wang as you have taken management of CMB for over one year, for CMB's operation in the short run within this year or within one year from now, what is your most focused problem in the middle run from 3 years to 5 years, what is your most focused question? And regarding these questions, what measures are you going to take to tackle?

Thank you for your question. And I've also learned in that regarding the article you published, we've released online. It is very accurate and precise in your opinion. So as for your question in the short run and in the long run, as for in the short run, I believe that, you have pointed out many of our disadvantages and that is also what we will put under careful consideration. In our first monthly quarterly report, you mentioned that there are no excuses. And please do not emphasis on objective reasons, and this is all comments that make us to think thoroughly to impress our results, impress our performance to cultivate and to bring better returns to our shareholders. So in the middle run, we pay much attention to maintain CMB stability to work further and cannot cause risks in the short run that could influence our overall development and our overall stability. Well, as I consider the first question, as we are faced with this macroeconomic situation, CMB as a micro entity, how to balance the relationship remains to be a question. The interest rate downward, this is a trending change. But as a commercial bank, CMB must maintain certain profitability. This is another necessity we need to guarantee. So there's a kind of like a contradiction between them and how can we balance the 2 factors. So based on these insufficient credit demand and to maintain sufficient liquidity and to satisfy our customer demand. These will all lead to the narrow NIM and downward interest rates in the market. These are all challenges that banks need to face. To guarantee a reasonable level of profitability of the bank, it is very reasonable, which is also recognized by the central government. To guarantee a bank's capital endogenous capabilities so as to provide better service to the rural economy. And secondly, to maintain a reasonable level of NIM for the commercial banks could contribute to further mitigation of risks and to further offset relevant risks coming from real estate sector coming from the local government financing platform. And these risks all rely banks to further dissolve, to further mitigate. And for the third aspect, Commercial Bank need to maintain a reasonable level of our operation to further consolidate the straight confidence of the depositors that they are willing to place deposits with these banks. They would not like to deposit in a bank with poor performance with loss. That is why, we need to further consolidate our cornerstone of our development. So under such backdrop, of low profitability of narrower NIM of low market interest rates, we need to face these challenges and how can we respond to these challenges. And as for us, if a bank, if we position us well, if we operate well, if we can maintain a reasonable level of profitability, even under narrower NIM, some banks that can realized the above-mentioned conditions can survive in these challenges. And I believe that with what we have done, we can be the backstop bank that can survive this kind of like situation. And so some banks might not survive in that kind of deteriorate external environment. So we aim to continue our development path and to make us one of the batch of bank that could survive that could live up with the current economic external environment. And secondly, real estate, a Gray Rhino, we might call it. We need to see the risk fully exposed and to fully mitigate the risks. That is a question where we would like to see the risks of such risk rhino -- a Gray Rhino to fully exposed or to mitigate. We believe that we have already seen the peak of such risks. And for many commercial banks, including CMB, we have the capability, we have the strength to mitigate, to digest the risks coming from this sector. So therefore, I think as we still have relevant NIM, as we still have our profitability, we must act accordingly to accelerate to digest such risks to mitigate such risks. And this is what CMB since the outbreak of the 2021 real estate risks, the default of some private real estate companies through the 2 years of development, we have dissolved, digest and mitigate many risks coming from this sector. And therefore, just now, Mr. Zhong has mentioned that we have already seen the peak of the real estate risks, and we aim to maintain the trend to be overall stable and trending towards a positive direction and to generally digest and mitigate the negative influence brought by the real estate sector. On one hand, the risks coming from the on balance sheet. And on the other hand, financial investment over some real estate companies, some securitized products and some agency sales products, trust schemes represented by some PB products. Many of these risks are trending towards a closing phase. And I believe that by mitigating such risk can make us develop even more healthily and inspiration, we learned from it is that we cannot repeat the mistakes happening in the real estate sector. If there are further Gray Rhinos happening in other sectors, we need to act fast, respond fast and to mitigate and dissolve the risk accordingly to make us live and carry through those phases. And the second question is for CMB. For the first half of this year, the overall operation of CMB remains stable and healthy. And after we mitigate the risks, we maintain our profitability to be positive with a little negative growth in terms of our general revenue, mainly because of some external market adjustments. So the fundamental feature of CMB's operations remain unchanged. We have a very solid foundation of operation and development. So the fundamental development landscape for CMB is that we have a very strong capital endogenous capability, we have a strong allowance coverage ratio with that foundation make us very confident to cope with all kinds of challenges and uncertainties in the future. With such confidence with such solid foundation. I believe that in the mid- to long run, for CMB, we can continue to guarantee our stability, our development landscape and to guarantee such landscape, we need to ensure that. Firstly, our high ROE level. And secondly, to guarantee our high risk compensation capability; and thirdly, to guarantee our capital endogenous capability. And fourthly, to guarantee our low NPL ratio and maintain good asset quality and fifthly, to guarantee good asset structure, business structure to take retail finance as the mainstay and noninterest income with a leading contribution of the total revenue and low-cost funding. By guaranteeing all these aspects, can we maintain our development foundation stable and solid. And at the same time, guaranteeing the above-mentioned aspects, we need to also share our benefits to our shareholders to guarantee the dividend payout to our shareholders, to our investors. To be proactive enough and reward to the market. I have also mentioned earlier in my response that on one hand, we need to maintain good management. Extensive management is not enough for today's operation. And today, we need to emphasize on intensive and refined management to control cost, to control all kinds of business to control risks so as to obtain the management to lead us to success to use Fintech. Secondly, to empower our business. AI, operation, Fintech -- use Fintech to empower our business; and thirdly, innovation-driven development. In our previous development in different phases, we maintain innovation as our feature. It is also a feature that guarantee to win a leading position in the market. We see many disadvantages in the external environment, and we can rely on innovative-driven solution to discover new growth pools at countermeasures. And fourthly, regional-based strategy; and the fifth, to build our new competitiveness in niche markets. So these areas are what we need to pay much attention to. And by doing so, could we realize a high dividend payout and create returns to our shareholders. Thank you for your question.

Thank you, President Wang. Now we're coming back to on-site. This gentleman, please.

Thank you, Mr Wang. I am [indiscernible] from China Securities. We understand there are many pressures for the banks in the operating environment, and we can feel that in your interim results. We also see a fast growth of your customer base. You also accelerated the pace of clearing your NPL and at the same time, we can see from income indicators that you are not rather proactive and you rather take a cautious and defensive mechanism towards this unfavorable environment. But I believe that it might not be a long-term strategy. So if there are any changes happening in the external environment for the banking industry, what kind of positive factors or changes begin to show, will you also shift your mindset towards the operating philosophy?

Thank you for your question. To see from the changes of external environment, I think it's about the Chinese economy as a major market players. The Chinese economy's development is now changing from the previous high-speed growth to a moderate high-quality development. Well, entering into the high-quality growth, the growth speed might slow down. The GDP growth rate is forecasted at around 5% to see from the central government level, the growth rate will not be a major evaluation indicator. Under such backdrop, to see from the growth rate, the GDP growth rate oriented growth, we've now transformed into a quality-oriented growth, which will bring changes in the economic structure, industry structure and also bring changes to the financial industry and how are we going to leverage the changes to better serve the real economy so that we can better adapt to the trends and seize opportunities. One of the major changes is that real estate platform plus finance, this model is now changing. Previously, many of the resources and the funds are invested in the real estate sector. And now we see a new model of tech, industry and finance. Bank credit funds, as mentioned in questions from JPMorgan analyst Lei, that the funds are centered into some areas into green manufacturing, new growth engine and et cetera, which bring us new opportunities for banks. But all of these for many of the banking peers, those are also changes in the structure of business, of customer, of their funds, which is quite different from the previous model that requires intensive capital. It is a requirement posed by the environment that the banks should develop in line -- aligned with the external environment. New economy, new growth engine, new energy, these industries including high-end manufacturing, tech-driven enterprises, as mentioned by Mr. Zhong, these will be the factors that we will allocate more resources into. But we cannot rely solely on long-term, large-scale cost. We should avoid fierce competition. We should still follow commercial sustainability principle. Also, at the same time, we need to consider deliver solutions that integrate IB and CB to the clients to leverage investment by financing. Many PE funds, many investment funds has worked together to seek opportunities through investments. And the bank could provide integrated solutions of investment banking and commercial banking to clients. This is where we can nurture new important clients and also a major field of our transformation. And secondly, we have proposed the new model of industry plus industrial park plus financial service. This model is very commonly seen in Pearl River Delta and et cetera. And through the construction of Industrial Park, we see the industry concentration phenomenon and the model of the industrial chain arising from this new business model. And they aroused the new requirements on the ecological financial services. And thirdly, the 1-plus in supply chain financing services, we form services across the industrial chain, which could extend from the core business to the SMEs along the business chain. This is from the changes of the perspective of industries promoting the bank to follow the development path. And thirdly, we see accelerated changes in the original base economic development. Six top-tier province and cities such as Guangdong, Jiangsu, Zhejiang, [ Jiangsu, ] Shandong, and et cetera, these top-tier provinces and cities. Through our investments, into these above-mentioned province and cities could also guarantee one of our major development path. By doing so, could we grow even stronger in aligning with these measures. Well, we going to get any kind of preparation work to receive explorative growth in certain industries. We need to be focus and get well prepared for industries with a huge growth potential. Could we obtain results from our investments and benefits from these industries? For CMB, our focus on these regions are these industries, we will enhance our investments and resources allocated to these key regions and areas, we have also acted accordingly to increase the in-source the resource allocated to the branches, subbranches, human resources. For instance, the corporate relationship managers allocated to these key regions and areas and industries. We have also established specific teams targeted at researching and understanding these key industries to form a better understanding and in-depth research over these key industries so as to develop a characterized CMB solutions. As for retail finance, we will work unremittingly to build our competitive edge in wealth management business to give full play of its advantages and to drive the growth of wealth management, private banking, asset custody and so on. Retail segment is still having huge potential and having huge space of growth. As long as we do a good job, we could still have a large space to grow further in this area.

Thank you, President Wang. We're now having another participant from on-site.

Thank you for giving me this opportunity. I would like to learn from the senior management that -- you have always maintained a good capital adequacy ratio and how do you maintain the capital endogenous capability? Another question is about the new regulation over the capital. I would like to understand what is influenced over the bank, especially the...

This question goes to Mr. Peng.

Thank you for your question. As for the endogenous growth of capital, for many years, is one of the major goals to maintain endogenous growth. And we have realized and have reached this goal over the past years, no matter is in a high-growth period or in this downturn. Whether we can continue to do so depends on how we manage our capital. So one of the major things when we are doing capital is the capital return. It doesn't mean we need to look at the return on capital if the return cannot cover the risk is very hard to maintain endogenous growth. So no matter what is the speed. But in priority is to have a sustainable wealth, RORAC means that the risk-adjusted return on capital, just Mr. Wang said, one of our culture is to have a coordinated development amount, asset quality, efficiency and also scale. If you have too much rapid growth in scale, but you may lose your asset quality. And to that end, you can now make a reasonable growth or endogenous capital growth. So this is our goal and how we do the endogenous growth of capital. And as for the new rules on capital, is I think it's postponing. There might be some technical difficulties. For CMB, we have prepared for that, and now we are only waiting for the policy announcement. And according to our judgment, we think might be at the beginning of next year. So maybe later than the beginning of next year, but already we have done full preparation for that. And as for the impact on the new rules on CMB -- new capital rules on CMB, actually, we don't have the final official version. There might be some minor changes, but for the existing consultation paper. We have done the internal calculation and judgment. There are positive ones and some short-term negative factors as well. From positive ones, we do see some structural changes such as the lower down of the floor -- of the RWA and it's beneficial for banks who have adopted the RB approach but definitely some short-term negative ones such as the CCF for [indiscernible] and also for retail credit line and also for how you go through to the underlying assets of the investments you made. These will have some short-term negative impact, but this will be temporary. So after the public of the new policies, I think the banks will do their own adjustments. That is why I say it's a temporary impact. I think that the impact overall speaking is neutral for banks. It will not cause some big fluctuation of volatility for bank capital and it will be helpful for the prudential our long-run management of the banks, not only for CMB, but also for other banks. So my judgment is neutral, some banks might be neutral and more positive, some might neutral to negative. But even it's a negative one, it's a short term, in the long run is beneficial to banks.

Next question is coming from HSBC Gary.

Thank you for this opportunity. Just now Mr. Wang said, talked about the prospect of extensive wealth management and some trust companies have some liquidity problems and have some caused some concern. So will that affect your prospect for trust companies? And secondly, for the decline of the management fee for funds, what will be the impact on your fee-based income? And what is the prospect for insurance growth. What is your forecast for that?

As for trust companies, there are media reports, some individual trust companies have some risk impact and CMB follow that very closely. We are taking a very prudential attitude. We don't have cooperation with the one that has been according to the media. And after the media report, we have reviewed our trust companies. For trust companies after the new rules on asset management according to new regulations, we have already changes our business strategy from the nonstandardized ones to already standardized business. So the news will now have -- will not have negative impact on CMB. Secondly, as for insurance, our judgment is that sequentially, the growth rate will be -- will slow down. But year-on-year, we still have very strong growth. In the first half of the year, we are seeing very good insurance sales for all the banks. One is the customers are having more prudent risk appetite. And secondly, customer thinks that the 3.5% guaranteed product will come to an end, and we'll have some -- placing some adjustment. So people are rushing into these kind of products. So in the first half of the -- we are seeing a very rapid growth in fee income. But in August, now we are seeing slowing down our insurance income growth because the some major very popular products, sells or is already -- has been already adjusted. Still depends on the -- how the market performs and customers' risk appetite manufacturers. For insurance, we lay high emphasis on that, and it takes up around 8% of our AUM. We think the propulsion should continue to increase. And compared to other markets in Europe or in U.S., Chinese insurance market is still lagging behind. And especially for the pension insurance and also for insurance that is guaranteeing people's health or life is still lagging behind. So we think that in the future, insurance will more to concentrating on the protection type rather than investment type. But for CMB, we have advantage on that. At the very beginning, we choose to emphasize on the periodic payment, insurance and also protection-type insurance. So we are confident to maintain our advantage and our market share in this area.

And the third question regarding the decline of the fee rate for mutual funds. From the financial impact for CMB is affected by 2 parts. One is the custodian, the other one is for mutual funds. But I think that the impact is within our expectation is under control. And also, we will have some product adjustments and also in terms of the increase of the volume, we will -- that the impact will be under control.

And the last question, please.

Thank you for giving me this opportunity. I'm Xiao Feifei from Citic. My question regarding midterm question regarding 2 to 3 years. One is our investment banking. Investment last year, I think that CMB has more allocation in investments in securities, in bonds. So what is our strategy on that. And secondly, as Mr. Wang said, that you will emphasize on retail banking. But corporate banking is a very important thing to support retail. So what is the core advantage you want to have in corporate banking, whether it's asset origination or product innovation or risk reward balance.

Thank you for your question. The first one is for the balance sheet investment allocation investment. For this past 2 or 3 years, there's a lag of effective demand and bond yield is quite attractive. So that is why we have more allocation to investment and you have seen higher rapid growth for investment. And another reason is because we are seeing very rapid growth in deposits. Last year is over RMB 1 trillion, and this year, over RMB 700 billion. But the demand for loan is quite low and also mortgage, which used to be one of a pillar for asset growth. Now it's already negative growth. That is why in terms of asset portfolio management, we set up investments in bonds and have achieved quite good return because in a interest rate declining cycle, we have already achieved quite good return on that and some of the bonds we invest in is tax-free. So the overall yield is higher than loans. And next, I think we should continue to set up our efforts in the bond investment. And also just now you'll see that our other fee income, other noninterest income from other items. One is that is also we benefited from the bond investment. Secondly, regarding the advantage in corporate banking. In 2004, we launched the retail banking strategy is mainly because we are very limited on constrained by capital. We can only rely on retail banking, which has less capital consumption to make a breadth of improvements in the -- at that time in the market. Now if we still can only rely on retail or retail can now develop only rely on itself, the efficiency and speed is under constraint. So we need to also improve our business relating to corporates, so as to support our business relating to retail customer. That is why, I say we need to have a balanced development among retail, corporate, investment banking and also financial markets and wealth management and asset management. So as to have a flywheel effect, so it should improve the fee base income. And finally, have a light capital consumption business model and create better value for shareholders. So corporate banking is -- that is why, corporate banking is the area we also make -- want to make efforts for. But corporate banking doesn't mean loan expansion. First one is to onboard quality customer. Now we have a total corporate customer around 2.56 million. Customer acquisition is very important and the cornerstone of our corporate banking business, a key indicator that we are looking at with the corporate if the -- as long as the corporate is with us, we have the potential to grow our [indiscernible] business to grow our wealth management business to acquire new retail customers. Secondly, why we emphasize on the new industries, the new tech industries and because these new industries is in a growing momentum today, they might be small. But finally, they will grow into big ones. Like the platform companies 20 years ago, they were just set up after 20 years, they are now already in the leading platforms, internet platforms in the market. So we want to nurture the customers from small ones. And with these service capability improved that will help us to improve our corporate banking business, our retail banking business. So our core advantage for us is to how we acquire new customers and maintain the customer with us. Second core competitiveness for us is our knowledge for certain industries. As long as you can know better about the industries, you can have better resources allocation, including loan resources allocation to be more precise and to have new growth point in the future. So secondly, of competitiveness edge is to have our know-how and knowledge in certain industries. Thirdly, is to have classified and differentiated service to corporate customers. These corporate customers have -- are in different sites, and they have different demands. Some are cross-border, cross national, some are national, some are small. That is why, we had strategic customer branch level, strategic customer and also smaller customer group. So it's a categorized win differentiated service system. Fourthly, digitalization, very important. In the past, digitalization, we are more applied to retail banking like our APP. But now we have already finished our own cloud process. Now we have the manpower and also the capital in place to invest in the digitalization of our corporate banking. So all these are to improve our internal product and also service capability. This is also a core competitiveness edge of CMB as long as we are strengthening these areas, I think we can have a deeper cooperation with corporate clients creating value for corporates and more clients will be attracted. So CMB have a win-win situation. And by doing these better corporate banking, we will also promote other business units grow and having a flywheel effect.

Thank you, Mr. Wang. Due to time constraints. Now we are going to conclude today's conference. And thank you very much for joining us today. And if you have more questions, please contact our IR team. And thank you very much for take time to join today's meeting. And I also would like to thank you for your long-term support and investment in CMB, and we will do our best to continue to create value for our shareholders and also for the society. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]