Industrial and Commercial Bank of China Limited (1398) Earnings Call Transcript & Summary

[Interpreted] Good day, everyone. Welcome to ICBC 2020 Interim Results Earnings Call. I'm [ Xiao Ting Xun ] General Manager of Corporate Strategy and Investor Relations Department. Today with us, Vice President and General Manager of Finance and Accounting, Mr. [ Jianhua Wu ]; Board Secretary, Mr. Guan Xueqing and the heads of 14 departments from head office. Today's earnings call is a global conference call with 2 sites in Beijing and Shanghai with video conference. The interim results have already been announced yesterday. To save time, we'll go directly to the Q&A session. I will turn the call to the Deputy General Manager, Mr. [ Wan Tian Xa ] of Corporate Strategy and Investor Relations Department to host Beijing side; and President of Shanghai branch, Mr. [ Fu Zhongjun ] to host the Shanghai side. And please feel free to raise questions. Before raising the question, please identify yourself. Thank you.

[Interpreted] We'll give the first question opportunity to friends in Beijing.

[Interpreted] I want to ask a question about asset quality. We know in the first half due to the pandemic, credit card NPL rate increased. And though the balance sheet is high, what's your view in the future in the retail business area? Do you think the asset quality for retail business will recover in the next half? And what's the trajectory of asset quality in the future?

[Interpreted] Mr. Fung from Credit and Investment Management department. Thank you for your question. ICBC's asset quality, indeed, in the first half is overall under pressure. But as released yesterday, the overall risk is under control. The call indicated, some are on an increase and some on a decrease. And we also noted some increase of NPL in credit cards but our -- we have -- we think that the asset quality in the future will be under control and will be stable and this whole situation is not changed. The time to adjust -- the management of credit risk, we have taken the following measures. But of just risk strategy, we have a total comb through and we'll have detailed management and optimized structure. Second, we time-adjusted the policies of risk management. We strengthened the foundation and help tide over the difficulty with the economy. We stick to resolve the problem as well with development and mitigated some of the risks -- already showing risk factors. And in terms of bail out for some enterprises in difficulties around the areas of fixed guarantees and fixed stabilities for SMEs and specific customers, we have some deferral policies. And with the penalty interest charge, this is in view of meeting the regulatory requirement and also, we are doing it out of our own initiatives. And other banks are also adopting this similar strategy. For companies in difficulties, we, through frontline negotiations and with the market and legal measures, we have enterprises tied over the temporary difficulty to mitigate risks. And for the deferred loans, based on market use and the loss, we'll have a corporate tracking and monitor. For some enterprises with deteriorated loans, we will do the categorization of assets accordingly. In the next half, we'll still have pressure in terms of loans to corporate customers but we have ability to absorb these risks. And we also have a lot of disposals. In the first half, we disposed about CNY 100 billion. And in the next half, we will have the ability to deal with other risks, no matter from the corporate banking sector and personal sector.

[Interpreted] I have some supplementation to make. Thank you, Mr. Guan. Indeed, we have received rights of NPL in terms of credit cards. This is mainly due to the pandemic. And card holders have worsened asset quality, it's normal. Second, we have a lot of measures to control the asset quality. For example, we use the securitization and disposal write-off. And we have collections to improve the quality to manage the risks related to credit card. And for the retail loans, we have about RMB 6.7 billion retail loans. And the major part is mortgage and personal consumption loans and there are also personal business -- business loans. For mortgage, we have very good quality and very low NPL ratio. As for credit card, the asset quality, we are also taking a lot of measures to manage the risks well. In personal consumption, the asset quality, due to historic reasons, so we have mitigated risks and the new loans are quite healthy. As for business operation loans, it's -- most of them have collaterals. So the whole overall asset quality is quite stable. Our fixed cap is mainly developed retail loans. As for the forecast, generally speaking, due to the virus, the first half risk exposure are very well exposed in first half. That's why you see our drop of net profit and the optimization of ECL model is also carried out. So in the future, we know the pressure will exist, but we have serious measures to enhance the asset quality and manage the risks. Thank you for your question.

[Interpreted] Second question to the Shanghai side.

[Interpreted] I have 2 questions. Recently, much attention has been given to the transfer of the economic benefit. I would like to know, could you please give us some color as to the specific measures of ICBC in this regard? Secondly, according to the results, we have seen universal profit contraction in the banking sector as well as the rising pressure in the NPL and asset quality. And you have also faced difficulty in the capital supplementation. So how can you strike balance in the trinity?

[Interpreted] I would like to invite Vice President, Mr. Zhang, to take your question.

[Interpreted] Thank you for your questions. Before answering the question, I would like to share a perspective with you. The relationship between finance and economies is mutual, beneficial. Without a good economy, there will be no good, sound outcome in the financial sector. So it is also the bound duty for the financial sector to give support to the real economy. So for the first part of your question, I would like to answer it from the following aspects. First of all, of the COVID-19, ICBC has taken multiple measures. Firstly, we have increased our support and lowered the comprehensive financing costs. In the first half, we have increased R&D loans by CNY 1.1 trillion, which is a record high in the same period. At the same time, we have optimized the LPR mechanism and promoted the interest rates for the incremental loans much lower than the same period of last year. And for the new loans and inclusive loans, the interest rate has been much lowered, as much as 37 bps lower. Secondly, the comprehensive financing cost has been further lowered in the investment. We have increased the investment in local government bond and enterprise bond. New investments in enterprise bond is CNY 700 billion. With the market interest rate further lowering down, the interest rate of the investment bond also has been lowered. Thirdly, we have further cut the fees and transferred the economic benefit to the enterprises. In accordance to relevant regulations from the authorities, we have standardized our fee charges according to the market best rules. In 2019, the items which we cut fees have been increased by a large margins. This year, we have also given policy of fees exemption on donations and some other fee exemptions in other areas. And in accordance to the regulations of further standardized fee charges, we have lifted fee charges in 6 areas. Fourthly, we have also taken more measures to relieve the enterprises. In the first half, we have put forward a moratorium for over 12,000 enterprises and we have also enhanced risk digestion and mitigation efforts. So as to improve the operation in the first half, we have input CNY 65.7 billion to the digest and disposed relevant risks. So these measures we have taken in terms of support to the real economy. Secondly, as the question to the balance between the trinity of NPL rise and capital and interest rates lowering, this has been a prominent issue for us. Firstly, we will continue to increase the optimization in key metrics like PPOP and operating revenue. In first half, we have cut our fees to give bigger support to the real economy, but we have realized over 2% growth in operating revenue and PPOP. So within the second half with the twin circulation, the new circulation, the twin circulation landscape, we will continue to provide support to the real economy, while making transformation to increase the fee-based income, PPOP and operating revenue, key metrics to continue the stability momentum. Secondly, we will continue to take more measures to mitigate the risk pressure. In the first half, we had certain initiatives to make stricter capitalization of the potential risk. More stringent categorization in the asset quality have been conducted in the first half with stricter [indiscernible] in the recognition of NPLs, sound and basic stability in the asset quality have been maintained in the first half. In the second half, we will continue to pay close attention to the external circumstance. And also pay the -- pay attention to the potential risk by the moratorium. And we will continue to stick to the strict capitalization of NPLs and overall, we've improved our risk mitigation capacity so as to lay a good foundation for future risk digestion. As to the capital supplementation, we'll continue to stick to the internal supplementation of capital while we resort to some other external tools. Despite the pressure faced in the internal capital supplementation, our CET1 and the capital accuracy ratio have been maintained at an adequate level and have a good adequate buffer. In the second half, we will furthermore resort to other external capital supplementation. Altogether, we're going to issue over CNY 200 billion capital instrument issuance, which have already been approved by the Board. At the same time, we'll continue to promote capital saving businesses and good control of our AA assets so as to save promote capital economics business development. And we will further promote betterment business and other business, which will not consume our capital. While providing support to the real economy, we will not only rely on loans or bond investments. We will also resort to other ways, for example, like lease, rental, advisory and other methods. ICBC has always aimed to realize the stability through different economic cycles. On one hand, we will further continue to provide support to the real economy. On the other hand, we will strike a balance among the trinity. Thank you for your question.

[Interpreted] Next question, from online friends.

[Interpreted] We've got in the room sent from [ Wen Bao ] from -- question.

[Interpreted]. I am from a brief [ shelter revenue center ]. So the Belt and Road Initiative, who are the largest -- a large advancement in Belt and Road. In Pakistan, Bangladesh and other regions, you are investing in energy sectors and you are facing some loss making as you have the higher loss potential with the events from 4 international trends, while also promoting the Belgian Revenue initiative. I think it's a little bit of difficulty, how do you continue to outsource your claims?

[Interpreted] I'll invite General Chief Economist from the Modern Finance Institute to answer this question.

[Interpreted] Thank you for the question. In finance, a key focus of all the commercial banks is the Belt and Road initiative region. It also attracts attention and significantly helping focusing our promotion of Green Finance.

[Interpreted] Mr. Fung, to supplement my answer for the 2 areas. ICBC has been promoting Green Finance. First, ICBC's investments and arrangement in Green Finance and so this is putting large efforts. Green Finance is our long-term strategy. We have very clarified arrangements. Second, in investments and financing in financial services, we have detailed arrangements in this regard. Firstly, our work in institutes. One important aspect is that we also support the development of Green Finance with large efforts from ESG strategic investment system, from ICBC's research and development and design in the related indicators. In the ecosystem, as it is strictly followed the tenders and ICBC tests for the related pressure. All these assets are now focused and we have also achieved progress. This is a direct investment and financing situation. Let's welcome General Manager Zou Xin who's from the risk management department to supplement the answer.

The balance was CNY 1.4 trillion, ranking first among commercial banks with very low NPL ratio, approximately 0.4%. This March, CBIRC in the intra-bank institute also ranked our price as a very good bank in this regard. We also established Green Finance group, and this is also one of the key indicators in assessing our performance where we are striving to implement the strategies. And we upgrade related assets in industries developments by differentiated ways to support the Green Finance, especially in terms of environment protection indicators, protection project selection standard. At present, the environment-friendly customers account for 99% in them all unless you make them supplement. ICBC is a responsible global large bank. We have social responsibility to bear. We have here to report annually, which clarifies the related indicators and arrangements. Second, in our global vision, we follow the mentality of Green Development Center, the practice, certainly, for the high function enterprises. We prohibit the related businesses for the green habit, green bonds. We have special arrangements in this regard.

[Interpreted] Now let's turn to the Shanghai side from CUAM.

[Interpreted] We have seen a 10.5% growth -- of loan growth in the first half, which is the record high since 2015 and also a rise in the concessional loan. So in the future, what is the outlook on the concessions of benefits? Do you have any control measures as to the total size? And what kind of measures will you take in the risk control in this regard?

[Interpreted] Our colleagues from the corporate finance department and the Head of Assets and Liability Management Department will take your questions.

[Interpreted] Thank you for your questions. In the first half, the total loans extended in first half was a record high over past decades. Comparing to our peers, we were not the top in terms of the loan growth. We have encountered a specially sensitive situation in the first half, particularly after the outbreak of COVID-19, and this is the impact brought to the China's economy. But China, [ firstly ] in the first half has -- we -- from the perspective of management policy, we have seen some stimulus policies. And for ICBC, we have increased the total loan extension to provide more effective support to the real economy. So this is why we have a materialized fast growth of loan extension in the first half. After stabilization of the antiviral efforts in China and rise in demand for credit, we have maintained a stable momentum in loan growth. In terms of the preferential loans, in the future, the most effective ways of mitigating risks is to support the real economy for stable growth. And that's the foundation for the solid growth in the future. We have also taken multiple measures to cut fees and transfer certain benefits, including the transfer of our TR-based mechanism. In addition, we have also lowered the interest rate of bond investment, particularly in April and -- in March and April. Since the new normal state of China, we will accommodate to the changes in macro economy and policy changes will go back to the normal state of development in terms of loan extension.

[Interpreted] Mr. [ Zhou ] General Manager from the ALM Department. In the first half, we have seen a significant increase in the total loan growth, which succeeded CNY 1 trillion for the first time in history. In your question, you mentioned preferential loan, which is part of the loan extension. And this part mainly targeted several factors, including the following: the rate, loan relending to the antiviral efforts and support of reopening of the economy. As we have learned from the press conference of PBOC, this project is already being implemented and completed. For its part, PBOC has provided a fairly low-cost to ICBC, which help us to transfer the preferential cost to enterprises. Secondly is the exclusive loans. In the first half, we have passed the requirements with the growth rate over 30% in the first half. So we'll continue to promote inclusive loans in the second half. Our efforts in this regard have also served as testimony to ICBC's philosophy that without inclusive finance, there is no future for a big bank. In terms of the interest rates of the loans this year, as Vice President [ Jiang ] just now introduced that the marginal interest rate for the incremental loan has also been subjected to some changes. This is an asset made by ICBC to support the real economy to reopen, to resume their operations and to tide over the crisis brought by COVID-19. Over the past 4 months, we have seen the quotation of LPR has been remained unchanged and there are some speculations as to further lowering of LPR in the future. From our point, in terms of the varieties, term structure of credit, we will -- the mid-term and long-term loans have accounted for over 70% of the total loans. This is a result of our efforts to optimize the term structure, which will give us an edge in offsetting potential risks -- potential pressure, in this regard, so that we can avoid a sharp contraction in this regard. We anticipate further lowering of the interest rate in the future, but it will be controllable.

[Interpreted] Next question is from online.

[Interpreted] Ivan, Societe Generale. Since 1992, ICBC have developed ATF. I'm with Societe Generale. My question concerns ICBC insurance neutralization from 1992. ICBC launched the internationalization strategy. In almost 50 countries and regions, ICBC have established overseas branches. What's your plan for the future in this regard?

[Interpreted] I'll answer your question. Your question has said that in 49 countries and regions, ICBC have established CBS. Meanwhile, ICBC is also the sole largest shareholder of Standard Bank Group in South Africa, indirectly covering 20 African countries. Such is the global landscape of ICBC. Secondly, in light of the global uncertainties, especially the trade changes to physical changes and international environment changes, ICBC's management will continue to stick to our internationalization strategies to serve our strategic customers for going global. More importantly, we are driving to serve China's high level development for China. Thirdly, in the future, during internationalization, we will continue to improve our internationalization quality, improving our risk management in building, to improve our product line internationally, for all kinds of markets internationally, for the regulatory environment, commercial backgrounds and economic environments, including risk and identification. We will have differentiated positions and optimization of different sectors. We are fully confident that faced with headwinds now, the internationalization is still a trend here to stay. We will not change our internationalization strategy. We will continue to improve our international competitiveness, our capability of risk control and financial services ability as well as value creation abilities.

[Interpreted] Now let's turn to the online questions. Next question from UBS.

[Interpreted] I'm May from UBS. I have 2 questions. The first is about the fee-based income and noninterest income. We have seen a positive growth in this regard but a quite moderate growth rate. With regard to the postponement of the new regulation in asset management, do you think it's a positive impact on our asset management business? What is the proportion of transferring your conventional products to the NAV products? ICBC is the first pilot for the broker license for big banks. If you are going to engage in the investment banking business and brokerage, what kind of contribution where that license brings to your total fee based income? Second question is about NIM. Due to the drop of the interest rate, I have seen a contraction of NIM. There might be some kind of rebound recently. Q2, we have seen a contraction over the quarter-on-quarter contraction. As the rebound of the market interest rates where the good changes in terms of NIM? And what measures have you taken to control the liability quote?

[Interpreted] As you raised altogether 4 questions, I will invite 3 departments to take your questions. Vice President, Mr. [ Jiang ] will answer your first and third question. And Mr. [ Gu ], General Manager of the Asset Management Department, will answer your question as to the NAV products and asset management. And I will answer your last question as the brokerage license. For that NIM, I would like to share with you 4 points. First is compliance. In response to the COVID-19, we have seen the government has put forward many stimulus policies, focusing on fee card and increase the support of real economy. As the largest lender, ICBC, will also share our efforts in this regard. Secondly, as to the fee cut and transfer of the economic benefit to corporate as well as personal, when we look at structures in this regard, we have seen investment banking business, guarantees and commitment fees have both been lowered in the first half. This is demonstration of our assets to cut fees and provide more support to the real economy. Thirdly, we have made efforts to innovate our product lines. We have shown strong capacity in innovation in the products despite the pressure in the first half. Through innovation, we have several noteworthy highlights in the fee-based income, free from the trade forming of the precious metal of CNY 180 million in the first half. For the fees from the broker agency of funds have also been increased by a large -- for the fees income of the accounts has also increased by 54% and also for the regular premium business in the insurance sector has also realized fast growth. For the segment, particularly in the corporate segment, we have realized over 10% growth. And we have also seen an increase in the online platform users, which have exceeded new -- over 400 million new subscribers of online platforms. We have seen a large increase in the online transactions. The total volume of online transaction increased by 15% in the first half results. We have also increased fees from the bond underwriting, increased by 40%. And the company [ annuation ] fees have also increased by 35%. Despite the pressure in first half, we have materialized a positive growth in the fee-based income through innovation and become more flexible on external changes by providing more comprehensive and diversified products. We mitigate the pressure by increasing the volume -- trade volume so as to succeed in the positive growth of fee-based income. And finally, we have also maintained a stable momentum in the fee-based income. For this part, it's not only the resources of our revenue, but also a very capital economic business. So if we can develop this kind of business faster, we can provide more support to the real economy without consuming too much capital.

[Interpreted] In terms of NIM, we do face large pressure. In the banking sector in China, we have seen contraction of NIM to different extents. For ICBC, we have seen the contraction by 11%, which was a fairly large drop. We anticipate the pressure will remain in the second half, although we've seen good signs of the antiviral effort in China compared to other countries in the world. It has become a normal state for us to make more antiviral effort in the future while developing the economy. In terms of the asset quality. Since the LPR reform leads you to -- from PBOC have shared in the press conference that since the launch of LPR, 1 year, rate has dropped by 0.4 percentage points. And since April, the LPR rate has been -- remained unchanged. In the future, the lowering of comprehensive financing costs will be mainly dependent on the LPR mechanism transformation. The conversion of LPR-based mechanism has progressed fairly fast. We have already completed over 90% conversion to LPR-based income either in the corporate and personal business. For the conversion of LPR for the existing loans by the end of June, in the corporate loan side, the majority part has been converted to LPR mechanism without big changes of LPR rate, little pressure for us in the corporate long-term conversion. About the market interest rates. In the first half of this year, we have seen a significant drop -- recently, we have seen an uptick. But generally speaking, it is a relatively low level for the market interest rate. In the second half, I don't anticipate large changes in the market interest rate. It will also have some impact in income of our global markets business. And I think that this is good news for our global markets business. But in the first half, we are seeing the uprise of -- the rising of the liability cost due to the tough competition in the banking sector. In the second half of this year, we will prioritize the cost control in the liability end. On one hand, it will ensure a stable momentum of deposit growth. On the other hand, we are trying make more effort to control the cost, including the daily average deposit management. We have also made great efforts to promote our business to government and business end and customer end and achieve synergy among the 3 sectors through the fintech-enabling integration of online/off-line platforms, and mutual support among different sectors. Instead of price war, we will increase our deposits through the fintech, enabling synergy among different business sectors. Maybe you can hear more from our Personal Finance Department, Corporate Finance Department industry current and we will make more efforts to progress, to promote our strategy of, number one, personal finance bank, further integrate the online/off-line platforms. In the first half, we have put forward cloud office, which enables a 24-hour customer relationship managers be accessible to our customers. So that we can materialize a stable growth in the deposits, while we can effectively control the cost of liability. And in the first half, the proportion of demand deposits increased by 0.3% compared to the beginning of the year. We will continue to stick to that tactic. And the promotion of the #1 personal finance bank will continue to be implemented. So in the second half, we will continue to see some good signs in the second half. Mr. [ Gu ], General Manager of Asset Management Department, also the Chairman of ICBC Asset Management subsidiary.

[Interpreted] As you mentioned, the regulator has announced the postponement of 1 year of the new wealth management regulations. On one hand, it can offset some pressure brought throughout by COVID-19. On the other hand, it can help us to stabilize the capital market. And it can be conducive for China to realize a sound and sustainable development in the asset management business. In the first half, ICBC has made efforts to respond to the COVID-19 and maintained a stable momentum of growth. In terms of the scale. By the end of June, the total wealth management business of ICBC totaled CNY 2.5 trillion, which made us the largest among the 4 major banks in China. The income from the asset management business in the first half is CNY 6.3 billion, increased by 2.5 percentage points compared to the beginning of the year. We have enhanced our arrangement of asset management business. We have prioritized the ICBC wealth management subsidiary as the major platform for our transformation, with focus on increasing its core competitiveness and achieve synergy among different sectors within ICBC. The investment volume of ICBC exceeded CNY 1 trillion, which outperformed our comparable peers. ICBC has a comprehensive product and channel system, which carefully utilize the synergy among different platforms of ICBC. And we have also made our efforts to promote this ability in 6 fronts. ICBC wealth management have been doing -- have continued to optimize its operation by increasing the application of fintech in terms of waste control, R&D and product development. The mega asset management strategy, integration with the #1 personal finance bank strategy and -- are the key strategies of ICBC by synergizing with other platforms like ICBC Crédit Suisse Fund and ICBC other asset management platforms with the aim to maximize the internal circulation of the financial assets within ICBC. As to the news of brokerage license, ICBC has shifted with the diversification strategy. And over past year's efforts, we have now realized certain success in the diversification strategy. And we have also made some progress in investment banking, particularly in the overseas investment banking. Domestically, we have also very solid foundation for the investment banking business. About the news on the [ lag of ] brokerage license, we do not comment. And so far, we have no relevant information to disclose at current stage.

[Interpreted] The eleventh question. I have 3 questions. I am with China Life AMP. PPOP and other helpful indicators, in the first half, when increased provisions in the first half of the year and you have large pressure. At first, on qualitative explanations. For quantitative explanations. Could you please elaborate on the pressure of the asset management? And second, investors of the largest spend are always the innovative investors. What's your policy for dividends? Is it stable? Certainly, [indiscernible]. Also, we are facing the Hong Kong issues, maybe some of Chinese institutions will face sanctions. However, we're evaluating potential risks. Do you have any detailed measures in place of this?

[Interpreted] Vice President, Mr. [ Jiang ] will answer your first question about PPOP.

Are -- you are concerned that ICBC, our financial with a bottom line implied and prudent as an assumption for us to do business in quantitative measures. We will follow the economic changes, during the pressure test closely, to research about the situation changes, but we don't have a detailed number for that. ICBC is a global banking with leisure business in China. But the economics is changing constantly. We are witnessing a positive trend. We have the achievement in containment of the virus, and we are also leading the regional development. But we are also embracing winter. It is still uncertain whether the coronavirus will rebound. What we can assure you is that all of ICBC employees and management will take into consideration the customers' needs and do well in all kinds of financial services in life of the economic changes. We reassure all the investors and institutions.

[Interpreted] I'll answer your second and third question. For the dividend, we are aware that the investment pursue steadily returns. The potential larger acquisitions may result in an active growth. So long-term investors -- for institutional investors, this is a pure measure that should be accepted by the investors. Also, the good growth, despite the net growth, ICBC is still the global largest commercial bank. The shareholders, well, can be categorized into long-term and short-term ones. So long-term value of ICBC and positive dividend policies, whether they are steady, I'm sure you all noticed since IPO, our cash dividend was almost CNY 1 trillion since IPO. We are continuing to create high returns for investors. Our policies will continue to be steady. And I'm sure you will continue to notice our development's entirety. Your final, U.S. relationships, in terms of their uncertainty, you fully noticed those, and it will have impact on ICBC's development. Also, there are uncertainties for all the investors and the developments of all institutions. A good relationship will pave the way for a good environment, for the developments of other financial institutions as well as ICBC in international competitions. For the regulatory requirements, ICBC will do its part. For the major uncertainties, ICBC will make related proportionate arrangements.

[Interpreted] Now let's turn to the Beijing side. A question from Harvest Bank.

I'm [ Mingyue ] from Harvest Bank. I have a similar question as the question raised by China Life AMC. In the first half, we have noticed the momentum has not been changed in key indicators, like the operating revenue, PPOP and deposit growth that we've noticed a negative profit growth. What is your comments as to the negative profit growth so that the investors can make better judgment?

[Interpreted] From Board Secretary, Guan. As an excellent investor, what you choose to target for your investment? You should take into consideration of the development strategies and strategic visions. You have made a very accurate comment as the first half performance of ICBC. No significant changes in ICBC's operation has been -- has occurred in the first half. Our key strategies have been proven quite effective. A very good beginning has also been seen in the key new strategies of ICBC, which have created value and good returns for our investors. And over the past several years, we have been proven quite effective in our risk mitigation and control, including in the risk management, in liquidity, credit risk, as well as other types of risks. So when you look at your investments in the banking sector, you should pay attention to the long-term perspective indicators like PPOP and drivers for the growth. From a long-term and varied investment point, we should also look at the indicators through the economic cycles. You can look at the indicators for 5 years or 10 years so that you can have a more accurate judgment as to the strategic value of a bank. Just like mentioned, the net profit growth and asset quality as well as the capital replenishment for commercial bank. ICBC has always fixed through the commercial rules, and we have respect for the market rules. We fully respect the professional and expertise and the global practices in operating a bank. While we perform -- conformed to the relevant regulations, we will offer trial [indiscernible] to create more value and returns to our investors, while striking balance of opportunity. We will try to also give more effective control of the negative profit growth and ensure a good momentum. The main reason for the negative profit growth is because of the increase of the provision. That means we have ample margin and buffer for future risks digestion and disposal. For the capital replenishment, we will continue to rely on the internal capital replenishment, while resorting to external capital instrument and try to further optimize capital consumption with business. For example, we will enhance more asset-backed securitization programs so that it can help us to maintain our capital adequacy ratio at a reasonable level. And the main reason, as I've already said, for the negative profit growth is because of increase of provisioning. So actually ample provisioning means it's good for the long-term value for a bank. Vice President, Mr. [ Jiang ] would like to make some additions.

The most prominent feature of ICBC is stability. Our aim is to realize stability through different economic cycles. Well, a large bank like ICBC stability counts more than any other things. Without stability, we cannot create -- ensure good returns for our investors. So that's the foundation -- fundamental philosophy for ICBC. Secondly, as a large bank, the largest bank, we have percentages in the number of total customers, deposit growth and loan extension. All these represents larger resources for a large bank and also constitutes the fundamentals of our banks. Only when you have a scale, you will have the ability to tide over the crisis stably. As to the relationship between the profit growth and investments, we strongly believe that ICBC is the target for the AA investment.

[Interpreted] Let's give the next question to Shanghai side. From [ Nelson Group ].

[Interpreted] I want to further ask about your profit to the real economy. For ICBC, I think ICBC is then doing a very good job because you see the SME loans, compared to other major banks, ICBC is offering very low interest rates. And I think ICBC is doing its social responsibility in this regard. But investors are also concerned that if we take too much responsibility, would you affect the return on equity. How is ICBC view on the balance between investor return and social responsibility?

[Interpreted] I've been doing Investor Relations for 2 years. And for 2 years, I've been frequently asked this question, how to balance the social responsibility and return for investors. I think I have the following effects. And our first is something, and then ask the inclusive finance department to give further details. First, ICBC doing SME business. It's not only a governance orientation. It's also ICBC's own strategic direction because of SME finance. The pricing will take into consideration at the risk of cost and capital cost. And second, to give loans to SMEs, we are following a new pattern. So the loss is relatively low and the cost for it is well under control and the NPL ratio is relatively low. And third is the comprehensive return is good. Besides interest rates, for SME business, we also have settlement and personal banking income for ICBC and basically return -- makeup for the risk loss for SME loans. And third, this will help us stabilize our core customers. So sometimes we do SMEs for the supply chain and to do a better job by giving loans to SMEs, to enhance our relationship with our core customers and core enterprises and further stabilize the supply chain. And looking back the past 2 years, I think I could be confident in saying that the NPL ratio for SME loans for ICBC is about 2%. So the risk is well under control. Second about rental profit to the real economy. It is hotly discussed in the society. And indeed, this figure will be RMB 1.5 trillion. Most of them is a result of a reduced interest rate for loans. That is for banks, the interest rate will be lower. And for banks, the interest cost for banks is also under control. So from this perspective, it could compensate some of our one-sized drop of interest rate on the market, no matter if it's loans or in investment. And another is the scale of the volume. Actually, our deposit and transaction volume on the increase. So the price could be compensated by the quantity. So the surrendered profit to the real economy, it is quite reasonable. And for most of the customers, they are inclusive finance customers. And on the one hand, we fulfill our social responsibility. And for the -- for another -- on the other hand, more customers will have more businesses with ICBC. And so this whole financial ecology will be better and our relation with customer will be better. And third, with deferred payment for principal and interest, we are giving profit to the afflicted enterprises. We reduced the penalty interest as well. This will help enhance our customer base, and we could pass over the difficulty with our customers. And it could also reduce the NPL ratio for these deferred loans to contain the outbreak of NPLs. And on the other hand, it's also reduced cost for our risk loss. So I think you're all very seasoned analysts. I think we will have a different opinion and with independent analysis, you could have a better idea. Anything -- no -- nothing from Mr. [ Jiang ]. So please, Mr. [ Tien ] from Inclusive Finance Department.

[Interpreted] I think ICBC, enjoying the business with SME and enjoying finance business. We also speak to the principle of sustainability. We try to fulfill social responsibility and on the other hand, do our own business operation. In terms of a growth, in the first half, I will describe our progress as -- we are actually 40% ahead of schedule. In terms of price, we give profit to the customers. And our interest rate is lower compared to peers. It is a way to fulfill our responsibility as a major bank. And we improved our quality and improved our ability to provide comprehensive financial service. We did do a lot of work and made efforts and yielded results. Based on the aforementioned opinion, why do business with SMEs and develop our inclusive finance. We -- responsibility and business operations are well balanced. Meanwhile, it is asked that how do we address the relationship between the 2? I think, Mr. Guan has made a very comprehensive response. I would like to say something from the perspective of the Inclusive Finance Department, especially in terms of sustainability and the FX where we're going to make more efforts. First, we are going to further enhance our ability to control risks. Because to fill the responsibility, it's based on the prerequisite that we have ability. Only with such ability could we fulfill our job. On the one hand, we will enhance fintech application, further coordinate internal and external data and information to build a smart and the whole process, a dynamic risk management system. On the other hand, we will continuously strengthen our professionalism and expertise to select group customers. So that the risk could be clearly seen and well managed so as to realize that our results could be allocated in an efficient and a positive manner. And second, we'll further reduce operational costs. ICBC has its own advantage, which is -- which will be fully given full play. We'll construct information sharing and process coordination and channel coordination system to improve our coordinating operation ability and efficiency of business operations, reduce our operational costs. Third, we will further optimize our competitive service system. We have -- already have 1.0 version inclusive finance, and we are now trying to upgrade to the 2.0 -- the second version of inclusive finance and we'll cover the provision of funds and provision of expertise. And with such a comprehensive service system, our ability will be improved from multi-dimensions. So that we -- it will not only show in our surrender of profit. It will also be showing to, as previously mentioned, that our income could also be comprehensive. In its way, we'll have more balance between development and risk. And our system sustainability in doing inclusive finance will be further enhanced so as to give more profit to the real economy.

[Interpreted] Due to time limit, let us have 2 more questions from online, please.

[Interpreted] From Morgan Stanley. My question is about provision. ICBC is being very prudent in both -- in terms of both provision and the recognition of NPL. So actually, many loans with -- that is defaulted for less than 80 days are already recognized as NPL. With the -- well, if the pandemic is well managed, there is no second wave and the economy is gaining better, could quarterly provision be contributed and given back to our profit? And do you think the provision will be used to give further cut of interest rates. So how will we allocate the provision if the economy is better than expected? It's also related to the policy of loans because in the model, we'll take into consideration as risk and supply and demand. There might be interest rate guidance from regulators. And which factors will be the anchor for the pricing of loans? If the economy recovers next year, what will be our consideration in adjusting the pricing of loans?

[Interpreted] I'll ask Vice President Mr. [ Jiang ] to respond to your questions.

[Interpreted] About provision. It's quite -- it's a technical -- our provision. The loan first deteriorate, and then we have this categorization, and they will draw a provision. If things get better, it would -- we will reduce the increase of provision. If it further deteriorates, we will give more provision. And if the loan becomes an NPL, we will have write off. So the answer to your question, if the economy gets better, we don't have so much NPL. Of course, it will have a positive impact. So that's the first question. And second, from the PBOC requirement, LPR transformation is a very clear requirement. So no matter to corporate customers or personal customers, LPR as the base rate, no matter externally or internally. FTP pricing, it's also based on LPR. That is one factor. And the other factor is the credit risk rating of customer. If the rating is high, of course, rating high, we need to charge more. And third, it depends on the supply and demand. If the funding is tight, the interest rates will rise. If the funding is ample, the rate will drop. It's also related to the environment. In this year, the monetary policy is relatively easy and the interest -- the general trend for the interest rate, to drop. But if we're back to normal, it will underwrite. So it's basically more market-oriented based on the principle of IPR pricing and demand and supply and the management between risk and return. So all these core factors show the basic use for market. So that's my answer to your questions. Madam [ Liu ] from Risk Management department. I think the investor also relate to the -- to our models. So the expected risk factor, our expert, Madam [ Liu ], from Risk Management department.

[Interpreted] I think it's quite a professional question because risk pricing, the whole pricing depends on risk of cost, operational cost and acquisition of capital. Though so for the other side, it is mainly dependent on provision. The provision is based on the expected loss, not expected loss of the current period. It's also dependent on the expectation and at this level, we'll be a company changing. Well, first, we consider in the past 10 years, Chinese economy, one Chinese economy is good that's the normal circumstances. And we do -- and we stress test when the whole economy is pessimistic, how will the expected loss -- the possibility of the expected loss increase. So it's not just a point, but it's also a phase so if we expect a stability of the global economy, we will also think of the cycle and decide on the PD and LGD. One is the possibility of default and the other is a loss given default. And to take into consideration the 2, we will have expected loss, and then we will draw provision. For more than one -- about -- averaging, the fluctuation will be huge. But for more than AA, the performance will be quite stable. And for the ratings, only A where the price will be higher. And for the most better performing enterprises, the pricing will be lower.

[Interpreted] Yes, we have a lot of questions. So we have 2 more questions can be asked. First, from online.

[Interpreted] Citibank. First, my question is about digital currency. With the introduction of digital currency, what will it change on the structure of payment market and its influence on ICBC and financing? And the Supreme Court has a new regulation that -- for lending and borrowing, the highest interest rate charge should be no more than 4x LPR. Of course, in certain calls, we did not say that this will apply to the commercial banks. But according to [indiscernible] regulation, the commercial banks have a higher interest rate than that as stated by the Supreme Court. But what will be the inflows for ICBC?

[Interpreted] Perhaps our first Vice President, Mr. [ Jiang ].

[Interpreted] About CBD, do you see? Yes, it's frequently talked about. There's no further information to be shared. So officially, it's discussed. And I just want to say that CBD fee is following the -- fully based on some principles. There are already pilot tests for the digital currency to test the reliability and the convenience of the process and the adaptability in different scenarios. So it is still internally tested so it's not officially on the market. So perhaps there's as much as -- just so much to disclose, I think. And that [ hearsay ] is in the market. It states that the market -- a bank had tested currencies. And I think Mr. [ Jiang's ] saying is very right that if we have new information, we'll disclose to the market as soon as possible. As for the influence, I think we -- ICBC have already had internal assessment. As for your second question, we also noticed that the Supreme Court has this judicial explanation that profit financing interest rate should not be higher than 4x of RBR. This is a regulation. This is conducive to the growth of private financing or there could be very high interest rate charge in private sector. You know that regulators have their own measures to fend off the high interest rates in this private sector. But this is also to help private financing better growth. You also talked about credit card. ICBC's credit card has been doing well. Our core target is to provide service cardholders to provide financing support so that they could consume, including for major purchases. So for the major purchases, such as the purchase of automobile, home decoration, education, tourism, et cetera. It is conducive for the development of the Chinese economy and to boost consumption. ICBC, while doing its credit card business, comply with regulatory requirements. We will not violate rules in terms of pricing. More importantly, ICBC will -- according to our market pricing, especially based on capital cost, fee cost and risk loss cost and capital cost to have a proper pricing for credit card products. I know that if someone -- if anyone would like to see financing with interest rates higher than 4x of LPR, I think such a customer -- it's not very likely to be an ICBC customer. So please be rest assured that we will have a whole qualitative development in terms of credit card business.

[Interpreted] The [ 20th ] question and last question as well, also online.

[Interpreted] [ Von ] [indiscernible] from CIC. My question is about noninterest income. This again is a special year. And the banks need to give profit to the real economy. But certainly, I think this is a commission-based income for ICBC with volume and growth as I expected, but structure is different. And for areas where, I think, will be impacted as settlement and credit cards, they did not decrease, but had some increase. Well, the sectors more related to the capital market is at Lufeng state. I did not see fast growth. What's the reason? I mean, the fees income in different sectors, they don't show a lot of fluctuations. Looking forward, what's your -- what will be the drive for the growth fees related to the active growth in the capital market?

[Interpreted] Vice President [ Jiang ]

[Interpreted] About fees and commission-based income. Here's the information I would like to supplement. First, our fees in the first half, the growth point, we have 2. One is customer factor. The other is innovation factor. For customers, our corporate segment, our customers grow quite fast. The corporate business has always been an advantage of ICBC. And in terms of customer number, and the growth of our fees in this area also increased quite faster. Credit card is unaffected. The asset scale and customer number are also quite important. This is also an area commercial banks tend to put their focus on. Of course, we have some pressure in terms of credit cards, but the growth is also positive. As for the innovation factor, we also talk about precious metal. We have seen quite fast growth at about 40% growth. In the first half, the capital markets also have seen rapid development. We found -- increased by 30%. And our base is quite large. So 30% is quite a lot of growth. And the sales of bonds is also strong for ICBC. So in the first half, we launched this business earlier. So we achieved rapid growth in this area. Also for wealth management, as covered by Mr. Gu. Though we still have pressure compared to the development pace for ICBC is quite good, especially products compliant with the new regulation on wealth management. The scale has already exceeded RMB 1 trillion. So it's -- we are still better than average. And our performance is also in line with the new regulation. This could also be the drive for our future growth. The prospect is uncertain, I mean, the whole economy. For example, the online and off-line transfer, it is also quite fast and giving pressure for the adaptability for banks. It is indeed a challenge. Whether ICBC could weather the challenge and do better, this need further efforts for ICBC employees at its levels. And I think all employees from ICBC will not fail the expectation of investors and do a good job and good job in transformation and business operation.

[Interpreted] Thank you, investors and analysts. Before Mr. [ Jiang ] say his final speech, I want to thank you all for your recognition for the value of ICBC. Especially, I want to thank you for attending this meeting at such time. And second, in September or October, we will have 1 to 1 of road shows for global investors. You can contact our team. We will have different levels of activities to address your concerns and so that you could better see the future development trends of ICBC and better make your judgment and make your decisions. Lastly, my thanks to your support for ICBC. And thank you again.

[Interpreted] Investors and analysts, due to time limit, we have to call an end to the Q&A session of today's meeting. I want to thank Mr. [ Jiang ] and Mr. Guan and the General Managers of departments for your candid answers. And also thank you, investors and analysts, for your participation and for your high-quality questions. I also thank Mr. [ Wang ] from Beijing site and Mr. [ Fu ] from Shanghai site. After the meeting, should there be any questions, please contact our team. We have the strategy and investment -- Investor Relations management team headed by Mr. [ Wang ]. I think, I hope for the future, you could always support ICBC as usual. As Mr. Guan said, we'll have more road shows in the future, and we could meet other successes. Thank you again. That's the end for the annual performance announcement. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]