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

Dear investors and analysts, good afternoon. Welcome to today's ICBC Investor Call. I'm General Manager, Zou Xin, of Corporate Strategy Investor Relations Department of ICBC. As ICBC always gives great importance to the IR and also the protection of legal rights interest with respect to the market and with respect to investors. And we always do this with the principle of comprehensive, proactive, targeted, coordinated and effective Investor Relations management and have always managed to maintain frequent and candid communication with our investors. To better serve our investors and to improve our transparency, today we are holding this investor call and we have already disclosed relevant announcement and also solicited relevant questions through our public e-mail. Today, we are honored to have Dr. Guan Xueqing, Secretary of the ICBC and also relevant department heads and also General Manager of some subsidiaries namely department of Corporate Finance, Personal Finance, Credit Department, Financial & Accounting Department, Card Department and ICBC Technology and ICBC Wealth Management. And we are also honored to have a representative of SSE and also China Securities Investor Service Center for today's meeting. And today's meeting are divided into 2 parts. First, we will introduce relevant departments to give introduction of FinTech and Wealth Management and then we will enter the Q&A session and we will provide simultaneous interpretation. Now let's give floor to the General Manager, Mr. Song, of Personal to comment.

Thank you very much. Good afternoon. I'm the General Manager of Personal Banking Department, Jianhua Song. I will now introduce to you the development situation of ICBC Wealth Management. From the beginning of this year, we have improved our Wealth Management system and leveraged our banking professional services to create value for our clients so as to maintain the sustainable development of our wealth management. In the second semester, we focus on our customers' demand in wealth management. We have several ways. The first is big customer base. If we look at the past wealth management, we focus on high net worth clients. However, from this year we target at a small amount of clients and now we target at over 700 million individual clients and we divided our clients into high-end and long-tail clients. And we use online methods to reach our long-tail clients to better manage their funds and match their needs with proper products for our long-tail clients. And for our team including the wealth manager, client managers and professionals; we provide professional and smart channels for all of our clients to better manage their wealth through ICBC. The second phase is the circulation. In the past, we talk about wealth management and funds management product. However, now we built a value chain of wealth management, asset management and investment banking. And according to various demands and risk appetite of our clients, we match their demand with proper supply and product. It helps ICBC to better use our deposit assets and to make better return for our clients. Our third base is big platforms. We have started to construct a big wealth management platform actually from the end of last year. On the platform, we're in the public domain and private domain. The public side was for ICBC to use and the credit side is for our fund investments and asset management companies to offer it with [indiscernible]. On the platform we not only provide sales for various asset management products, we provide company services for our clients prior, during and post the investments. No matter what kind of investments you are, we have different courses and different teams to support your investment, which enables our clients to elevate their investment capabilities in managing their assets. The fourth base or scenario, we have divided our clients into 8 categories. In the big wealth management system, we combined different products with different categories of our clients. For clients about 55 years old, we actively promote a low risk product with higher returns. However, for our Generation Z clients, we provide more flexible products. Meanwhile from the mobile banking app and WeChat, we align our customers with relevant products in those special zones so that they could actively select the products they prefer. The fifth base is risk management. This is spread in 3 aspects. The first is with the fund companies. We cooperate with big fund management companies and we would like to ensure the cooperation on good fund products with good funds management companies so that we could manage to lose less money and make more money in the fluctuation of markets so that it could display our high quality risk control concept in the management of assets for our clients. The second, we want to provide services prior, during and post the investment for our clients so as to elevate their own investment capabilities. The third is to make full use of our risk management system. We normally conduct a thorough research on the cooperation partners and thorough research on individual products to better select good products, good fund managers and good fund companies for our clients. These are the brief introduction for the wealth management development of ICBC and we welcome more of potential from this. Thank you very much.

Thank you, Mr. Song, for the remarks on the wealth management of ICBC. Now let's give the floor to the General Manager, Mr. Yagan Liu of Fintech department.

Thank you. I'm Yagan Liu from Fintech department of ICBC and I will share with you the achievement of Fintech of ICBC. The Board and management of ICBC has always give great importance to Fintech and our work has always consisted of the self-reliance of Fintech and we have managed to lead our peers. And we are the first bank to realize the centralized management of global business. We have established data center in Shanghai and Beijing and which can support the asset management both on balance sheet and off balance sheet total RMB 80 trillion. And with the philosophy of ICBC, we have provided quality client service to over 700 million personal customers and 9 million corporate wholesale companies from 49 countries and regions. And over recent years, the Fintech has even a lot of prizes and awards from regulators and also the industrial authorities. So now the Fintech has become the core competitiveness of our bank. And I would like to give more information from the following 3 effects. First is we insist on the development through developing our technology. We have accelerated our research on some key and core technologies, application of some important technologies as well as cutting edge technology exploration. So far both the number of incremental and the total technology patents granted mean ICBC maintains the first place among the banking industry in China. In terms of the core technology research, we have completed the cloud and distributive technology platform system, which can support the operation of our key and core businesses. For example, we can support over 12 billion dispatch daily and also over 100 million transactions per second. And these cloud and distributed transition has also won the first prize for Fintech development given by PBOC. In terms of the key technology application, we have also provided some AI technology service and blockchain platforms, which have already provided services to over 60 business scenarios like trade finance and smart government affairs. In terms of cutting edge technology exploration, we have cooperated with some key national strategic technology force and some leading industrial size companies. For example, we have already completed a comprehensive spatial information service platform using satellite remote sensing and GPS technology in terms of some key scenarios like post lending monitoring and channel layout. And we have also established enterprise-wide privacy algorithms, which can be applied to trade and training and education fund monitoring. And in quantum technology, we have also realized 1,000 kilometer quantum distribution and quantum rental numbers at large verifications. Secondly, we have always give great importance to talent. We have hired over 50% of the newly undergraduates from the technology universities and over 40% of our [ callers ] at provincial branch has a background of Fintech. And the total number of our Fintech employees are over 17,000 and the staff managed by the head office exceeded 10,000 ranging from system architects, R&D engineering and also data scientists. Thirdly, we have insisted on the innovation as the major driving force to develop digital Fintech new paradigm. For example in terms of marketing, we have made full use of big data and AI and we have established a smart brand to serve the [ large sized ] customers. And in terms of customer service, we have extended the value chain of our business and also value chain of our products and to provide over thousands of standardized products and services through API system and through over thousands of partners. And in terms of business operation, we have also applied smart operation digital transformation. So we have to a large extent reduced manual input, which equals -- which can replace over 45% of our manual business amount. And in terms of the risk control management, we have integrated all the data from social creditability system and also domestic and foreign financial institutions with the total number of information and we have also provided our services to over 300 FIs and also over 100,000 corporate customers. So that's the general information of our Fintech development and in the future, we will continue to persist with the technology drive behind the value creation. So that is the core development of ICBC.

Now we are ready for the Q&A session. Please anyone to raise questions. Now the first question from China Securities Investor Service Center to raise questions on behalf of more investors. The first 2 questions from China Securities Investor Service Center.

I'm from China Securities Investor Service Center. I would like to raise 2 questions about the wealth management and Fintech. The first question is about Fintech. Recently we have seen ICBC have continued to deepen the technology transformation and restructuring and improved the supporting capability of enterprise technology platforms. For example AI and blockchain has given the highest recognition from some national assessment and review. So could you please give us more color as to the achievement of such kind of enterprise new technological platforms and how it empowers the businesses? The second question is about the wealth management. We have noticed in November to a large extent we have seen the risks from the bond markets. Could you please give us some color as to the impact on the wealth management business of your bank and what measures have you adopted in this regard?

Thank you for your questions. You have raised altogether 2 questions. For the first question, I would like to invite Mr. Yagan, General Manager of Fintech department, to answer your question. As to your second question, I would like to invite our ICBC Wealth Management subsidiary to answer your second question. For the first question, Mr. Yagan, please.

Thank you for your question. To better meet the business development requirement, we have accelerated the application of our Fintech. As we have already introduced like AI and blockchain and all the other advanced technology, we have made a lot of explorations and applications and achieved a lot of outcome in empowering our business. And this has been given higher recognition by the industry and regulators and for example, we have won like the first prize of the nature of our information technology and our blockchain has consecutively 2 years won the Fortune Global Blockchain 50 and among the peers, we are also the first bank to pass relevant assessment for this certificate. And we have also won the best innovation, Financial Enterprises by the Asian Banker. And I would also like to share with you some examples from the perspective for AI and blockchain. In terms of AI, we recently started seeing big lending capabilities from biometrics, audio and video communication, SmartVoice and altogether 13 capabilities. So it's a comprehensive system. From operations perspective, it's the largest with over 1,200 DTU. From data supporting perspective, it's the largest size among our peers. In terms of our operations, it also covers the most comprehensive operations with over 2,000 calculation methods, which is also the largest size among our peers. We have decided to open 1,000 financial services. From our centralized business center, we have to input thousands of vouchers images through AI machine learning and training. Now all the large number of vouchers over 800 categories like account names and key elements from the vouchers and certificates can be automatically recorded. Almost 98% of all kinds of certificates and vouchers images can be automatically input. So this is only one in our call. This is the second time, I will not elaborate more. For blockchain, we called ICBC blockchain which means reliability in Chinese. In terms of privacy algorithms and also several breakthroughs have been made. So currently for every second, we can do away over 20,000 of recorded accounting demands. And in terms of security, the password system is closely related with security of information so the entire operations is coded and security can be guaranteed. This has also been accredited by regulators. I can also give you an example in terms of the fund's supervision. For example in some special funds supervision like the construction fund or some wealth management fund to ensure transparency, the application of the blockchain technology has been provided to over 600 customers and the manager of applications has been included as the only pilot program by the Ministry of Information Technology. That's all from me.

Now ICBC Asset Management will respond to your second question.

Thank you very much for your question. I'm Jianhua Song from ICBC Asset Management. From November this year, I'd like to identify all kinds of influence factors of the market. There has been market fluctuation and there has been some pullback of the net worth of our asset management products especially with PR2 and PR3 level products. However, the pullback expense is limited. With the fluctuation, there has been some outflows in the open-end product mainly PR2 income products. We will conduct many measures to better manage the liquidity and our funds. We put our clients and investors' interest in the first place and have conducted several measures. First is in-house market research and adjust our interest rate risk exposure and to adjust our duration to match the maturity so as to ensure a prudent return of our projects for our clients. We prepare highly liquid assets to ensure the security of our assets and we coordinated relevant channels to better serve the clients, sent several letters and research articles to our clients via several channels to respond to their demand including sharing our market views and providing next step investment recommendations and to interact with our clients. This is the kind of company so that we could help them rationally view the market fluctuations and build up their independent investment capacity. The unemployment situations are still complicated and facing with many risks including the Ukraine-Russian event still elevating. We will adhere to our business mission to provide subsidy and asset management agency services and do our best to stabilize net value and scale of our products in extreme market conditions so as to guarantee the maintenance and valuation of clients' value. I'd like to add a few points. It is very normal for net worth of our products to fluctuate. For asset management products investors, they should have some risk bearing capabilities. We usually focus on the risk appetite and the investment capabilities of our investors. In terms of asset management subsidiaries, we will continue to enhance investment capacity...

Sorry, he was interrupted. But now we will continue.

I'm a retail individual investor of ICBC. Thank you for this opportunity to communicate with the management of ICBC and we have also sensed the importance given the ICBC to Investors' communication. I would like to ask a question about the dividend payout. We have seen ICBC has always maintained a relatively steady dividend payout ratio and we have seen the regulators are encouraging listed companies to increase the payout ratio. So have you considered to raise the dividend payout ratio?

Thank you for your question. I would like to invite Mr. Zou, Manager of Corporate Strategy and Investor Relations to come and to answer this question.

Thank you for your question. Over a long time we have seen frequent questions regarding the dividend payout ratio of our bank from some institution investors and also individual investors through different channels. We would like to thank you for your question and also the attention given to our dividend payout ratio. And today, I would like to give you an explanation as to the dividend payout ratio. Firstly, we think in recent years, dividend payout ratio of our bank has been maintained at around 30%. We think this level is quite reasonable. Since the IPO of our bank, we have altogether created over RMB 1.2 trillion cash dividend to our investors. Since 2007, we have been the highest dividend payout listed company in any stock market. In 2021 the dividend payout ratio of our bank was 30.9% with total number of cash dividend over RMB 104.5 billion, RMB 2.93 per every 10 stocks. And technically with the stock price at the end of September this year, the dividend yield of our A stock is over 6.7% and for A shares, it's over 8.08%. So this is higher than most term deposits and wealth management deposits. And the net assets per share have also been increased several times compared to that of IPO. Secondly, China now is the market reliance with indirect financing. So for large banks, we need ample and steady cash flow documents to support our asset growth and to better serve the real economy. So we have to set aside a reasonable number of undistributed earnings to support our future growth. The profit retention is the major approach of supplementary for our cash flow document. So that can also guarantee us to create more value and profits for investors. Thirdly, we have seen the recognition from our global investors on current dividend payout ratio. So we believe in the future, we can create more value for our investors. Thank you for your asking to the question.

I would like to add on to this answer. We have seen frequent questions raising from the online platform of SSE from our individual customers why ICBC hasn't raised the level of dividend payout ratio. We believe 30% is the reasonable level of payout ratio for the bank because we think it is a common level considering the features of large banks. It's unlike some other SOEs like [indiscernible] because they have no requirements in terms of their capital adequacy ratio. However, for large commercial banks like ICBC, we have to ensure our capital adequacy ratio so as to offset any potential risk in the future. Secondly, only adequate capitals of our bank can support the business growth, asset growth and to provide necessary support to the real economy side. Thirdly, only adequate capital adequacy ratio can offset and mitigate any potential risks in the future and can also provide better guarantee for the bank to create more value in the future. If we distribute most of the profits to dividend payout, then that will limit us in the future for our business growth. So we think a reasonable dividend payout ratio can also meet the short-term and long-term interest of our investors and also leave adequate capital for the bank for value growth in the future. And you might also notice the difference between Chinese banks and U.S. banks because in U.S., the financial structure is mainly direct financing and in China on the contrary, the majority part is indirect financing. So the financial market structure is different. Maybe after some transition development of China's financial market, there will be lower requirements for the capital adequacy ratio of Chinese banks in the future. Thank you again for your attention.

Before this meeting, we have disclosed the announcement and also -- questions from our e-mail box. Now let's welcome the e-mail questions. Dear management of ICBC, I would like to ask in terms of the lending to the property sector. Is there any risk of bad debt and how will you deal with this pressure in the books?

Now Credit Management department will answer your question from 2 perspectives. The first part is the understanding of the market and the second part is ICBC's practice. The first part, China is still in the progress of urbanization and the urbanization rate is over 60%. However, the average global ratio is around 70%. There's still some progress space. Last year several high tier real estate companies have reported and the real estate market has been going down. However, since the Q4 last year, the state and provincial government has launched several policies to promote the benign circulation and healthy development of real estate industry especially the recent growth. These policies have effectively improved the financing capabilities of relevant real estate companies. Market expectations are gradually recovering. The rest are the decision of credit risk in real estate industry has been a better tenancy. This is from the market side. On the side of ICBC, we have been safely implementing the real estate macro control policies and maintain stable credit support to real estate industry in a orderly manner. With effective risk separation, we spent reasonable support to high quality projects especially ordinary commercial housing, security housing and rental housing, et cetera. And promote contribution in this region. We collaborate with local governments, providing financial support, guaranteed property delivery. At the same time, we make our own plan to defuse relevant risks inside the bank. We stick to the principle of balancing incrementals and risk while maintaining stable credit to the real estate industry. We continuously enhance the investment and financial management in real estate industry especially in complex [indiscernible] management, risk management and to ensure the asset quality of relevant loans not going down.

I'd like to add on this question. We have some information from the government to ensure the property delivery, ensure the people's well-being. It has boosted the recovery of real estate market especially the M&A section of real estate industry manage to dispute the top real estate companies' risk.

Are those policies focused on the ordinary commercial housing and young peoples' demand?

Therefore, investors should notice that there would be some positive change for the real estate market. There has been some leaders from the party committee and the State Council to make perfect citations and explanations about those policies. There would be optimization for the pricing limits, the loan limits, policies in different region.

Would you have concerns if there is any accumulating by that and what would we do if such that has happened?

We will design a full set of measures to handle and defuse relevant risks.

The second question from previously selected email questions from our individual investors. ICBC this year realized double-digit asset growth. What's the outlook for 2023 assets and loan growth and the allocation of corporate and retail side lending against the background of declining real estate industry and the shrinking demand from developer loans and market loans. What will be the main focus area for your lending in terms of your logistics properties or infrastructure or real estate?

The General Manager, Mr. Johnny from ALM Department, will answer your questions.

The asset growth of ICBC and also loan growth is generally related with the information -- with the macro environment and also the economic growth of China. In 2023 we predict the total assets will continue the stable growth, which will be correspondingly matched with the noneconomic growth rate. And the incremental loans will also basically the same level as this year, which is relevant with the development of real economy and the funding, our market share, our risk management capability so as to further enhance our market competitiveness of our incremental loans. We mainly take into consideration several risks. Strategy growth will be the key note for next year's work as next year is the first year to implement the 20th National Congress of CPC and we have seen recently Central Economic Conference and Credit Bureau Conference who emphasized next year's work will be expanding the domestic demand and better deepening of the supply side structure reform. So we think that will boost the market information. However, the economic recovery foundation is still unbalanced and we have to consider the effect of the slower pace of developed economies on the interest rate hiking and the overall steady CPI domestically. The monetary policy might be more enhanced to guide the commercial banks to increase their lending to support the very tense economy to recover to the pre-pandemic level. Secondly, we expect to see an effective rebalance of financing lines. We have seen focus on the recovery and expanding consumption to be a priority by the Central Economic Conference. So we expect to see some key projects of 14th [indiscernible] and some key construction projects will promote the demand of financing and also some supporting policies regarding the property sector will also bring certain recovery to the real estate market. And consumption demand from restaurants will also be realized. Thirdly, ICBC has strong financial service capability. We are quite strong at our marketing and have reached reservation for quality projects. So we are best positioned to acquire more market opportunities. Just now you also touched upon the specific lending industries for our next year's growth. We will continue to be adapted to the economic development tendency with our credit allocation. For example we will continue to focus on the key projects of the 14th [indiscernible] and also the key projects to stabilize the economic growth by focusing on some hydraulic engineering, transportation, energy, city gas pipeline, affordable housing and other infrastructure area and we will also focus on application, medical care, senior care and also to provide better service to some new citizens. For example we can provide more quality consumption loans and bank cards offer and to promote commonwealth.

Now I would like to invite [ Mr. Hu ] from Corporate Department to answer the second part of your question.

[ Mr. Hu ] from the Corporate Credit department. I would like to add on to the real estate question. We can now make...

Because of the bad signal from [ Mr. Hu ], I would like to answer your second part of the question. Like Mr. John said from the corporate and regional bank, the corporate will still play a dominant part of our total lending and in the retail, we expect to see a growth from mortgages as well as retail consumption because with policies to stabilize employment and economic growth playing out that will give more stimulus to the consumers. And for the more specific area, we expect to see manufacturing, strategic new industry and green credit, inclusive finance including both lending relevant with agriculture and other area over other key projects in the infrastructure area in the course of urbanization and renewable power projects, transportation, logistics; all will be the key factor for our credit expansion. Your question, you mentioned about the logistics property, the infrastructure and return properties. These are also the target for our corporate lending and will make more assets to grow credit in these areas. At the same time we not only consider lending to these areas, we also play an important part in terms of other financial services like leasing, advisories, investment banking to our customers so as to make our contribution to the economic recovery. Thank you for your question.

I'm from Civic. I would like to ask a question about the stock price of ICBC because it was always at a low level. So have you considered any measures to stabilize your stock price and have you ever considered a stock repurchase.

Corporate Strategy and Investor Relations Department will answer this question. It's normal for stock price to go down. Since this year, the share of ICBC has been moving in the same pace with our peers. Nothing special about this. Despite the price much lower than net asset value per share, the PV ratio outperformed that of our peer banks. From the perspective of shareholder structure, most of our significant shareholders remain stable. Some of the market institutional investors also bought more of our shares recently. We believe this buying decision was based on the confidence of future growth of ICBC. What are the measures we are going to take to stabilize the share price? We think no matter our share repurchases or other market cap management, the essence of share price stabilization is to wedge our advantages to constantly improving our business return. On one hand, we enhanced our support to real economy, stabilized growth markets and expectations. On the other hand, we enhanced our own high quality developments in the current circumstances. We will continue to enhance the strategic layout to strengthen our advantages, make up for weaknesses, consolidate our foundation and bases to strive for balance and realized value creation, market competition, risk management and capital sales regulation for ICBC. We believe with the ongoing development of Chinese capital markets, there will be more and more global investors understanding the Chinese features of our economy and realizing the investment value of ICBC and other excellent financial institutions. As for the shares repurchased, in the latest revision of our Articles of Association we have specially revised some clause as to provide institutional guidance to share repurchase. Next step, ICBC will continue to lift our operational quality further in-house investor relation management enrich our market cap management tool. We do not have any disclosures on when will be the proper time to repurchase our shares, but thank you very much for your attention. There are many investors who care a lot about the share price and relevant ranges of our shares. Our shares of ICBC as a large bank is not the same as tech company shares, which is still growing their value investment. We focus on active IR management and the quality of our operations as well as the market recognition and we focus on the long-term sustainable developments and the strategic capabilities of ICBC stock. Therefore, the valuation of ICBC as a listed company -- a good listed company is around. We have many long-term value investors especially in recent years, we have some important investors to buying more shares of ICBC. Recently I believe you all noticed that the valuation and PV of Chinese capital markets and there should be more research on the logic valuation of Chinese market and Chinese company stocks so as to review the initial value of stock market to our investors. In the next step, we hope the market will transform more into the direction of value creation and we hope there would be an optimization of investors structure. That should boost the value of outstanding listed companies and so the listed companies could contribute more to the economic development of Chinese economy. And ICBC respect our investors and will deepen the transparency of our disclosure and we will take various measures to improve our stock performance and we will cooperate with market partners to elevate the value of our stock. Thank you very much for your question again.

Next question from UBS.

I'd like to follow on the earlier question of relating with the property industries. We have seen the regulators are putting in place multiple policies to support the property sector and we have seen ICBC have signed cooperation agreements with developers for the total amount in force over RMB 600 billion. And I would like to ask to what extent a specific number among those intentional financing will become realized and what kind of forms like what will be the precise percentage of lending will be mortgage or pledged loans or non-pledged or collateral loans? And to what size will be the domestic bond or offshore bonds and how much of them will be guaranteed? And by what time will be the financing completed and what will be the NPL ratio of the developer loans? Are there any upstream or downstream industries relating with the property sectors? Do you think the signals of the NPL ratio rise from this kind of industries relevant with property?

Now I would like to invite [ Mr. Hu ] from Corporate Department.

About the agreement signing with developers, in November 24 we have signed cooperation agreements with 12 national property developers including Vanke Group, Seazen Group, Greentown China, Longfor, Country Garden, Maserati Holding, Radiance Group, China Resi Property, Poly Development, China Merchant Capital Development, China Overseas Land, Chinese Town Group with the intention of financing amount of RMB 650 billion. And after the signing of so many at the head office, our branches now are also signing agreements with local enterprises property developers and by December 16, our 10 branches have signed agreements with local developers with intentional financing amounting to RMB 646.8 billion. According to our cooperation agreement, we will provide our financing and make use of our founding channel and services and focusing on developer loans markets and then loans for the properties to rent housing, less of guarantee for pressurization funds, bond underwriting investment, overseas loans with domestic R&T and to conduct comprehensive partnership with our central SOEs, localized SOEs and mixed ownership enterprises and as well as private enterprises to meet the reasonable financing demands. As to when the financing will be completed and realized, it depends on the actual situation of the individual project. And since the beginning of this year, we have implemented the policy of preventing against the pandemic, stabilizing the economic growth and to develop securely and safely. We played our big bank role and our leading role to support the -- to stabilize the economy and to support the guarantee of housing delivery and guarantee of support and stability. As to the NPL ratio of relevant industries, I would leave to other department to answer questions.

I'm Dr. Guan speaking. I would like to add on to [ Mr. Hu's ] answer. As to the intentional financing to the property developers. After the signing ceremony, we think it will take some time for us to provide relevant financing to the developers and we will as always conduct our standards and criteria in our lending. First, all those partners we have signed agreements are prime customers of our bank. I think in this restructuring phase of the property developers, some property developers which are not so strong might be phased out by the market. We are focusing on the prime property holders. And the intention of financing to the property developers including both on balance sheet and off balance sheet, domestic and offshore, lending as well as bonds. You asked us about the upstream and downstream industries relating with the real estate industry. We expect to see the impact on them because of the volatility of the property industries and we do think they will have pressure. For example, the construction industry will face pressure. For ICBC, we do not have such a large exposure to the construction industries. But some of our peers, which have a relatively larger exposure to construction industry, might bigger pressure in this regard and particularly for those mid-sized and small sized banks. Thirdly, about the new policies to support the property developers by the government and regulators. I think those measures are focusing on the transformation of property developers on the new era. So that also represents opportunities for big property developers. Actually 3 years ago many investors asked us about the real estate industry, which I think played a big role in our economic growth. So investors have always given great importance to the property sector and I think this is -- we are in a phase of transformation for our economic growth as well as our assets and lending structure. We expect to see divergency in the property sector. The strong ones will become stronger, the weak ones will be phased out. Thank you for your question.

Next question from Securities of Bank of China.

My question is about NIM. We have seen the Q3 NIM contraction has been slower. Could you please give us some color as to what factors lead to that contraction from the asset side and the liability side? We have seen a lot of factors that will play in the NIM. So for example, the loan and reported pricing has been lower. So what will be the repricing reason impacted our NIM and what's your outlook for next year's NIM against the background for the demand deposits?

General Manager, Mr. Johnny from the Assets and Liabilities Management Department will answer your question.

Thank you very much for your question. As for the question of influence factors for the downward trend of net interest margin for Q3, we can see the common pressure of NIM going down in Q3. The velocity of this decrease has been narrowing. This is due to 2 public reasons. The first is from the asset end. ICBC fulfills its responsibility to enlarge credit expansion to improve asset structure so as to ease the NIM narrowing pressure. The proportion of credit assets goes up in the interest-bearing assets affected by the structural optimization. Upward growth of those assets, the Q3 yields on interest-bearing assets was up by 2 bp. The other one is from the liability side. ICBC actively implemented the market adjustment regime of deposit rates as well as some other measures. Therefore, the interest rate payment ratio has declined by 1 bp compared with the first half of this year. We will take other measures to expand our customer base, which will increase the deposits. Still from the side of our loans, there would be some repricing influence. Since December of 2021, we have seen 4x decreases of LPR, which has already been priced in. However, there is still long-term loans with pricing risks. However, individual housing loans held by ICBC has been already repriced with gradually pricing the diversified housing policies and rate adjustments for property loans. Therefore, we forecast a smaller influence in 2023 compared with this year and our peers. For deposits, the repricing influence on NIM would be mild. Firstly, state owned banks all decreased the deposit rate by 5 bp to 15 bp in September. It will further benefit the interest rate structure by reducing interest expenses. However, implementation of repricing for the time deposits and especially for medium- to long-term deposits, the effectiveness of adjustments of deposit rates will further decline. Secondly, due to the slowdown of economy, the decrease of deposit interest rates as well as the proportion of the current demand deposits declined. We were facing pressure of NIM going down. But with economic recovery, this pressure will be [ managed ]. This year until the end of the third quarter, we forecast the downward tendency of the NIM for our interest-bearing assets due to the slowdown. In the short term we read from the Central Economic Work Conference is still faced with triple pressures of our economic development. The NIM for the loan will not recover very soon. We should put more efforts on implementing the principle of sustainability in loan pricing. Next year compared with this year, there would be some positive recovering policies to recover the market, which would be a positive factor. As for the deposit side, we should enhance the GPC implementation in client base, improve business ecology, elevate services capacity and to stabilize and optimize assets and liability structures, remaining our leading position among peers. There would be some maturity changes in the structure of our loans and deposits. We would strive to cover the downward trend of NIM. However, as I just said, we will try our best to remain our leading position in NIM levels among our peers.

[indiscernible]

I would like to raise a question about the risk. Since you also touched upon the risk management. I would like to ask about the mention of local government debt and the economic essential work conference has also proposed to prevent and mitigate relevant risk. What is the asset quality of the LGFV and from specific leases, what is existing risk and what is in part and in the central and western parts of China?

Thank you for your question. I would like to invite [ Mr. Li ], General Manager of Credit Department, to take your question.

Thank you for your question. Indeed, as you mentioned, in the Economic Central Conference, it was pointed out that the risk of local government debt has been emphasized from ICBC. The asset quality of our lending to local government has been maintained relatively good and it's better than the average asset quality of the entire lending mixture for some certain local governments. With heavy debt ratio, the asset quality of LGFV face pressure. In this kind of regions, we persist with commercial guidance, commercial principles. We mainly focus on the prime local government with relatively good debt ratio so as to ensure the risk management are controllable. For the existing LGFV, we enhanced communication with local government to coordinate with their projects and funding to orderly deal with relevant potential risk. Currently I personally expect to see the improvement of the entire financing environment next year. The reasons for my confidence comes from the optimization of the pandemic prevention and control measures and also the government's unremitted confidence and persistence in developing and stabilizing economic growth next year. So the expenditure of local government next year for pandemic prevention will be smaller so that can also be conducive to the recovery of local government budgets. And also the income for local governments next year will be improved together with the improvement of consumptions and sentiment with the financing and funding environment for LGFV will also be optimized and improved. So currently the relevant risk for our bank is totally manageable and controllable. Secondly, with the improvement of relevant environment for the LGFV, we think revenue risk can be better mitigated.

Last question comes from Everbright Securities.

I'd like to ask a question about the housing situation. Is the problem properly tackled so far because of the early service of mortgage face large pressure. So what's your view on the lowering of ICBC mortgage interest rate and what's your view on the recovery of the mortgage loan decline?

Mr. Song from Personal Banking department will answer your question.

This is an important question. Speaking of the loan suspension event, ICBC has attached great attention to this event and organized a special committee to deal with relevant issues. We collaborate with real estate developers as well as other clients to prudently solve relevant questions and problems. And as you noticed, the latest notice for financial institutions is to support the global and healthy development of real estate industry and other regulations. We will follow the lead of the party central committee and state council to implement those policies and do our best to better arrange these kind of event sales. As for the voice of reducing mortgage interest rates, we haven't received any formal notice from our regulators. If there will be any such notice, we will put it into full implementation especially for our clients who are suffering from the difficulties of repayment. It will also be our measures and our responsibility to fulfill our social responsibility and reduce our clients' interest payment burden so as to better serve our clients who are longing for a better life. And we would like to combine our financial businesses together with the needs of our clients.

Due to the time, that's all for the Q&A session. Thank you particularly for the support from SSE and also the Investor Service Center from China Securities. Thank you for your support and supervision on our Investor Relations management work. And I would also like to thank you for over 100 global investors to take part in today's online investor call. Recently in Beijing is kind of severe situation in COVID -- in the pandemic. Most of them have been affected, but now it's kind of passed for us and we believe this situation will soon end. Thank you again for taking part in today's call. We have seen the organization of the pandemic control measures. Next year we have seen bigger plans. It's important to stabilize the economic growth, employment and consumer prices. We believe all those multiple policies will play out and it's quite likely for us to see a redundance of economic growth. Although we still face some uncertainties of the geological situation and also other monetary policy divergences around the globe, we are quite confident in the improvement of our economic growth next year and the management of our bank now are working on the planning of next year business growth. And we are also quite confident that we can still deliver [indiscernible] as always. Thank you to our investors and I would like also to wish a Merry Christmas to our foreign investors and a Happy New Year to our domestic investors. Thank you again for your support. And now I'd like to turn the floor to Mr. Zou Xin, the host of today's call.

Thank you to Dr. Guan for his remarks. Thank you again for our investors and analysts who joined in today's call and thank you for your questions. The management of our bank now answered your question I believe, which can help us to make better judgment in terms of investing. Thank you again for your long-term trust and support to our bank and also long-term value investing in our stock. For any further questions, please contact our IR team via e-mail box, hotline and also the information platform of SSE. And we will continue to conduct various types of communication with our investors. Best wishes to you all. Thank you. That's all for today's call. [Statements in English on this transcript were spoken by an interpreter present on the live call.]