Direct hit on China Construction Bank's performance release conference: responses on popular topics such as deposits and loans, net interest margin, asset quality, non-interest income, etc

On the afternoon of September 2nd, China Construction Bank (CCB) held a mid-term performance conference for 2024. CCB President Zhang Yi, Chief Financial Officer Sheng Liurong, Vice Presidents Ji Zhihong, Li Yun, Li Min, Li Jianjiang, and Vice President cum Board Secretary Wang Bing attended the meeting and responded to market concerns.

During the meeting, focusing on the performance trends in the first half of the year, as well as the work development plans for the second half of the year and longer-term work arrangements, CCB's senior management expressed frank, in-depth, and forward-looking views.

Seeking Benefits from the Market, Costs, and Risks

Zhang Yi introduced that CCB's assets and liabilities grew steadily in the first half of the year, with overall stable operating performance. Core financial indicators such as ROA, ROE, capital adequacy ratio, and cost-to-income ratio remained stable, while maintaining a competitive advantage in the market.

Specifically, the key focus is on continuously deepening revenue growth, reducing costs, and seeking benefits from market potential, cost management, and risk management to enhance sustainable development momentum.

Zhang Yi also stated that CCB will focus on the following four aspects in the future:

First, coordinate the quantity and price structure to strive for a quick stabilization of net interest income, solidly serve the real economy with reasonable quantity growth, and increase support for major strategic areas and weak links.

Second, explore new drivers of income growth to enhance the contribution of non-interest income, persist in promoting income structure transformation through capacity enhancement, and deepen value creation through quality services.

Third, deepen comprehensive cost management to improve cost efficiency, adhere to frugality, and enhance cost control of key projects to improve input-output and operational efficiency.

Fourth, strengthen asset quality control to guard against risks, establish a bottom-line and extreme thinking, improve the integrated risk management system process, and enhance forward-looking risk control in key areas, industries, and products.

Loan Growth Rate Higher than Industry Average

CCB Vice President and Board Secretary Wang Bing stated that CCB achieved stable growth and balanced lending in the first half of the year, maintaining support for the real economy.

In the first half of the year, CCB's total loans and advances increased by 1.58 trillion yuan from the beginning of the year, with a growth rate of 6.6%, higher than the market's average loan growth rate.

Furthermore, the bank continued to consolidate its leading position in the large retail loan market, with balances of personal loans, including personal housing loans, personal consumption loans, and credit card loans, maintaining a leading position compared to peers. The volume of personal housing loans remained at the forefront of the market, with personal consumption loans showing leading growth.

Additionally, the balance of inclusive loans reached 32.9 trillion yuan, with a cumulative lending of 25.7 trillion yuan in the first half of the year, maintaining a leading position in the market. The yield of personal loans and inclusive financial loans remained at a competitive level compared to peers.

In terms of corporate loans, the overall scale grew rapidly, with an increasing proportion in key areas. Loans in key areas such as green manufacturing and technology innovation continued to rise, with double-digit growth in electricity and heat loans, and stable growth in water conservancy and public facility loans compared to the previous year

Efforts to Maintain Net Interest Margin Stability

Net interest margin has been a hot topic in the market's semi-annual report this year. Zhang Yi mentioned that in the first half of the year, China Construction Bank's net interest margin was 1.54%, maintaining a leading advantage compared to peers, with a significant narrowing of the decline in the second quarter.

Facing the current market environment, China Construction Bank has adjusted and optimized its asset-liability business structure, product structure, regional structure, term structure, and customer structure in response to changes in market interest rates, laying a foundation for the stable operation of the net interest margin indicator.

Looking ahead, he believes that as deposit interest rates decrease and the improvement effect on deposit costs continues to be realized, the decline in net interest margin is expected to further narrow.

In the future, China Construction Bank will continue to optimize its asset-liability structure, strengthen pricing management for deposits and loans, and make various efforts to maintain the overall stability of the net interest margin and a comparable advantage to peers.

Non-interest Income to Maintain Growth Momentum

China Construction Bank's Chief Financial Officer Sheng Liurong responded to questions regarding fee income.

He mentioned that although the bank's fee income decline in the first half of the year expanded compared to the first quarter, this was mainly due to the decrease in agency business income, which is a follow-up effect of the fee reduction policy implemented in the second half of last year.

China Construction Bank has seen some positive changes in its transformation of intermediary business, shifting from price-competitive to quality-competitive.

In terms of customer base, there has been significant growth in corporate settlement accounts and wealth management clients; in terms of income structure, fee income accounts for over 16% of operating income, leading the industry; in terms of management effectiveness, merchant acquiring business income and contributions have improved through refined management.

Additionally, in the first half of the year, China Construction Bank's non-interest income reached 16 billion, with an increase of 10.7 billion, showing significant growth. This was mainly due to optimized investment structure and market changes, leading to positive growth in equity instrument, fund bond investment income, and foreign exchange rate income compared to the same period last year.

Furthermore, cost control has also achieved certain results, with decreases in insurance fee and structural deposit cost expenses.

In the second half of the year, with the trend of stable economic improvement, it is expected that non-interest income will continue to maintain its growth momentum. Despite possible short-term market fluctuations, China Construction Bank hopes to keep non-interest income growing relatively steadily through optimized asset structure and effective management of fair value fluctuations.

Where Does Personal Deposit Growth Come From?

Deputy General Manager Li Yun introduced that in terms of deposit growth, China Construction Bank's incremental deposits in the first half of the year reached 1.05 trillion RMB, with personal deposit increments ranking first among comparable peers. He summarized the main reasons for deposit growth as three effective measures:

First, focus on customer base. By implementing a tiered, segmented, and graded operational strategy, the bank has expanded its customer base and improved customer quality. By the end of June, the number of corporate clients reached 11.34 million, with 2.72 million high-value clients holding daily average deposits of over 50,000 RMB. The total number of individual clients is 762 million, with an increment of 1.42 million individual clients holding financial assets of 200,000 RMB or more. The growth rate of clients is leading among comparable peers Second, Focus on Closing the Funding Loop. Strengthen payment settlement services and comprehensive services, enhance operational capabilities in closing the funding loop, and promote growth in demand deposits. At the end of June, the proportion of demand deposits in domestic deposits was 43.94%, higher than comparable peers.

Third, Digitized Operations for Key Customer Segments. Enhance customer profiles and improve digital insights for key customer segments such as payroll merchants and retirees. In the first half of the year, the incremental increase in daily average deposits from payroll clients accounted for a three-percentage-point higher share of the total daily average deposits from individual clients compared to the previous year. By the end of June, the daily average deposit balance of individual merchants had grown by 7.6% compared to the beginning of the year.

Trend of Long-termization of Time Deposits Slowing Down

Regarding the trend of performance deposits towards time deposits and long-termization. Li Yun revealed that the trend of time deposits at CCB continued in the first half of the year, with a slight increase in the proportion of time deposits; however, the trend of long-termization within time deposits has slowed down. The proportion of newly issued time deposits with a term of three years or more decreased by 4 percentage points year-on-year.

For the next steps in deposit growth measures, China Construction Bank will continue to focus on liability quality, maintaining and increasing deposits.

This will be achieved by deepening customer management, increasing product coverage and stickiness, optimizing customer base; deepening the execution of end-to-end services, improving digital, online, and ecological retention models, enhancing the full-chain service capabilities for funds; deepening the optimization of deposit structure, adhering to the balance of quantity and price, optimizing the deposit term structure, reducing the interest cost of deposits, and achieving high-quality development of the bank's deposit business.

Key Area Risks Remain Controllable

Deputy General Manager Li Jianjiang stated that asset quality is closely related to the real economy and inseparable from the bank's risk management capabilities. CCB has always adhered to the working principle of seeking progress while maintaining stability, considering risk prevention and resolution as a fundamental task, actively and effectively controlling risks, and supporting the bank's high-quality development with stable asset quality.

As of the end of June, CCB's group non-performing loan ratio was 1.35%, a decrease of 0.02 percentage points from the end of the previous year, demonstrating overall stability in asset quality and a solid foundation for risk control.

He expects that asset quality will remain stable overall in the second half of the year, and risks in key areas will remain controllable. Looking ahead to the second half of the year, CCB will continue to enhance risk awareness, adhere to a bottom-line mindset, fully grasp the risk situation, further strengthen proactive control, ensure the stable operation of asset quality, and build a long-term and stable foundation for high-quality development.

Early Layout for Achieving 2028 Targets

When answering questions about capital adequacy, Sheng Liurong stated that CCB has always adhered to a prudent and sound capital management strategy, promoting intensive capital operations. With the implementation of Basel III, the bank has advanced capital measurement methods and implemented new capital regulations with high quality.

In the data released for the first half of the year, CCB's capital adequacy ratio was 19.25%, and its core capital adequacy ratio was 14.01%, an increase of 1.3 and 0.86 percentage points respectively from the previous year.

Among the financial institutions that have already reported their performance, whether large banks or joint-stock banks, CCB's performance in these two indicators is leading He also mentioned that as a systemically important bank, China Construction Bank (CCB), like other large banks, faces the challenge of meeting the total loss-absorbing capacity requirements by 2025 and 2028. The total loss-absorbing capacity needs to exceed 20% by 2025 and 22% by 2028.

Overall, meeting the requirements for 2025 should not be a big issue as CCB's capital adequacy ratio is already close to 20%.

Currently, CCB is proactively planning for meeting the requirements in 2028 by maintaining a relatively stable level of operational profitability to enhance the internal capital replenishment capability, and by controlling risk-weighted assets to improve capital efficiency.

Sheng Liurong emphasized that CCB has always adhered to a capital management strategy that emphasizes both internal accumulation and external supplementation. The bank will determine the specific form and amount of capital replenishment based on regulatory policies, market conditions, development strategies, and capital supply and demand. Overall, CCB's capital replenishment pressure is relatively light, laying a solid foundation for the bank's future development.

What about the second half of the year?

Looking ahead to the whole year, Zhang Yi expects that China's macroeconomic recovery trend will continue to improve, with more positive factors emerging. CCB will continue to focus on high-quality development, promote intensive and connotative development, strengthen risk awareness, overall thinking, development thinking, customer thinking, collaborative thinking, and competitive thinking, actively promote transformation, adjustment, quality improvement, and efficiency enhancement, and provide high-quality financial services to support high-quality economic and social development.

Wang Bing also anticipates that the increasing positive factors in China's economic transformation and upgrading and high-quality development will drive the recovery and growth of loan demand. He stated that CCB will continue to explore effective credit demand, accelerate the transformation of reserved projects, maintain reasonable credit growth, balance lending, strengthen the expansion of retail credit business, consolidate the advantage in personal housing loans, stabilize the growth of personal consumption loans, explore business opportunities in areas such as individual industrial and commercial households and small and micro-enterprises, increase financial support for weak links in key areas of the real economy, and continuously optimize the structure of corporate loans