On November 12th, Bank of Communications held a performance briefing for the third quarter of 2024. Vice President Zhou Wanfeng responded to market concerns regarding the 10 trillion debt resolution and the core Tier 1 capital replenishment of large commercial banks. Bank of Communications will strictly promote debt resolution according to market principles and actively optimize financing plans to replenish core Tier 1 capital, ensuring a stable level of capital adequacy. The bank has also begun to reserve loan projects for next year to address the challenges posed by the current interest margin levels

On November 12th, Bank of Communications held a performance briefing for the third quarter of 2024. Vice President Zhou Wanfu and Board Secretary He Zhaobin attended the meeting.

At the meeting, the management of Bank of Communications responded to market concerns regarding debt resolution and the progress of increasing core Tier 1 capital among six major commercial banks.

How to Resolve Debt

Regarding the 10 trillion yuan debt resolution and whether it can help the company improve asset quality and increase provisions for non-performing loans, Vice President Zhou Wanfu stated that Bank of Communications is earnestly implementing national decision-making and deployment, and is firmly shouldering the responsibility of state-owned banks in supporting the resolution of local debt risks.

In specific debt resolution efforts, Bank of Communications will effectively utilize the established risk management mechanisms, adhere to the comprehensive plan for resolving local debt risks, and strictly follow market-oriented and rule-of-law principles. The bank will engage in autonomous and equal negotiations with local governments and financing platforms based on its business realities, cooperating with local governments to resolve debt risks and supporting compliant and orderly exits and market-oriented transformations for eligible financing platforms.

Actively Promoting Core Tier 1 Capital Supplementation

Regarding the national plan to increase core Tier 1 capital for the six major commercial banks and its impact on Bank of Communications' finances and operations, Vice President Zhou Wanfu stated that in recent years, Bank of Communications has continuously improved its capital management system, strengthened capital constraints, and focused on value creation. The bank insists on supporting the development of all its businesses with a reasonable and stable capital adequacy level. However, under the current circumstances of slowing net profit growth and narrowing net interest margins in the banking industry, the capital adequacy level of Bank of Communications still faces certain pressures.

In September of this year, the Financial Regulatory Bureau clarified that it would increase core Tier 1 capital for the six state-owned commercial banks. Bank of Communications will optimize and improve financing plans according to regulatory guidance and arrangements, actively promote core Tier 1 capital supplementation work. At the same time, the bank will continue to carry out regular issuance of other capital instruments to maintain a reasonable and stable capital adequacy level.

Bank of Communications will maintain close communication with relevant departments, and if approved for implementation, it will further solidify the bank's core Tier 1 capital, which will benefit the bank in better serving the real economy and enhancing its sustainable development capabilities.

Initiated Loan Project Reserves for Next Year

Regarding the loan project reserves for 2025 and whether they can effectively address the current low interest margin levels, Vice President Zhou Wanfu stated that in the third quarter of 2024, Bank of Communications resolutely implemented the financial support requirements for high-quality economic development, continuously increasing support for the real economy, with overall credit issuance achieving qualitative improvements and reasonable growth in volume.

In total, as of the end of September, the group's customer loan balance was approximately 8.44 trillion yuan, an increase of 485.1 billion yuan compared to the end of the previous year, with a growth rate of 6.10%.

Among them, the balance of various RMB loans from domestic banks increased by 6.82% compared to the end of the previous year, higher than the average level of financial institutions (6.74%). In terms of structure, the bank focuses on the "five major articles" and continues to optimize the credit structure.

As of the end of September, the growth rates of medium and long-term loans to the manufacturing industry, loans to strategic emerging industries, inclusive loans, and agricultural-related loans were all higher than the average growth rate of various loans since the beginning of the year Currently, preparations for the first quarter of next year are underway, focusing on key areas such as "two 重" (two 重), "two 新" (two 新), manufacturing, inclusive finance, green development, technological innovation, and rural revitalization, further strengthening the push.

At the same time, Bank of Communications has also reserved a number of key quality projects in conjunction with the industrial economic structure and characteristics of various localities.

Recently, the central government and regulatory authorities have successively introduced a series of strong policy measures. It is believed that the real economy will continue to improve steadily, and Bank of Communications will always take serving the real economy as its fundamental purpose, effectively utilize relevant policies, seize the window period, comprehensively enhance financial supply capacity, and achieve reasonable growth in quantity and effective improvement in quality.

Additionally, on the asset side, measures such as increasing the proportion of substantial loans, medium- and long-term loans, and retail loans will be implemented to continuously optimize the loan structure and strive to offset the downward pressure on interest margins.

Increase Efforts in Non-Interest Income

Regarding the significant year-on-year decline in the company's pre-provision profit, the report reflects that the main reasons are the substantial decrease in fee and commission income, as well as increased losses from foreign exchange and exchange rate products. Vice President Zhou Wanfu stated that in the first three quarters of 2024, Bank of Communications achieved a net profit (attributable to shareholders of the parent company) of 68.69 billion yuan, a year-on-year decrease of 0.69%; net operating income was 196.41 billion yuan, a year-on-year decrease of 1.37%, mainly due to relatively weak growth in fees and investment valuation and foreign exchange gains and losses:

First, net income from fees and commissions decreased by 13.96% year-on-year, mainly affected by policy factors such as the "integration of reporting and business" for bank insurance fees and the reduction of trailing commission rates for equity fund products, leading to a year-on-year decline in income from agency insurance and fund distribution business.

Second, investment valuation and foreign exchange gains and losses decreased by 13.15% year-on-year, mainly due to one-time factors such as the listing of certain equity investment projects in the same period last year, which raised the valuation base; this impact is not a normalized operational effect. At the same time, due to foreign exchange exposure and exchange rate changes, foreign exchange gains decreased year-on-year.

Looking ahead to next year, the one-time impact of policy factors on fee income will gradually fade. Moving forward, efforts will be increased in non-interest income to strengthen profit support.

First, enhance product capability construction. Further strengthen the design, combination, and delivery capabilities of all types of wealth management products, and carry out "one household, one policy" product configuration work around differentiated customer needs, continuously strengthening wealth management business.

Second, broaden diversified sources of fee growth. Leverage the group's comprehensive operations and full-license advantages, strengthen the coordination and interaction of onshore and offshore, domestic and foreign, parent and subsidiary businesses through the marketing combination of domestic and foreign currency products, and increase growth points for intermediate business income while meeting customers' comprehensive financial service needs, striving for relatively stable net income from fees and commissions.

Third, further enhance the trading capabilities of various financial products, increase trading volume, strengthen funding support, continuously improve the asset allocation and trading account profit-making capabilities of bank accounts, while enhancing dynamic monitoring of investment exposure and targets, reducing the impact of capital market fluctuations, and maintaining investment valuation and foreign exchange gains and losses within a relatively reasonable range.

Two-Pronged Approach to Address Interest Margin Pressure

Regarding how the company responds to the pressure on interest margins in the fourth quarter, Vice President Zhou Wanfu stated that in the first three quarters of this year, the interest margin of the Bank of Communications Group was 1.28%, a year-on-year decrease of 2 basis points.

The main reasons are the significant downward pressure on the yield of interest-earning assets, especially the yield on customer loans. Specifically:

First, due to the combined effects of the LPR reduction, adjustments to existing mortgage rates, and the "517" real estate policy, the yield on customer loans decreased by 34 basis points year-on-year; second, influenced by the overall decline in market interest rates, the yield on securities investments decreased by 6 basis points year-on-year. The Bank of Communications is addressing the downward pressure on asset-side yields by optimizing the asset business structure and strengthening liability cost control.

1. In terms of asset business structure: First, flexibly arrange the allocation of major asset categories, continuously increasing the proportion of customer loans with relatively high yields, while reducing the proportion of cash and deposits with the central bank. Second, continuously optimize the loan business structure, increasing the proportion of substantial loans with relatively high yields, while reducing low-yield loans such as bills and non-bank loans.

2. In terms of liability cost control: First, strengthen the refined management of deposit pricing. While strictly adhering to self-discipline requirements, fully mobilize the pricing initiative and flexibility of operating units, with the effects of multiple previous deposit rate reductions continuing to show. Second, vigorously reduce high-cost deposits. Strengthen the management of relatively high-cost deposits such as agreement deposits and structured deposits, reasonably controlling their total amount, duration, and pricing. Third, actively expand low-cost liabilities. Enhance the comprehensive service level of payment and settlement, promote the growth of low-cost deposits, and flexibly arrange the scale and structure of market funds based on market interest rate trends.

Dual Drive of Digital Technology and Data Elements

Regarding the effectiveness of digital transformation, Vice President Zhou Wanfu introduced that the Bank of Communications has continuously increased its investment in digital transformation. By the end of 2023, financial technology talent accounted for 8.29% of the total number of the group. The enterprise-level data standard system has been further improved, and data support capabilities have been continuously enhanced. Focusing on retail, the bank is building a digital operation system, advancing the construction of enterprise-level architecture, business middle platform, and product factory, with the retail credit and "JiaoYin YiFu" enterprise-level architecture projects being implemented. New versions of personal mobile banking, corporate mobile banking, and corporate online banking have been launched, with efficient linkage between cloud-based Bank of Communications and physical outlets, and the online customer acquisition ratio for inclusive small and micro enterprises has exceeded 80%. The application of artificial intelligence in customer service, product promotion, and risk prevention continues to deepen. The bank is accelerating the layout of new digital infrastructure, deeply promoting "strengthening the foundation, building the network, going to the cloud, and solidifying the core," with the Pujiang New City Data Center operating at the highest standards, and the construction of remote data centers being strengthened, speeding up the "cloudification" of infrastructure, and accelerating the landing of the new generation of distributed cloud computing architecture.

In the future, the Bank of Communications will focus on creating a significant digital finance narrative, driving the construction of a new digital Bank of Communications with the dual engines of digital technology and data elements. Based on the customer perspective, it will continuously optimize online service functions, expand service scale, and enhance the "Cloud Bank of Communications" digital service brand. Focusing on retail, it will build an inclusive financial digital operation system, advancing the construction of enterprise-level architecture, business systems, and product factories. Strengthen data governance, focus on building five major narratives, enhance the integration and application of internal and external data, and empower product innovation upgrades and business process optimization Deepen the application of artificial intelligence to enhance service, risk control, and management quality and efficiency