China Merchants Bank Co., Ltd., 2019 Earnings Call, Mar 23, 2020 - SEHK:3968

SEHK:3968

The "Unknown Executive" provided responses on a few different topics during the earnings call. Here’s a detailed compilation of their statements:

Response on Revenue Growth and Risk Appetite

• Revenue Growth Concerns: The management acknowledges the investors' concerns about the moderate revenue growth compared to faster profit growth.
• Strategic Considerations: The management reflects on the development path and pattern of the bank, emphasizing that pursuing high revenue growth might bring higher risks and lower profit growth.
• Risk vs. Reward: The bank aims for a moderate revenue growth, which aligns with its risk appetite and enables higher profit growth.
• Economic Backdrop: The approach is considered wise given the economic downturn.

Response on Asset Management Business

• Impact of New Regulations: The bank has been under pressure to transform its asset management business due to new regulations.
• Positive Outlook: The annual report indicates a positive outlook for the scale of the asset management business.
• Income Contribution: The management expects the income from the asset management business to significantly increase, aiming for a balanced contribution from onshore and offshore assets.

Response on Fintech Strategy and Application Development

• Positioning: The application is positioned as a financial application, with a focus on enhancing its financial scenario capabilities.
• Scenario Extension: Plans include extending the application to non-financial scenarios, such as meal tickets, movie tickets, public transportation, and handy services.
• Integration Strategies:
  • Financial and Non-Financial Scenarios: Integrating financial and non-financial scenarios to provide a comprehensive service offering.
  • Online and Offline Integration: Leveraging the bank's physical outlets to enhance the online experience.
  • Client-Centric Approach: Shifting from a product-oriented to a client-oriented approach to better serve customers.

Response on Private Banking Business

• New Leadership: The private banking business has a new head, but the strategy remains consistent.
• Performance: The overall performance of the private banking business was good in the previous year, with a high growth rate.
• Average Asset Trend: The drop in average assets per account is attributed to the faster growth in the number of clients compared to the growth in assets.
• Future Focus: The bank plans to expand its overseas private banking business and focus on digital private banking.

Response on Real Estate Non-Performing Assets

• Low NPL Ratio: The non-performing loan (NPL) ratio in the real estate sector is very low.
• Prudent Approach: The bank maintains a prudent and steady principle in real estate lending, with quota management and total amount control.
• Strategic Partnerships: Strategic partnerships are formed with top-tier clients.
• Target Markets: Focus on Tier 1 and Tier 2 cities with high housing demand.
• Loan Types: Emphasis on loans for personal housing use to minimize risk.

These responses provide insights into the bank's strategic direction, particularly in areas such as risk management, asset management, and digital transformation.

Jianjun Liu, the Former Executive Vice President, Joint Company Secretary, and Executive Director, made the following statements:

1. Opening Remarks:

   • Welcomed investors, analysts, media friends, and expressed gratitude for their attendance.
   • Due to the outbreak, the session was broadcast online live, combining the session for analysts and investors with that for the media.
   • Mentioned the presence of Chairman Li Jianhong, Director Hong Xiaoyuan, Director Zhang Jian, Director Su Min, and other executives attending from Hong Kong and Shenzhen.
   • Noted the participation of domestic and overseas institutional investors, analysts, and media friends, totaling 524 attendees.
   • Acknowledged the support, investment, and attention towards China Merchants Bank.

2. Session Format:

   • Announced that the session would consist of two parts:
     • The first part would be chaired by the President and Chairman, covering the 2019 results, lasting around 30 minutes.
     • The second part would be a Q&A session, lasting until approximately 11:30 AM.
   • Mentioned that the session would be covered by simultaneous English interpretation throughout.

3. Transition to Presentations:

   • Invited the Chairman and President to introduce China Merchants Bank's 2019 results.

4. Conclusion of Presentations:

   • Thanked Chairman Li Jianhong for his presentation.

5. Transition to Q&A Session:

   • Announced the conclusion of the 2019 results announcement and outlook strategies.
   • Moved on to the Q&A session.

6. Closing Remarks:

   • Due to time constraints, concluded the 2019 CMB results announcement.

   • Acknowledged that attendees might have additional questions and invited them to refer to the annual report for more detailed information.

   • Extended an invitation to discuss further questions with the Investor Relations team.

   • Reiterated CMB's commitment to transparency and delivering better returns to investors and shareholders.

   • Expressed gratitude for the attendees' participation.

Jianhong Li made several statements during the earnings call:

1. Introduction and Overview:

   • Jianhong Li thanked Liu Jianjun for the introduction and greeted the investors, analysts, and media friends.
   • He expressed appreciation for their attendance and long-term support for China Merchants Bank (CMB).

2. 2019 Performance Highlights:

   • Capital returns improved, and profit growth reached a 7-year high.
     • Net operating income was CNY 269.788 billion, up 8.59% year-on-year.
     • Net profit was CNY 92.867 billion, up 15.28% year-on-year.
     • ROAE and ROAA were 16.84% and 1.31%, respectively, up 0.27 PPT and 0.07 PPT from the previous year.
     • The Board approved a cash dividend payout rate of 33% for 2019.
   • NIM rose by 2 bps from the previous year to 2.59%.
   • Net non-interest income was CNY 96.698 billion, up 9.81% year-on-year.
   • Cost-to-income ratio was 32.08%, up 1.04 PPTs from the previous year, due to increased investment in fintech.
   • Asset quality was good, with NPL balance and ratio both dropping for the third consecutive year.
     • NPL balance was CNY 52.275 billion, down CNY 1.23 billion from the previous year-end.
     • NPL ratio was 1.16%, down 0.2% PPT from the previous year-end.
     • NPL provision coverage was 426.78%, up 68.6 PPTs from the previous year-end.
   • Capital indigenous growth was strong, with no common stock financing for six consecutive years.
   • Scale grew steadily, with improvements in market share.
     • Total assets were CNY 7.42 trillion, up 9.95% from the previous year-end.
     • Loans and advances totaled CNY 4.49 trillion, up 14.18% from the previous year-end.
     • Client deposits totaled CNY 4.84 trillion, up 10.08% from the previous year-end.
   • Tech investment increased, with a focus on innovation-driven growth.
     • Infotech investment was CNY 9.361 billion, up 43.97% year-on-year.
     • Fintech innovation fund approved 1,611 projects and invested CNY 3.66 billion.
   • Market capitalization reached a record high, and brand influence expanded globally.

3. Outlook and Strategies for 2020:

   • Acknowledged the complex and challenging external environment with significant downward pressure on the economy, particularly due to the COVID-19 outbreak.
   • Stated that despite the challenges, China's economy shows strong resilience and potential.
   • Highlighted opportunities arising from increased economic opening up, countercyclical macroeconomic control policies, and the booming digital economy.
   • Emphasized the need to seize present opportunities, adhere to long-term strategies, and transform challenges into opportunities.
   • Proposed strategies focused on competing for access to financial services in the digital era, finding structural opportunities amidst the impact of the pandemic, taking a prudent approach to risk management, and committing to long-term goals by optimizing market-oriented systems.

4. Impact of COVID-19:

   • Acknowledged the unprecedented impact of the pandemic on the global economy, financial markets, and governance systems.
   • Discussed the situation in China, noting that the epidemic was effectively curbed and businesses were resuming operations.
   • Mentioned the global spread of the virus and its potential to cause a quicker recession due to structural issues.
   • Stated that CMB faces challenges but also sees opportunities, particularly in infrastructure financing and government purchasing.
   • Noted the need for a strong sense of crisis and risk to minimize the impact of the pandemic and turn challenges into opportunities.

5. Q&A Session:

   • Responded to questions regarding the impact of COVID-19 on CMB's performance, asset quality, and strategies.
   • Addressed concerns about the bank's dividend payout ratio and the relationship between growth, market share, and shareholder returns.
   • Discussed the bank's strategies for managing net interest margins, asset quality, and the impact of the LPR (Loan Prime Rate) reform.
   • Provided insights into the bank's approach to retail and corporate business, asset allocation, and the de-banking trend among younger clients.
   • Explained the bank's strategy for its wealth management subsidiary and the asset management business.
   • Addressed questions about the bank's private banking business and its digital initiatives.
   • Discussed the bank's asset quality, particularly in the real estate sector.

These statements provide a comprehensive overview of Jianhong Li's contributions to the earnings call, covering both the 2019 performance highlights and the outlook and strategies for 2020.

Huiyu Tian, the Former Executive Director, discussed several points during the earnings call:

1. Client Base Growth:

   • Retail client base expanded, with a positive growth in valuable clients.
   • Total number of retail clients reached 144 million, up 14.82% from the previous year.
   • Debit card clients and active credit card users numbered 117 million and 64 million, respectively, up 16.93% and 11.16%.
   • Sunflower-level and above clients numbered 2.6 million, up 12.07%.

2. Retail Banking Performance:

   • Retail AUM grew by 10.17% to reach 7.49 trillion yuan.
   • Deposits and loans from retail clients increased by 16.53% and 17.12%, respectively.

3. Corporate Client Base:

   • Corporate clients numbered 2.1 million, up 12.94%.
   • Newly acquired corporate depositors numbered 429,200.
   • Corporate deposits and loans were 2.96 trillion yuan and 1.62 trillion yuan, up 6.55% and 6.96%, respectively.

4. Strategic Clients:

   • Head office level strategic clients numbered 282, with a 19.39% increase in proprietary deposits daily average.
   • Branch level strategic clients numbered 5,614, with a proprietary deposits daily average of 529.96 billion yuan.
   • Institutional clients numbered 35,400, up 14.56%, with institutional clients R&D deposits daily average of 840 billion yuan.

5. Small Enterprises Clients:

   • Small enterprises clients numbered 1.99 million, up 13.76%.

6. Retail Finance Performance:

   • Profit before tax from retail finance business was 65.16 billion yuan, up 13.86%.
   • Net operating income from retail finance business was 142.56 billion yuan, up 15.66%, accounting for 56.71% of total net operating income.
   • Sunflower-level AUM balance and above reached 6.09 trillion yuan, up 1.65 percentage points.
   • AUM balance from private banking customers reached 2.23 trillion yuan, up 9.4%.
   • Balance of residential mortgage loans hit the 1 trillion yuan mark, up 19.23%.
   • Credit card transactions amounted to 4.35 billion yuan, up 14.62%, maintaining the #1 position in the industry.
   • Interest income and noninterest income from credit card business increased by 17.44% and 25.42%, respectively.
   • Premiums from agency distribution of insurance policy amounted to 94 billion yuan, up 33%.
   • Sales of non-monetary mutual funds were 219.8 billion yuan, up 33.89%.
   • Balance of retail wealth management products grew by 15%.

7. Wholesale Finance Performance:

   • New progresses in institutional business, including a coverage ratio of local government special debts issuance at the provincial level of 77.78% and accumulated derivative deposits of 262.8 billion yuan.
   • Secured qualification of custody of occupational annuity in all provinces with interest in sales amounted to 42.9 billion yuan.
   • Structure of custody business significantly optimized, with assets under custody of 13.23 trillion yuan.
   • Competency of investment banking business continued to improve, with the value of bonds with CMB's elite underwriter rising to 653.24 billion yuan.
   • Supply chain finance business strengthened, with 1,236 new supply chain loan customers in 2019.
   • Innovation and transaction banking business accelerated, including the launch of CBS7.0.
   • Robust development in financial market business, with trading volume of RMB exchange rate swap rising to 832.2 billion USD.

8. Asset Management Business Transformation:

   • Launched wealth management subsidiary, with the balance of WMP reaching 2.19 trillion yuan, up 11.72%.
   • New products in compliance with the new regulation accounted for 31.22% of the total balance.
   • CMB Wealth Management subsidiary launched new product naming system and completed fundraising for its first product.

9. Risk Management and Asset Quality:

   • Retail NPL ratio was 0.73%, and corporate NPL ratio was 1.84%, down by 0.06 and 0.29 percentage points, respectively.
   • Special-mention loan ratio was 1.17%, down by 0.34 percentage points.
   • Nonperforming assets disposed totaling 45.66 billion yuan, with 10.4 billion yuan collected in cash.
   • Loan structure stabilized, with a proportion of retail loan at 55.73%, 1.3 percentage points higher.
   • Financial exposure to industries reduced or withdrawn was 123.99 billion yuan, down by 2.81 billion yuan.

10. Digitalization and Technology:

    • Digital operation capability significantly enhanced, with CMB App and CMB Life App reaching 102 million MAU.

    • Breakthroughs made in ecosystem construction, engaging over 10 million MAUs in 16 scenarios.

    • Digitalized risk management capability continued to improve, with the Libra System intervening in suspected fraudulent transactions.

    • Operation and service efficiency fully optimized, with 60% of customer service workload done by AI.

    • Future-oriented digital infrastructure preliminarily built, with increased cloud computing, hardware and software deployment, and big data application.