Edited Transcript of 601939.SS earnings conference call or presentation 30-Mar-20 8:30am GMT

And our inclusive finance, our residential mortgage and our fintech work has been generating good results and leasing capacities. Now our PowerPoint has already provided good information about this, and I won’t go into detail.

And with the second characteristic, which is stable, it is visualized in 2 areas: One is our asset quality. It is actually improving and improving. And in 2019, our risk management capabilities continues to improve and our asset qualities, too. Our NPL ratio has come down by 0.04 percentage points at 1.3% (sic) [1.42%]. Our PCR, provision coverage ratio, is at 227.69%. That’s an increase of 19.32 percentage points. Our anticipated adverse different — reverse difference between overdue loans and NPL is negative CNY 39.6 billion, which means that our quality is improving.

And our inclusive finance is 1 of our 3 strategies. In — by end of 2019, we are serving 13.25 accounts (sic) [1.3251 million accounts]. That is an increase of 3 — 37 — 370,000 accounts (sic) [307,200 accounts].

And our 3 capabilities continues to improve, which is in line with the instruction given to us — guidelines given to us by President Xi, which is that we need to serve the country’s strategy, and we need to enhance our international competitiveness and our risk management capabilities. Now this has been reported in detail from our PowerPoint, which I will not go into detail now.

Thirdly, on the basis of being good and being stable, we are able to drive sustainability. Sustainability, first, has to be lived up with our business concepts. Our bank, as an international listed bank, our goal is for sustainability perpetuality. We wanted to build our business for 100 years, for 1,000 years or even 10,000 years. So in our daily operation, we insisted on 3 things. One is prudency. And the second one is prudency and so is the third one. So we insist that to be prudent and to be stable could drive our business for a long, long time.

And our — we have been kept — keep ourselves rational with the changes in the outside business environment and following the rules of a commercial bank. And all of our performances are showing that. With the — now for all of your friends, all of our friends, we should have a very good understanding of what we mean by having a balanced and coordinated performance.

Now starting 2020, with the sudden dawn of the COVID-19 and the challenges that comes with it, with Mr. Chairman, Tian Guoli leadership, we have been accelerating our efforts to follow the instructions of President Xi — Chairman Xi, and the PBOC’s instructions there. And we have launched 20 different measures in care of our employee and also 30 others to support the economy and to fight the epidemics. That goes to speak about our — goes to say about the responsibility of us being a big state-owned bank. And this is also a comprehensive stress test to our digital capabilities and our fintech.

Now lately, we have been stepping up our strategy on digital economy and digital operations. Now during the epidemics, our bank has been relying on our fintech systems and measures to enable our employees to work from home and approve different types of applications for customers and products and services from afar, from home. And we have been enabling, empowering the government and the different companies and the society in using our smart platform to conduct management of the properties, delivery of procurement and so to allow people from shopping from home. So our business and our management, therefore, has not been hugely impacted.

Since the epidemic started, we have been showing ourselves as a big bank. We have cumulatively released over CNY 90 billion of loans to people who have been affected by the epidemics and set up a fund of CNY 5 billion to fight that. And in order to have the Hubei province, we have delivered donations of over CNY 300 million.

Now into March, with the international pandemic launching, we have loaned a lot of anti-epidemic supplies to different people. And we continue to use the proprietary cross-border international system to coordinate procurement of anti-epidemic supplies for different people. And we have actually delivered over 400 million pieces of this. And this is an act to build — to help people of a common destiny. And going forward, we will continue to pay close attention to the effects of the international pandemic and its impact to the financial world and to keep risk management prudent and to act rationally. And based on instructions of the nation and the strategy, we would help fight the epidemics. We would help the economy develop, and we will keep the corporations alive as well as help the people to build our society to become a middle class society. And we would like to contribute our skills and capabilities to fight this epidemics and to foster the continued development of the country.

Now we are moving into the question-and-answer session. Prior to asking a question, please name yourself and your institutions. Because of time constraint, please ask only 1 questions at a time. Please ask your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Morgan Stanley, Mr. Xu Ran.

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Ran Xu, Morgan Stanley, Research Division – MD [2]

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My — I am the analyst from Morgan Stanley. My name is Xu Ran. And last year, you indeed have a very good performance. However, this year, you may face larger challenges. I’d like to ask a question regarding loan pricing. Because of the epidemics, the economy has slowed down. And lately, PBOC has draw down the repo interest. However, the loan demand continues to be strong. The domestic market has a very huge demand. I’d like to ask how do you balance between the capital cost and the demand for loans and risk management? And what is your consideration about this? And what is the impact? How direct is it, MOF’s impact on us?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [3]

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Thank you for the question from Morgan Stanley, and I am thankful to Morgan Stanley for your continued support and care for us. Now the sudden occurrence of the pandemic is a very important public hygiene, public health hazard. Now it has a huge impact to not only China’s, but also the international economy. The various countries are using fiscal and monetary policies to ensure economic growth. Especially after the G20 special summit in this month, the leaders of the world have come to a consent and have sent out very strong messages. Now as a commercial bank, we are already in line with the economic behavior. So this epidemics definitely would have an impact on us.

Now the China loan interest is practicing the LPR. Starting last year, the PBOC has already started to marketize this interest rate. And this year, since March 1, we are also requiring the deposit regarding — regardless whether it is for individuals or for companies, it will need to be converted. So it will definitely have an impact on our business.

Now the impact on the economy as well as the factors that we should consider in our business operation is mainly dependent on the quality of our customers. The quality of our customers as well as the customer mix goes together to determine our profitability. And it is also dependent on the PBOC’s requirement that investment consumption and foreign trade, how do we go — follow the compliance and to deliver the strength of our bank and in investment, if we need to support infrastructure, especially new ones. And also, we have to support the medical services. If our customer quality is good, if our customer base is sound, then I think, with the downward trend of the interest rate, given that we are working on the same economic environment, and if we can optimize our business, optimize our customer base, optimize our strategies through refined management, then we can enhance our pricing capabilities and our risk management capabilities. We remain confident that within the challenging environment that we will face this year, we can still keep steady growth of our business. Thank you.

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Operator [4]

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The next question is from Shanghai Securities, Ms. [Gang Xiang Shen].

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Unidentified Analyst, [5]

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My question is for quarter 1, have you observed the impact of the pandemics on the retail? And do you see any coming downtrend of the scale and the profitability? And as a big retail bank, what is your outlook of the retail segment?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [6]

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Thank you for your question. I will ask our Vice President, Mr. Ji Zhihong, to answer your question.

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Ji Zhihong, China Construction Bank Corporation – EVP [7]

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As impacted by the epidemic, the consumption of China has — the impact has been great. From our retail business, we observe now that such an impact is not as evident as yet, and it is relatively small in mainly 3 areas, several areas. So from the — say from the mortgage business, we still are enjoying on those demand that has been accumulated previously, and we are still enjoying growth. And another aspect would be the intermediary business. Some part of this business, especially the off-line business, has been impacted in some ways. However, we have been enhancing the development of our online business, and that sort of buffered the negative impact. We also see that the country would continue to push measures to enhance the economy.

If we look at March, we already see that mortgage loans has become more alive and recovered from before. And as a next step, we do anticipate that consumption would also become active again. And we see that the capital market development of China offers a very good future. And we may add on some intermediary businesses related to the capital market. Now the Chinese assets have been recognized or maybe nicely commented by some international investors. So given the epidemic and given the interest rate spread between China and international being bigger, so Chinese assets could well be the choice of international investors going forward. And we will enhance our service to international investors investing in China and also in domestic investors entering — working in the capital markets. So these are the areas that I’d like to talk about.

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Operator [8]

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Next question is from Ms. Yan Meizhi from UBS.

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Meizhi Yan, UBS Investment Bank, Research Division – MD & Head of Greater China Financials [9]

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I am from UBS. My name is Yan Meizhi. I’d like to ask a question regarding the NIM trend. We see that the — after the epidemic, the government and the PBOC has asked the banks to cut interest rates, loan rates and also to extend loans that could help industries. Now — so just now, we were talking about loan pricing coming down. And also, at the liability side, there may also be some similar downward pressure. So can you talk about your outlook? Do you anticipate that deposit rates would come down? And on 2020 NIM versus 2019, do you think it will keep stable or would it come down? If you anticipate that it would come down, by how much? And how do we balance between our government’s instruction to help the industry with our need to be profitable?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [10]

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Thank you for your question. I’ll ask our CFO, Mr. Xu Yiming, to take your question.

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Yiming Xu, China Construction Bank Corporation – CFO [11]

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The NIM coming down is a trend. In 2019, our NIM was 2.26%. When comparing to 2018, it came down by 5 basis point. At that time, it was 2.31%. In the future, 2020, and I foresee that it would continue to come down. We anticipate that it would stay at around 10 basis point. Now I won’t go into detail about the reasons for this trend. But in a nutshell, I think if we can maintain a 10 basis point, that will be quite good.

Now something that I’d like to explain is that something that you may hold hard, and I’ve explained that before. Because with the NIM that we disclosed, that it is not possible to have a standardized way to disclose. Each bank in their monthly or quarterly reports cannot be compared because we’re not comparing apples with apples. It is very difficult to observe a trend through the figures of 1 or 2 quarters.

Let me cite an example I have communicated with you before. In 2017, we have adjusted our reporting disclosure way. Our credit card revenue at the time has not been consolidated into the total number. In 2017, we had made a change which definitely is different from before and is not comparable. And I see the same from our peers. So the way and the format and — of disclosure, since they’re all different, it is not easy to compare them. But that does not go to say that this is not important. But what we need to look into is rather with the same bank, if there are big fluctuations between quarters or year-on-year differences, then we definitely must find out why. This is key. Just now I’ve said we anticipate that it would stabilize at 10 basis point. It would be good if we can do that. This is my basic outlook for the future.

Now in 2019, why is it that we have come down by 5 basis points when compared to the year before that? There are several reasons. There, we actually have some increase and some decline. Our loan in 2019 has boosted us — our performance by 9 basis point. But there’s also other factors that are pulling us down. For example, the cost of deposits. In 2019, we had 21 basis point of this, which drive our overall performance down. So that means that in the future, in order to manage our NIM at a good level, we need to work on the loan pricing. We also need to enhance our loan structure and our risk management capabilities.

As far as deposit is concerned, we need to pay attention to the costing of the deposit business. And our retail and our current deposit is a business that we have always insisted on that can ensure. Now if we can ensure that this is a higher share of our total, then — because this is a very important piece of our business, therefore, we are spending efforts to get customers and get deposits. The 10 basis point that I talked about should be achievable if we have a systemic way of working on it. Thank you.

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Operator [12]

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Next question is from [Xinhua], Mr. [Wi].

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Unidentified Analyst, [13]

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My name is [Wu Yi] from [Xinhua]. We see that at the beginning of the epidemic, some industries or corporations may have a difference in their capital needs. Do you see any such changes? Last year, our loan structure, did it go through any major change? And is that moving into this year? And how do we encourage more companies to come and apply for a loan?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [14]

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Well, thank you for your question. So I will ask our Vice President, Mr. Zhang Gengsheng, who is responsible for Risk Management to take your question.

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Gengsheng Zhang, China Construction Bank Corporation – Executive VP & Executive Director [15]

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Just like you have said because of the sudden onset of the pandemic, it has brought huge impact to the economy as well as the livelihood of the Chinese people. Especially with the uncertainty of the international pandemic situation, it can bring huge impact, too. So we — regardless whether we are looking at the domestic or the international scenario, it is also important. I anticipate that our loan structure would definitely be changed this year. First of all, we have to invest in medical, hygiene, health and epidemic fighting measures. This is a basis. If we do not enhance our efforts in here, it would be problematic. Another area would be infrastructure. This investment will be about — or more than CNY 1 trillion. The third one would be traditional infrastructure. This year is a very special year. We need to deliver a double performance or 2x the performance. And we need to build our society in the middle class society, and we also need to work on removing poverty.

Now with China, we anticipate that investment on infrastructures would be faster when compared to 2019 and also because China is part of the global supply chain. Now if the pandemic can come under control globally, that would create a smaller impact on our export and manufacturing. However, if this pandemic does not come under good control, then we anticipate that the impact would be huge for this part of our economy. Therefore, our loan structure this year, we have to be extra careful. All in all, it is still early to make a conclusion because we do not know how the pandemic will go globally. If truly, the pandemic does not come under control even by quarter 3, then frankly speaking, it would — the impact to the Chinese economy would be huge. And the bank is a blood supplier — supplies blood to the industry, so we will also be under great pressure, too. And we would pay close attention to the development and act accordingly. Thank you.

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Operator [16]

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Next question is from PIMCO, Ms. Dorris Chen.

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Dorris Chen;PIMCO;Senior VP and Credit Analyst, [17]

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My question will be focused on inclusive finance. Now please analyze a bit more about the balance of loan for inclusive finance, especially after the epidemics have settled, it would have more direct impact on the small, medium, and micro services and manufacturers. So what is your outlook?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [18]

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I’ll ask Mr. Zhang to take your question.

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Gengsheng Zhang, China Construction Bank Corporation – Executive VP & Executive Director [19]

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Thank you. The epidemics, for companies, the biggest impact would be those that you talked about, those that would need inclusive finance, the small, medium and the micro companies. And they happen to play a very important role in the country’s GDP. As you can see, a 5, a 6, and a 7, and a 8 and a 9. That means these companies takes — composes of 50% of the GDP, 60% of the tax revenue and 70% of the innovation. Therefore, why is it that they are under great impact? That’s because they are small in scale. And they are like a sanpan in the raging sea, the ability to fight the turmoil is small. And also because of the stay home tactics to fight the epidemics, it has cut down hugely on consumption, like tourism, restaurants, hotels, et cetera. This impact is huge. Now our bank, construction — China CCB, have to play our role in such time of turmoil. We try our best to support the medium, small and micro industries development.

Inclusive finance is 1 of the 3 strategies of our bank. Unlike other banks, this would be unique to our bank. Now in the course of implementation, we, indeed, developed very stably and healthily. By end of 2019, our loan balance is at CNY 963 billion. And now it has — it already exceeded CNY 1 trillion. We are the only bank that has this type of business. At the beginning of the year, we saw an increase of CNY 353 billion, which is a 57.88% increase over same period last year. And this is way over — way better than compliance requirement. Just now, it has — we have already talked about that. Our inclusive finance customers is already at 1.325 million, which is a 370,000 addition to our total number of accounts. And our medium, small, micro new products balance is at CNY 59 billion, which is a 108% increase over last year.

Now at the same time, given the fast and good development, say, by end of last year, the small, medium micro loans NPL is less than 1%, which is much better than corporate loans. At the same time, we try our best to cut fees, as is required of us. And we also try our best to provide to these customers services of great value. And at the start of this year, we have also launched some new measures. Namely, there were 4 special measures and 8 targeted measures, which I believe the media has already reported on. Our small, medium, micro fast loans, we try to optimize it and make it better. We also work on personal loans, industry and company loans as well as loans to farmers. Now these are segmented, multilayered and comprehensive scope loans, of which small micro loans have already formed into credit loans, secured loans, pledged loans and platform loans, different products. And we also have 10-odd different products for personal loans. By end of 2019, the small micro loans have accumulated a balance of RMB 1.7 trillion, whereas end of last year, now it was only at slightly more than CNY 1 trillion. And we already serve 1.03 million accounts.

Now the China Construction Bank, I’m not trying to be bold in here, what I’m saying is that as far as inclusive finance is concerned, we have — we are able to offer all options to people from — or customers from different walks of life. Regardless of who you are, you would be able to find a suitable products from our bank. And our products is very convenient to use. You can make an application on from your cellphone, from your hand phone. So I honestly hope that our media friends would help promote some of our inclusive finance products, tell them what these products can do.

The — last year, the PREMIER has visited us and has praised us with our products. Now if the PREMIER is saying that it ought to be real and good, right, so I honestly hope that you could help us promote these products.

Now I’d like to supplement a few words. Just now, what we meant is that we hope that our media friends and our analyst friends can promote our products. And the purpose of this is that we hope to be able to serve more small and micro customers, so that more of these customers can enjoy the inclusiveness of the financial products that we offer. And at the same time, we have 87% share of this market, and this will continue to strengthen our efforts to develop this market. So this year, the regulators have required us, well, the commercial — big commercial banks in China that the small micro loan own business cannot be smaller than 30% of its total. So internally, we already have a good customer base and good trend. So we are confident that this number can be met, and we will continue to work on this strategy to help more small and micro, medium company, especially given the epidemics and the way that they suffer from epidemics, especially those that have had a normal healthy business prior to the onset of the epidemics. For these companies, we will be there for them not only at the moment of triumph. We would also be there in the hour of need. So we will take the necessary measures to help these small, micro, medium companies, so that they can ride the tide and be able to survive.

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Operator [20]

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Next question is from [21st Century Economic News], Ms. [Lee Yi Min].

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Unidentified Participant, [21]

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I have 2 questions. The first is related to residential leasing. Last year, we discovered that a lot of these long-lease apartment, the profitability has been under pressure. The cash flow has been a problem. So what is the performance? And what is your plan regarding this area? And second, I discovered that there are 17 — CNY 7 billion of nonstandard assets. So what is the target and the plan in here?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [22]

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Now we limit each of you to 1 question. But since you have asked, we would answer your question. I ask Mr. Ji to take your question.

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Ji Zhihong, China Construction Bank Corporation – EVP [23]

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Now regarding residential leasing, this is 1 of the 3 strategies of our bank. In the last couple of years, CCB has been pushing the residential leasing strategy. And to help form an ecosystem of leased residential apartments in China and to maximize its roles and functions and to build an ecosystem in order to develop this market and to probe into various models and types of this particular segment. And we have had some good progress. The overall platform of residential leasing that we have been able to build is multi-tiered, including government service system, private housing, public housing, et cetera. And our coverage of the platform and the level of activity there has been rising quickly. As of end of last year, we have been able to cover over 95% of the local cities, and we have accumulated over 21 million users and showcased over 20 million of different apartments. We also probed into the separate — the mode of separating ownership and rental rights. And we have been showcasing over 800,000 sets of apartments of this type. And our loan regarding this segment has been well. And we have set up long leases to help build CCBs and development of certain villas and regions. And we are working well with our upstream and lower streams, so that we can build the ecosystem and to build a high-efficiency, a highly effective business. And we have been accumulating experience, and we have been pushing forward the development of — and the optimization of this ecosystem, products such as long lease, for example, and also, to materialize the concept of a place is also a home.

We also provide different insurance products, and we also support the senior care services, senior people resting at home, so that we cover both the apartment management and consumption. We have been linking all that into a single chain. Just now, you have said that some long-lease apartments may have faced some cash flow difficulties. Some renters may have — the income flow may have suffered in some ways. We have also observed that happening. But all of these are temporary. We believe that this is only a temporary impact. Now given time, it will improve. And we are willing to work with these companies, leasing companies to cooperate with them to overcome difficulties.

And during the epidemics, we have worked with these service companies and — to provide to those medical staff who are working on the epidemics and to provide them to waive the rent and also to provide for free some anti-epidemics supplies and also to provide help and a place for the medical staff to stay during the epidemics for free. We have afforded over 1,500 sets for this particular use.

All in all, the residential leasing future, we — is quite good, we believe. And we have been enhancing in the younger groups and the lower and middle-income group and also newcomers to the cities and also users of public housing. We believe that all of these clusters have high demand for residential leasing. And we will also work with the country’s strategy to build this particular segment and to safely and prudently implement the strategy on this part.

Regarding your second question, you have asked a very key and important question. Our nonstandard asset, the total balance is more than CNY 720 billion. That is true. And the share is 33.62%, which is compliant to the 35% as required by the regulators. However, I’d like for you to look at 2 other sets of numbers. Out standard asset is in over CNY 1 trillion. And that is 47% of our total asset, and it has increased by 9.87 point, with an increase of CNY 190 billion. And with the new rules of asset management, we have been able to push forward economic products. We were at the balance of our CNY 478.5 billion, that is CNY 178.9 billion increase and a 60% increase, close to 60%, at 59.71%. This is a very good development. We are compliant to the regulators, and it is also in line with our development strategy.

Now with the rectification of the nonstandard assets, now this is — that is about CNY 700 billion of it. It’s a challenge for each and every bank. So we are coming through the CNY 700 billion of nonasset — nonstandard asset. And we are also following the requirement and guidance of the regulators. You are aware that such rectification, the smooth implementation of the rectification, I mean, about this, that a lot of measures have been launched. And we would take an active role. We take the initiative to conduct such rectification, so that our work on the nonstandard assets could be satisfactory and safely conducted.

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Operator [24]

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The next one is from Mr. Yang Shuo from Goldman Sachs.

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Shuo Yang, Goldman Sachs Group Inc., Research Division – Research Analyst [25]

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I’m Yang Shuo from Goldman Sachs. I have only 1 question. I’d like to understand the asset disposal and asset distribution of 2020, including loans and bonds. Especially in the last couple of days, we have seen the launching of the special sovereign debt. I’d like to ask what are your views about this special sovereign debt.

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [26]

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Now as far as asset distribution, I’d like to ask Mr. Ji to — Mr. Xu to take your question.

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Yiming Xu, China Construction Bank Corporation – CFO [27]

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Thank you for your question. In 2020, our asset plan for 2020, at this time, for loans, new addition should be around 100 — CNY 1,500 billion, and we have already planned out for CNY 1,460 billion. Subsegment to a further breakdown is that for corporation, it is at CNY 685 billion and CNY 765 billion for personal loans. Now you also asked about investments. The bond investments, we have planned to add CNY 350 billion of new bonds, of which local bonds would be the bigger piece at amount of close to CNY 295 billion. The other ones would be credit debts, our credit bonds and sovereign bonds, et cetera. So local bonds would continue to be the bigger piece because of market demand. And also, from the bank’s business perspective, local bond — local government bonds continues to offer a higher yield and better risk management environment. So this will continue to be our focus.

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Operator [28]

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Next question is from Ming Pao of Hong Kong, Mr. [Ouyang Wi-Fang].

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Unidentified Participant, [29]

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Looking — judging from your PowerPoint, the NPL ratio would face a lot more pressure this year. For February, the NPL ratio has climbed to 0.06 percentage points. And with the launch to postpone payment until end of February, do you anticipate the NPL ratio to climb a bit more? Now what is your outlook for the overall year?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [30]

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Thank you for your question. Regarding asset quality, I’d like to ask our CRO, Mr. Ji, to answer your question.

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Ji Zhihong, China Construction Bank Corporation – EVP [31]

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Well, this year, the asset volume will definitely be impacted. It is only the extent of the impact that one needs to look into. Just now, you were talking about the regulating policy. Well, there are a lot of different factors. The first round, the domestic epidemics, we know quite clearly what the impact is given the stress test. However, with the international epidemics, we — it remains to be seen. And also, with policies of different countries, fiscal, monetary policies and those policies for mitigations and for customers, various policies, these would also have a big impact on us. These policies try to buy time. Despite that, the difficulties may surface later on, but this is necessary in order to help the corporations survive. And by surviving, you solve the problem. And also, with the bigger economic environment and also our loan structure, our NPL, disposal rate, et cetera, all of these are important factors that we have to look into.

Just now, you will look — you were talking about postponement of payment. Yes, it carries an impact, but a small one. Because those impacted by the epidemics, that exists very standard, very clear standards. Hong Kong has it, and we also have it. We require that the companies should have the ability to continue its business. And it is only impacted by the epidemics. These, we welcome their applications for loans. There are also other corporations that are subject to the supply chain reform, meaning those that lacks the ability to carry on the business. Now this type of customers, there are more of these because of the reform. And we have classified them into the nonpaying ones, and they have almost — and disposal of these have almost been done.

So the third piece is that this classification is strictly in line with regulations. We look at the actual situation. The policy is that for these temporary — for these companies facing temporary challenges, we do not downgrade the rating, and it does not have the credit records. So given our good customer base, there would be very little impact on the asset quality while implementing the policies, implementing the national guidelines.

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Operator [32]

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Now this is Ms. Lei from Morgan Chase.

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Katherine L. Lei, JP Morgan Chase & Co, Research Division – Research Analyst [33]

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My question also is about asset quality. Can you please walk us through? Since end of February, credit card loans and inclusive finance, small micro company loans, what is the default rate there? And what is it — what is the anticipated rate? And then also in 2019 data, we see that overseas NPL ratio has increased greatly. Now does it — is it because we have an adjustment with the nonperforming loans management? Or is it truly difficulties faced by our overseas customers? Because since COVID-19 onset, have we done any stress test now with the — our international business? Say if the COVID-19 comes under control by quarter 3 or not, then what are — what would be anticipated NPL ratio under these different scenarios?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [34]

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So I’ll continue to ask Mr. Ji to take your question.

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Ji Zhihong, China Construction Bank Corporation – EVP [35]

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Observing from the last 2 months, we got this, whether it is corporate or personal credit loans, overall asset quality has remained stable. However, the default has increased. When comparing to last year, this is quite in line. That’s because in the last 2 months, our credit cards typically would go through a negative growth. And this year, the negative growth would be bigger. No growth. Of course, the interest rate would go up. Now overall — I mean, the NPL ratio would go up. But overall, the impact is not big, especially with inclusive finance. In 2019, we have a big improvement in the NPL ratio. It came down by over 1 percentage point. Now this is because of 3 years of preparation and structural reform, risk management tools and measures has come — has been playing their role. And our speedy exposure and disposal measures have also worked, and that has caused our asset quality to grow steadily. And this year, our judgment is that, overall, we anticipate good asset quality and improving slightly. But would we expect a good — a big improvement? Well, we don’t think so. So we would continue to step up our efforts in the inclusive finance sector.

And if we look at the last 2 months, PBOC has given a policy. And our customers, those customers that have truly submitted an application to postpone payment, that ratio is not high. So it ranges from 4%, 5%, at maximum 6%, given different types of customers. Most of the loans have been repaid. And we analyze that it has to do with the current liquidity and our credit policy. Various banks have stepped up their service to these micro and small businesses and as well as the credit card segment. These are focuses of different banks. So as far as liquidity is concerned, there are some insurance as far as this is concerned.

So for — as far as default rate, we have seen some small increase. But by March, it has come down evidently. We anticipate that for the year, I personally anticipate that the default ratio would be kept stable with slight increases. So this is your first question.

And you also asked about NPL for overseas market. The data I have on hand is different from yours. Our overseas asset quality was also improving as far as I’m concerned because after disposal of a default, then our NPL actually improved.

Does your data included our subsidiaries, overseas subsidiaries? Now there may be high NPL ratios of a particular subsidiary, but this is a particular event and not an — then overall. And it has — it does not have a big impact on our big picture.

We also pay special attention. After several years of reform, we have taken the initiative to focus our business mix in — and developed businesses, mainly in syndicated loans and also in domestically linked businesses, which offer us a good customer base.

So the stress test about the epidemics impact and analysis, all of these works are being conducted. We are fully aware of the various companies, including various investors. We pay close attention to your comments and would follow the situation very closely. However, we believe that the Chinese economy, all in all, is robust and agile, and our customer base continues to be solid.

And in the implementation of our 3 strategies, our structural reform is actually very reasonable. And our risk management, our smart risk management system is very good. We feel that we have the necessary tools for risk management, and they are playing a huge role. We remain confident that regardless whether it’s inclusive finance, overseas or credit cards or overall loans, we are confident that we can keep it safe and there would not be a huge hike in default.

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Operator [36]

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Next question is from [Chai Xing], Ms. [Wu Shao Mei].

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Unidentified Analyst, [37]

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I have a small question. There are rumors in the market that your bank is going to set up a consumer financing company. Now is that true? And can you talk us through your strategy around this topic?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [38]

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Consumer financing company, well, I ask Mr. Zhihong to take your question.

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Ji Zhihong, China Construction Bank Corporation – EVP [39]

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Well, we also read from media reports about this piece of news. Well, to set up a consumer financing company, this is not something that started just now. We have been working on this for quite a long time already. So all in all, with Chinese economy development, definitely, we would see a direction that is domestically — domestic-demand driven, and consumption would continue to play a very important role in GDP. So lately, we have seen credit cards and consumptions negatively impacted by the epidemics. However, we anticipate that with the epidemics becoming under control, the market potentials remain strong, especially in certain subsegments, consumption segments and structural upgrades and enhancement of consumption quality, all in all, our consumption financing, the future remains bright. So from the perspective of a big Chinese bank, the ratio of this business as the ratio of the total remains low, and we would continue to step up our efforts in this area to enlarge our coverage in the consumer financing space and to catch the demand and opportunities of a consumption upgrade.

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Operator [40]

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Next question is from Bank of America, Ms. Winnie Wu.

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Yi Wu, BofA Merrill Lynch, Research Division – Head of the Greater China Financial Institutions Research and Deputy Director of China Research [41]

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I have a question about our intermediary business. Last year, we see handling fee increased to a double-digit spread, which is quite good, and the best of the 5 in 6 years. It is one of the best amongst the bigger banks. Now please share your outlook of the handling fee in this year. And last year, it is mainly wealth management and credit card handling fees that were showing some good results. Now this year, with some unemployment and pressure from consumers, then do we need to adjust our policy, our strategy?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [42]

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So I’d like to ask Mr. Hu Changmiao, our Secretary to the Board, to take this question.

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Hu Changmiao, China Construction Bank Corporation – Secretary to the Bord [43]

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Thank you, Ms. Wu, for your question. Now with intermediary business, it played a very important role in the development of our bank for the last 2 or 3 years. It can offer new revenue source and to minimize our reliance on NIM profit. So with retail business, our customer — our corporate, we have stepped up on our efforts to develop the corporate market. So this piece of business has grown quite well. Now this year, with the epidemics undergoing, now as a big bank, we definitely would need to step up on our support to the industries and the real economy. So we have already offered some free or low-cost or discounted services to help industries fight the epidemics. And as next step, our bank will continue to help various industries to get back to normal work. So we believe that handling fees would be — income would be under pressure this year. However, we will step up our efforts to keep a positive, a good trend for our intermediary business development. And also, at the same time, we would comply with the PBOC requirement to help the industries to fight the epidemics. So our growth this year will not be as high as last year.

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Operator [44]

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Last question is from Hong Kong Commercial Daily, Ms. [Li Xiao Ying].

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Unidentified Participant, [45]

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And I hope that next time, with the interim result announcement, we do not have to do it via telephone. So just now we were talking about overseas development. Would there be any adjustments to your overseas business development plan? And I heard you talked a lot about some analysis. So can you provide us with a summary as to what is the biggest impact this epidemic has on the bank?

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Guiping Liu, China Construction Bank Corporation – Vice Chairman & President [46]

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Thank you for your question. Regardless whether that is the pandemic or not, the China Construction Bank has already set its goal for overseas, and that is compliance/prudent development. This is a long-term policy of ours and a strategy of ours. So we will continue to follow this line to build our overseas business. We — this is a result of some prudent analysis that we have done. Now our overseas institutions, our overseas subsidiaries, when we were talking about our asset quality and trends, Mr. Yiming has already told you that our overseas development remains stable and good.

Now the impact of the epidemics to different countries are different. And that, of course, means different impacts to our different overseas developed businesses. But as to what that impact is, we have yet to see. But the overall impact of the epidemics to China and to the world is big. For China, we believe that the impact came from the time when the epidemic broke out in China. And however, the international epidemics also have a big impact on us. However, we believe that because the main leaders of the world, the meeting on the 26th by the G20 special summit has come to 2 [consensuses]: one is solidarity in fighting the virus, and secondly, macro coordination for — to ensure the stable development of macro economy. And for China, the economic development is mainly driven by domestic demand.

As you can see from the media, the Statistic Bureau has announced very — 3 very clear numbers. 2019 consumptions contribution is 57.8%. The contribution by capital investment is 31.2%, whereas import and export was a 11% contributor. That means that the Chinese GDP and its — and the effect of its supply chain reform would afford us with a rather agile economy. And in addition, since January, when the epidemic started, the central government has been working on both, fighting epidemics and keeping the economy stable. The central government has moved very quickly and decisively. And the 80% to 90% of the main industries have gone back to regular production. And our network, 97% to 98% of our network is already operational. So this is fast and nimble and agile. So the way that we see it at this point is that the risk is under control. So that’s why, at the beginning, I told you, I’ve reported to you that this epidemic impact on us as a whole, we are confident that given and despite all the challenges, we would be able to keep reasonable growth this year and to ensure a reasonable return to our investors.

So ladies and gentlemen, time flies. 1 hour and 15 minutes of time allocation has already been spent. And we are overtime already. Of course, we are very willing to spend more time with friends from the media and analysts. However, every time we run, we are short of time. We are limited by the time that we have.

Now this epidemics not only impacted economies and finance. It also takes lives. So I hope that you will stay away from the virus, cherish life, be united and help up each other. We hope that the epidemics would be over soon. And I’m very in agreement with the — just now the Hong Kong Commercial Daily reporter has wished, that in the interim result announcement, we could do it face-to-face. And I also wish you safety and health.

Thank you for your questions. Our result announcement session would close now. If you have any other questions, please contact our Board of Directors’ office as well as our relevant department. I continue to thank our analysts and our media for your long-term support and care for China Construction Bank. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]