Edited Transcript of 601328.SS earnings conference call or presentation 25-Oct-19 9:00am GMT – Yahoo Finance

Shanghai Oct 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Bank of Communications Co Ltd earnings conference call or presentation Friday, October 25, 2019 at 9:00:00am GMT

(technical difficulty) 2019. I am Guo Mang, EVP of Bank of Communications. It gives me great pleasure to communicate with you.

First, on behalf of Bank of Communications, please let me give our sincere gratitude to your support we [hold on] for a long time. We have attached great importance to the market communications. And our concern -- we need your concern to help us to improve our management and the business operations.

Today, what -- also have the following participants. so Mr. Gu Sheng, Chair -- Corporate Secretary; Mr. Xu Han, Chief Director of the (inaudible); Mr. Tu Hong, the Chief Investment Officer; and also the representatives from ALCO finance department, the corporate department, institution department, risk management department, credit department, the IT department, credit card center, global marketing centers, and BOCOM Wealth Management (inaudible).

This morning, BoCom's Board has approved the third quarter report of 2019. On the whole, the -- in the third straight quarter, BoCom has maintained prudent and stable development. The key financial indicators of the bank has improved. The net operating income, net interest income has both grow by double-digit growth. And as so, the cost-to-income ratio has been reduced. NPL provision coverage ratio has improved.

Although we still have some shortcomings, but just cost speaking, we think that our share is undervalued on the market, and it still has great value for investment. And as the senior manager of finance department, Mr. (inaudible) will introduce to you the financial performance with BoCom in the third quarter, then we will take your questions. This announcement will take around 1 hour. (inaudible)

Good afternoon. I'm (inaudible) from the finance department with Bank of Communications. First, let me introduce to you our development in the third quarter. And my introduction will include 4 parts: First is a section of our business operations. We can have the review of business development set, right, the risk management and last, the outlook.

In terms of our operations. In the first 3 quarters, we have implemented the "186" Strategic footprint. And we -- under the new strategy, our initial indicators has achieved prudent and stable growth. So we have focused on the value creation. So our net profit reached CNY 60 billion, up by 4.69%. As our site, as we -- the net operating income is CNY 176 billion, up 11.6% or CNY 10.65 billion. Net interest income is CNY 106 billion, up by 11.72% or CNY 8.8 billion. The main reason for this is the improved NIM. Our NIM is 1.57%, up by 10 bps. And while will we follow -- the fee and commission income, it's up by 9.76%. And we have controlled the cost effectively. The cost income ratio is 13.15% (sic) [30.15%], which is down by 1.34 percentage points.

With the optimized business structure and the quarter (inaudible). And we have restructured our business by the end of September. Our pre position then is up by 7.26%. On a yearly basis, our key growth rate is 1.36 percentage points higher than the same period last year.

And of the -- and in terms of our long allocation, we have increased the support to private sector and increased the finance. We have achieved target of (inaudible) increase and (inaudible) control by end of September. The small and micro enterprise system is up by 41.26% on a yearly basis. The number of this, as one of our group enterprise, has also achieved growth. The loan to product sector is up by 9.39%, higher than the average loan growth. And in terms of the regional allocation, we have increased the support to the Yangtze River Delta and to the Guangdong Bay Area. And we have optimized the credit procedure, sped up the financial ramp and also give more support to the Yangtze River Delta and the Guangdong Area. The percentage of the loans to these 2 areas is [30.76%] and [13.63%], respectively.

We also use technology to empower our transformation. And we continue to carry out the group's strategy. The overseas branches and the subsidiaries' net profit is about 25.9%, while the total asset is up by 9.65%, which -- and it now stands at RMB 1.2 trillion. The 12th branch has been opened, and we are also in preparation of opening Toronto branch and Johannesburg branch. The subsidiaries' net profit attributable to the parent company is up by 15.3%. The total asset is up by 15.8%. Local investment debt equity swap program posted number, which is 37. And we have used CNY 22.6 billion we -- which is relatively high compared with the other commercial banks.

BOCOM Wealth Management has also issued its (inaudible) WMP and is the first product issued under the new regulation from the [PMC] under our banking group. And we have also issued (inaudible) products afterwards, and we help our clients to increase the value. We have sold -- or the fee and commission from the associative insurance, treasury bonds and (inaudible) is up 17.78%, while the management fees for trust, funds management and WMP are 18.19%. (inaudible) which is RMB 3.37 trillion, up by 10.35%.

And our -- and in terms of the technology empowerment, the New 531 project has continued being carried out. And we will issue the 4.0 version of our mobile app in the mid-October. And we have 3 projects, fintech [MT], the 10,000 people for fintech program and also the empowerment for existing talent. And we also use technology to deduct the big data risk control model.

We continue our risk appetite so that -- while we might (inaudible). And as the quality indicators remain stable, our NPL overdue loan and -- has been reduced. The NPL ratio and overdue loan ratio has been helped by 0 pricing, down by 0.2 percentage points 0.18 percentage points comparing with the end of 2018. So provision coverage ratio is up by 1.797 percentage points. And the -- our CET1 -- our Tier 1 capital ratio and total capital adequacy ratio has both grown, and we have used a number of measures to improve our asset quality. We have addressed CNY 43 billion NPL and also (inaudible) CNY 14 billion.

In terms of our market risk and liquidity risk, it was all controllable, and we have viewed a matrix of risk in prevention and to the comprehensive risk management and provision. And we have this [5 plus 30 prevention] program.

So just the financial statement, the balance sheet, the income statement. So you can see somewhat high gross of net interest income here. And so for the fee and commission income, up by 9.76%. And in terms of the structure, our agent structure, agency and the management fee has increased. And then our business cost is up by 6.41%. Most of our cost -- increased cost is in technology empowerment and employee program.

In terms of -- and we have increased the provision, 6.5% or 22.78%. We have increased our provision to some our high-risk portfolio. So here are the main financial indicators. So this is the instruction of our firm in the third quarter.

And now for the business development. In terms of our corporate finance, we have restructure of the business. We have increased the support to certain business lines and so as to support this economy. The corporate -- the profit is CNY 4.02 billion end of September, up by 2.13%; the corporate loan, 3.5%, up by 8.81%. So we have increased the loan.

In terms of the highlight, the industrial chain finance has been important to highlight. We have built an online/off-line business structure, and we have 30 -- 3,800 qualified industrial chain clients, while the key project financing volume is more than RMB 200 billion.

In terms of investment banking, we have underlied the balance, excluding ABS and the risk [coupon]. And the fiscal number is 309, while the volume has been up by 5.3%. For the asset custody business, the total assets -- or the total -- the size of that reached CNY 9.3 billion, up by 5.22%.

In terms of offering electronics channels, we have -- the number of corporate client is up by 2 -- 340,000. As for the personal finance, we continue to focus on the clients and build quality brands, improve the client experience. The outstanding personal deposit is RMB 1.9 trillion, up by 9.12%. The personal loan is CNY 1.7 billion, up by [4.21%]. The mortgage is up by 9.3%.

In terms of wealth management, we have combined technology with our product capacity. The qualified (inaudible) client and (inaudible) client is up by 11.9% and 15.2%.

The client choice will actively participate in the launch and promoting of the [ETC] product. The new version of the mobile banking won't be released very soon.

In terms of the bank card -- the debit card, we have proactively promoting the application and its usage areas, the credit card issued by more than CNY 71 million. The total consumption of the first 3 quarters was RMB 2.1 trillion. The Pacific debit card issued by a total number of 1.4 trillion, up by 7.3 million and the total consumption of the 3 quarters was RMB 1.6 trillion.

And in terms of the interbank and the global markets businesses, we have integrated our asset management, wealth management and global market clearing and settlement product to further promote the development of the capital markets and the financial institutions. In terms of the market businesses, the financial investment was RMB 3 trillion, up by 6.35%. The asset investment yield was rosy, and we have increased our net worth high wealth management product. And the off-balance sheet wealth management grew by 27.6%.

The off-balance sheet net worth products, the balance grew by RMB 122 billion. And in terms of the financial institutions, the bank-to-bank -- our cooperating platform, the total clients in this platform was 1,087, up by 203 financial institutions. And in terms of the precious metals, the agency transaction volume for precious metal was RMB 120 billion. The physical precious metal sold by RMB 918 million. And in the Shanghai Gold Exchange, we ranked the first 3 places in the exchange.

So this is the outline and briefing of the sector-to-sector business performances. And next, I will talk about the risk management. For the first 3 quarters, we have maintained a stabilized asset quality, and we have been more capable in resisting to those adverse risks. The nonperforming loan balance was RMB 76.6 billion and down by 5.676%. Among these, the NPL in the corporate sector was RMB 58.2 billion, and the retail NPL was RMB 18.4 billion. And the nonperforming ratio now is standing at 1.47%. The special-mention loan decreased by RMB 5.2 billion or down by 0.26 basis -- percentage points.

And finally, we will talk about the outlook. Compressed it with the complex situations. We will follow closely about the developments in the market and also the trending of the market -- the regulatory policies, and we will strive to lay a solid foundation for fulfilling the whole year target.

And next, we'll have several priorities. One is, we will better serve the -- increase our capacity to serve the real economy, and we will focus the national initiatives and strategies and better upgrade our loan portfolio, and we will also further promote our "186" Strategic outline to accelerate our transformation and development. And we will further promote our innovation of the financial technologies and integrate our onshore and offshore platforms for us to ensure a quality development of the whole group. We will also encourage the application of defensing tech for us to be more tech empowered and to better serve our integration of the online/off-line platforms.

The fourth point is that we still need to stick to the principle of prudential operations and prevent major financial risks. We will have more refined and targeted management of certain areas of high risk, and we will further reform our risk management framework to prevent the risks exposure in certain areas.

So this is the briefing of -- and a review of the first 3 quarters. So that is all my introduction. Thank you.

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Guo Mang, [3]

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Thank you for the introduction. Now we're happy to take your questions. The floor is open.

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Questions and Answers

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Guo Mang, [1]

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So the first one is from Huatai Securities, Mr. [Jan Jao Kwang].

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Unidentified Analyst, [2]

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So my question is twofold. One is about the NIM performance. We have noticed that in the first 3 quarters, the NIM has decreased by 1 bp. So in the downward trending of the pricing, what do you think will be the impact on the NIM in the future? The second is a new notice issued by your bank is the Social Security council did not decrease its shareholding of Bank of Communications. And it hasn't issued the further plan of reducing its shareholdings. So according to your knowledge, what is their plans in terms of the shareholding in your bank?

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Guo Mang, [3]

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So thank you for your question. We will have the -- [Mr. Chen], general manager from the financial investment department to answer your questions.

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Unidentified Company Representative, [4]

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Thank you for your attention to the NIM. Actually, NIM has been a major factor in influencing the performance and the indicators of the commercial bank. It is a major metric. In terms of our NIM performance of the first 3 quarters, we see a stabilized trend. At the end of the first 3 quarters, we grew year-on-year by 10 basis points and -- or 6 basis points compared to the end of last year. Looking ahead, LPR repricing, the new policy, we think will weigh down on the yield on the incremental loans. But from our perspective, judging from our current -- this year's performance, we are now optimizing the liability mix. For example, we further expand our customer base and upgrade our financial technology system. We have been increasing our cost for their liabilities. And at the same time, we are now grasping the good timing to replace those previously high cost liabilities. Through these measures -- or our anticipation is that the whole year NIM will be maintained at 1.57%. So this is a general outlook.

We believe that the NIM will be stabilized, but this will face some pressure. It's also true in some other big state-owned banks. They share this belief and expectation with the introduction of the new policy on the pricing. But with our adjustment on the pricing our assets and also reducing the liability costs, we are confident to maintain a stabilized NIM level in the next year.

And the second question about the reduction of the shareholding of the Social Security council. In the past 6 years, the Social Security council did not reduce its shareholding in our bank. And it hasn't we -- haven't received any notice and plan from the council to reduce their shareholding. They are a large shareholder, and they are also our institutional client.

You have also noticed that the Ministry of Finance has allocated or transferred part of its shares into this council. So we will maintain a close cooperation and ties for this institution.

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Guo Mang, [5]

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Now we will have the analyst from UBS.

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Unidentified Analyst, [6]

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I have 2 questions to ask: One, about deepening the reform. What is the progress in this area? And also, when we were at the press result, the result of the beginning of this year, there was a owners share -- staff ownership holding scheme. So well, this can be expanded to more staff.

And the second question is on asset quality. We have seen is an optimistic trend of the asset quality. Can you share with us your -- the major points of risk in the corporate and the retail sector and also the asset quality at the end of the third quarter of the credit card. Also, do you think -- the trade dispute between China and the United States has been lasting for more than 1 year. Do you think this will weigh down on the asset quality of your good bank?

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Unidentified Company Representative, [7]

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I and my other colleagues will answer your questions one by one. The first question about deepening the reform. As you have noticed, we have further launched our deepening -- our reform work. We have the "186" Strategic outlook to further implement our BoCom strategy. And also at the same time, we have to deepen our reform. By deepening reform, we had 3 or 4 priorities set in the beginning of this year. So these 4 areas is the remuneration reform, technological empowerment and the credit risk. And the third is the restructuring of the channels and, it's upgrading. So these are the 4 areas for our deepening reform.

At present, we have seen this progress as follows: In terms of the remuneration, where there's several things. One is that we had an investigation or examination or a survey on those excellent staff who were born after 1980 to let them be the managers at the branch level. And also, we have some adjustment to the salary of the staff. We further increased our resources to those front-desk employees who are performing well.

And the third work is that the professional manager reform in the 37 provincial branches, those leaders with front desk or professional managers. So this will be a very market reform -- market-based reform. And the last measure is that we continued our incentive mechanism for the middle-level leaders.

And second area so far where deepening reform is, is technological empowerment. One point is we initiated the 10,000 talent for the financial technology upgrading. Within first year, we hope that we can cultivate a total number of 10,000 fintech talent. And in this year, we have already recruited 200 FinTech staff. And also, we will recruit the FinTech management trainee to further enhance our capacity in terms of the FinTech. In particular, to ensure our smart transformation and upgrading of our IT system.

We are implementing this upgrading, and we have seen some preliminary successes. For example, the advances in the biological screening and identification, big data, block chain, all this technology have been applied in promoting sales, risk management, et cetera.

In promoting the security of the infrastructure, we expedited the IT systems transformation from the centralized system to a distributed system. And we have made great breakthrough in this area.

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Unidentified Company Representative, [8]

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They have to reverse different services which -- these are very different scenarios for our users. In the past (inaudible) the management separated. The new mobile app can (inaudible) financial and life coverage. By the end of September, the DAU [of the DAA] is around -- the monthly active user is up by [33%]. While our credit card mobile active users was around 24 billion. (inaudible) project. And the third project is the risk management and the credit management. For our provisional branches, they have established the risk monitoring system and the client unified map has been ready for search, for all of our employees. And we have also our risk management procedure over the (inaudible) procedure. We now have mobile in the [pre-close coverage] approval procedure. In some of our branches, they have begun the green channels for credit approvals, which has shortened the time and improved -- enhanced the customer experience.

The fourth project is channel transformation. The transformation, we have these comprehensive market intelligence outlets, the corporate and profit client service capacity also and (inaudible) increased.

Our branches -- our process gets deployed in the [increase of] finance business. And also, we have transformed the service with the client with -- most forecast in the much for the tellers than for the client managers. And we have also tried to make our branches more smart. And our product make the client -- make it more convenient for clients to do the business by themselves. And our -- and we have handheld equipment to help our client managers with marketing, and these projects are still underway.

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Guo Mang, [9]

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And we also have a question for share holding off our -- the management. The question will be taken by (inaudible).

So the risk management will be taken by Mr. (inaudible) from the risk management and also Mr. (inaudible) from credit card center.

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Unidentified Company Representative, [10]

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For the risk factor deal for our corporate business, there are a lot of factors. The external economic environment will have a big impact on the risk. We finished the (inaudible) slowing GDP growth, and this will have impact on the corporate risk.

The second, the policies registry, it will structurally, especially the government liability, even the corporate (inaudible), and all of this will have an impact on (inaudible) corporate portfolio.

The third factor would be industry. (inaudible) for the commercial plans, for the manufacturing industry, the forestry, agriculture, fishery, (inaudible).

The fourth factor will be the cost themselves. We have similar measures to help -- to address the risks such as the monitoring prevention of risk, and we use Big Data to see that smart choice control system can help us to address the risk on the way for the corporate business. And so we have optimized our risk address mechanism and accelerate the -- address significant risk so that we can control the corporates business risk at a stable level.

The second question is about the trade friction and its impact on our asset quality. So the trade friction, it's related to the China-U. S. relation, and also, the world economy as a whole. And as we are in the cyclical industry, and of course, we are on this impact. And we have done a number of [infections] on our portfolio. The risks are controllable for most of our clients. The most impact is on -- for tax clients. That's the manufacturing industry with export to U.S. And also -- second, C-corporate reliance on the imports from U.S. That's the corporate with pressure on ForEx liability. And the fourth culprit is corporate-related to the trade between the 2 countries. We have taken some measures to address the potential risks.

In the future, we've taken number of measures. We will optimize our client structure, support the clients. And for the clients with temporary difficulties, we'll continue to give them support so that we can cope with the impact together for the clients with major risk. And we will try to reduce our exposure.

And for the credit card risk as well, the question will be taken by Mr. [Wang], the head of the credit card center.

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Unidentified Company Representative, [11]

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Thank you for your support to our credit card business. In 2018 in terms of the card issuance, monitoring and the traction, we have taken a number of risk management measures. We have enhanced our tenders for the high-risk clients in regions. So we use third-party database and increased our client entry standard.

Up to now, the key risk indicator has all improved. By the end of September, the newly-added clients -- or the newly-added monthly NPL ratio has been dropped by 3 continuous months. And also the (inaudible) clients is the lowest in the recent 2 years. The NPL ratio and overdue ratio has been up by -- has been down comparing with the beginning of this year. With effective control of the risks (inaudible) financial credit card business started to recover its growth rate.

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Edited Transcript of 601328.SS earnings conference call or presentation 25-Oct-19 9:00am GMT - Yahoo Finance