CITIC BANK performance meeting transcript: After abandoning the scale obsession, how should joint-stock banks develop?

On the morning of August 28, one of the leaders among joint-stock banks, CITIC BANK, held a performance briefing for the first half of 2025. Executive Director and President Lu Wei, Executive Director, Vice President, and Risk Director Hu Gang, Vice President Xie Zhibin, Vice President Gu Lingyun, Board Secretary Zhang Qing, and other relevant members of the board and senior management, as well as representatives of independent non-executive directors, attended the meeting along with heads of relevant departments and subsidiaries from the headquarters. From the high-level discussions at this performance briefing, it can be observed that CITIC BANK is abandoning the scale obsession and is strengthening a new development model, striving to embark on a new path of high-quality development. Continuing the Record of Annual Profit Growth Executive Director and President Lu Wei stated that there is a consensus throughout CITIC BANK that the development of CITIC BANK must be stable, balanced, and sustainable. It is not difficult to say this for a year, but it is not easy to continue saying it well. Lu Wei believes that CITIC BANK's performance can be analyzed from three levels. First, looking at the results through indicators, in terms of benefits, CITIC BANK's net profit maintained positive growth in the first half of the year, and the year-on-year growth rate in the second quarter increased by 2.4 percentage points compared to the first quarter, continuing to outperform the market. This allows CITIC BANK to maintain the record of achieving positive profit growth every year since its listing among joint-stock banks. Behind this is the revenue side, actively increasing sources and continuously working on "stabilizing interest margins and expanding non-interest income." Although revenue in the second quarter declined, the decline was significantly improved compared to the first quarter. On the cost side, CITIC BANK has listed cost control as an important operational theme for the first half of the year, fully tapping potential to reduce costs and increase efficiency. The costs of funds, operations, and risks have all effectively contributed to reductions. There are also quality aspects where risk indicators continue to remain stable. The non-performing loan ratio has declined for six consecutive years, and the provision coverage ratio has continued to improve over the past four years. This is related to CITIC BANK's strategy of not sacrificing risk resistance capabilities for short-term profit growth. Abandoning Scale Obsession Lu Wei emphasized that CITIC BANK achieved reasonable and quality growth in scale in the first half of the year. In the first half of this year, the growth of off-balance-sheet and on-balance-sheet comprehensive financing scale at CITIC BANK outpaced the growth of on-balance-sheet assets, the growth of general loan scale outpaced the growth of total assets, the growth of deposit scale outpaced the growth of total liabilities, and the growth of wealth management scale outpaced the growth of total deposits, all reflecting quality growth. Lu Wei believes that CITIC BANK has abandoned the scale obsession and is more focused on balanced growth in benefits and quality, which constitutes the business support behind its financial performance. This makes CITIC BANK's characteristics of stable, balanced, and sustainable development clearer, significantly enhancing its resilience and ability to withstand shocks. Net Interest Margin Maintains Certain Competitive Advantage Secondly, from the perspective of capability, CITIC BANK has continuously strengthened its system and capability construction in recent years, with certain improvements in management concepts and working methods across various aspects. In recent years, CITIC BANK has continuously enhanced its management capability of balancing volume and price, maintaining a certain competitive advantage in net interest margin. Five years ago, CITIC BANK was one of the first to propose stabilizing interest margins among peers, adhering to the management concept of balancing volume and price, and striving to build a leading transaction settlement bank Over the past three years, the changes in the deposit cost rate, interest spread, and net interest margin have consistently outperformed the trend, with the interest spread shifting from a disadvantage to a relative advantage, and the absolute level ranking among peers. This year, facing industry-wide pressure on interest margins, we continue to firmly implement management requirements for balancing volume and price, stabilizing total amounts while adjusting structures on both payment ends, and taking multiple measures to effectively consolidate the advantages and levels of interest margins. Secondly, we are continuously building a light capital development capability, with fee income growth outpacing the market for five consecutive years. The development system and capability of light capital are continuously being built and released. In the face of an industry-wide decline in intermediary income, we achieved positive growth in fee and commission income earlier than our peers this year. Thirdly, we are continuously improving our comprehensive risk management capabilities to build a solid safety net for development. CITIC Bank has always regarded risk management capabilities as one of its core competencies, continuously improving an effective risk control system that promotes development and stabilizes the fundamentals of asset quality. The growth value of CITIC Bank in the past two years has stemmed from risk control, and its future growth will also depend on risk control. Fourthly, we persistently strengthen our customer management capabilities, solidifying our customer base. CITIC Bank adheres to a customer-centric philosophy, working diligently to build a customer management system and capabilities, advancing while releasing production capacity, forming a virtuous cycle. Not only has the total number of customers achieved a breakthrough, but the structure has also been optimized to a certain extent. In the first half of the year, the proportion of effective corporate basic customers ranked among the industry leaders, consolidating the traditional advantages of strategic and institutional clients. At the same time, the small and medium-sized customer base continues to grow, with the increase in retail private banking clients reaching historical highs last year and in the first half of this year. We are currently accelerating towards the goal of 100,000 private banking clients. Net interest margin maintains a certain leading advantage The third aspect is looking to the future through structure. A balanced and stable structure injects momentum into long-term performance growth. Structure is a core criterion for measuring a bank's growth potential and future prospects. Lu Wei quoted the words of the chairman of CITIC Bank, stating that if a bank's structure is reasonable, the faster it develops, the better; otherwise, it is not. CITIC Bank firmly grasps the theme of structural optimization, continuously improving in terms of asset structure, liability structure, customer structure, and more. In terms of business structure, we are deeply advancing the retail-first strategy, with multiple indicators of retail loan AUM ranking second in the industry. Corporate and financial market businesses are also accelerating the reshaping of competitiveness. Currently, the revenue contribution structure of corporate, retail, and financial market businesses is 40%, 40%, and 20%, respectively, allowing CITIC Bank to effectively avoid the impact of fluctuations in a single business and leverage different business advantages in different cyclical phases and environments, increasing maneuverability. In terms of asset structure, we are also arranging major asset categories according to the principle of increasing and decreasing. On the credit side, we continue to increase credit investment in the real economy, with the proportion of general loans to total assets rising by 1.3 percentage points compared to the end of last year, while continuously reducing the proportion of low-yield notes to total assets. At the same time, we are accelerating our layout in high-growth and high-potential industries, with nearly 60% of our support directed towards such industries. We also pay great attention to regional arrangements; for example, the loan balance in key areas such as Beijing-Tianjin-Hebei, the Yangtze River Delta, the Greater Bay Area, and Chengdu-Chongqing accounts for over 70%. On the investment side, while ensuring the scale of high-quality ballast assets such as interest rate bonds and local government bonds, we are also reasonably increasing the allocation of high-yield credit bonds according to the principle of seeking progress while maintaining stability Enhancing Earnings. In terms of liability structure, we are accelerating the establishment of a leading transaction settlement bank, with corporate demand deposits accounting for about 10 percentage points higher than the average level of comparable peers, and the gap in personal demand deposits compared to advanced peers has also narrowed. In terms of customer structure, while large customers are steadily growing, the growth rate of small and medium-sized customers is even faster, with nearly 2,000 more effective corporate clients year-on-year, and 2,000 more retail private banking clients in the first half of this year, thus continuously improving customer acquisition quality. Continuous Efforts in Assets, Interest Margins, and Non-Interest Income It is reported that in the second half of the year, CITIC BANK will further strengthen its focus on revenue generation, continuously making efforts in assets, interest margins, and non-interest income, with confidence in outperforming the overall market for the year. First, further optimize the allocation of major asset categories to stabilize the revenue base. On the corporate side, we will focus on increasing loan disbursement in five key areas, building a reserve of quality projects, enhancing incremental reserves, improving strategies for early repayment, deepening management of existing loans, continuing to consolidate the achievements in reducing low-yield notes, optimizing structure, and stabilizing revenue. On the retail side, personal loans will seize policy opportunities and keep pace with new changes and scenarios. We will control risks to reduce non-performing loans while strengthening marketing to increase volume, and credit cards will also deeply explore the transaction and loan needs of quality customer groups to accelerate the allocation of quality assets. Second, further refine the management of liabilities to solidify the interest margin stabilizer. Firstly, we will fully promote effective growth in demand deposits, enhancing comprehensive operations on the corporate side, and jointly working with settlement financing institutions for foreign exchange custody to increase the proportion of growing demand deposits. Retail will focus on major settlement customers to expand payment transaction scale. In the financial market, we will maintain a stable approach to demand deposits while developing products, expanding the inflow of deposits from clearing-related businesses and the sedimentation of custody accounts. Secondly, we will organize a special action to improve the three rates of settlement. Focusing on entrusted payment acceptance rate, settlement fund acceptance rate, and loan-related settlement rate, summarized as the three rates of settlement, we will expand the flow of funds from borrowing, payment, clearing, procurement, and custody, enhancing fund acceptance and sedimentation. Thirdly, we will spare no effort to expand effective customers, using assessments as a lever to continuously improve the requirements for genuine customers and genuine transactions, promoting stable growth of effective accounts. We will also actively build a platform for bulk customer acquisition, further relying on supply chain finance and other products and scenarios to drive platform acquisition, scenario acquisition, and corporate integration acquisition. Third, we need to further promote the growth of non-interest income to activate new revenue engines. Firstly, we will focus on the capital market and vigorously develop wealth management. As the capital market continues to improve and deposit rates decline, the maturity of a large number of high-interest three-year deposits leads to a natural trend of funds converting to wealth management. We have already collaborated with various financial subsidiaries under CITIC Financial Holdings to promote rapid growth in AUM, especially accelerating customer acquisition in corporate wealth management, striving to make wealth management a new growth pole. Secondly, we will fully commit to maximizing the effectiveness of financial market operations, with securities investment income accounting for 40% of the bank's non-interest income, significantly increasing its contribution. We will reasonably arrange investment strategies, fully leverage the advantages of financial market capabilities, continue to allocate resources in scale, increase layout in trading positions structurally, and appropriately increase products such as credit bonds, foreign currency bonds, and precious metals, especially increasing investments in public funds, striving to seek returns in the market Thirdly, promoting the rapid development of cross-border finance, the policy dividends of the cross-border capital market have opened up this opportunity window, and will focus on the construction of cross-border financial centers as the core leverage to accelerate the advancement of the operational management system for cross-border businesses, comprehensively enhancing the service capabilities of cross-border operations. Traditional foreign exchange business will continue to consolidate its advantages, while new types of cross-border finance will exert efforts from both service and investment ends, making good use of subsidiary license platforms, exploring new business areas and models, and further driving our non-interest income growth through market opportunities. Additionally, the comprehensive rectification of inward competition has been included in the government work report for the first time, sending a clear signal at the national level to promote supply-side reform, standardize market order, and facilitate a reasonable return of prices, which is conducive to achieving higher quality and more sustainable development in the banking sector's deposits, loans, and intermediary businesses. In the second half of the year, under a favorable policy environment, we will deeply promote five major articles and the construction of five leading banks, confident in achieving good operational performance, enhancing the stability of our ROE, and improving returns for investors. Asset Quality Remains Stable Executive Director, Vice President, and Risk Director Hu Gang introduced that the overall asset quality of CITIC Bank in the first half of this year remains stable, similar to the past few years. He introduced three characteristics. The first characteristic is that key indicators are stable and improving, mainly reflected in two aspects. First, the non-performing loan ratio and provision coverage ratio remain within acceptable ranges. Second, forward-looking indicators are improving, with both overdue rates and non-performing generation rates being very low and continuing to decline. The second characteristic is that the consumption of financial resources is decreasing, for example, the credit cost rate has decreased by 0.2 percentage points year-on-year. The third characteristic is that the operational value of problematic assets is improving. Since 2021, CITIC Bank has recovered write-off assets every year. The profit space for CITIC Bank to recover from write-off assets in the future is still relatively large. Regarding the issue of rising retail non-performing assets, this is a common problem faced by the banking industry last year and this year. CITIC Bank has also taken measures to address these issues, mainly in three aspects. First, optimization has been made in the system. The individual loan departments of multiple branches have embedded risk directors to strengthen the joint prevention and control of risks and business marketing, which is a systemic reform. Second, the construction of digital risk control capabilities has been strengthened, and we have applied to the regulatory authorities for the implementation of advanced capital measurement methods, completing the second round of on-site assessments. The second measure is structural adjustment, making adjustments in both product structure and customer structure. The third is to strengthen management. First, differentiated risk control strategies have been adopted for mortgage loan operations. Second, the iteration and optimization of models have been accelerated. Third, customer admission standards have been raised. Through the above measures, we are confident in the future stabilization and improvement trend of retail asset quality at CITIC Bank. Highlighting and Strengthening Strategic Capabilities Vice President Xie Zhibin stated that in the first half of the year, under the deepening of low interest rate conditions and the differentiation of market fluctuations and customer demands, CITIC Bank's wealth management, especially wealth distribution business, adheres to a customer-centered and market-oriented approach, continuously leveraging its systemic advantages CITIC BANK has prominently strengthened its strategic capabilities, achieving steady progress in business development with a situation of dual increases in both volume and price. From an attribution perspective, first, scale growth has achieved leadership, such as maintaining the second position in comparable peers for annual growth in personal wealth management, and the growth rate of insurance premium scale exceeding the industry average by 10 percentage points. Second, the product structure has also continued to optimize. Third, the coverage of our high-end clients has improved. These specific achievements should be attributed to actively grasping the diversified allocation needs of clients. As deposit interest rates enter the 1% era, there has been a noticeable migration of residents' funds towards wealth management and insurance products, with clients of medium to high-risk preferences shifting from high yield and high volatility to low drawdown and high win-rate trends. The allocation needs of residents are overall continuously upgrading, shifting towards diversified asset allocation. Against this backdrop, in the second half of the year, CITIC BANK will advance the construction of a leading wealth management bank in retail business under the guidance of five leading strategies, actively seizing structural opportunities in global capital market allocation, and focusing on enhancing three capabilities. First, from the product side, it is necessary to strengthen research-driven selection, which is the asset organization capability, to collaborate with leading asset management institutions, and to focus on improving major asset allocation and segmented strategy research, seizing opportunities for asset rotation. Second, from the marketing side, it is essential to deepen the system capabilities for client management, solidify the client base, actively expand the capital market for corporate payment and settlement scenarios around company integration, and achieve high-quality bulk source customer acquisition. It is necessary to strengthen professional and standardized advisory services, adhere to prudent and proactive diversified allocation, basic principles of risk adaptation, utilize digital means to gain insights into client needs, customize professional investment portfolio allocation plans, and upgrade standardized services for client allocation. Additionally, it is necessary to upgrade global allocation services for high-end clients, collaborate with subsidiaries, accelerate the construction of an integrated domestic and foreign operating model, and enhance clients' domestic and foreign service experiences. From the channel side, it is necessary to further enhance or focus on strengthening the capability of online and offline interactive upgraded service allocation. Key Work in Four Aspects of Credit in the Second Half of the Year Vice President Gu Lingyun stated that in the first half of this year, CITIC BANK's incremental RMB general corporate loans reached a historical high for the same period, while asset quality remained good, with the non-performing loan ratio of RMB general corporate loans continuing to decline compared to last year at the end of the first half. The pricing of newly issued RMB general corporate loans in the first half of this year maintained a good yield level among joint-stock peers. Overall, the issuance of corporate credit by CITIC BANK in the first half of the year showed three focused characteristics. The first focus is on the manufacturing industry, fully supporting the high-quality development of the real economy. The second focus is on five major articles, fulfilling the mission and responsibility. The third focus is on characteristic scenarios, creating differentiated competitive advantages. In the second half of the year, CITIC BANK will adhere to prudent operations, balancing the principles of quality and efficiency in credit issuance, and focus on four aspects of work. First, maintain a stable scale of corporate credit, with the second half primarily focused on structural adjustments and business reserves, where loan issuance and repayment will generally present a balanced state, keeping the overall credit scale stable with slight growth The second is to continuously solidify the customer base, further increase marketing and expansion efforts for the foundational customer group, strive to achieve a more even risk layout, and reduce the concentration of credit risk. The third is to strengthen refined management, maintain a continuous balance of volume and price, focus on core indicators such as the weight of risk assets and risk-adjusted return on capital, continuously enhance business management, and consolidate the dual advantages of volume and price. The fourth is to look to the long term, strengthen reserves, accelerate the formulation of asset allocation plans for major asset classes, enhance in-depth research on 30 key industries, clarify strategies for entry and exit in segmented industries, and increase project reserves of quality assets to lay the foundation for credit issuance in 2026. The establishment of AIC is beneficial for injecting new momentum into technology finance Vice President Gu Lingyun stated that the establishment of AIC will inject new momentum into CITIC BANK's technology finance in the future, specifically reflected in two benefits. The first benefit is that it is conducive to achieving a commercially sustainable closed loop. Through AIC, a new model of investment-loan linkage can be created, cultivating new sources of investment income and achieving a new balance of risk and return. The second benefit is that it enriches the ecosystem of technology finance. By establishing broader cooperation in funds and equity investments through AIC, strategic collaboration with local governments, industry leaders, and top private equity funds can be deepened, promoting the ecological construction of technology finance to a new level. Stabilization of net interest margin in the second quarter Executive Director and President Lu Wei introduced that over the past three years, CITIC BANK's net interest margin has consistently outperformed the trend, demonstrating a strong execution capability in stabilizing the interest margin. At the beginning of this year, there was significant downward pressure on the net interest margin. In response, the entire bank optimized the payment structure according to the chairman's deployment, achieving stabilization of the net interest margin in the second quarter. The consolidated interest margin for the first half of the year is 1.63%, a decrease of 14 basis points compared to the previous year. In the first quarter, it decreased 6 basis points more than peers, while in the second quarter, this gap was narrowed by 2 basis points. Regarding the future trend of the interest margin, he believes that the decline in the banking industry's net interest margin may gradually slow down. Firstly, in a declining interest rate environment, there is still pressure for the interest margin to narrow, as asset prices remain at low levels. As high-yield assets gradually mature, the loans issued in previous years with better pricing will continue to drive down asset yields as they are gradually replaced upon maturity, leading to continued downward pressure on the interest margin. Secondly, anti-involution policies and a neutral monetary policy will promote a gradual stabilization of the banking industry's net interest margin. On one hand, anti-involution policies have been gradually introduced this year, which is conducive to regulating orderly competition in the banking industry and guiding the banking sector to balance financial support for the real economy with maintaining its own healthy development. On the other hand, the central bank has also promoted symmetric interest rate cuts for deposits and loans, further enhancing the transmission efficiency of monetary policy, which is beneficial for banks to further reduce liability costs. The bank will continue to optimize the asset-liability structure according to the structural strategy determined at the beginning of the year, accelerate the construction of settlement capabilities, adhere to the theme of stable interest margins, and maintain a relative advantage in this field. Firstly, continue to fully support credit issuance, striving to keep the scale of bill discounting at a low level, driving further improvement in the annual net interest margin. Secondly, deposits will adhere to the development principle of volume-price balance, continuously optimize the deposit structure, deepen the construction of a leading transaction settlement bank, stabilize the scale of demand deposits, while continuing to strictly control the scale of resource-based deposits, arranging them according to the principle of matching the incremental demand deposits Cautiously Optimistic About the Gold Market in the Second Half of the Year Vice President Xie Zhibin mentioned that everyone knows the first half of the year was under pressure from last year's high base, and factors such as the significant difficulty in making profits in the bond market. It is quite common for other non-interest income in the banking industry to experience negative growth. CITIC BANK's other non-interest income in the first half of the year decreased by about 12% year-on-year, but this 12% decline has significantly narrowed compared to the end of the first quarter. The situation in July and August is also further narrowing. From the investment arrangements in the first half of the year, there are two characteristics. First, CITIC BANK did not dispose of account assets on a large scale in pursuit of short-term profits, but instead concentrated on allocating over 140 billion yuan in high-yield credit assets at the interest rate peak, reserving a relatively solid space for the future. The second point is that after the successful conversion of convertible bonds, CITIC BANK's capital has been strongly supplemented. Without increasing risks, it has directly increased the allocation of higher-yield assets such as local government bonds and credit bond funds to stabilize the yield level and scale of market-oriented businesses. Regarding the funding market environment in the next stage, he expects that the monetary policy will still maintain a moderately loose tone in the second half of the year, promoting the implementation and effectiveness of various policies that have been introduced, ensuring overall liquidity remains ample, and funding rates will further decline compared to the first half of the year. First, in recent years, the central bank's monetary policy has been supportive, and the effects of the real economy policies are continuing to manifest. Second, considering the remaining uncertainties both domestically and internationally, the price level continues to be low, and the real interest rates are still relatively high, there is a need to strengthen policy coordination and cooperation. It is expected that monetary policy will still maintain a moderately loose stance. The central bank will use liquidity management tools of various maturities to promote reasonable liquidity in the banking system. The third point is to further boost domestic demand; there is still room for interest rate cuts and reserve requirement ratio reductions, and the overall support policies still have space. The transmission of policy rates to market rates will also be smoother. However, considering the central bank's latest meeting, there are still clear requirements to prevent fund circularity and pay attention to changes in long-term yield rates. It is expected that the decline in funding rates may not be very large, which is a basic cognitive judgment. From the perspective of investment business strategy arrangements, in the short term, the bond market will continue to fluctuate around the price center. In the medium to long term, before the mechanism of domestic and international dual circulation and the rebalancing of the real and financial sectors stabilizes, interest rates will remain at their current levels and tend to decline, but the space should be limited. The behavioral differences caused by investors' expectations will drive interest rate fluctuations. In such an environment, CITIC BANK's investment business will continue to enhance its refined management level, proactively prepare for the medium to long-term layout of major asset classes, and continuously improve or enhance the functionality of my trading circulation. Specifically, it is necessary to reasonably allocate and adjust the asset structure. In terms of interest rate bonds, under the basic judgment that macroeconomic total demand is weak and monetary policy still has room for easing, maintain a high interest rate risk exposure, and dynamically manage the scale and duration of the portfolio according to market rhythms. In terms of credit bonds, focus on the bond investment in the priority support areas related to the five major articles, combined with the bond financing needs of corporate clients Under the potential of controllable risks, it is necessary to actively arrange trading flows according to the idea of seeking progress while maintaining stability, deeply explore structural trading opportunities of different varieties, closely monitor subtle changes in the market, expand the breadth and depth of trading strategies, actively explore opportunities in derivative businesses, enrich hedging strategies, and manage interest rate risks dynamically and effectively in real-time. He stated that based on a relatively cautiously optimistic market expectation for the second half of the year, through these continuous efforts that require strength, thought, and care, the financial market business, especially the investment management business, strives to make up for the income growth gap in the first half of the year and to complete or even exceed the annual plan arrangements. Advanced Capital Measurement Method Evaluation and Acceptance in Progress Secretary of the Board Zhang Qing introduced that after the board's review and approval, CITIC BANK will continue to carry out mid-term dividends this year, with a proposed dividend amount of 10.46 billion, and a dividend ratio of approximately 30.7%, which is an increase of 1.5 percentage points compared to last year's mid-term dividend. CITIC BANK is giving back to the trust and support of a wide range of investors through practical actions, which is also an important step in optimizing and enhancing the investor management mechanism. Since the beginning of this year, with the conversion of 40 billion convertible bonds, and currently conducting the application evaluation and acceptance work for the advanced capital measurement method, these have provided good supporting conditions for improving the capital safety cushion, enhancing the overall risk management capability, and optimizing the business structure. From the operating performance in the first half of the year, it also shows that it has continued to maintain a good operating situation with stability and improvement. Therefore, in the future, it will actively implement the announced valuation enhancement plan and continue to strive to improve investment value and shareholder return capabilities. 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