Earnings call: CMB reports growth amid market challenges

China Merchants Bank (CMB), with its ticker symbol (3968.HK), has reported a mixed financial performance in its 2023 annual results, with a slight decrease in net operating income and a growth in net profit attributable to shareholders. Despite a challenging market environment, the bank has shown resilience by expanding its asset scale and maintaining good asset quality. The bank's commitment to innovation and strategic adjustments in its business operations were key discussion points in the recent earnings call, as CMB navigates through a period of economic uncertainty and competitive pressures.

Key Takeaways

• CMB's net operating income for 2023 slightly declined by 1.64% year-over-year (YoY) to RMB333.9 billion.
• Net profit attributable to shareholders increased by 6.22% YoY to RMB146.6 billion.
• Total assets grew by 8.77% YoY, reaching RMB11.03 trillion.
• The non-performing loan (NPL) ratio was maintained at 0.95%, with a credit cost of 0.74%.
• Core deposits daily average balance increased by 12%, accounting for 86% of total customer deposits.
• Retail assets under management surpassed RMB13 trillion.
• The bank emphasized leveraging AI technology for innovation and model development.

Company Outlook

• CMB plans to maintain its value creation strategy, focusing on wealth management, fintech, and risk management.
• The bank will explore new growth opportunities in segmented areas and strengthen risk and compliance management.
• In 2024, CMB will concentrate on wireless customers, first and second-tier regions, and businesses supporting rigid demand.

Bearish Highlights

• The bank acknowledged challenges in the first quarter of 2024 due to policy changes impacting operating income and profit growth.
• Fee rates for insurance and mutual funds may further decrease due to new policies, impacting fee-based income.
• Net interest margin (NIM) decreased by 25 basis points and is expected to face further pressure.

Bullish Highlights

• CMB has achieved a wealth management scale of RMB4.5 trillion and an asset custody scale of RMB21 trillion.
• The bank is committed to the wealth management sector despite current market pressures.
• CMB has set up a new retail customer-based department to optimize service capabilities.

Misses

• Net operating income has seen a slight decline from the previous year.
• Fee-based income was negatively impacted by decreases in mutual fund sales, wealth management product sales, and trust product sales.

Q&A Highlights

• The bank discussed its increased dividend payout ratio and commitment to balancing short-term and long-term growth.
• CMB addressed competitive loan pricing, stating that loan growth will be stable and in line with market conditions.
• Management expects stable asset quality in the real estate sector and will focus on supporting reasonable financing demands.
• Repricing pressure on existing residential mortgage loans will be relieved in September, contributing to a decrease in NIM.

China Merchants Bank is navigating a complex market landscape with strategic focus and innovation at the forefront of its operations. The bank's commitment to maintaining asset quality and expanding its customer base, coupled with investments in technology and green finance, positions it to tackle the challenges and leverage opportunities in the evolving financial sector.

InvestingPro Insights

China Merchants Bank (CMB) has demonstrated a robust financial standing in the face of market volatility, as reflected in the latest data from InvestingPro. With a market capitalization of $110.8 billion, CMB stands as a prominent player in the banking industry. The bank's forward-looking P/E ratio of 5.75, adjusted to 5.62 for the last twelve months as of Q4 2023, indicates that it is trading at a low earnings multiple relative to its near-term earnings growth potential. This suggests that investors may find the bank's shares to be attractively priced considering its earnings outlook.

An InvestingPro Tip highlights CMB's consistent track record of rewarding shareholders, having raised its dividend for 9 consecutive years and maintained dividend payments for 21 consecutive years. This is particularly noteworthy for income-focused investors, as the current dividend yield stands at a compelling 5.23%. Moreover, the bank's share price has seen a strong return over the last three months, with a 19.39% increase, underscoring its resilience in a challenging economic environment.

For those seeking a deeper dive into CMB's financial health and investment potential, InvestingPro offers additional insights. There are more InvestingPro Tips available, including analysis on the company's valuation, profitability, and industry standing. Readers can access these valuable tips by visiting https://www.investing.com/pro/CIHKY, and can take advantage of an additional 10% off a yearly or biyearly Pro and Pro+ subscription using the coupon code PRONEWS24.

Full transcript - China Merchants Bank Co Ltd (CIHKY) Q4 2023:

Xia Yangfang: Dear Investors, analysts, friends from the media, good morning. CMB 2023 Annual Result Announcement will now begin. I am CMB Securities Affair Representative, Head of the Office of the Board of Director, Xia Yangfang. Today, our result announcement will be presented both on-site and online live streaming. On behalf of China Merchants Bank, I'd like to extend warm welcome to your participation and thank you for your long support and investment in CMB. Now I would like to introduce our attendee. They are Chairman, Mr. MIAO Jianmin; President and CEO, Mr. Wang Liang; Executive Vice President and Chief Risk Officer, Mr. Zhu Jiangtao; Executive Vice President, CFO, Secretary of the Board of Director, Mr. Peng Jiawen. We also have online and offline participants, Mr. Li Menggang; and Mr. Tian Hongqi, Independent Director, and also relevant Department Heads from CMB. There are two sessions of today's meeting. The first session will be given by Chairman MIAO and President Wang on the 2023 performance overview, taking around 30 minutes. The second session is the Q&A session takes around one hour and thirty minutes. The meeting will be concluded in 11:30 AM. The meeting will be provided with simultaneous interpretation from Chinese to English. Now I will give the floor to Chairman MIAO and President Wang on CMB 2023 performance.

MIAO Jianmin: Dear Investors, analysts, friends from the media, good morning. Welcome to China Merchants Bank 2023 annual result announcement. Today's performance presentation will be including three parts. First, I will introduce the company's 2023 performance overview, and then President Wang will introduce the detailed operational information. And then I will briefly introduce our outlook and strategies to 2024. In 2023, the Group has taken to build a value creation bank as our strategic goal, make a steady development with progress, strengthen and optimize capital-heavy business, optimize and enlarge capital-light business, enhanced work management, Fintech and risk management three capabilities and achieve the quality, profitability and scale dynamically balanced development reflected in the following six aspects. Firstly, we actively and effectively respond to challenges in line with our operational performances. Phases with loan rate cuts, narrowing name fee cut, sluggish capital requirement and insufficient credit demand and complicated risk conditions and other unfavorable factors we take active measures to maintain a stable operational performance. Net operating income 333 – RMB9 billion, down by 1.64% year-on-year. Net profit attributable to banks shareholder RMB146.6 billion, year-on-year increase of 6.22%, ROAA was 1.39%, ROAE was 16.22%, representing year-on-year decrease of 0.03 percentage point, 0.84 percentage point, respectively. We make strict control on cost influenced by the decreasing revenue, our cost-to-income ratio was 32.97%, a slight increase of 0.08 percentage point. Our net interest income was RMB214.6 billion, year-on-year decrease of 1.63%. Although we are influenced by the continuous narrowing interest rate spread and also the structural change of our low-end and deposit structure, our NIM was 2.15%, year-on-year decrease of 25 bps, but still maintain a good level. Influenced by the fluctuated capital market and the enhanced fee rate cut, our non-interest income decreased slightly, our non-interest net income was RMB124.4 billion, went down by 1.66% year-on-year. Secondly, our asset scale grow steadily and maintained our liability advantages. Our balance sheet maintained stable growth and at the same time, we continued to optimize our liability structure to maintain our advantages of low funding cost. Our total asset scale was RMB11.03 trillion up by 8.77%. Our total loan and advances to customers was RMB6.51 trillion, up by 7.56% compared with the end of last year. Total liability was RMB9.94 trillion up by 8.25% compared with the end of last year. Interest bearing liabilities average cost ratio was 1.73% up by 0.12 percentage point year-on-year, maintaining at a good level. Total customer deposit was RMB8.16 trillion up by 8.22% compared with the end of last year. Demand deposits daily average balance proportion to total deposit was 57.08%, maintaining at a high level. Thirdly, we maintained good asset quality, stable asset quality with strong risk compensation capability. We continue to enhance credit risk management, enhance asset quality management. Our NPL balance was RMB61.5 billion, up by RMB3.57 billion compared with the end of last year. NPL ratio was 0.95% down by 0.01 percentage point compared with the end of last year. Credit cost was 0.74% down by 0.04 percentage point year-on-year. Allowance coverage ratio was 437.7% down by 13.09 percentage point compared with the end of last year. Allowance provision ratio 4.14% down by 0.18 percentage point compared with the end of last year. Fourthly, we continue to optimize our business structure and our capital maintained endogenous growth. We continue to solidify our structural advantages. Retail revenue and profit contribution account for over half of the total volume. Retail finance net operating income and pre-tax profit account for 57.31% and 56.57% respectively and giving full play of its balanced role. Non-interest net income account for 36.69% of the total net operating income maintaining at a good level. We continue to maintain capital indulgence growth under the advanced measurement approach. Our core Tier 1 CAR, Tier 1 CAR and CAR were 13.73%, 16.01%, and 17.88% respectively, up by 0.05, 0.26, and 0.11 percentage point compared with the end of last year respectively. Under the risk weighted approach, our core Tier 1 CAR, Tier 1 CAR and the CAR were 11.86%, 13.82%, and 14.96% respectively, up by 0.34, 0.57 and 0.28 percentage point compared with the end of last year. Fifthly, we continue to increase IT input and speed up to construct the AI plus finance model. We increased our input to increase our Fintech capability and empower digital operation and management, explore the scenario-based application of AI and speed up our transformation to SMART CMB. IT input amount to RMB14.1 billion accounting for 4.6% of the bank's net operating income. We continue to optimize talent team with R&D personnel reaching 10,700 people accounting for 9.14% of the Group's total employee. Our Fintech Innovation fund established 3,700 projects and in total launched over 3,000 projects. We continue to promote new capability construction and the exploration of new model and strive to build a five SMART engines and our intelligent application has released our full-time personnel of over 17,000 people. We launched the LLM ecology construction and established the LLM experience platform to enhance our tech capability. We also actively implement ESG to provide support to real economy. We further improve our ESG work efficiency and won the A level rating in three consecutive years of the MSCI ESG. We continue to improve the corporate governance system and rename our strategic committee of the board into the strategic and sustainable development committee of the board. We fully promote green finance and green operation with green loan balance increased by 26% and innovatively launched green deposit product and issued a global first blue floating-rate bond, provide convenient digital financial service to hundreds of millions of customers and lower the carbon emission result from the customer's transportation and promote our own green transformation of operation. We actively fulfill social responsibility, provide support to real economy, our manufacturing loan inclusive SME loan and Sci-Tech loan increased by 25%, 18%, and 44.95% respectively. We continue to promote the improvement of people's livelihood and further allocate resources to key regions in people's livelihood, such as education, pension and et cetera, and upgrade pension finance into a strategic business, increase financial accessibility and provide the elderly, the disabled foreign traveling to China to provide convenient services. We strengthen consumer rights protection, enhance our mechanism construction, improve our complaint handling mechanism, attach great importance to privacy protection, and enhance internet safety management. This is briefly my overview to the 2023 performance. Now I'll give the floor to President Wang on the company's operational detail.

Wang Liang: Thank you, Chairman MIAO. Now I'll give you a brief introduction over the company's 2023 performance. In 2023, the senior management has act according to the Board's strategic deployment, we adherence to stable development and maintain good asset quality, strong risk compensation capability, and good profitability among complicated environment. Consolidate our strengths in fortress-style balance sheet and make solid progress in high quality development, which is mainly reflected in the following six aspects. First, we strengthened quality asset origination and continue to optimize asset allocation with rather loose liquidity and insufficient credit demand. Under such market environment, we further enhance asset liability management, optimize asset structure, and increase the return of asset allocation, make multiple measures to strengthen quality asset origination and maintain stable growth in our low-end scale. Total loan advances to customers amount to – increased by 7.56% accounting for 59% of total assets, regress of market opportunities to increase the allocation of investment type assets and make flexible adjustment of interbank assets and increase our capital utilization efficiency. Investment in securities and other financial assets, proportion of the total asset was 29% increased by 1.61 percentage point. We see the opportunities arising from the recovery macro economy and the credit demand from retail customers continue to enhance retail loan extension and retail loans proportion increased by 54.71% of the total, representing an increase of 0.39 percentage point. With rather weak growth of the residential mortgage loans, we make active adjustment to promote the steady growth of credit card loan. With the premise of controllable risk, we enhanced loan extension in terms of micro finance and consumer finance and their proportion in retail loan increased by 1.97 and 2.44 percentage point respectively. Secondly, we enhanced liability quality management and maintain balance in quality and the pricing of the loan growth. As we are faced with the challenges brought by more trending multi-deposit trending towards term deposit, we stick to our liability structure, a strategy to take core deposit as the core to enhance refined management and maintain balance in cost control and customer demand. Core deposits daily average balance was RMB6.62 trillion, an increase of 12% and taking 86% of the total customer deposits daily average balance. Customer deposits cost ratio 1.62%, a year-on-year increase of 10 bps, but the growth rate narrowed quarter-on-quarter. The company's RMB denominated customer deposits cost ratio was 1.56% year-on-year, decrease of 4 bps. Thirdly, we continue to enlarge our capital-light business and remain resilient in our non-interest income. We deepened business model transformation and strive to build up our wealth management capability and promote the extensive wealth management business development. Retail AUM surpassed RMB13 trillion, an increase of 9.88%. Golden Sunflower and above customers AUM achieved RMB10.82 trillion up by 9.66%. Asset management business totaled RMB4.48 trillion against market downturn achieved an increase of 1.59%. Asset custody business totaled RMB21.12 trillion increased by 5.28%. Our non-interest income remained resilient, manifesting our capability to sell through the cycle. Non-interest income accounted for 36.69% of the total remaining high. Net fee and commission income, RMB84.1 billion accounting for 67.61% of the total non-interest net income under the sluggish capital market, we increased the supply of stable and conservative products and enlarged the scale of asset management and custody business and mitigate to some extent the pressure brought by lower net fee income. Our extensive wealth management business income was RMB45 billion accounting for 53% of the total net fee and commission income. Our payment and settlement business contribution increased and its proportion of the total net fee and commission income was 41%, 2.97 percentage point higher year-on-year. Fourthly, we continue to enlarge customer base and enhance our comprehensive service capability. Firstly, we always take customer as our center and enhance our customer service capability building with good growth on our customer base. Retail customer grew RMB197 million, up by 7.07%, among which Golden Sunflower and above customer RMB4.64 million up by 12%, credit card active users 69.74 million with credit card transaction value achieving RMB4.81 trillion, maintaining top in the market. We promote to expand corporate customer base with 2.82 million corporate customers up by 11.66% among which newly acquired corporate customer was 481,900 customers with withholding customers amounting to 1.19 million. We increased product innovation, increased product competency to better serve our clients. Corporate customers FPA was surpassing RMB5.5 trillion, up by 8.44%. Sci-tech green inclusive manufacturing loan and loans in other key areas growth rate were both higher than the average level of the company's loan. We featured of our pension finance with pension custody scale surpassing trillion level achieving both increase in the market share and scale. Investment banking, debt financing, lead underwriting business totaled RMB591 billion. Bill discounting business balance increased by 24%, transaction banking wealth management cloud service customer increased by 62%. And enclosed by the finance, our corporate clients international BOP under trading goods volume increased by 9.92% and in financial market, the derivative transaction volume totaled RMB64 billion. We speed out to construct our advantages in key regions to promote Yangtze River Delta, Pearl River Delta, Chengdu-Chongqing and West Taiwan Straits regions, key branches to tap into the market potential to adapt to the regional development pace to forge new growth point. Branch in key region's core deposit AUM and corporate loan growth all were recorded higher level than the average of the bank. The key region's corporate loan balance increased by 16% whose proportion was increased by 1.95 percentage point of the total of the corporate loan balance. Our subsidiaries competencies continue to increase and their contribution to the bank's profit also increased with further manifesting of the synergy effect of the Group. CMB wealth management's product scale was RMB2.55 trillion remaining the top in the industry. CMB leasing enhances asset allocation with a total asset of RMB290 billion. China Merchants funds AUM RMB1.55 trillion up by 4.73% among which non-money market scale was RMB575.5 billion ranking top-end industry CMB International actively worked together with the bank to forge the coordination of investment banking and commercial banking business and finished 30 Hong Kong IPO project, ranking top among the market. And fourthly, we continue to deepen risk management to prevent risks in key regions. We conduct strict asset classification and fully exposed risks and remain stable asset quality. Retail NPL ratio 0.89% remained flat with year end. Corporate loan NPL ratio 1.19%, down by 0.07 percentage point compared with the end of last year. Special mentioned loan ratio, overdue loan ratio, both decreased compared with the same period of last year among which special mentioned loan ratio 1.1% down by 0.11 percentage point, overdue loan ratio 1.26% down by 0.03 percentage point. NPL to loan overdue for 60 days ratio was 1.19. New formation of NPL was RMB60.9 billion down by RMB1.9 billion year-on-year, NPL formation ratio 1.03% and year-on-year decrease of 0.12 percentage point. NPL disposal scale RMB58.1 billion among which a standard written off RMB22.6 billion, securitization RMB22.5 billion, cash collection RMB11.2 billion. We effectively managed risk in key regions and maintained controllable asset quality. In real estate business, corporate real estate business balance RMB290.7 billion accounting for 4.71 of the bank’s total loan. Real estate NPL ratio 5.01% representing an increase of 1.02 percentage point compared with the end of last year mainly influenced by individual high debt customers for the release of risk and slower progress of risk disposal and those that real estate business that we do not assume credit risk was RMB249.4 billion, down by 16.95%. Consumer finance and micro-finance loan, we continue to improve risk management, select quality clients and strengthen our quantitative risk control capability and closely follow the external risks to conduct active classification of risks and maintain good asset quality. Retail micro-finance, credit card finance and consumer finance NPL ratio were 0.61%, 1.75% and 1.09% down by 0.05 and increased 0.01 percentage point respectively. Special mention loan ratio and overdue loan ratio maintain stable. Fifth, we leverage AI plus to drive model innovation and strive to build a Smart CMB. We embrace the cutting-edge technology revolution and surrounding online digital intelligent platform-based and ecological development to speed up the construction of digital finance to transform from online CMB to Smart CMB. In terms of AI, we enhanced core technology research and speed up the capacity building of natural language processing, cognitive computing and et cetera, explored the application of LLM. CMB application fully used the AI technology to further integrate our Smart customer service, remote advisory capability and promote the Wealth Smart Assistant Xiao Zhao to provide one stop wealth management service and customize advisory service to our clients. The number of customer we serve increased drastically. Customer service digitalization in terms of retail finance, we speed up to transform to smart and intelligent retail finance. CMB App and CMB Life App has MAU achieving 117 million. Micro-finance online approval has accounted for 66% of the total approval. In terms of wholesale, we use digital tool to increase relationship manager's service efficiency with 92% of financing business doing online and 75% of FX business doing online. In terms of risk management, we construct the smart risk control engine and use internal and external data to increase our capability and efficiency of digital risk control. Our Libra system has reduced the percentage of fraud and account takeover by non-card holders to 0.1 in ten millionths. In terms of internal operation, we built the smart operational engine to realize the balance among experience, efficiency, risk and cost. Over 400 operational process has finished smart reshaping and put in application with 27% efficiency increase. In terms of digital infrastructure, we build an industry-leading financial cloud infrastructure, continue to deepen the construction of tech, middle office and data middle office, enhance R&D efficiency and lower data using threshold. Our big data service has already covered 60% of our employees. This is basically our operational information in 2023. Now I'll give the floor to Chairman MIAO on our outlook and strategy in 2024.

MIAO Jianmin: Now I will briefly introduce our outlook and strategies in 2024. Looking into the year 2024, the banking industries has faced with both challenges and opportunities. In terms of opportunities, the national economy remains stable while seeking progress, we transform ourselves, adjust structure and speed up to construct the financial powerhouse to build financial high-quality development, which were mainly reflected in coordinated development of the macro policy, which strengthened the countercyclical and cross cyclical adjustment. Many policies including fiscal, monetary, and et cetera, coordinate with each other. Along with the further release of the policy effect, the national economy's rebound will gain momentum. And secondly, new quality productivity speed up development. New industry model momentum is enlarging. Sci-tech, green, inclusive pension and tech digital finance are having great market space. Third, technological advancement represented by AI will bring new opportunities to the banks. Tech innovation further deepen generative AI, technology further iterate, promote the banking industry into the smart era bringing new momentum to the bank by using AI plus finance. To see from the challenging side, there are frequent geopolitical tensions and more complicated international environment and more uncertainties. And secondly, the domestic economies are quite weak in terms of its foundation of recovery, insufficient credit demand over capacity and bottleneck in the domestic circulation. These are all challenges. And thirdly, banks are having more difficulties to remain profit growth, narrow NIM, lower fee rates and lower risk appetite of our customers, insufficient credit demand. These are all challenges. Tightened regulatory management, complicated risk environment, these are all new normal posing higher requirements to the bank's operation. And the bank in 2024 will stick to our strategic goal of value creation bank and build our three capability of wealth management, Fintech, risk management build our Malik Curve to create more value to our customer, employees, shareholders, partners and societies. And our strategies are as follows. We will firstly maintain our characteristics and competence to build a new moat. We will stick to our professional and market oriented mechanism and remain retail finance as the strategic main stay and construct our core competency featured by low liability cost and construct a new moat that takes smart bank as the core. We will be driven by both management and innovation. Secondly, to achieve new quality, high quality development. We will adhere to refine management, solidify foundation, prevent risk, enhance operational efficiency to enhance our quality and competency of service. We will uphold fundamental principles and break new ground, explore new models such as AI plus finance, human plus digitalization to make synergetic efforts to promote high quality development. And thirdly, we will further explore new growth point in segmented areas. We will stand on the regional characteristic industry strength where our branches were located and make according policies to speed up the development of branches in key regions and to increase their contribution to the bank and also their market share in the corresponding market. At the same time, focus on customer demand, focusing on our endowment to give full play our differentiated advantages to develop sci-tech, green, inclusive pension and digital finance to build up a CMB characteristics and explore new growth point. And fourthly, we will strengthen fortress style risk and compliance management system adhere to prudent and stable risk culture, enhance our forward-looking assessment to potential risks and manage all types of risks to effectively prevent real estate, local debt, Fi in small and medium sized, risks in key regions and in weak links, deepened technological security management and strengthened compliance risk management and firmly guard our bottom line of asset quality. Thank you.

Xia Yangfang: Thank you, Chairman and President Wang. Now we'll enter into the Q&A session.

A - Xia Yangfang: We will now take the questions from investors and analysts and then take the questions from the friends of the media. As we have numerous participants from today's meeting, please raise your hands to raise questions. Please limit your question to one only and please state your name and the agency you represent before you raise the question. We will rotate the questions from first on-site and then online. We will now have the first question from on-site.

Yan May: Thank you for giving me this opportunity and good morning, management. I'm May from UBS. I'm very glad to see that CMB achieved such a great results and very solid results in such a complex environment. We are very pleased to see that you have raised your dividend payout ratio and now it's the highest one among Chinese banks and also, we see that there's a high rise of your share price yesterday for each share around 5%. So my question is really for the dividend payout ratio, what is your consideration for increasing the dividend payout ratio at this time? And is there any further room for you to further raise the dividend payout ratio such as for a 2 percentage point every year? But I know that it relates to your consideration for short-term and long-term growth and you are very strong in terms of profitability. But definitely you are facing pressure in terms of NIM and you also need to take into consideration the capital for your long-term growth and also you also need to take into consider reason about the dividend payout to shareholders. So may I know, do you have any expectations on growth or expectations for your ROAA growth or will you slow down your ROAA growth in the future? Thank you very much.

Wang Liang: I will take the question. For China Merchants Bank, we want to build a value bank for our shareholders, which means that there will be a higher dividend payout ratio and it's an important part of the value creation, the meaning of value creation. Last year, I know that many of you have lost money or break even in this capital market. So paying more in cash as a dividend payout will help to increase your return. And now 35% I think for A share, our dividend yield is around 6% and H share around 7%. So I think the CMB is kind of a share, which have a higher dividend payout ratio, but with the lower PB ratio increasing this dividend payout ratio. Once increased, we never thought it would come down again. But whether we'll continue to increase that 1 to 2 percentage point, as you said, that we need to balance among different factors such as cash payout – dividend payout ratio and also the capital for long-term growth. We hope that we don't want to do refinancing in a shared market, but also we want to maintain indigenous capital growth capability and at the same time with a higher dividend payout ratio. So we need to – want to balance these three factors in the future. Thank you.

Xia Yangfang: Next question, please.

Shuaishuai Zhang: Thank you for giving me this opportunity. I'm from CICC, Shuaishuai. My question is for Mr. Wang Liang, last year you have said that CMB want to strike a balance among different business sectors. To be very frank, last year we don't understand that, but this year, we would like you to elaborate the logic behind your – the thinking of this business model. Thank you very much.

Wang Liang: Before answering your question, I would like to say a few words. On Monday, we published our annual report and yesterday our Asia H share. Our share price has raised quite a lot in both Asia and H share market. And thank you very much for the recognition from you, from investors and analysts. And for these past two days, I have read a lot of articles from investors and analysts. I know there are some suggestions and there are some criticism. We lay high value on that. Thank you very much for your suggestion and also the criticism for us and we'll all take into consideration your suggestions and try to make a better work. And last year, actually we were facing a lot of challenges, both industrial challenges and cyclical challenges and also policy challenges. So that is why last year pressure was quite high and difficulties was mounting last year. But under the leadership of the Board and also supported by all the related parties, we maintain the stable result and try to make progress in different factors. As Mr. MIAO said in the report, in our annual report that we are still who we are and we have laid a solid foundation for the future growth as a – and Mr. MIAO also highly praised, the Board has highly recognized what we have achieved last year. So last year I think that it seems to be a normal year, but actually it was quite difficult way to go. The result seems to be quite simple, but actually it was hard to achieve that. And CMB will try hard to maintain our results in the future. And just now your question was about the balance development. Last year, according to the strategy put forward by the Board and we laid out our idea of building a value bank. It means that to provide value, creating value for shareholders, for customers, for related parties, for customers, employees, and also society. And that is why we think among our business factors, we want to – we want all four business factors to move forward and also to reinforce each other among retail, corporate and also investment banking and also asset management. But it doesn't mean that we have changed the main priority to retail banking. And that is a very important thing. This year is the 20th anniversary of our launch of retail banking strategy. The first time we launched the strategy was in 2004 and that was already over 20 years, about 20 years that we are doing the same thing. And that is why we have achieved. We achieved very good results in our retail banking. 20 years was quite a hard period. That was a long time. And at the very beginning, we have the original computer and we have launched the all-in-one card and all-in-one net and that was all innovation from CMB. And in the internet period, we become the all-in-one net and we provide services to customer seven hours every week and 24 hours every day. And then in the mobile time, we have upgraded our strategy to using mobile phones. So currently, we think we will continue to insist on our retail strategy. We'll now change that, but only relying on retail alone cannot suffice. If you only do one thing, you might be fast, but you cannot complicate each other. So which means that we need to be strong both also in terms of corporate banking and specialized operation of corporate banking and also strengthen our characteristic investment banking to create new growth point for our business. And also for wealth management and also asset management, these are the very major product line for us. Otherwise without these product lines, we cannot do very well in retail banking. That is why we say that we – these four, I said these four business slides should all move in forward. And this is in line with the trend of the international banks and also in line with the domestic banks. So last year, we have achieved good results and this will continue to do so. And I think that by doing this, CMB can be a bank with our own characteristic by moving all the business units forward. We will not dampen our advantage in retail banking, but make it more even stronger. Thank you.

Xia Yangfang: Next question, please.

Katherine Lei: Thank you for giving me this opportunity. I’m Katherine Lei from JPMorgan. I read from your annual report that your asset quality was quite stable. Even in for real estate industry, your NPL ratio has come down a little bit, but in 2024 when we look at the sales volume, it comes down and also both in volume and also pricing. So may I know what is your expectation of overlooking idea about the real estate sector and also do you think it will spread over to other areas such as micro loans are collateralized by real estate and if the collaterals value comes down, what will be the impact on that and how we balance among between the policies, which asks or require the bank to support the real estate companies? And on the other hand, to ensure that the banks asset quality remain stable, how CMB will balance on that?

Wang Liang: Thank you very much. For real estate risk by the end of 2023, our NPL ratio is 5.01%, up by 1.02 percentage point by the end of last year, but compared to June last year, sequentially, you can see that the ratio is declining sequentially. This year I think the trend hasn't changed much. And for special mentioned loan ratio last year, by the end of – was 4.7% is down by 1.44 percentage point compared to the beginning of the year. And if we look at the NPL formation amount in 2023 is down by 36.6% compared to last year – compared to the year of 2022. This is our status for our risk condition in 2023. And for our judgment for 2024, from the current situation, we think that probably is highly probable that our real estate NPL formation amount will continue to come down compared to what we have in 2023. And at the same time, we will try to increase our efforts to dispose the existing NPLs. So I think that asset quality will remain stable. This is firstly for our judgment, for the risk management sector. And for the risk though, whether you will spread out to other areas, definitely there will be pressure such as construction and also for the collateral you just mentioned. Such as for the upstream construction, we see that in some regions, some enterprises, and we have seen also defaults even in our own bank. And also for upstream and downstream of the real estate sector, we have done a special investigation into that. And we think that asset quality are all under control. And for how we implement the national policy and how we need to satisfy the reasonable financing demand of enterprise and also how to maintain the asset quality of the bank. I think our priority in 2024, we will focus on three areas. And to make sure that it's a ring fenced management projects. Three areas: First one is that we will focus on our wireless customers for our head office and branches. Secondly, to focus on first and second tier regions and cities; and thirdly, is to focus on business that is supporting the rigid demand and to improve the livelihood of people. The demand supports to focus on demand in this area. And on the project base, we still emphasize on the self fulfillment or self repayment of the financing cost by the project itself, which means that it will mainly highly emphasis on the ring fencing project management procedure. And we think that there's no much fundamental changes in overall real estate sector risk currently. And one more online.

Xia Yangfang: Now is the online Q&A session. Please press the more button if you're joining from mobile and press the participant button. And we will have the question from Xu Ran from Morgan Stanley.

Ran Xu: Thank you for giving me the opportunity. I have a question for the loan growth plan and loan pricing. We can see that loan pricing tend to be quite competitive in the market, SME loan pricing especially. We also see from other banks that they may consider the trend to be not that reasonable, so they will tend to be slowed down in the loan growth. So I would like to learn from CMB about your arrangement in loan growth and loan pricing, and how to digest the risks in the mid to long run and what is your plan influenced towards NIM?

Wang Liang: Thank you. Thank you for your question. I will take it. To see from the year 2023 that CMB'S loan growth tend to be stable. Our corporate loan on growth 9%, retail loan growth 8%. The overall loan growth was around 7% to 8%. So the speed is slowed down a bit compared with the previous years. But considering the external environment and the macro economic environment, I think that the investors and analysts mostly recognize that the growth rate is satisfying for CMB. And we could fulfill the requirement to satisfy the need of the real economy and also take active consideration of the supply demand relationship in the market. And we are also faced with other questions such as the low end pricing issue. And indeed low end pricing also decreased last year. This is a common challenge faced by the whole banking industry and for CMB, last year's loan yield was down by 10 bps for corporate loan. And of course, the loan yield decreased more in retail loan 42 bps down, so in average 28 bps down for the general loan. And indeed, we have to recognize that they have cast influence on the bank's revenue and from the annual reports released one after another by the banks, we can see it is a common challenge faced by the banks. We need to conduct further analysis on the reason behind. First it's about the LBR cut as we are faced by the re-pricing of the existing loan, regardless of our corporate loan or the retail loan, this is the common challenge faced by them. And the second influence is brought by the supply and demand relationship. Now from the last year, we can see, supply in terms of SS side is way more than demand in the market. So therefore, the competition in the market is fierce. The pricing and the cycle tend to be an influential factor. When the supply is higher than the demand, of course, the loan pricing will go down. And the third factor is that beside the re-pricing factor, the supply demand factor, our structure in the loan portfolio also matters our credit card and residential mortgage loan remain fast growth in the previous stage and their loan pricing tend to be high among other types of loan. But for last year, regardless of credit card or residential mortgage loan, they are under multiple influencing factors and therefore their slower growth rate lead to lower loan growth and lower loan pricing for us. So to see our outlook in 2024, our strategy will continue to follow our long adhering stable growth objective for many years. This has long been our goal to maintain stable growth. Therefore, our total loan growth will be also set on the target of 8% to maintain a stable growth. And under such circumstances for loan pricing management, we will maintain a balanced methodology. And firstly, it is highly aligned with external environment. We shall take active consideration of the enterprise's financing cost. So therefore, we can provide reasonable loan pricing. And at the same time, we are able to conduct active management of our asset liability structure so that we are able to achieve a more reasonable asset structure and maintain a rather stable return of our asset yield. Even though I have to admit that we have to make our every effort to achieve our goal, we have to still admit that the loan pricing will continue to decrease in this year because of the reason of the supply demand relationship. And also in February 25th, there is a further LPR cut and which leads to a further loan re-pricing of our residential mortgage loan. So the influence will gradually be manifested this year. And for the existing residential mortgage loan, that will be a one of re-pricing in this year as well. So we will bear in mind the expectation to lower the expectation for the banking industry that the loan pricing – that the loan growth might experience slower growth.

Xia Yangfang: We will have one more question from online participant. We will have the question from Mr. Ma Kunpeng from China Securities.

Kunpeng Ma: Thank you, senior management. A question after I read the annual report in the President's statement. In the Chairman statement that you mentioned about the differentiated development and since last year, the banking industry is faced with complicated operating environment. And I would like to learn from the Chairman, what do you see about the external environment for the banks? In terms of differentiated development, differentiated and characteristics development, how will the Board of CMB provide support to CMB to sustain and realize such type of development?

MIAO Jianmin: So for CMB, we have always emphasized to stick to be driven by innovation, to build up a leading model and to feature distinctive bank that is a value creation bank. Driven by innovation only by doing so can we increase our core competency only by – we use a leading model. Can we enhance our capability in sustainable development only by develop in a featured model? Can we build our new moat to create value for employees, customers, partners, shareholders and society? We mentioned about characteristic, distinctive characteristics, but CMB actually has a very great – has very distinctive characteristics. Before as we established, we strengthen to take deposit as our core as our foundation, and later, we emphasize on building the retail bank as our core capability. Some of the peers both CMB as the king of retail, that might be a high comment for us. But which also conveys that we have a strong capability in retail banking. This is our characteristic. And now we are forging a new characteristic to increase our tech capability and build our new moat to bring CMB from the online CMB to Smart CMB. This is how we aim to make our competitiveness stronger, make our customer service better in the market. We mentioned the four segments of balanced development. That does not mean that we have no longer distinctive features. We aim to maintain our distinctive features based on the balance development of the four segments. We shall maintain our existing advantages and characteristics. We will continue to take low cost core deposit as our competitiveness. This is how we aim to maintain our good level of NIM, and at the same time, we will continue to strengthen our retail finance. This can also contribute to CMB in terms of our sustainable development capability. And at the same time, we propose to build extensive wealth management cyclical chain of value. This is also in line with the wealth management and the retail finance development. Last year, we have experienced challenges such as sluggish capital market and also the fee cuts. There might be some influences casted on our wealth management business. However, we don't see lower proportion of net fee and commission income, net interest income in term net non-interest income in terms of our total income. And we have also aimed to increase higher level of AI application in the banking operation. This can even make our characteristic more distinctive and make our capability to build a sustainable development stronger. It's not just a slogan, it has very rich detailed content. It is how we built our new moat based on our past strengths.

Xia Yangfang: Thank you, Chairman MIAO. We will have another question from onsite.

Unidentified Analyst: Dear, senior management. I have a question. I'm from CLSA. My question is for Mr. Wang. And it's the first time you have disclosed the key branches in key regions and you have disclosed data relating to that and saying that you want to build up a new growth engine. So what is your thinking for that? And is there any progress on that? And what is the potential for that?

Wang Liang: Thank you very much for your question. And actually for business units, we think that retail is our top priority and also we are thinking about what other aspects that is in line with the overall economic development of China and what areas will be our new growth engine. I think a very main characteristic of China's economy is that diversification in the different regions and major resources are even more concentrated in key regions like in Pearl River Delta and like in the Bohai area and like in the [indiscernible] area and also like the high sea area. And these are the major strategic areas for China and have a great potential. And according to the regional strategy, we'll continue to invest more into this region and hope that our branches in this region can contribute more to the whole bank. So our major policy is to we'll invest more, give more resources to the branches like the capital, like human resources, like credit resources to these regional branches. And we require that and with a precondition that the risks should under control that these regions should implement the strategy of the bank. Namely, these regions are areas where have a great potential for retail and have a great potential for more population and also have more potential for new economies and how they can implement the new productivity industries. And also into retail business, we have set targets for them, higher targets for them than the bank's average level and hope that they can be faster compared to the average. And to implement the national strategy by giving them more resources and setting up higher targets. We hope that by several years that these banks can contribute more to the bank's profit and also to build up a better engine for CMB’s overall growth. Thank you.

Xia Yangfang: And next question, please.

Wang Xianxuang: Thank you. I’m Wang Xianxuang from Guangfa Securities. My question is quite simple. Now it's already at the end of the first quarter and we have done investigation that banks are under pressure. But I know that different banks differentiate from each other in the operation for first quarter. So may I know – could the management give us some expectations on the first quarter? What are some negative and positive changes? And more direct question, whether you can maintain a positive profit growth in your first quarter?

Wang Liang: Thank you very much for your question. Your question is very direct, but my answer could not be very direct. Actually, I want to say that in the first quarter, we really feel that pressure is higher and haven't turned better compared to last year. Why is this? So last year there were many policy courses and policies are reflected in the first quarter of this year such as for the re-pricing of the existing mortgage. The new policy was started from September last year, so that was affecting only one quarter last year, but it will affect the whole year this year. Secondly to the decrease of the fee rate for insurance that we're seeing, October last year, it was also affecting only around one quarter last year, but it will affect the whole year for the bank and also for agency sales fee of the mutual fund. It was also launched by last year. This policy will also – the impact will also be shown in this year. And also the reduction of LPR and even 25 bps down for the five-year LPR, all these policies all compounded together will have laid pressure on this year's growth in operating income and also on profit. And under these circumstances to realize positive profit growth, I think as you have wished is really a big challenge. And for us, on the one hand, we want to – I think one of our advantage namely is the low cost deposit. We want to maintain this, our main advantage in the funding cost side And last year for deposit growth, it was very obvious for the trend of term deposit. And at the same time for U.S. dollar deposit, the rate was increasing. So aggregately, you can see that the compounding deposit cost ratio was up last year, but actually if you look at the – only look at the RMB side, they're still under control from the cost. And this year that is why we will continue to maintain the deposit cost. And secondly is from the asset side, as you say, there's oversupply of credit and pricing was quite distorted. And for some clients their loan rate is even lower than the deposit rate provided for them and it's not sustainable. And this reflects the supply and demand situation of the bank. So bank need to have more effective allocation of assets and that is why we'll maintain a higher proportion of retail banking and retail bankings yield is higher than corporate side. That is why we make more efforts in micro loan and also in consumption loan so as to offset the shortfall coming from the yield side. And in fee-based income, we try to make fee income in different assets such as asset management, custodian business, and also financial investments by different means to maintain our fee-based income to offset the policy negative impacts. And we want to increase our efforts in terms of cost control and to – as the Board has required at this tough time to tighten our belt and to cut cost and improve efficiency and to increase our – by taking all this means, we hope that we'll try our best to realize our own profit target. But as you – what you have wished for, it was quite a difficult and challenging task for us.

Unidentified Analyst: Thank you very much. I'm from Goldman Sachs, Claire. You just said about the fee-based income. My question is about the fee-based fee rate for insurance and also fee rate for agency sales of mutual funds. And could you please also give us some more detailed forward-looking on fee-based income?

Peng Jiawen: From our own will, we do hope that you will not continue to come down. But actually whether there will be further room is according to the new policy. So it's not up to us. And yes, I would like to elaborate on the fee income and just now Mr. Wang Liang has also introduced to us policy factors, the major impact on our fee incomes including insurance and also including on mutual funds. These are the main two factors affecting our fee-based income. Currently, we think that the impact is quite big, but whether there will be further room for the rate to come down, we do hope that this rate will continue to be stable. And for fee-based income, I would like to give you more introductions. Last year for banking industry and also for CMB all facing great pressure in the income. For CMB, we are having even a bigger income compared to a bigger impact compared to our peers. Stand by 10.18% is quite a big decline. The main reasons are as follows: The first one is from mutual fund, agency sales mutual funds down by 21%. Second one is coming from the sales of the wealth management products down by 18%. And also the agency sales of trust products also declines over 10%. And also for asset management non-custodial business, all declined by 8%. Only one highlight last year was around insurance is up by around 9.33%. So that was the only increase for fee income. Behind that you can see that the sales volume of the insurance has increased by 33%, which means that by increasing the volume of sales volume to meet up the short fall in the decline of fee rate, this is for our insurance business. And I think that the business increase slow down may also – will also lead to a decline in the income such as for wealth management business. The daily average sales volume is coming down and is one of the reason why the total income was coming down. And such as for custodian business, the total volume for equity products and the custodian is also coming down, which lead to a decline in all fee income. And for our wealth management products, even though we are still ranking first in terms of the total transaction volume, but structural change has also cost the decline in the overall fee income. And last year, we all know that the capital market has cost negative impact on equity-related products such as for mutual funds, equity-related funds, so quite difficult. And also for custodian business, also the same that the products relating to equity under custodian overall volume is also coming down. And these are all structural problems. Thirdly is the policy impact such as for fee rate card and also for the new policies on the policy side. These are the three factors. First is the volume growth is slowing down. Second one is structural problem. And third one policy are all leading to the difficulties in fee income for wealth management. But there are also positive signs. The first thing is that for capital market, we think that, if we look ahead, we haven't seen a very strong rebound in the capital market, it will continue to impact on fee income. And also from the demand side, I think that we are also not seeing very strong demand for wealth management products, but there are some positive signs such as for the overall economy. The overall GDP target rate is around 5% and I myself was quite confident about that. And secondly, for the capital market is still building up the bottom and I myself hope that it will rebound. And also there are structural opportunities for the debt market and also for the bills market. So these are also positive signs that we have seen which might have some positive impetus for our fee income. And internally, I think that there are several opportunities we need to seize. The first one is the customer growth, customer base growth including corporate banking customer and also for retail banking customer. By customer base growth is where fee income comes from. So it's the origin of source of the income. So this is the top thing, top priority we need to focus on. And just now as Mr. Wang said, our AUM growth rate was quite good this year. And this is the foundation for the fee rate for our wealth management. And very importantly how we can better serve our existing customer and provide value for our customer. And that is the way that we can improve our fee income. And secondly is the structural – product structure such as for insurance products, even though fee rate is coming down, but we do hope that we can increase volume just to offset some negative impact coming from the fee rate. So we'll set up our efforts, such as for the dividend payout ratio, the dividend payout insurance, and also protection type insurance to improve the sales volume of this kind of insurance by optimizing the structure and also by making progress in terms of customer-based growth so as to minimize the impact coming from the policies.

Xia Yangfang: Thank you, Mr. Peng. We'll have a question from online participant. The question will be coming from [indiscernible].

Unidentified Analyst: Can you hear me? Dear, Senior Management. Good morning. I'm [indiscernible]. Thank you for giving me the opportunity. My question is about asset quality. I noticed that in the previous economic downturn, except for the real estate sector, for corporate banking business, other corporate loan actually remains stable for CMB. Actually the economic environment is not that optimistic. So I would like to learn more about the corporate loan in terms of its asset quality in terms of its detail and what is your outlook?

Peng Jiawen: Thank you for your question. Well, indeed the economic downturn, we are faced by some new challenges and pressures. And as for the real estate risks, I've addressed and responded. And for the corporate banking aspects, we have a rather large type of asset that is manufacturing loans. We have a total scale, actually increased quite a bit for the past two years and totaled RMB550 billion in total. And by the end of 2023, our manufacturing NPL ratio was 0.59% down, recorded decrease compared with the end of last year, mainly focused on the traditional, retail, wholesale and manufacturing. So our focus in this round will be focusing on the several aspects to strengthen our capacity building. The first is that through industry specialization, we increased our recognition and quality client selection in the industry. And secondly, we focus on one policy for one branch and namely list-based operation to strengthen our operation and management of risks of our middle level clients. And thirdly, we enhance our post loan data risk warning and also relevant management. And at the same time, we enhance risk classification and existing of this type of clients and also our risk inspection efforts. So the overall risk is controllable. And at the same time for some industries and the key management is mainly focused on 14 industries. To see the total volume, it also decreased compared with the beginning of the year. So the overall risk is also decreasing. We stick to the name list management, which is proved to be very efficient and the focus on the strategic plans of the head office and branch level and the focus on the name list-based management to strengthen our overall control of risk and therefore, the risks generally decreased. We expect in the year 2024, the risk management can still maintain stable. This is my response. Thank you.

Xia Yangfang: Another question from online. We have the question from Citic Securities, Xiao Feifei.

Feifei Xiao: Thank you for this opportunity. I have a question regarding the structural reform, your organizational reform. I noticed there are some changes in the retail banking sector. So in the organizational reform, what is the influence and what is your planning towards this transformation and what's its influence over the asset quality?

Wang Liang: So in January of this year, the retail banking sector, we increased a department called the retail customer base group department. It is newly established according to customers demand and its responsibility is to serve the retail clients except for those of private banking customers. And for the retail banking, general office, wealth platform department and also private banking departments, we have conducted some amendments to their responsibilities. And we aim to optimize their responsibility focusing on customer-centric philosophy to cater to the increase of our total volume of 197 million corporate retail customers. And there will be another increase in this year, very fast increase and how to better respond to these clients. We believe we will be relying on our organizational changes and we believe that the previous model, the previous organizational structure can barely respond to the demand from our customers. And we also rely heavily on online-based operation and also intelligent management to better reach and cover our clients and respond to their needs. I think that through this structural reform, it will be a better chance to enhance the service capability of the head office and optimize the responsibilities and duties of each department and to strengthen the strategy development of the retail banking sector. This optimization has proved to be quite good after several months of operation and for the past two years in the head office level, other business lines, other business departments including the CMB branches have also made flexible and active adjustment according to the requirement of business. We have also conducted those adjustments in a smooth manner to avoid big influences to our business. For instance, we established a new department called Inclusive Finance Department to further promote the development of Inclusive Finance business and now having a balance of 800 billion and serving over 2 million inclusive finance business. So this has been embedded in our development philosophy to better serve our clients. We establish a new department called Cross-border Finance Department to better serve the Cross-border finance demand for our corporate customers. For the past two years, the Cross-border finance business also develop a lot against the market trend ranking top amount our banking peers. We have also conducted the comprehensive branches to make our branches as a force to pioneer in the market. So we resume what we have been doing in the past that like the branch, the sub-branches to be – let the sub-branches be the force, very emerging force to manage in the market. So these changes in the organizational structure can better serve our customer to better respond to them, to build up our capability to provide our service and also our efficiency per capita and our sense of loyalty and recognition of our staff also enhance along the structural reform. We conduct this reform in a smooth manner without having large influence on the business operation. It is aligned with our strategy of our overall development plan. This is what I respond to your question regarding the retail structural reform. This is all about how we are able to promote our business, how we are able to align better with our development strategy and how can we respond better to our customer centric philosophy.

Xia Yangfang: Thank you, President Wang. Now we will have the next question from an on-site participant.

Juan Shen: Thank you, senior management. I am Huatai Securities, Shen Juan. I have a question regarding asset quality. I would like to ask this question to Mr. Zhu. I've noticed that the external environment that the residents have been showing sluggish a rather weak demand in terms of residential mortgage markets. And also in the retail sector, I would like to learn more about the senior management about your assessment in this field and what other sectors do you observe that will be uptaking of risks. And I have also noticed the higher migration rate of the sub-level and doubt loan. I would like to learn about the reason behind it. Is it some active arrangement conducted by the bank or is it about some other factors?

Zhu Jiangtao: Thank you for your question. About the risks in the retail finance sector just now – finance about the residential mortgage loan. By the end of 2023, the NPL ratio was 0.37%, a little increase compared with the beginning of the year. However, we are lower than the average level of our peers. To see from the NPL formation, that is 0.22% remaining flat compared with the beginning of the year. So in terms of residential mortgage loan, the overall risk is we could say at a low level. So to be specific, the residential mortgage loan as a proportion, we can say that 87% of the assets are located in tier 1 and tier 2 cities. The risk weighted collateral ratio was 32.93% and to see from our stress testing results under the medium level, the NPL ratio will increase to 0.66%. So generally the risk is at a controllable level at a low level. To be specific in the small and micro-size loans, the NPL ratio was 0.61%. The NPL formation ratio is 0.52%. So generally we both record year-on-year decrease in the two ratios. We also observed that in this perspective, we are faced by insufficient effective credit demand and weak social expectation and there are also some hidden risks. And these are all influencing factors we are faced by. So we will further enhance our risk classification and onboarding of our customer. This is what we will do about micro-finance loan. And the third aspect is about consumer finance loan. Our consumer finance loans NPL ratio was 1.09% and the new formation ratio was 0.9% uptake from the beginning of the year, which is aligned with the overall market condition. So for CMB, the consumer finance loan and our customer base is focusing on three types of customers. One type is our payroll customer and the second type is our customer from quality industries. And the third type is top tier enterprise in specific industries. So generally the consumer finance customers is not that same with our credit card customers. And the risk manifestation is also different from that of the credit card. As you can see, the NPL ratio formation, one is 0.94, and one is over 4%. So it is quite different. Consumer finance loan yield is better than residential mortgage loan and also better than the micro-finance loan. This is about consumer finance. The last part is about credit card, but the end of last year, credit card NPL 1.75%, NPL formation 4.52%, both record decrease compared with the beginning of the year. However, the NPL formation indicator is higher than that of the pandemic era 4.25%. We will have to admit it at a high level. So after we made some amendment to our credit card strategy, the trend is also showing a decreasing momentum and this is the general condition for our retail finance business. So looking into the year 2024, the overall risk is controllable and remain stable. This is your first question, my response to your first question. The second question is about the sub-level and doubt level migration level. There is a policy factor that is since July last year, our asset classification new rule is now coming into effect. 27 days and above loans will be migrated to the doubtful. For those over 360 days we'll be recognized as loss. So according to the regulation, we will implement according to the requirement and we have conducted relevant migration arrangement and therefore showcasing the higher migration ratio regarding the sub-level and doubtful loan, it is mainly about what we have been implemented according to the regulatory requirement.

Xia Yangfang: Next question.

Gary Lam: Gary, I'm from HSBC. My question is for Chairman MIAO. Last past two years, many foreign investors – actually, they are lowering down their shareholding in Chinese banks. So how do you think that you can help to increase the interest from overseas investors? And for the ROE and also ROAA growth rate, what is your loan and midterm target for that?

MIAO Jianmin: Thank you very much for your concern for China Merchants Bank. They have written me a note for that. Thank you very much for that. And the first question, the number of the shareholders is coming down. Whether you have any approach to increase the interest from overseas investors? I know there are many factors for that. How can we be more attractive to foreign investors? Firstly is to increase our own value. To increase our value, no matter it is for domestic investors and also for foreign investors. They can earn money or they can have return from us. Because capital is chasing profitability as long as we are profitable, I think the foreign investors, they don't care whether the money is making from which market. So fundamental way and the key way is to improve our return for investors, that is why we are saying we want to build us into a value creating bank including creating value for investors. Secondly, of course, we need to improve our communication with foreign investors. There are many reasons why foreign investors are decreasing their increase in China. There are some misunderstandings, especially due to last past years due to the COVID control. Communications has been reduced since we cannot go out and for investors was not able to come into China. So there were a lot of misunderstandings due to less conversation. So last year, we are the first to go to different markets including U.S. market. We are doing road show there and have face-to-face communication there. And I think the impact is good because buying shares overall speaking is buying future. It's not buying the current. So improve the confidence of shareholders is very important. So where does confidence come from? It depends on communication, especially for domestic market in Mainland China. It's a long way from the Western markets. So I think the face-to-face communication is the best way for us to improve communication and that is why we're doing road show last year and in the future, we'll continue to do so. So this is answer for your first question. Secondly, for continuous ROA and ROE and I think bank are facing cyclical – are facing cycles and also ROE are also facing cycles. Years ago U.S. banks are also facing a zero interest rate cycle and their ROE was quite low and last year they were going to the rate hike cycle as improving. And I think that for CMB ROA and ROE were quite high among our peers. Just now, ROA was 1.32% and ROE is above 16%. So we hope that even during the downward cycle, we can maintain a stable ROE and ROA. And as long as in the downward cycle if we can maintain a more stable – even though it might come down a little bit. But definitely, I think we need to be better performed than our peers. So our target is to outperform our peers and to outperform ourselves. And in the upward cycle, we can perform better than our peers. So no matter is a downward cycle or upward cycle, we are better, we can live a better life than our peers and have a better return for our shareholders. So our shareholders will be satisfied around that. Our customer, employees and society will all be satisfied with that. Thank you very much.

Xia Yangfang: Due to time constraint, we also need to guarantee the interest of individual investors. So we have a question from individual investors. Many questions raised was quite the same as what we have just asked. And I think that our employee will also read out one question from individual investor. A question from individual investor, from China Merchants Bank operation, whether you are seeing some recovery and the demand from retail customers demand. What is your forward-looking for the growth rate of retail loan demand?

Wang Liang: Thank you very much. From a retail loan growth, consumer consumption loan, actually there are three business products. One is our credit card. Last year was a growth around over RMB50 billion. And also our rental banking department is also doing consumption loan is growing around RMB100 billion. And also under us we have a JV is CMB consumption. Last year, the asset volume around RMB180 billion and won by around RMB10 billion last year. So all these three parts are growing last year, but with a different speed because they have a different risk reward, risk pricing and also they're targeting a different customer groups. And overall speaking, with the recovery of the consumption, our consumption loan is also growing. Why the growth rate is different such as for our JV, for the consumption loan, they are targeting at a lower level customers, which means that they are facing higher risk. That is why they are having a lower rate of growth. And for retail loan, we have a higher growth rate because they're having the best customer among the three parts, their NPL ratio is around 1.09% and the growth was around RMB100 billion, it's more target at the quality customers and they have strong capability of repayment. And for credit card customers is quite in between these two types – the above mentioned two types. And so this year within our consumption loan as – will the growth will be quite as the same as what we have last year. Speed might be slower, but amount will be stable. So that slowing down – a little bit slowing down will help us to better control the risk, normally making an adequate or reasonable growth rate and also at the same time maintaining the asset quality and also taking into consideration the return on the asset yield and also to satisfy the consumption demand. Thank you.

Xia Yangfang: And I think the next – okay, and the last 20 minutes we'll leave to the media friends. I think one question from online.

Unidentified Analyst: Thank you for giving me this opportunity. I'm from China Economy. Just now you have some question about retail. Yes, retail say that CMB’s advantage in retail banking business are even more stronger. So I would like to know your view on the development of retail banking business this year. And just now you said about the retail loan, you said that you are still going to grow the retail loan this year. But also you also mentioned about the concern on the asset quality side. And other banks saying they want to learn from China Merchants Bank in terms of retail, but also thinking about there are higher risk in the asset quality side. So the other banks are also moving towards more quality customers. So my question is for what is the change for CMB’s strategy for business retail loan business? And in retail business, do you have any indicator that can show your leading advantage in retail business? Thank you.

MIAO Jianmin: Thank you very much for your question. You just said that how CMB can have a better advantage in retail banking business. And I think that for the retail banks in China, there's still great potential in the market. China has a population about 1.4 billion and around 400 million mid-class customer and I think there will be more coming to the mid class level residents. And this means that a great potential for retail banking business. That is why every bank is laying high emphasis on that. And for CMB for the past 20 years with the accumulation that we have made, we need to seize the opportunity. And I think for CMB, the two opportunities are in the four areas. The first one is wealth management, with the increase of the residents income, there's need for wealth management means opportunities. And this is the opportunities we have. The second one is for AI, artificial intelligence. A bank especially in wealth management or retail banking business if it still rely on the physical outlet or the relationship managers, it cannot suffice customers demand. For more efficient and more smart customers, so we can only rely on ITs like the AI technology. And CMB are taking – are strengthening efforts in these two areas and have made leading advantage on that. In wealth management, we want to build the extensive wealth management value chain and also to improve our capability to create value for customer and also risk management for our customer and to build the ecosystem for our partners and to provide better return and better product to our customer with our counterparties. So this means a good wealth management and we have achieved quite good results on that. And for digitalization and AI with the support of the board, we have also set up earmarked fund for financial products and increasing our investment into FinTech. Last year investments were around RMB14 billion and this has been sold for many years, namely no less than 3.5% of our operating income. For technology, this is written in our memorandum of articles and this investment into technology has helped us to have a fundamental change in how we service our customer. Last year, I think our IT department say that we have saved around 17,000 full-time employees saved, and last year it was around 20,000 full-time employee was saved, so by using this technology that we have improved the efficiency of how we serve the customer. We have an on-site participant.

Unidentified Analyst: Dear, senior management, I am [indiscernible] from Security Times. I have a question regarding the Chairman statement to forge a core of a Smart CMB to be the new moat. I would like to understand more about the proposal? Will it bring more changes in our IT input? What phase-based goal have CMB established in terms of such development and how will you conduct inspection to check whether we have achieved the goal?

Wang Liang: Thank you for your question. Just now I've mentioned this question in answering the previous question. As you may have all know, the development of AI and the LLM, we could say that they have brought great influences and the potential to the financial industry and for CMB. In terms of AI, we especially established an AI lab and established a team of hundreds of personnel to promote AI application and to focus on cooperation with leading companies in the AI industry. On the one hand we aim to enhance our capability in terms of AI application and current observation. We can see that within the industry, the bank has been quite a leading in the position in terms of such kind of application. And on the other hand, the wealth management smart customer assistant AI Xiao Zhao can realize interaction with our customer. Based on the LLM, the large language model, we have enhanced our capability in a smart context and also RPA to relieve our full-time staff from the repetitive work. Our 95555 hotline to provide remote customer service is further enhanced in terms of capability and we aim to further enhance its level of standardized service providing. And for those questions that is hard to be taken and handled by RPA, intelligent customer service, those will be given to our manual work. And we believe these have been all proved to be quite efficient in improving our efficiency and relieve as many as 17,000 full-time staff in terms of using those AI application smart operation. This is what we talk about online operation and we could say, we basically realize online-based operation in all kind of business. And the second aspect is about database in terms of our core asset management. And the third aspect is about a smart operation to increase our accuracy of marketing, lower operational efficiency and increase the quality of our service to build a five engine, a smart engine, a wealth management smart engine operation, smart engine risk management, smart engine customer service, smart engine, and also marketing smart engine. The five smart engine is what we aim to further forge and also platform based management. By the end of 2022, we have realized the full scale cloud deployment. And by doing so, we aim to forge a very consolidated foundation of our technology. And based on our cloud deployment, we forge our sci-tech platform, our data mid-office and tech middle office. This is our upper limit that further free up our upper limit to further iterate and realize agile development and iteration. This is where the bank could further adapt to the development of digitalization. The next one is about ecological development. We cannot rely on solely some independent product offering to survive. We need to develop based on scenario-based services and solutions to embed financial service into daily life offerings such as mail ticket, smart transportation, utility, convenient payment. These scenarios have all been welcomed and recognized by our clients. The CMB application has already got a MAU of 117 million users. Around 20 scenarios has a MAU of over hundreds of millions of level. We embed different kinds of financial services into daily lives scenarios to enhance the further integration of other scenarios into financial services. The five direction of development further enhanced our development in terms of digital transformation along with our full scale cloud deployment. And these all contribute us from transforming from online CMB to Smart CMB. And these could also contribute to CMB to be a modernized bank, a company that is under modern corporate governance. That is what advantages brought by technology to us.

Xia Yangfang: Thank you, President Wang. Another question from the on-site participant.

Unidentified Analyst: Thank you, senior management. I am [indiscernible] from the 21st Century. I have a question regarding the extensive wealth management strategy. You mentioned that the year 2021 is the first year about extensive wealth management. But due to last year's policy issues such as fee cuts in the fund management and policy distribution fees, I could also see that these unfavorable factors were responded by CMB with some structural changes, internal organizational changes. I would like to learn more about your understanding towards these trends and how will you respond to that?

Wang Liang: Thank you for your question. The extensive wealth management strategy is established based on our understanding towards the changes of the wealth management business. This is what we propose as a strategy. This is in line with what our Chairman mentioned about the development and enlarging of our capital-light business and strengthen our capital-heavy business. The wealth management business is the core of our capital-light business, which include wealth management, asset management, asset custody and et cetera. So in this perspective, CMB has already established our strengths, our wealth management scale. The retail AUM is amounted to RMB13.32 trillion, the asset management level including CMB wealth management, CMB leasing, et cetera totaled RMB4.5 trillion, which rank among the top in the banking industry. And as for asset custody scale, we reached a RMB21 trillion, which is the largest among all banks in the industry for CMB. In these sectors of wealth management, extensive wealth management, we have to admit it is what we have already achieved and we have to see the great potential in the wealth management market of the Chinese market. And we have also achieved advantages and achievements in advance because of our careful and forward-looking assessments. We consider this area will still be obtaining great potential for Chinese FIs. For China's financial structures, we can still see that the credit demands, credit-based financing is still the core, the majority of the banking business. In the future, we aim to see and construct a more reasonable structure of the financing market and to see higher proportion of contribution coming from the capital market, especially for asset management, we see there will be fast development in this area. If we can adapt to this trend, if we can seek progress in these areas, if we can maintain our leading advantages, we will obtain more prospect to develop in the future. And we can also further learn from the international banks to strike more balance develop among all business segments. As mentioned earlier in the previous response about our balance developments achieved in the full business segments. Extensive wealth management, well at current stage is under the influence of the policy factor of the capital markets downturn. It is undergoing some pressure. However, extensive wealth management, the path might be swerve, but the future is bright. We will stand firm to our choice. Well just now you have also mentioned a question about setting up a new department about the customer – retail customer-based department. But this is a respond to our organizational and structural adjustment and also what we live up to, our philosophy of taking our customer as the center so that we set up such a department to provide services to retail customers except for private banking customers. It is just an optimization of our organizational structure to better adapt to our arrangement and responsibility fulfillment of the retail banking sector.

Xia Yangfang: We will have the last question. For the media friend from on-site. This lady, please.

Unidentified Analyst: Dear, senior management. I am Grace. I would like to learn more about the NIM around the 25 bps lower. What do you expect about the NIM decrease and what is the rate of decrease and can you share more about your view about the market interest rate? Thank you.

Wang Liang: Thank you for your question. Well I was not expecting the last question should be the question about NIM. So I will take the question. About NIM, there is definitely a question that many of you may pay special attention to and you may also notice it's a common challenge faced by all banks. NIM is a common challenge faced by all banks, 25 bps cut for CMB. No matter the decrease or the decrease rate. CMB we could say maintain a relatively good level among our peers. We have strived every effort to achieve such goal. And maybe I see that the more you care is about the trend and I would like to learn more about, I would like to take this opportunity to explain further. NIM definitely will be further put under pressure. I've been answering this question for many times. And for this year the response will be the same. However, except for the decrease as a fact, we should still pay attention to its pace. For the existing residential mortgage loan, repricing pressure will be relieved in September this year. The LPR rate card 25 bps lower will also be further released in this year. And of course, the 12 factors will contribute a further decrease of the bank's NIM. We also see quarter-on-quarter mitigation in terms of the decrease. In terms of the NIM, we can also see from the example of last year, there is a decrease from 2.3% to 2.04%. There's a trend in the year 2023. And quarter-on-quarter, we could say the things might be better compared with the year 2023, but year-on-year, we could see the decreasing trend will be still there. For the first quarter, the NIM pressure is the highest and the NIM for 2024 might be already at the bottom for the future several years.

Xia Yangfang: Thank you for the questions from our participants. Due to the time limits, CMB 2023 result announcement will now conclude. For more details, information, data, you may refer to our annual report that is released on the website. For more other questions, please feel free to contact our IR team of the Board. Thank you very much for taking part in our annual result announcement. Thank you.

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