China Merchants Bank Co Ltd

SSE:600036

Earnings Call Transcript 2023-Q2

[Jiawen Peng, Security Representative, General Manager]

Dear friends, investors, analysts, good morning. CMB 2023 Interim result presentation will now begin. I am Security Representative and General Manager of the office of the Board of Directors of China Merchants Bank, Jiawen Peng, also the host of today's conference. Today's event is held in person at the head office of China Merchants Bank. Also, it is available via web content -- concept -- webcast. I would like to introduce attendees of today's meeting. They are Mr. Wang Liang, President and CEO; Mr. Zhu Jiangtao, Executive Vice President; Mr. Zhong Desheng, Executive Assistant President; Ms. Wang Ying, Executive Assistant President; Mr. Peng Jiawen, Executive Assistant President and Secretary of the Board of Directors.

We have also got independent non-Executive Directors, Mr. Wang Yungui; Mr. Miao Jianmin in the event online. On behalf of China Merchants Bank, I would like to welcome you all to the conference, and thank you for your interest in and support for China Merchants Bank and your investment as well.

Today's meeting will be divided into two sessions. The first session will be presented by Mr. Wang Liang on the introduction of the interim results takes around 30 minutes. The second session is the Q&A session takes around 90 minutes. Simultaneous interpretation in English will be provided for both the two sessions. Now I would like to give the floor to President, Wang.

[Wang Liang, President, CEO]

Dear Investors, Analysts, good morning. First of all, welcome to China Merchants Bank 2023 interim results presentation. Today's presentation will be divided into the three parts. First, an overview of our first half performance. Secondly, it is about specific operational information. And finally, we'll briefly address outlook and strategies for the second half of 2023.

For the first half, as we are faced with complicated operating environment, the group has stick to our strategic objective for building the value creation bank and steadily extend all kinds of businesses, and achieve quality, efficiency, and scales dynamically balanced development, which is reflected in the following six aspects.

Firstly, operating results achieve stable growth with profitability remaining at a high level. For the first half, net profit attributable to the bank's shareholder was RMB 75.7 billion up by 9.12% year-on-year. ROAA and ROAE were 1.45% and 11 -- 17.55% respectively down by 0.01 and 0.52 percentage point year-on-year respectively, remaining at a high-level. Net operating income was RMB 178.4 billion down by 0.34% year-on-year. Annualized credit cost ratio was 0.88% up by 0.09% to point year-on-year, due to the decrease operating income, the cost to income ratio was 29.07% up by 1.31 percentage point year-on-year.

Net interest income was RMB 108.9 billion up by 1.21% year-on-year influenced by continuous LPR cut and insufficient effective credit cost, credit demand, interest earning yield was 3.83% down by 9 bps year-on-year, influenced by the trend towards time deposit and the foreign currency interest rate increase. Our interest-bearing liabilities annual average cost ratio was 1.71% up by 12 bps Y on year. Our NIM was 2.23% down by 21 bps year on year. Secondly, our asset quality remains stable with strong risk compensation capability. NPL slightly increased NPL balance was RMB60.6 billion up by RMB2.637 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. Allowance coverage ratio was 447.63% down by 3.16 percentage point compared with the end of last year. Allowance to loan ratio 4.27% down by 0.05 percentage point compared with the end of last year remaining at high level. Thirdly, we conduct solid asset origination and liabilities advantages maintained. We actively respond to the challenges of insufficient credit demand and took several measures to strengthen asset origination and enhance asset allocation efficiency.

Total asset was RMB10.74 trillion, up by 5.93% and further enhance our low-end granting and bond investment efforts. Our total loans and advances was RMB6.36 trillion up by 5.02%. Total bond investment was RMB2.67 trillion up by 9.62%. In our low-end structure, we enhance efforts in retail loans. The proportion of retail loans in general low-end increment was 45.46% up by 4.87 percentage point year on year. Bill discounting balance was RMB449 billion down by 12.65%.

Total liability was RMB9.75 trillion up by 6.2% compared with the end of last year. Total customer deposit exceeded RMB8 trillion up by 6.565%, accounting for 82% of the total liability of the group. We continue our strategy to take the core deposit growth as our mainstay core deposit daily average balance was RMB6.56 trillion up by 12% and accounting for 86% of the total customer deposits daily average balance. Demand deposits daily average balance was 4.52% up -- RMB4.52 trillion up by 8.65% accounting for 59% of the total down by 2.22 percentage point. Total cost ratio of customer deposit was 1.61% up by 9 bps still remaining at a low level.

Fourth, we continue our business mixed optimization and sustained resilience of non-interest income. Firstly, main position of retail finance business was consolidated, and the value contribution continued to increase. Retail finance pre-tax profit was RMB50.2 billion up by 9.93% year on year accounting for 60.84% of the bank's pretax profit up by 0.26 percentage point. Retail finance net operating income RMB96.7 billion up by 0.44% year on year accounting for 59.56% of the bank's. Total net operating income up by 0.93 percentage point among which retail non-interest income RMB31.5 billion down by 6.14% and accounting for 55% of the total of the bank's non-interest income down by 0.76 percentage points.

Fifthly, we continue to optimize our low-end structure, retail low-end balance RMB 3.27 trillion up by 5.1%, accounting for 54% of the bank's total low in advances up by 0.26 percentage point. Surrounding at key regions and areas, we enhance low-end extension for corporate low ends in key regions, it is increased by 10.52% and accounting for 36% of the total corporate low end up by 0.75 percentage point, manufacturing low end balance increased by 18%. Technology low end and balance increase by 16%, and inclusive SME low-end increased by 12.5% or higher than the growth rate of corporate loan.

Our revenue structure keeps good. The group realized a net non-interesting income of RMB 69.4 billion down by 2.68% year-on-year and accounting for 38% of the total net operating income remaining at a high level, mainly influenced by the continuous in fluctuation of the capital market insufficient willingness of the investors and our extensive wealth management income was recorded 25.8 billion down by 8.53%, accounting for 14.48% of the total. Net operating income still remaining its resilience. stable five -- stable capital adequacy ratio, and strong internal capital endogenous capabilities among which the groups under the advanced approach, our core Tier 1 CAR, CAR and Tier 1 CAR were respectively 13.09%, 17.09%, and 14.99% down by 0.59, 0.68 and 0.76 percentage point respectively.

Under the weighted approach, our core Tier 1 CAR, Tier 1 CAR and CAR were 11.16%, 12.78%, and 14.19% respectively, down by 0.36, 0.747, and 0.49 percentage point respectively. If excluding the influence brought by the dividend payout, we still remain an increasing level of CAR. Six, we proactively incorporating ESG and earnestly fulfill corporate social responsibility. Firstly, we fully promote green finance green operation. Our green low-end and green leasing business increased by 9.16% and 23.7% respectively. We issued the global's first blue floating rate bond, actively promote green operation and live up to the green environmental protection and low carbon sustainable development philosophy.

And secondly, we fulfill our social responsibility and strengthen our customer information security and privacy protection, and further improve our relevant protection system. Strengthen the interest protection of our consumer, and incorporate those into our corporate governance, corporate culture, construction, and development strategy. And thirdly, we continue to promote the corporate governance mechanism. We officially renamed the board's strategic committee into the board's Strategy and Sustainable Development Committee and strengthen our responsibility in ESG.

This is a recap of our performance in the first half of 2023. Next, we'll introduce the company's operational information. Firstly, we continue to consolidate our systematic advantages of retail finance. We adhere to the core value of being customer centric and achieve steady growth in retail customer base and business scale. Total retail customer number was 190 million up by 3.26% compared with the end of last year. Sunflower level and above customer increased by 7.19%. The number of PB clients increased by 6.21%. Retail AUM increased by 5.9%, among which sunflower level and above customers increased by 6.1%. And AUM from PB clients increased by 5.89% ranking first in the industry by scale.

Influenced by the insufficient demand and the pre repayment, we see residential more low and scale down with greater efforts in attracting new home buyers and second home bias. As the counter match the met, the balance of residential mortgage low-end only declined by 0.76% to RMB 1.37 trillion. Under the premise of enhanced risk management, we increase the low-end extension to microfinance low and consumption low with the balance increase by 12.65% and 34.68%. Credit card business remains stable. Credit card transaction volume was RMB2.37 trillion down by 0.67% year on year. Credit card low and balance RMB905.7 billion up by 2.42% compared with the end of last year.

Secondly, we strengthened differentiated advantages of corporate finance, continue to iterate and optimize our segmented and classified based service system and adjust customer and business structure. Total number of clients reached 2.64 million, representing an increase of 4.585% as compared with the end of last year. Our FPA was RMB 5.5 trillion, up by 8.05% compared with the beginning of the year. Average daily balance of corporate customer deposit was RMB4.5 trillion. We continue to build up distinctive advantages to serve clients in an efficient manner. In transaction banking business, number of active users of treasury management and cloud service reached to 154,000 up by 41%. LC and LG related transaction volume up by 59% and the domestic trade finance business volume up by 56%.

In terms of crosswater finance business, BOP volume for trading goods reached $81.3 billion increased of 10.45%. In supply chain finance, we have promoted 261 projects of one entire bank for one company and extends our services to 28,000 SMEs. With a total loan granted of RMB313 billion. We improve -- thirdly, the professionalism of investment banking and financial market business. We enhance our capabilities in bond underwriting and M&A finance continue to improve our financial market business, and tradings on behalf of customer further strengthened.

Investment banking business -- debt financing business instruments with the company as the lead underwriter was RMB321.4 billion and influenced by the build market, the direct build business volume was RMB701 billion down by 16%.

Trade acceptance bill discounting business volume was RMB82.6 billion ranking first in the industry. Financial market business transaction volume of RMB bond investment amounted to RMB1.38 trillion, an increase of 15%. We provide hedging service to 3019 companies with a total transaction volume of $29 billion, and provided online derivative trading services to over 2,500 corporate clients with a total volume of $11.98 billion. The online interbank service platform Zhao Ying Tong has online sales of the third-party asset management product amounted to RMB 429 billion up by 8.78%. Fourthly, we steadily promote the development of the extensive wealth management business. Retail AUM has achieved RMB 12.84 trillion up by 5.9%. Retail WMP balance increased by 3.21% compared with the end of last year. Agency sales of non-monetary mutual fund was down by 18.53%. Our agency sales of insurance premium has increased by 54.88% year-on-year.

Customers holding our wealth products reached 46.63 million, representing an increase of 8.12%. Customers using the CMB tree as a allocation system has achieved 8.65 million up by 6.45% compared with the end of last year. Family trust business transaction has exceeded 10,000. Business volume has increased by 22.79% compared with the end of last year. Charles [Indiscernible] opened wealth management platform was further opened and enlarged the friend circle, 144 asset managers have been settled in the Charles [Indiscernible].

Second, the percentage of the balance of [FBA] in non-traditional financing remains stable. The figure was RMB 2.45 trillion up by RMB 158.5 billion, compared with the beginning of the year with a proportion of 44% of the total FBA. Thirdly, the asset management business showed resilience. Total business volume was RMB 4.41 trillion remaining the same as compared with the end of the previous year, among which WMP under CMB wealth management was RMB 2.53 trillion down by 5.24% and increased by 72 billion compared with the first quarter. Mainly, we increased the product provision of cash type, close low volatile business and mid to long-term maturity matching products.

And fourthly, the custody business maintained its leadership. The balance of assets under custody amounted to RMB 20.86 trillion, representing an increase of 3.99% ranking first in the industry in terms of the scale of asset custody. Fifthly, we further promote the construction of digital bank, surrounding at online database, intelligent platform base, and ecological operation. We enhance our level -- service level of human people plus digitalization. In the first half of the year, in terms of our expense, our IT input amounted to RMB 5.2 billion. Equivalent to 3.21% of the net operating income of the bank.

In terms of digital services of retail finance, CMB application, CMB Life application has an MAU of over 111 million up by 3.31%. AI Xiao-I has served 11.72 million customers up by 140%. In terms of wholesale finance digital services, online financing has accounted for 89% of the total. And for FX online business, it has accounted for 73% of the total. In terms of risk management, we use FinTech to increase our risk control capability and to make further risk determination. We enhance our risk awareness and use FinTech to guarantee customers security into our assets.

We have lowered the percentage of fraud and account takeover amount by non-card holders to 0.1 and 10 millions by using the Libra system.

In terms of internal operation, we have realized a work equivalent to a workload of over 14,000 people replaced by RPA and AI. In terms of digital infrastructure, we built an industry leading financial cloud infrastructure with the overall availability of the platform reaching 99.99%. Sixthly, we continue to heighten this asset classification, fully exposed risk and actively dispose. NPL.

Retail NPL ratio was 0.84%, among which credit card NPR ratio was 1.68 down by 2.09 percentage points. And corporate loans NP L was 1.27% in terms of its ratio. The ratio of NPL to the low and overdue for overdue -- for over 90 days, 60 days were 1.08%. New information of NPL was RMB30.5 billion down by 193 million. Annualized NPL formation ratio was 1.04% down by 0.09 percentage point. The disposal of NPL by the company in the first half was RMB28.28 billion. 11.05 billion was written off. 11.38% was securitized, and 5.64 billion was recovered by collection.

We effectively managed the risk and real estate business, local government financing business with overall quality of assets under control. Corporate retail, low and balance total RMB315 billion down by RMB18.7 billion and accounting for 5.26% of the total low in sand advances of the company. Retail industry's NPR ratio was 5.45% up by 1.46 percentage point compared with the end of last year, mainly influenced by individual highly indebted clients, further release of their risk and the slow risk disposal progress, and also the lower balance of the real estate loans.

The total balance of the business for -- the group did not assume credit risk amount to RMB247 billion. For the local government financing platform business involved a company and CMB wealth management was 248 billion down by 15 billion, among which corporate low and extended by domestic branches was 137 billion accounted for 2.29% of the total low and NPR ratio was 0.14% remaining at a good level.

Next, I will briefly introduce the company's outlook and strategies. Looking into the second half of the year, the banking industry faces a number of challenges and opportunities at the same time in terms of challenges. Firstly, there is an increase in uncertainty in the international environment that can be attributable to high global inflation. Further interest rate hikes by European and American countries, weaker driver for global economic and trade growth and rising international geopolitical risks. Secondly, domestic demand remains insufficient and can be attributable to the prominent contradiction from insufficient demand in economic, operation, weaker drivers for consumption, investment, and external demand, longer time required to recover personal income and confidence of citizens. And thirdly, the banking profitability. It is more difficult. It can attributable to intensified competition, narrow banking interest spread with a new normal of low interest spread and low rates possible in the future, leading to heavy pressure on revenue growth.

At the same time, economic recovery continues in China, bringing new opportunities to the banks. It is mainly reflected in firstly as the national coordinated regional development is further deepened. Key regions in China are full of vitality with good momentum. And secondly, new economy, new forms of business and industry with new growth engines are having rich business opportunities with great potentials in green economy, inclusive finance, and technology finance.

And thirdly, wealth management market continue to expand and there are still great market potentials in the retail finance area. As we're faced with these challenges, we will stick to our strategic objective of building the value creation bank and construct our core competitiveness with differentiation.

Firstly, we will continuously maintain strategic focus on retail finance and continue to consolidate our advantages. We will maintain the supporting role for -- of retail finance as a company and its strategic mainstay. Speed up the construction of people plus digitalization, enhance its coordinated development with our segment and let retail finance become the platform of wealth ecology, the cornerstone of asset business, the driver of flywheel effect, and the leader of the value creation.

Secondly, we'll strengthen asset liability management, optimize asset allocation, enhance liability assets. We'll stick to the principle of expansion increment, price stability, and quality assurance to guarantee the loan extension to retail assets and stick to our liability structures that take core deposit growth as the mainstay to control the high-cost deposits and maintain our low-cost fund advantages. Thirdly, we will strengthen our customer base, expand, and optimize capital like business. We will strengthen customer group construction, expand AUM scale growth, and continue to optimize their structure and increase our core competitiveness in wealth management business.

Fourthly, we'll accelerate the development of branches in key areas and continue to improve their value creation. We will customize development strategies for branches in key regions such as [Yang] River Delta, per River Delta, [Indiscernible], and West Rate economic zones, and enable their fast development for new growth engine with increase in both the regional market share and their contribution in the bank.

Fifthly, we'll insist on innovation driven development and establish new advantages in niche market. We'll further promote digital transformation and carry out the upgrade of process, product service, management model and other aspect, and move actively in cross border finance, pension green auto consumer finance and other business. And to build advantages in terms of product, niche market and customer groups.

Sixthly, we will strengthen comprehensive risk management and stay firm to the bottom line of risks. We will consolidate the foundation of risk management and strengthen risk prevention and mitigation in key areas and effectively manage credit, market, liquidity, interest rate risks, compliance risks, and other risks, and to firmly build a fort style overall risk and compliance management system. Thank you.

[Jiawen Peng, Security Representative, General Manager]

[Foreign Language] Thank you for your introduction. Now we are going to the Q&A session. Since there are many participants today. So everyone should raise only one question each time, and we'll have two questions raised by onsite and one from online. [Operator Instructions] Now we will have the first one.

[Unidentified Analyst]

Thank you very much for giving me this opportunity. Richard from Morgan Stanley. My question is for Mr. Wang, and this is also a question I'm very interested in. As you just said, now we're facing quite a complex overall economy and the pricing of the loans, it's a little bit complex, a very mixed situation and some pricing are very low. So if we look at other countries, like in the United States before 08, many banks, they don't have any expansion of balance sheet. So for the banks who are reluctant to expand in the hard time, actually enjoy quite a brighter future when the economy bounce back. So what is your strategy towards that?

[Wang Jianzhong]

Thank you very much for your question. And you have noticed that from the long growth for the banking industry in the first south is around 16 trillion. It's quite a fast speed and it's a historical high level, but it's true that there are some irrational competition in it and it's a kind of a chaos.

Some of the loan pricing is even lower than the deposit rate. So the NIM of banks is coming down rapidly and a contraction of NIM is very obvious for CMB in the first of the year. For asset origination, we actually have done quite well. We have long growth over 300 billion and we invest more into debt investments and it's up around 200 billion. And our feeding in the first of year is very obviously namely as a decides liability. This is the rule is becoming more determinant currently and in the first of the year, we have a deposit growth grown over 800 billion is higher than the loan growth. So which means that assets growth, this should decide the deposit growth.

The other thing we are feeling very obviously in the first half of the year is that how a bank can manage is asset and liability structure is becoming even more important for loans is a important part of the asset allocation. So when we are getting the deposit, how should we allocate into different asset classes and have a better yield is very important.

So actually for the liability side, we are having multiple channels, including deposit, finance from money market funding and also from financial institutions. So still keep a balance of the cost of the liability.

In terms of the asset side, we are still focusing on retail loans, but for mortgage, still negative growth. That is why we are making more efforts in terms of microloan and also consumption. Loans for corporate loans in the first of the year is around 200 billion growth for the first half, but we are optimizing our allocation in terms of regions and also customers when we are making more efforts in inclusive financing and also green financing. This is what we have done in loans for portfolio more effectively manage our loan portfolio, so as to both ensure the asset quality as well as the loan yield. And secondly, importantly is to stick to a optimized asset allocation.

Thirdly, very importantly is we think that commercialized market oriented is a very important principle. Only growth in asset size is not, does not have any meaning for us. We still need to bear in mind the risk and also the pricing of the underlying loans. Namely the loans we create should create value for the bank, should cover the funding cost, the operational cost, the capital cost, and also the risk cost.

Since we are try to be very rational in terms of the asset pricing, which means that many assets doesn't meet our criteria. And that is why you are seeing that we have strong growth in corporate loan in first quarter, but slow-down in second quarter. But still, I think we need to stick to these commercialized market-oriented principle, risk reward principle is the right path for us. Just now you mentioned that is whether we need to consider a relatively rational growth rate of corporate loan.

Yes, I do think for us most important thing we should prioritize asset quality, and also proper and reasonable growth size of asset size, and also, we need to pay attention to the pricing.

Next question, please.

[May Yan, UBS]

Thank you for giving me this opportunity. I’m May from UBS. My question is regarding asset quality. First, congratulations on the midterm results and the solid results you have in the mid run. I know that many are very interested in asset quality. The first one is real estate development loan. Just now, Mr. Wang said, that in a presentation that your exposure for real estate is coming down, but actually we are continuing to have risk coming out from the property developers. So when do you think your new formation will peak for developers, especially such as Country Garden?

Like in 2021, I heard that CMB has around 30 billion exposure in Country Garden. And secondly, how do you classify the underlying assets, whether it already being classified as MPL or it's still in the normal loans. And also, for other developers like fully and other privately owned property loans, what is the asset classification for them?

And my second question is about the risk of retail loans. You have quite a rapid growth of consumption law, whether you will have potential risk inside that. I know that your credit card business is doing very well, and it's kind of de-risking in these consecutive two years. And another consumption loan is from the China Consumption Company. They're also doing consumption loan, whether there will be potential risk.

And thirdly, my question is regarding local government financing vehicles. Are you seeing any projects relating to LG fund local government F fee? Are they going to roll over and also car interest rate that they pay to the bank?

Sorry for that. There are so many questions.

[WANG Ying, Executive Assistant President]

Mr. Drew, we will answer the question. Thank you for your question. The first one is risk relating to real estate. Our view is that from policy side, as you can see, as for the public bureau conference, they have a new statement. Namely, in order to be in line with the new circumstances, we need to readjust our policy in real estate. Namely, I think that central government is sending a Palmer positive signal to the market, but from the launch of policy to the recovery of confidence and also in return to the recovery of the buying power in the market, it takes time. And in the first of the year, if you look at the sales volume is down by 5.3%. And in July sequentially and also year on year is falling down both from these two aspects. So from this year, I think that there are more new default entities. Just as you mentioned, some big developers default.

So we think that the diversity there is continuous diversification of these entities developers. In the first of the year, we have new NPL around 4.8 billion. It's much less than the same period of last year. And in the second half of the year, we think that the new NPL formation, the amount will be larger than the first half of the year. But compared to the same period of will be less than the same period of last year. So over to speaking, our NPL formation for real estate this year, year will be smaller than that of last year.

And if you look at the NPL by the end of mid year, it's over 5% is a slightly up. This is mainly because we have a slower disposal of NPL process. So it's also within our judgment at the beginning of the year. Overly speaking, our peak of NPL formation is in 2022. I think, I can make this judgment. And for NPL ratio, it's affected by multiple factors. If we take more optimistic view, I think our NPL ratio, we are going to see the turning point within this year. Secondly, for country garden, as for country garden, our exposure to a country garden, we have cooperation with country garden. We didn't disclose the exact amount in our midterm report. So what I can say is that the amount that we are cooperating with Country Garden, is equivalent to CMBs market status among our peers. If we look at the structure, 87% of our cooperation is concentrated in the bank, namely from the loans, from the bank, and the coverage ratio of our loans to the underlying to the collateral coverage ratio is around 1.5x. For overseas investment in Country Garden is around 5% of the total is clean loan. So if there's a default, then these will be more at risk compared to the ones that we have in mid in domestically. And we also have one trust products that is agency sales from our private banking. And it will be, this one will be settled within this year. And another part around 4% goes to the underlying assets of CMB wealth management and the risk is already affected by fair value in a product.

Overall speaking for real estate, for the whole property sector, our allowance to loan ratio is around 15%, is 2x over our average corporate allowance to loan ratio and by the end of the midyear is continue to rise. And as for how we classify the assets, our principle is as follows. First one, we need to look at the corporate entity itself, whether it is default in a market. Secondly, we need to look at the underlying collateral, whether it has more-better coverage over our loan. And thirdly, we need to look at whether the projects is overdue or not.

Fourth, we also need to look at whether the company is facing other litigations. By combining all these factors, we'll consider how can we classify these assets relating to property? And I think that the amount that is not -- has been not reclassified as [MPL] is around 7.3 billion. Secondly, around the risk for consumption loan, and we are concentrated in collateral retail loans. This is our main strategy among our retail loan collateral loan is over 80% and the asset quality of our retail loan is overly stable, including credit card. Our amount of MPL and also MPL ratio are all coming down. And for consumption loan, we do have a more rapid growth this year. This is mainly because one, the consumption is recovering, and secondly, mortgage is coming down. So compared to us, we ourself, the consumption loan growth is quite rapid, but compared to the whole market is now a rapid growth. And the asset quality of our consumption loan is also stable. Our NPL and special mention loan ratio are all coming down slightly on a year-on-year basis. So why we need to increase the proportion of our consumption loan in our overall retail loan portfolio? This is mainly because we are confident of the asset quality. Firstly, we think what decides the risk, it's not only -- risk is not only decided by the underlying collateral, rather it's more decided by the customer. And sometimes the clean loan with better customer have a better asset quality than the assets with -- even with a collateral.

And secondly, very important is we highly emphasize on high quality customer, which means coming from high good industries and have a good career and also have assets with CMB. And thirdly, risk pricing is very important. Namely with a higher proportion of clean loan, we'll have a higher yield as well. And if we look at a risk reward, namely, the ROC perspective consumption loan is higher, the ROC is higher than mortgage. And at the same time we have a risk measure. In these overall very complex risk circumstances, we are able to maintain the risk stable, and even within the COVID times, we have maintained solid asset quality and have already undergone these volatile times. So based on this, we are confident that we have the confidence to do a better, to have maintained risk. The asset quality, but currently doesn't mean that we need to lower down our guard against risk. We'll continue to choose the better customer quality, we'll not lower down our criteria for customer onboarding and to improve our risk model for this consumption loan and to better identify the potential risk.

Finally, I would like to say that in growing for overgrowing, our assets for the impossible triangle quality, volume, and also pricing, the top priority is always risk. And thirdly, I would like to continue with the risk for local government financing vehicles by the end of the mid year. The NPL of LGFV is 0.14% the same of the last year. Special mention low ratio is 0.63% slightly up compared to the period of last year, but still at a very low level. And that is why I want to say the risk is under control. And second, if you look at the structural of our business relating to LGFV for high risky regions, the balance -- the proportion of exposure to high-risk regions is less than 10% of the total balance, and it's mainly in the transportation and also public utilities for industries. So our principle for doing business in this area is to select better regions, different -- we have differentiated regional policies.

Secondly, we choose the LGF fees, choose the better ones, namely, we emphasize on transportation and public utilities. Thirdly, compliance is a important, very important thing for us. All business should be compliant. Namely, we will not touch the hidden debt business. Fourthly, commercialized principle is the top priority for us for doing this business in local government financing vehicles. So overall speaking, risk is under control and definitely, we'll continue to do risk management in this area, especially for risk relating to high-risk regions.

[Operator]

Next, we'll have a question from an online participant. [Operator Instructions]

We will have the question from Guotai Junan Securities, Mr. Xue Zhang for his question.

[Xue Zhang, Guotai Junan Securities]

Can you hear me? Thank you for giving me this opportunity. I'm Yu Zhang from Guotai Junan Securities Asset Management. I have a question for the strategy. Around two years ago and around the 2020 annual report, we proposed the major direction of our strategy. And I have noticed that in the recent two years under such economic and political environment, we see a lot of changes. I would like to learn from the senior management in the future development of CMB, combining the two years, the changes. Do you have any new thoughts? And there are -- are there any possible changes, directions for the future development? Thank you.

[Wang Liang, President, CEO]

Thank you for your question. As you said, two years ago CMB has proposed our 14 five-year plan. Our position is to build a model leading bank with distinctive features and a bank with value creation. This is our strategic objectives, and we will follow our direction to build a value creation bank to extend our business operation. The strategy remained unchanged. We will maintain our strategic determination in terms of strategy. We will closely follow the changes in the external environment, and adjust accordingly to further implement our strategy. As we stick to our strategy objective, this is our core value, also our philosophy for the whole bank. So this objective is also in line with our future development trend. So as to realize a high-quality growth for the bank. In realizing the strategy of value creation bank, we need to act accordingly to the macroeconomic situation and according to the development phase of the bank, to conduct further optimization and to implement new counter to meshes.

In last year's result announcement, I think we have mentioned that the strategy is constructed based on our previous retail banking and light operation bank strategy. We will further consolidate our advantages in retail banking strategy. In our current phase, retail banking strategies will be further innovated in terms of our service model business model, so as to maintain our market position. This is our mindset that is to guarantee our systematic strengths in retail finance business to transform our strengths, to better respond to the changes in the macroeconomic situation.

Secondly, the light operation banking strategy, we have previously summarized it as it is one of the major solution that is to leverage the utilization of capital light business to realize capital endogenous solutions and leveraging on this, we have in 10 years not raise external capital to increase our, uh, internal capital growth. And therefore, in terms of our operation and business positioning, we will stick to an operation manner of low capital consumption to bring better returns to our shareholders. So in current stage, the two above-mentioned strategies previously used, the new strategy is proposed based on these two.

In the following page, combining the external environment, we propose to deepen. The regional based development strategy to specially focus on Youngs River Delta, Pearl River, Delta Cing -- Western straight region, and other developed principles -- provinces and cities to enhance our core competitive to bring more value to CMB. So since last year, we have extended such kind of strategy, although it has not belonged, but we have still see fruitful outcomes. And secondly, we will further promote the CMB strengths and develop in the niche markets, in segmented businesses, and to build up our strengths in key products such as credit card, wealth management, asset custody, private banking. These are all our competitive strengths among our peers. What about the next step and how to accumulate our strengths? We need to study further on the market changes and act accordingly, combining our own strengths and forge a new competitive strengths.

In FinTech, green finance, auto finance, pension finance and digitalization, FinTech capability. How could we further innovate and build up our competitiveness in above field

and outperform our peers and maintain our strengths. So in the head office level, we have specially established teams to understand, to learn better and to cultivate the strengths mentioned earlier, to lay a solid foundation of our future development and to build up our new capability. This is what also proposed by Chairman, Miao to combine capital light -- capital heavy business is the foundation and capital light and capital heavy business shall be combined together.

We need to build the new [indiscernible] curve of growth. The new growth pole is extensive wealth bank, extensive wealth management business. It is a capital light business with low capital consumption, with high potential of growth. And we'll bring better contribution to CMB as well. And this is what we need to cultivate in building our new growth pool. We have large market space. We have the strengths, we have the capability to find a new growth area. We need to make enough investments in such fields to realize us as a bank with lean model, distinctive features and value creation. This is what we will do according to the external environment and make flexible adjustment accordingly and realize our strategic objectives.

[Operator]

Thank you, President, Wang. And now we'll have the next question from an onsite participant. The gentlemen, please?

[Zhang Shuaishuai, CICC]

Thank you for giving me this opportunity. I am Zhang Shuaishuai from CICC. I would like to have a question for Ms. Wang Ying, as you have taken in charge of the retail business for quite a period of time. It's also my first time to meet you. I understand that retail finances, the advantage strengths business of CMB, also where the market valuation are coming from currently, the asset business, the wealth business, are influenced by the economic and market cycle. And we see in insufficient demands in the market under such backdrop, what do you see about the future development of this business? Where is the future efforts in the retail business in CMB, and how will it grow in the future? Thank you.

[WANG Ying, Executive Assistant President]

Thank you for your question. I've paying notice to the articles you published, and the question you ask is quite a big question. I will try to divide it into two aspects to address it briefly. The first layer is that the future efforts of the retail business growth is that to see from retail business itself. We have taken careful consideration that CMBs retail business developing into today's results with such leading advantages is because under such a system. We have developed actually leading advantages in each subsegments retail, PB, retail credit, credit card regarding AUM MAU. These all aspects are all leading and together they construct our overall strengths.

Therefore, the future efforts. The future growth pool of retail finance is not a single growth point, but a growth of overall. These aspects are all what we need to consolidate and intensify for emerging areas, pension, wealth management, buy side, consultary, companion service, family trust business. These are new areas we need to pay attention to.

Why are we doing so? I'd like to answer this question from two aspects. On one hand, retail is a system-based operation. Strengths in one single point cannot support a systematic development only by an overall strength. Can we support the retail finance to be a strong business. Sunflower level and above clients, nurture diamond level customers and level by level these client support with each other. Another consideration is that on the other hand, in the future, probably long from present, as we are strong enough in retail finance, we might have selected based operation. We might have specific focus on specific areas, one or two or three areas, but not an overall development in today's stage.

However, regardless of CMB or other banks, regardless of different business segments in retail banking, they are all in a early stage of development. We have no reason to give up any sector under retail finance. It is only little strengths that we accumulate today. Retail in retail finance, credit card in retail finance and the retail credit in retail finance, they're all making just little steps, little progress. They are just the beginning of our development. We might even fall behind in the traditional payment business. So therefore, we need to correctly value what we have achieved in these segmented business and we have act accordingly to President Wang's requirement, to have a three to five year plan.

We need to carefully evaluate what we have achieved in these niche markets and to carefully evaluate the progress we made in the market. And I believe that they have a different path of development, different standard of criteria in the retail business segments. We will further consolidate the foundation of quantity that is referring to three aspects customer base to expand our customer base, 190 million. We have only 44 million customer for clients holding our wealth products. APP clients just a 111 million. These are all opportunities with large growing space. We have a large number of RMs covering hundreds of thousands levels of clients. We have over 350 asset managers to form our open wealth platform. This is what we called about quantity. We need to further consolidate the platform in increasing the quality, we will continue to construct our four systems and one support. Due to time limit, I won't illustrate too much on that.

The product, the asset allocation, the human plus digitalization, and the outlets, plus online service and the RM covering customer service groups system. This is the full system I mentioned. I would like to pay special attention and specially mention the FinTech capability. The support that is FinTech. CMBs retail business development or CMBs development history is relying on FinTech. We could call it a history of FinTech. Every leap we made, every develop we -- every development we have is based on FinTech, our leverage of FinTech.

The all-in-one card, the segmented and classified service system, the all-in-one net, the CMB application and CMB Life application, these are all because of the FinTech capability we have. Our AI lab is now utilizing one of the top tiered companies and universities. We are leveraging these intellectuals to promote our AI capability. I believe this is the foundation where we can promote the development of retail finance. This is to see from internally, what we need to grow in the retail finance sector.

And secondly, we aim not just to deliver efforts from inside of the retail finance, but also outside from the finance, retail finance. We need to strike a balance between development of different business segments. In the past practice where we can see good performances in the top level of financial institutes, we need to see a flywheel, a coordinated development between corporate finance, asset management, asset custody, and et cetera. And all of these segments will work together to further promote the development of retail finance business.

To see from the two perspectives. This is what we want to address your question regarding retail finance. So frankly speaking, your summary or your analysis of current situation is quite precise. And currently we see a downward trending of the economic situation. It is also casting influence to CMB to CMBs, AUM, especially for CMBs feature of light capital operation.

As we see retail finance developing in today, it's a adjustment period under such rather unfavorable environment. I don't think it's a bad thing. In the past, we see very progressive development and I think during this special period of time, we can be quiet, which can also let us to think deeply to see what is our future development path. We see difficulties in the market condition, but our aim, our trend, and our development objective to expand and to strengthen our retail banking business, we will continue to investment resources into this business segment.

And for us, our requirement in the total volume, we wish that we could develop our retail finance business. The total asset -- the total revenue contribution, the non-interest income contribution could be increased from 50% plus to over 60% both. We can also expect higher contribution from retail finance to the group's total revenue, total interest income, and total net non-interest income. So for CMB, just as President Wang has mentioned, retail finance, the foundation, and the main position of our strategic position, let retail finance become the platform of our ecology, the cornerstone of our asset business and the leader of our value creation.

In doing retail finance business in CMB, we have both honor and responsibility. Me and my team, among a 100,000 CMBs, 60% of them are coming from the retail finance business line. We will strive our best effort to promote this development. I think doing retail banking business in CMB is quite different from that in other banks. We believe it is a bank that every employees could talk about, could introduce, could present, could introduce such retail solutions to our clients. This is the essence within the banking culture. It is a proactive measure taken by every employees that they could, they want to, and they have the capability to conduct retail banking business marketing.

At the present, we are quite clear about our strengths and our disadvantages. We have clear understanding and we have in-depth analysis, and we have very good preparation. I hope that our dear analysts and investors at the same time, when you're inter -- when you're analyzing our individual financial capitals, we can also work together to see from CMBs in terms of our overall performance and we will prove ourselves. Thank you.

[Operator]

Thank you. Next question, please.

[Unidentified Analyst]

Thank you for giving me this question. I'm Catherine from JP Morgan. My question regarding NIM, we noticed that in second quarter we are seeing the, the construction of NIM is bigger than the first quarter. So what is your expectation for the name performance in the second half of the year?

And second question is for Mr. Zhong for corporate banking. For deposit, especially in NIM, the term deposit rate is up compared to last year. So what will be the trend for term deposit in corporate banking? And for corporate banking, many banks are saying there they were emphasizing on developing manufacturing or green financing. It seems that everyone is moving into the same direction. What is CMB's strategy in terms of pricing? How do you make a balance among risk and reward and also customer strategy. Thank you. The first question will be answered by Mr. Peng, a second one for Mr. Zhong.

Last year, banking in China, facing NIM contraction. And every time when we are taught discussing the performance of CMB, I always say that the NIM is always under pressure. And in first quarter, I said that we are facing a contraction in the second quarter. And as we can see now, not only CMB but also other banks according to the information disclosed, that is the quite obvious that NIM is under pressure.

In second quarter, our NIM is 2.23%. We definitely have seen a very obvious contraction, sequentially down by 13 bps points to 2.16%. And the level of the contract is quite big. So I would like to make some my view on that. And also, I would like to analyze the reason behind that. There are some common in reasons, but some are unique for CMB.

Firstly, for the factors affecting NIM, one is structural factor, the second one is pricing. NIM is decided by both structural and pricing. And structurally, we can see from asset side, CMB has a unique feature. Namely, we have a higher credit card proportion than also mortgage. In the past, they are contributing a lot to the whole asset structure. But in the first and second quarter, they are facing greater pressure for mortgages down by 0.76%, even though it is decreasing. But still, we are maintaining our market share.

But for CMB, we have a larger proportion for mortgage compared to other banks. Second one is credit card. Credit card also have a higher yield. But for CMB, even though we have the highest growth volume in the market, but for existing amount, it's only up by 20 billion. And the growth rate is only a little bit above 2%. So the slower growth rate of credit card and also negative growth of mortgage definitely have a very negative impact on our name structurally.

Second, if you look at the liability side, you can see the proportion of our demand deposit. This change, yes, definitely many banks are seeing the trend, namely demand deposit proportion is coming down, but it's more devastating for CMB, because we have a higher liability coming from the retail side. And some of the deposit can also be regarded as also as well product. That is why the cost for our savings deposit is coming down, because many customers are choosing to place deposit with us, as one of the choice for wealth management. And for common reasons, I think if you look at the second half of the year, the cutting of the LPR decline, continuous decline of LPR will lead to a decline in the loan rate.

Secondly, for supply and demand, now we are still lack of efficient assets. When everyone is chasing for the same asset definitely will lead to a lower price. So that is quite obvious in corporate side. And secondly, for retail -- price risk is the price is also coming down sharply, like as credit card, like the micro and also consumption loan and also mortgage. They're all coming down. Some are macro reasons, but some are due to supply and demand. So the pricing of assets have also negative impact on NIM side.

Overall speaking, I think that many of you are interested in the sequential changes. We lay high emphasis on analyzing sequential changes in NIM because it shows some trend. I know you have noticed the difference of our sequential change compared to our peers. The first one is quite of our peak for long growth in first quarter. So last year, at the end of last year, we'll set up efforts to prepare for long allocation, long growth in this year. So a very strong momentum in second, in first quarter, but in second quarter the growth pace is coming down.

Secondly, sequentially speaking, the liability continue to rise sequentially, and it's quite obvious in second quarter we have even more term deposit and the demand deposit proportion continue to decline in second quarter. But it's not unique for CMB this year but for -- if you look at the past year, it's quite the same. And if you look at the first quarter NIM, first quarter, year on year basis down by 22%, but if you look at the first half, it is down by year on year 21 bps. So which means that last year's second quarter is also down by 14 bps sequentially compared to first quarter. So the bigger construction of the NIM in second quarter is both our unique is -- kind of a unique thing for CMB.

And if you look at the -- I prefer that you can also suggest you can look at the NRI growth. So for the banks who have disclosed the midterm reports, you as you can see where the only one have positive growth in NRI at 1.12%. For NIM, standby by 21 bps, we are one of the largest decline.

But what is the reason behind the positive growth of NRI? Our RWA growth is 6.8% compared to last year is down by around 1% compared to last year. So, which means that our growth in NRI is not coming from lowering down the risk and bluntly expanding exercise because you can see our RWA is also declining compared to the same period of last year. We are bearing in mind the external environment and now to blindly expand our balance sheet. So these are -- I would like also to elaborate on things that you made interesting, such as the rise of the funding cost, deposit cost. I think, one of our advantage is we enjoy quite a lower deposit cost. So deposit cost is something that we're always paying attention to, but from the first of the year is coming up, it's rising year-on-year basis.

And if we take another angle to analyze it, we can see that for corporate and retail is mainly because the rental deposit cost is rising. And but if you look at the term and also demand side term deposit price, the cost is coming down, but demand deposit cost is coming up is rising. Thirdly, if you look at RMB and also foreign currencies for RMB denominated deposit cost is coming down, but the RMB cost is coming up. So foreign currency deposit is also another reason that has show up the deposit cost. But I don't think we need to emphasize on the foreign currency side, because you are also gaining more yield on the US dollar denominated assets, which can offset the cost.

So I think overall speaking cost rice is mainly come from the retail side. And one thing is because of the rise of the cost of demand, retail demand deposit. And also, at the same time we have more term deposit from real from retail side. These are the mainly two reasons for the rise of the deposit cost. I know there are many reasons, and also, phenomena’s like the can see that our customers risk appetite now is still low and very prudent. That is why they choose small deposit over other financial products. Just now, Ms. Wang Ying said, everyone in China know we are emphasizing on rental banking.

For I as CFO is also a choice for me whether we want to maintain stable growth of customer base. If we choose to do so, sometimes we need to sacrifice some financial, we need to have some financial cost. So this rise of the retail deposit cost is still within our budget and within our expectation. This is something that we have already judged at the beginning of the year. And according to our internal arrangement, we want to keep a balance among the customer demand, and also the deposit cost. So to maintain a stable growth of customer base and also our AUM.

And for the rise of cost for demand deposit. You may know that some other banks cost is coming down, but CMB is rising controversial [India]. So the reason is for the cash management, wealth management products. We are the first bank to regulate our cash management, wealth management products. So we have offered more time deposit products to make sure that the customer's demand should be satisfied. So it's a temporary thing for us and we still have a very strict regulation on demand deposit cost and it's within our expectation.

And secondly, about the trend of NIM. Overly speaking, I think that we are still facing great pressure in NIM. One reason is because the, quite a complex external environment. And secondly, from policy side, there is still room for LPR to continue to come down. And secondly, for the 16 adjustments for the adjustment of the 16 mortgage rate is highly possible that the rate for existing mortgages will be downward adjusted. So with the interest rate liberalization against this backdrop, the NIM come for Chinese banks definitely will coming down. And now we are facing a very low yield on SS side. And I think that the self-mechanism, the banking self-disciplinary mechanism will take more active moves to maintain a reasonable deposit cost for banks. And thirdly, I would like to respond to the another thing that you are very interested in. If we look at the policy side, we can see that PBOC is guiding banks to adjust the existing mortgage rate. It's very highly possible and for CMB we have made plans for that, but it's not finalized yet. And because we need to consider manufacturers, such as for different policies for different cities and also how to be fair for different policies among different cities.

And thirdly, whether our system can support these different policies. It's a very complex thing. I think with the guidance of the PBOC, we'll do under the market principle and also law-based principle. And actually for our internal analysis, we have three scenarios from the better one and also mediocre one and also the worst one. But I think the overall impact is within control, but it's not only have negative impact on bank, but also have some positive things. Why we want to -- why the policy side want to adjust the 16 mortgage rate? This is mainly they are seeing a very big flow of the early repayment. So if the existing amount rate of the mortgage has been adjusted, then we will have less early repayment. And also at the same time, it will help us to maintain our relationship, our customer. So it's not -- I think that we can -- we also need to look at the long-term benefit from the reduction of the existing mortgage rate. Yes, definitely pressure is big, but we'll try our best to balance the risk, volume, size, and also the pricing side. Hope that our NIM and our deposit cost can maintain our biding position in the market. Thank you.

[A –JiawenPeng]

And I will answer your second question. The first one is about the term deposit trend of corporate side. It's quite obvious, the reason is quite obvious. This is mainly because the economy in the first half the year is quite weak, so investment and also operation. For some enterprises, the activity is lower or smaller. So some enterprises to choose to place with a bank as a term deposit is highly related to bank's operation, and also highly related to the overall economy. If we look at the second years, second half years trend, the central government has many policies to stimulate the economy, and it's taken when the policies are taking effect. I think next phase, this trend can be improved or mitigated.

For CMB, for corporate business, we highly emphasize on customer's settlement business, namely will call us to be a primary bank for corporates. So our demand deposit proportion is higher, is the highest among our peers, and next we'll making efforts for FinTech. And I think that the demand deposit proportion of our corporate deposit will continue to rise, which will strengthen our advantage in corporate side. This is for your question regarding term deposit.

Second, your question is quite big as for the competition among the banks in corporate banking or what is our strategy? Namely peers are doing the same thing for corporate banking business. I think there are mainly two reasons behind that. The first one, commercial banking's corporate banking business is quite the same for all the banks, is yes, it's true that all the commercial banks are doing the same thing in the corporate banking, because the -- when we look at the national economy, we are seeing the same trend in the industries growth momentum.

So it's reasonable for every bank to choose the same industry that enjoy a better momentum. And for CMB, we do have our own positioning and our strategy as Mr. Wang Liang said, that we need to build our advantage in niche market, such as for in corporate banking business, we need to strengthen our capabilities in some niche markets and find our differentiated way.

At the beginning of the year, we said we need to have seven financial capabilities, financial areas, I think there are mainly two directions. The first one, seven financial areas means, represents the main trend or direction or the areas that may enjoy a better momentum in the future. And secondly, it's also based on the existing advantage we have, such as, I will not elaborate all the seven financial areas, but I would like to choose two. The first one is digitalized and intelligent service, namely to, based on the enterprises digitalization, how our financial service can engage with them. And this is a specialized thing, a direction we have.

Secondly, is another advantage that we have accumulated for many years. Around 15 years ago, we started to do cash management business for enterprises, namely cross bank cash management for enterprises. I think for the years past, we have accumulated more experience and knowledge in this areas. That is why we have launched our, these kind of digitalized cash management business for our corporate customers. Secondly is for technology finance. It's also 10 years ago, we have a small enterprise program, nearly thousand eagle flies. This program to help these technology firms to go IPO to go public. And this we have built up our strength also in this area, we serviced over thousand these kind of comp companies in the past three years. And the -- 85% of the tech companies that went public have already opened primary account with CMB.

So against these national backdrop, how we can choose a diversity fight way to develop our business and to maintain our advantage and to build up the advantage in niche market is really key for us.

[Operator]

Next question.

We're having a question from an online participant. The next question is coming from an Individual Investor.

Can you hear me?

[Unidentified Analyst]

Thank you, senior management for giving me this opportunity. My question is regarding President Wang, as you have taken management of CMB for over one year for CMB’s operation in the short run, within this year or within one year from now, what is your most focused problem in the middle run from three year to five year? What is your most focused question? And regarding these questions, what measures are you going to take to tackle?

[Wang Liang, President, CEO]

Thank you for your question. And I've also learned in depth regarding the article you published, we released online. It is very accurate and precise in your opinion. So as for your question, in the short run and in the long run, as for in the short run, I believe that you have pointed out many of our disadvantages. And that is also what we will put under careful consideration. In our first monthly --quarterly report. You mentioned that there are no excuses, and please do not emphasize on objective reasons. And this is all comments that make us to think thoroughly, to impress our results, impress our performance, to cultivate and to bring better returns to our shareholders.

So in the middle run, we pay much attention to maintain CMB stability to walk further, and cannot cause risks in the short run that could influence our overall development and our overall stability. Well, as I consider the first question, as we are faced with this macroeconomic situation, CMB as a micro entity, how to balance the relationship remains to be a question. The interest rate downward. This is a trending change, but as a commercial bank, CMB must maintain certain profitability. This is another necessity we need to guarantee.

So there's a kind of like contradiction between them and how can we balance the two factors? So based on these insufficient credit demand and to maintain sufficient liquidity and to satisfy our customer demand, these will all lead to the narrower NIM, and downward interest rates in the market. These are all challenges that banks need to face to guarantee a reasonable level of profitability of the bank. It is very reasonable, which is also recognized by the central government to guarantee a bank's capital endogenous capability so as to provide better service to the real economy.

And secondly, to maintain a reasonable level of NIM for the commercial banks could contribute to further mitigation of risks and to further offset relevant risks. Coming from real estate sector, coming from the local government financing platform. And these risks all rely banks to further dissolve, to further mitigate. And for the third aspect, commercial bank need to maintain a reasonable level of upper operation to further consolidate the strength confidence of the depositors that they're willing to place deposits with this bank's they would not like to deposit in a bank with poor performance with loss. That is why we need to further consolidate our cornerstone of our development.

So under such backdrop of low profitability, of narrow NIM of low market interest rates, we need to face those challenges and how can we respond to these challenges? And as for us, if a bank -- if we position us well, if we operate well, if we can maintain a reasonable level of profitability, even under narrow NIM some banks that can realize the above-mentioned conditions can survive in these challenges. And I believe that with what we have done, we can be the batch of bank that can survive this kind of like situation. And some bank might not survive in that kind of deteriorate external environment. So we aim to continue our development path and to make us the one of the batch of bank that could survive, that could live up with the current economic external environment. And secondly, real estate. A great -- we might call it. We need to see the risk fully exposed and to fully mitigate the risks. That is a question where we would like to see the risks of such risk rhino, a great rhino to fully exposed or to mitigate. We believe that we have already seen the peak of such risks and for many commercial banks, including CMB, we have the capability, we have the strengths to mitigate, to digest the risks coming from this sector.

So therefore, I think as we still have relevant NIM as we still have our profitability, we must act accordingly to accelerate, to digest such risks, to mitigate such risks. And this is what CMB, since the outbreak of the 2021 real estate risks, the default of some private real estate companies. Through the two years of development, we have dissolved digest and mitigate many risks coming from this sector. And therefore, just now, Mr. Zhong has mentioned that we have already see the peak of the real estate risks and we aim to maintain the trend to be overall stable and trending towards a positive direction and to generally digest and mitigate the negative influence brought by the real estate sector.

On one hand, risks coming from the on balance sheet and on the other hand financial investment over some real estate companies, some securitized products and some agency sales products, trust schemes represent by some PB products. Many of these risks are trending towards a closing phase. And I believe that by mitigating such risk can make us develop even more healthily. And inspiration we learn from it is that we cannot repeat the mistakes happening in the real estate sector if there are further gray rhinos happening in other sectors. We need to act fast, respond fast, and to mitigate and to solve the risk accordingly to make us live and carry through those phases.

And the second question is, for CMB, for the first half of this year, the overall operation of CMB remains stable and healthy. And after we mitigate the risks we maintain our profitability to be positive with a little negative growth in terms of our general revenue, mainly because of some external market adjustments. So the fundamental feature of CMBs operation remain unchanged. We have a very solid foundation of operation and development. So the fundamental development landscape for CMB is that we have a very strong capital endogenous capability. We have a strong allowance coverage ratio with that foundation make us very confident to cope with all kinds of challenges and uncertainties in the future.

With such confidence with such solid foundation. I believe that in the mid to long run for CMB, we can continue to guarantee our stability, our development landscape. And to guarantee such landscape, we need to ensure that firstly our high ROE level, and secondly, to guarantee our high-risk compensation capability. And thirdly, to guarantee our capital endogenous capability. And fourthly, to guarantee our low NPR ratio and maintain good asset quality, and fifthly to guarantee good asset structure, business structure to take retail finance as the mainstay and a non-interest income with a leading contribution of the total revenue and low-cost funding.

By guaranteeing all these aspects, can we maintain our development foundation stable and solid? And at the same time, from guaranteeing the above mentioned aspects, we need to also share our benefits to our shareholders to guarantee the dividend payout to our shareholders, to our investors to be proactive enough and reward to the market. I have also mentioned earlier in my response that on one hand we need to maintain good management. Extensive management is not enough for today's operation. And today, we need to emphasize on intensive and management to control cost, to control all kinds of business, to control risks, so as to obtain the management, to lead us to success.

To use FinTech, secondly, to empower our business AI operation, FinTech, use FinTech to empower our business. And thirdly, innovation driven development. In our previous development in different phases, we maintain innovation as our feature. It is also a feature that guarantee to win a leading position in the market. We see many disadvantages in external environment and we can rely on innovative driven solution to discover new growth polls as countermeasures, and fourthly, a regional based strategy. And the fifth to build our new competitiveness in niche markets. So these areas are what we need to pay much attention to. And by doing so, could we realize a high dividend and create returns to our shareholders.

[Operator]

Thank you, President Wang. Now we're coming back to onsite. This gentleman please.

[Unidentified Analyst]

Thank you, Mrs. -- I am Mark -- from China Securities. We understand there are many pressures for the banks in the operating environment, and we can feel that in your interim results. We also see a fast growth of your customer base. You also accelerated the pace of clearing your NPL, and at the same time we can see from income indicators that you are not rather proactive and you rather take a cautious and a defensive mechanism towards this unfavorable environment. But I believe that it might not be a long-term strategy. So if there are any changes happening in the external environment for the banking industry, what kind of positive factors or changes begin to show? Will you also shift your mindset towards the operating philosophy?

[Wang Liang, President, CEO]

Thank you for your question to see from the changes of external environment. I think it's about the Chinese economy. As the major market players, the Chinese economy's development is now changing from the previous high speed growth to a moderate high quality development. While entering into the high quality growth, the growth speed might slow down. The GDP growth rate is forecasted as around 5% to see from the central government level. The growth rate will not be a major evaluation indicator under such backdrop to see from the growth rate the GDP growth rate oriented growth, we have now transformed into a quality oriented growth, which will bring changes in the economic structure, industry structure, and also bring changes to the financial industry. And how are we going to leverage the changes to better serve the real economy so that we can better adapt to the trends and seize opportunities. One of the major changes is that real estate platform plus finance, this model is now changing.

Previously, many of the resources and funds are invested in the real estate sector. And now we see a new model of tech industry and finance. Banks credit funds as mentioned in -- questions from JP Morgan, analyst, Lily, that the funds are centered into some areas, into green manufacturing, new growth engine and et cetera, which bring us new opportunities for banks. But all these, for many of the banking peers, those are also changes in the structure of business, of customer, of their funds, which is quite different from the previous model that requires intensive capital. It is a requirement posed by the environment that the banks should develop in line with external environment. New economy, new growth engine, new energy. These industries, including high-end manufacturing, tech-driven enterprises, as mentioned by Mr. Zhong, these will be the sectors that we will allocate more resources into. But we cannot rely solely on long-term large-scale cost. We should avoid fierce competition. We should still follow commercial sustainability principle.

Also, at the same time, we need to consider deliver solutions that integrate IB and CB to the clients to leverage investment by financing, many PE funds, many investment funds has worked together to seek opportunities through investments and the bank could provide integrated solutions of investment banking and commercial banking to clients. This is where we can nurture new important clients and also a major field of our transformation.

And secondly, we have proposed the new model of industry plus, industrial park, plus financial service. This model is very commonly seen in Pearl River Delta, and et cetera. And through the construction of Industrial Park, we see the industry concentration phenomenon and the model of the industrial chain arising from this new business model. And there arousing -- there aroused the new requirements on the ecological financial services.

And the thirdly, the one plus and supply chain financing services. We form a services across the industrial chain, which could extend from the core business to the SMEs along the business chain. This is from the changes of the perspective of industries promoting the bank to follow the development path. And thirdly, we see accelerated changes in the regional based economic development. Six top tier province and cities such as Guangdong, [Indiscernible] and et cetera. These top tier provinces and cities through our investments into these above-mentioned province and cities, could also guarantee one of our major development path.

By doing so, could we grow even stronger in aligning with these measures? Well, are we going to get any kind of like preparation work to receive the explorative growth in certain industries? We need to be focused and get well prepared for industries with huge growth potential. Could we obtain results from our investments and benefits from these industries? For CMB, our focus on these regions or these industries, we will enhance our investments and resources allocated to these key regions and areas. We have Also act accordingly to increase the in-source, the resource allocated to the branches, sub-branches, human resources, for instance, the corporate our relationship managers, allocated to these key regions and areas and industries. We have also established specific teams targeted at researching and understanding these key industries to form a better understanding and an in-depth research over these key industries. So as to develop a characterized CMB solutions.

As for retail finance, we will work unremittingly to build our competitive edge in wealth management business to give full play of its advantages and to drive the growth of wealth management. Private banking as a custody and so on. Retail segment is still having huge potential and having huge space of growth. As long as we do a good job, we could still have a large space to grow further in this area.

[Operator]

We're now having another participant from onsite.

[Unidentified Analyst]

Thank you for giving me this opportunity. I would like to learn from the senior management that you have always maintained a good capital adequacy ratio and how do you maintain the capital endogenous capability.

Another question is about the new regulation over the capital. I would like to understand what is its influence over the bank, especially the [Technical Difficulty].

This question goes to Mr. Pong. Thank you for your question. As for the indogenous growth of capital for many years is one of the major goal to maintain indulgent growth. And we have realized and have reached this goal for the past years, no matter it is in a high growth period or in this downturn. Whether we can continue to do so, depends on how we manage our capital.

So one of the major thing, we are doing capital is the capital return. It doesn't mean we need to look at the return on capital. If the return cannot cover, the risk is very hard to maintain indigenous growth. So no matter what is the speed but in priority is to have a sustainable growth. ACH means that the risk adjusted return on capital just now missed Wang said. One of our culture is to have a coordinated development amount, asset quality, efficiency and also scale. If you have too much rapid growth in scale, but you may lose your asset quality and to that end, you cannot make a reasonable growth or indulgent capital growth. So this is -- our goal and how we do the indigenous wealth of capital.

And as for the new rules on capital, I think it's postponing. There might be some technical difficulties for CMB. We have prepared for that and now we are only waiting for the policy announcement, and according to our judgment, we think might be in the -- at the beginning of next year.

So maybe later than the beginning of next year. But already, we have done full preparation for that. And as for the impact on the new rules on CMB, new capital rules on CMB, actually we don't have the final official version. There might be some minor changes, but for the existing consultation paper we have done the internal calculation and judgment. There are positive ones and some short-term negative factors as well.

From positive ones, we do see some structural changes such as the lower down of the floor of the RWA and it's beneficial for banks who have adopted the RMB approach, but definitely some short-term negative ones such as the CCF for RMB for [LC] and also for retail credit line. And also, for you how you go through to the underlying assets of the investments you made. These will have some short-term negative impact, but this will be temporary.

So after the public of the new policies, I think the banks will do their own adjustment. That is why I say it's a temporary impact. And I think that the impact overall speaking is neutral for banks. They will not call some big fluctuation of volatility for banks capital and it will be helpful for the Prudential or long run management of the banks, not only for CMP, but also for other banks. So my judgment is neutral. Some banks might be neutral and more positive, some minus neutral to negative, but even it's a negative one. It's a short term in the long run. It's all beneficial to banks. Thank you.

[Operator]

Next question is coming from HSBC, Gary.

[Gary Lam, HSBC]

Thank you for giving me this opportunity. Just now, Mr. Wang said, told about the prospect of extensive wealth management and some trust companies have some liquidity problems and have some -- cause some concern. So will that affect your prospect for trust companies? And secondly, for the decline of the management fee for funds, what will be the impact on your fee-based income and what is the prospect for insurance growth? What is your forecast for that? Thank you.

[Wang Liang, President, CEO]

This will be answered by Ms. Wang.

[WANG Ying, Executive Assistant President]

As for trust companies, there are media reports. Some individual trust companies have some risk impact, and CMB follow that very closely. We are taking a very prudential attitude. We don't have the cooperation with the ones that that has been according to the media. And after the media report, we have reviewed our trust companies. For trust companies after the new rules on asset management according to new regulations, we have already changes our bid strategy from the non-standardized ones to already standardized business. So the news will not have negative impact on CMB.

Secondly, as for insurance, our judgment is that sequentially the growth rate is, will be -- will slow down year on year. We are still have very strong growth. In the first half of the year, we are seeing very good insurance sales for all the banks. One is the customers are having a more prudent risk appetite, and secondly, customer think that the 3.5% guaranteed product will come to an end and will have some facing some adjustment. So people are rushing into these kind of products.

So in the first off, we are seeing very rapid growth in fin income, but in August, now we are seeing -- slowing down our insurance income growth because the, some major, the very popular products sells, or -- has been already adjusted, but still depends on the, how the market performs and customer's risk appetite and manufacturer. For insurance, we lay high emphasis on that and it takes up around 8% of our AUM within the proportion should continue to increase. And compared to other markets in Europe or in US, Chinese insurance market is still lagging behind and especially for the patient insurance and also for insurance that is g people's health or life still lagging behind. So we think that in the future insurance will more to concentrating on the protection type rather than investment type. But for CMB, we have advantage than that. At the very beginning, we choose to emphasize on the periodic payment insurance and also protection type insurance. So we are confident to maintain our advantage and our market share in this area.

[Wang Liang, President, CEO]

And the third question regarding the decline of the fee rate for mutual funds. From the financial impact for CMB is affected by two parts. One is the custodian, the other one is for mutual funds. But I think that the impact is within US expectation A under control and also we'll have some product adjustment and also in terms of the increase of the volume, we will -- that the impact will be under control.

[Operator]

The last question please.

[Unidentified Analyst]

Thank you for giving me this opportunity. -- from Citi. My question regarding is a midterm question regarding two to three years. One is our investment banking. Investment last year, I think that CMB has more allocation in investments, in securities, in bonds. So what is our strategy on that? And secondly, as Mr. Wang said, that he will emphasize on retail banking, but corporate banking is a very important thing to support retail. So what is the core advantage you want to have in corporate banking, whether it is area asset origination or product innovation or risk reward balance?

[Wang Liang, President, CEO]

Thank you for your question. The first one is for the balance sheets investment allocation in investments for these past two or three years, there's a lack of effective demand, and bond yield is quite attractive. So that is why we have more allocation to investment and you have seen a higher rapid growth for investment. And another reason is because, we are seeing very rapid growth in deposit. Last year is over 1 trillion and this year over 700 billion, but the demand for loan is quite low. And also, mortgage, which used to be one of a pillar for asset growth.

Now it's already negative growth. That is why in terms of asset portfolio management, we stayed up investments and bonds and have achieved quite good return, because in the reach -- in the re interest rate declining cycle, we have already achieved quite good return on that. And some of the bonds we invest in is tax free. So the overall yield is higher than loans. And next, I think we should continue to state up our efforts in the bond investment.

And also, just now you see our other fee income, other non-interest income from other items. One is that, is that you is also we benefited from the bond investment. Secondly, regarding the advantage in corporate banking, in 2004, we launched the, uh, retail banking strategy. This is mainly because we are very limited unconstrained by capital. We can only rely on retail banking, which has less capital consumption to make breath of improvements in the -- at that time in the market.

But now, if we still can only rely on retail or retail can now develop only rely on itself, the efficiency and speed is under constraint. So we need to also improve our business relating to corporates, so as to support our business relating to retail customer. That is why I say we need to have a balance development among retail, corporate, investment banking, and also financial markets and wealth management and asset management, so as to have a flywheel effect so as to improve the fee-based income.

And finally, have a light capital consumption business model and create better value for shareholders. So corporate banking is -- that is why corporate banking is the area we also make want to make efforts for. But corporate banking doesn't mean loan expansion. First one is to onboard quality customer. Now we have a total corporate bank customer acquisition is very important in the cornerstone of our corporate banking business. A key indicator that we are looking at with a corporate, if the, as long as the corporate is with us, we have the potential to grow our payroll business, to grow our wealth management business, to acquire new retail customers.

Secondly, why we emphasize on the new industries, the new tech industries, and because these new industries is in a growing momentum today, they might be small, but finally they will grow into big, big ones like the platform companies. 20 years ago, they were just set up, but after 20 years, they are now already in the leading platforms, internet platforms in the market. So we want to nurture the customers from small ones. And with these service capability improve, that will help us to improve our corporate banking business, our retail banking business. So our core advantage for us is to how we acquire new customers and maintain the customer with us.

Second core competitiveness for us is our knowledge for certain industries. As long as you can know better about the industries, you can have better resources allocation, including loan resources, allocation. To be more precise and to have new growth point in the future, so secondly of bond competitiveness edge is to have our knowhow and knowledge in certain industries.

Thirdly is to have classified and differentiated service to corporate customers. Because corporate customers have, are in different size and they have different demands. Some are cross border, cross national, some are national, some are small. That is why we have head office, strategic customer, branch level, strategic customer, and also smaller customer group. So it's a categorized one and differentiated service system. Fourthly, digitalization, very importantly. In the past digitalization, we are more applied to retail banking like our APP, but now we have already finished our own cloud process. Now we have the manpower and also the capital in place to invest in the digitalization of our corporate banking.

So all these are to improve our internal product and also service capability. This is also our core competitiveness of CMB. As long as we're strengthening these areas, I think we can have a deeper cooperation with corporate clients. Creating value for corporates and more clients will be attracted to CMB, have a win-win situation. And by doing this better corporate banking, we'll also promote other business units grow and having a flywheel effect.

[Operator]

Due to time constraint, now we are going to conclude today's conference, and thank you very much for joining us today, and if you have more questions, please contact our IR team. And thank you very much for take time to join today's meeting. And I also would like to thank you for your long-term support and investment in CMB, and we'll do our best to continue to create value for our shareholders and also for the society. Thank you.