China Merchants Bank Co Ltd

SSE:600036

Earnings Call Transcript 2022-Q3

[Unknown Executive]

Investors, analysts, good morning. In the 2022 Third Quarter Result announcement will now begin. I am CMB representatives of Securities Affairs, the Head of office Saihan, considering the pandemic situation, we will continue to broadcast our communication online.

First of all, I'd like to introduce the attendees on-site today. They are Mr. Wang Liang, President and CEO; Mr. Wang Jianzhong, Executive Vice President; Mr. Li Delin, Executive Vice President; Mr. Zhu Jiangtao, Executive Vice President; Mr. Zhong Desheng, Executive Assistant, President.

On behalf of CMB, I'd like to extend warm welcome to your participation in today's meeting and thank you for your long support and interest and investment in CMB.

Today's meeting includes 2 sessions. First of all, we'd like to give the floor to Mr. Wang to briefly introduce CMB's Q3 results in 2022, takes around 15 minutes. The second is the Q&A session takes around 1-hour. The meeting is provided with simultaneous importation from Chinese to English.

Now let's give the floor to President Wang to the introduction of CMB 2022 Q3 results.

[Liang Wang, executive]

Dear investors, analysts, good morning. Last Friday, CMB released the 2022 third quarterly report. And today, along with our senior management to meet with all our investors and analysts, I'd like to take this opportunity to thank you for the long support and interest in CMB.

I'd like to, along with my colleague, to conduct in-depth and open communication with all of you today. I will take several minutes to introduce our CMB Q3 results and then take your questions.

What's worth mentioning is that the below mentioned statistics are based on the IFRS calibre also the H Share announcement calibre. Since this year, under the complicated domestic and external operating environment, CMB continues to uphold the quality, efficiency of scale, dynamic balance, development philosophy along our set target of direction and goals to continue to build a 3.0 model, and drive our capability in wealth management, risk management and fintech to promote our operating and management level.

We realized a steady growth in our operating performance and consolidate our advantage in our fortress-type balance sheet. For the first 3 quarters, we are featured by the following 6 characteristics in our operation. First of all, we remain stable in our profitability and a high level of ROAA and ROAE to Q3, we have realized operating net revenue, RMB 264.8 billion, up by 5.3% year-on-year.

Net income attributable to the bank's shareholder RMB 106.9 billion, up by 14.21% year-on-year, realizing net income from the interest income at RMB 162.13 billion, up by 7.63%. Net noninterest income, RMB 102.7 billion, 1.85% up year-on-year. ROAA and ROAE annualized attributable to the bank's shareholders were recorded 1.5% and 18.2%, respectively, and up by 0.06 and 0.11 percentage point, respectively.

Under the advanced and weighted approach, our CET1 ratio continued to increase, reaching 12.85% and 11.18%, respectively. Secondly, we secure our growth in wealth management business. Noninterest net income has increased steadily even on a high base.

By the end of September, retail AUM, RMB 11.96 trillion, up by RMB 1.2 trillion by the end of last year with a growth rate of 11.16%. Asset Management business totaled RMB 4.72 trillion, up by 9.26% compared with the beginning of the last year. Asset custody business totaled RMB 20.77 trillion went up by 6.72% compared with the end of last year.

Under the drastic decrease of the capital market, wealth management business still maintained good growing momentum, showing strong resilience. For the first 3 quarter, the group has realized noninterest net income, RMB 102.7 billion, up by 1.85% year-on-year. It is a growth secured based on the last year's growth rate of 21.87% and accounted for 38.78% in our net operating revenue.

To see from key items, our fee and commission income from wealth management, RMB 25.5 billion, a negative growth of 13.1% year-on-year. Fee income from asset management business, RMB 9.4 billion, up by 22.32% year-on-year. Custody business realizing revenue RMB 4.4 billion, up by 6.59% year-on-year. Bank card commission fee income, RMB 15.9 billion, up by 6.54% year-on-year.

Settlement and clearing fee income, RMB 11.5 billion, up by 8.87% year-on-year. Thirdly, our loan scale grow steadily. Consumption and credit card loan has demonstrated fast recovery momentum. With insufficient credit demand and a shortage of asset origination for the banking industry, we have made active proposal of the loan expansion, total loans and advances RMB 5.99 trillion, up by RMB 424 billion, a 7.62% growth.

And the total low insight visits has accounted for 61% of the total asset, 1.53 percentage points higher than the end of last year. Under the bank's calibre, our corporate loan increased by RMB 125 billion with a growth rate of 6.64%, among which green loan has increased by RMB 56.6 billion compared with the end of last year with a growth rate of 21.45%.

Manufacturing loan up by RMB 67.6 billion, compared with the end of last year with a growth rate of 21.12%. Retail loan RMB 3.16 trillion, up by RMB 175.8 billion repair with the end of last year with a growth rate of 5.89%.

Among the retail loan, as we see less increments in the residential mortgage loan and more increment in the SME loan, it actually reflects our stronger support to the real economy. And we have made very proactive grasp of the recovery of the consumption loan after the pandemic.

And therefore, our third quarter newly granted loans are mainly invested in the retail business, and we see consumption loan and credit card loan experiencing fast recovery. They represent an increment of around RMB 50 billion and accounts for 80% of our total increment for the third quarter low end.

To some extent, offset the pressure both from a fast decrease in the loan yield. Fourthly, we see steady growth in our customer base and the customer deposits increasing its quantity while remain good quality. By the end of September, we have 2.47 million per customer, which is 153,000 more than the end of last year. Retail clients amounted to 182 million, up by 5.2% compared with the end of last year.

The growth in our customer base have promote actively and strongly in the high-quality growth of our deposit. Total customer deposits RMB 7.09 trillion, surpassing the RMB 7 trillion threshold, up by 11.71% compared with the end of last year, among which corporate customer has contributed to around RMB 4.39 trillion and the deposit from our retail customer has amounted to RMB 2.7 trillion, up by 18.08% from the end of last year.

We will continue to adhere to take the core deposits at our center and strengthen to attract and accumulate more settlement funds of our customers and at the same time, conduct both quantity and pricing management over high-cost deposits.

Non-deposit has accounted for 61% of our total deposit remaining at a high level. For the first 3 quarters, customer deposit cost ratio, 1.51%, up by 11 bps year-on-year, among which for the third quarter, customer deposit cost ratio 1.54%, which is 2 bps higher quarter-on-quarter. The degree of increase has increased as narrow from that of the previous quarter.

Fifth, we continue to dynamically adjust our balance sheet and to narrow our degree of decrease for the NIM. For the first 3 quarters, our NIM was 2.41%, down by 7 bps year-on-year, mainly influenced by the multiple cuts of LPR, the weak financing need from the real economy and people's intention to make more fixed-term deposits rather than capital market investments.

In order to maintain a stable NIM. In the third quarter, we further enhanced our strategy in portfolio management over our balance sheet. In the asset side, we extend our customer base increase our loan expansion, maintain the price and guarantee our quality to make sustainable arrangement of loan extension and enhance our assets in allocating more bonds and exit those interbank assets with low yield. Our net interest income has up by 7.63% year-on-year.

On the liability side, we promoted the growth of low-cost core deposits and manage more on high-cost liabilities. To see from the third quarter, our interest-earning asset yields, 3.86%. Interest-bearing liability cost ratio, 1.61% remaining the same with the start of 2Q. Third quarter NIM was 2.36%, down by 1 bp compared with that of Q2, but the degree of decrease has slightly narrowed compared with that of Q2, strictly we have categorized strict asset categorization and strengthen the risk prevention and solving to control our risk, influenced by the risk brought by our real estate clients and brought by the retail loan influenced by a pandemic.

The company's NPL special mention and overdue loan balance and ratio all increased compared with that of last year. By the end of September, our NPL balance totaled RMB 57 billion, up by RMB 6.2 billion compared with that of last year. NPL loan ratio up by 0.95%, up by 0.04 percentage points compared with that of last year. Special mention loan ratio, 1.14%, up by 0.3 percentage points compared with that of last year.

Overdue loan ratio, 1.21%, up by 0.19 percentage points compared with the end of last year. The company's NPL 2 loans overdue for 60 days. Ratio was 1.21%. The annualized NPL formation ratio, 1.13%, up by 0.18 percentage points year-on-year, mainly influenced by the new formation of nonperforming real state loan and the recognizing time point adjustment of our credit card loan and the migration of recognizing loans overdue for 50 days and above as NPL.

Targeted at current operating environments, the company will continue to adhere to our prudent and stable provision policy. Our provision coverage ratio, 455.6%, down by 28.2 percentage points compared with the end of last year. Loan provision ratio 4.34%, down by 0.08 percentage points compared with the end of last year. Still remaining a high capability of risk compensation.

The company's annualized credit cost 0.81%, up by 0.32 percentage points year-on-year, mainly because that we have made forward-looking and prudent provision increase for loans and advances.

Looking into the fourth quarter, on the very challenging external environment in economy, financial and geopolitical environment, repetitive outbreak of the pandemic, the adjustment in the real estate market, the decrease in interest rates and the fluctuation in the capital market, we are still faced with great pressure.

CMB will remain our strategic positioning unremittingly remain free unchanged, namely the bank. The President assumed for responsibility under the leadership of the Board, our marketized system and our stability of the talent team to continue to take customers as our center and create value for our clients and continue to strengthen our capability, construction in wealth management, fintech and risk management, surrounding the value creation chain of increase in quantity, revenue, efficiency and value to comprehensively strengthen our management, prevent and solve risk to build our new competitive edge and form a new Malik Curve and continue to increase our long-term investment value of CMB.

Thank you. That's all for my introduction.

[Unknown Executive]

Thank you, President Wang. Now we will enter into the Q&A session. Please follow the instruction given by the operator. And please introduce your name and the agency you will present before you raise the question.

Now we'll have the first question.

[Operator]

[Operator Instructions] The first question is coming from [indiscernible].

[Unknown Analyst]

It's quite a simple one. That my question is under the current external environment, and whether CMB will have some thinking about business strategy or business tactics under the new external environment?

[Liang Wang, executive]

Thank you for the question. This year, you're seeing that the financial institutions have already encountered a very difficult external environment. And just now I have given you a brief introduction about what we have achieved this morning for the first 3 quarters.

While we have achieved such quite a stable growth, we think that this is mainly because we stick on to our retail banking strategy and retail business is a backbone of CMB's overall business.

So under the current external environment, all can see where is CMB develop further and to maintain our advantage and our own special characteristics' and also how can we provide investors stable return. I know it's a big interest and concern from the market, but it's also the same corruption that the management are moving towards too.

I think that why we have come to today is because, firstly, 20 years ago, we have already very clarified the direction of our strategy in the retail banking. I remember that 20 years ago, our ex CEO, Mr. Miao Jian, he said, if you do not do wholesale banking today, you might not be able to be profitable today. But if you do not do retail banking, then you might not be able to be profitable in the future.

At that time, the future he means is that's now time for us. So we think that if we do not do retail today, we cannot be profitable. So if we do not do retail in the future, it's also the same, we'll not be profitable in the future. So that is why last year, the Board has reconfirmed that the bank will need to build up itself into best value creating back with extensive business model, we think that it's in line with the traditional advantages that CMB have now, and it's also in line with the trend of the time and the new era.

So what is the trend now currently, China has become the second largest economy in the world, and we have a middle class or around 400 million. And our goal is to have equal prosperity. So although it's in line with the national goal and also in line with customers' demand.

And this is a conclusion that we made based on our efforts made by the 25 years, and we have quite accumulated our experiences, our overall and comprehensive mechanism and also know-how in these areas. So that is why I say we definitely need to stick on the [ attributed ] on this path that we have already embarked on.

And last year, the Chairman of the Board has already set out the idea that CMB to build up 3 capabilities, namely the capability for wealth management for fintech, and also for risk management. The 3 major capabilities. One of them is for wealth management decides on how precise or how fast we can go and also technology decides on how fast we can go in risk management decides on how far we can go.

So the Chairman also -- that the requirement from the Board and also the Chairman also clarify the future direction of CMB. So we think that as long as we can stay on this path and stay true to our original purpose. So definitely, we think that we are able to provide value, create value for our investors and also create value for our employees, for our shareholders, for the society and also for our customers. Thank you.

Second question, please.

[Operator]

The second question is coming from Mr. [indiscernible] from China City.

[Unknown Analyst]

Actually, now we see that there's kind of a shortfall for the CMB stock price. And investors are quite concerned about whether CMB will change this market mechanism. So is able for Mr. Wang to share with us your view on the market's concern?

[Liang Wang, executive]

Thank you for the question. Yes, indeed, recently, the stock price, especially from October has been -- has come down even further, and has even break now PV has been even below 1. So there are many concerns from investors also many reports in the media for the management side, we think we really hardly pay high emphasis on your concern. Investors, analysts and also media reports. I have already read your reports and have made some thinking on that. I think people are interested in, firstly, whether CMB's market mechanism can continue.

Secondly, they are concerned that in this downturn of the economy, especially when the real economy is facing difficulty and the national guidance is to as the financial institutions to support the real economy. Will that have some negative impact? Or will that change CMB's strategy? So how CMB can balance do within the real economy and CMB's special strategy.

And thirdly, I know investors are concerned about CMB's asset management, wealth management, whether CMB will change its strategy in these 2 business areas. And combining your questions, I would like to share with my view as the management with you. I think the market mechanism for CMB will not change.

CMB was established in 1987 with only 100 million in capital. And now our net assets is over 900 billion. And if we calculate on the core Tier 1 ratio, we are 11th among all the banks in the world. We started from Shekou area in Shenzhen, and then we go to -- we become the national bank and become an international bank.

The reason -- one of the reason behind our success is because we have market mechanism. I think it's not a market mechanism. It's not a simple slogan, rather, it has this internal logic. Firstly, it can be reflected that firstly CMB operates on its own and the profitability, CMB is responsible for its own profitability.

I know it's quite easy to say right now, but at that time, during the very beginning of the period, it was a very challenging time and challenging resolution at that time when we firstly started in the 1980s. So definitely, we will insist on that.

And secondly, another reflection about market mechanism is that how we choose our talent, namely our management can be promoted or demoted based on their performance and their income can be even higher or low based on their performance. Performance is certainly important thing for our staff force. And even for us, as a management, we have a 3-year term, we are appointed by the Board if you're capable of leading the bank, then you will be continue to appointed by the Board brother will not be choose by the Board.

And also for our mid-management and audit supporting the bank, they need to compete for promotion depending on their performance. So -- and I still remember at the very beginning, when people start to join CMB at a start-up period, they think that it's not a guaranteed job and a beginning, and we may emphasize -- emphasis on the professionalism of our staff force. This is very important, and it's embedded in our gene.

And thirdly, is we have sound corporate governance structure. At the very beginning, we set up -- we confirmed the -- named in a CEO, which resumes the full responsibility of the bank under the leadership of the Board. And also, we emphasize on profession. We rely on professional management to lead the bank.

And all of these are based on market mechanism, we can guarantee the development of the bank. I still remember when we start -- first started the credit card business and also private banking business. We also introduced professionals from other first-tier financial institutions abroad to join us in CMB to help to develop the credit card and also private banking card. Even some of them are still seen with CMB today.

As you can see, we already set up a corporate -- sound corporate governance and we also ensure the -- ensure that CMB can be -- continue to be market-oriented, especially we are listed both in Asia -- H Share market, and it also help us to perfect our market mechanism.

On top of deep understanding every conversation with investors or analysts, I know that investors and analysts, you have -- you and your advice on our strategy is also an important thing for us, it's a very precious -- means precious value for CMB. It means how it can perfect our strategy and to perfect our mechanism.

We think that for these past years, we have already formed our own characteristics, and we will continue to do so, and also our Chairman, Miao and the Board have repeatedly confirms that they were need -- CMB need to remember 3 things unchanged.

Firstly, CEO take up full responsibility under the leadership of the Board. Secondary marketing mechanism will remain unchanged. Thirdly, stable staff force remain unchanged. And this is why we are successful in the past. And these are the same reason or same thing that will continue to instate on in the future. Definitely, market economy also means economy which is flow-based.

And another thing, we are sticking to market mechanism. It means that we need to operate in a compliant way. Means that we need to stick to contract based on we are interested by our customer and if we need to fulfill our responsibility, market mechanism doesn't mean high reward to performance, but also at the same time, it has reward -- at the same time, it also has constraint.

You need to -- when you are enjoying the advantage of market mechanism, you also need to bear the constraints from the market mechanism such as adjusted, the management can be promoted also demoted and income can be high or low based on your performance. There's 2 sides and also the negative side that you need to take on. That is why I say we need to stick on the market mechanism and have better use of that to ensure our advantage.

Secondly, we are concerned that [ diverse ] and some changes to our strategy. I think that servicing the real economy is not contrary to our strategy, rather it's in line with our strategy as a bank servicing the real economy is our natural duty, only with the strong economy, can we have a strong finance.

For the past decades, especially after '09 financial crisis, the Chinese banks has become stronger and stronger. We are one of the lists 4 or 5 of the Chinese banks among the top 10 banks in the world. The main reason behind that is because China has grown into the second largest economy in the world because the economy has grown stronger. That is why -- and that is especially banks have become stronger. And CMB also benefits from the rapid economic growth after reform and opening up.

So it's our natural responsibility to do our service to service the real economy and by serving the real economy, we can further develop, its undoubtedly true. And at the same time, CMB is a bank based on -- operates on -- based on market mechanism. And also, we have our own special characteristic. So we need to stick to the differentiated path.

When we are expanding our balance sheet, we also need to focus on risk pricing list, that the principle that you need to stick to. And so you can both have a better development of yourself and also to serve the economy and CMB also, we are also thinking ESG is a very important responsibility that we need to take on.

That is why we are promoting the green loan and also green assets, green bond this business areas within is in line with the national strategy and also for extensive wealth management, we are better serving the residence, wealth management demands and in order to achieve the inclusive prosperity.

So we think all the strategies are very much in line with the national strategy and also with the CMB's own characteristics. So we think that servicing the real economy doesn't contradict CMB's strategy, and we can keep a balance. These are much in line with that each other and we can develop our bank itself.

And at the same time, we should do a good bit to the economy and serve the real economy, and to take up our social responsible -- social responsibility. This is for the second concern about a balance between our own development and the business -- and the national guidance.

And thirdly, I know the media reports, so some were targeted at Mr. Tian Huiyu violation of loss. And there is some report on that -- and I know some investors are quite concerned about that, whether it will have some negative impact on CMB's wealth management business or asset management business.

What I can say is that the case for Mr. Tian as his individual case. It has not a relation to CMB. And according to the requirement of the Chairman and the Board, we need to stable our mechanism stable, our operation and stable our staff force. That is why you can see we are very stable in all fronts, which can be also reflected in our operating performance. And no stuff from CMB has been involved in the Tian Huiyu's case.

And every business is moving in a right trajectory such as just -- I just said, the custodian business has increased over 20%, and our wealth management business, extensive wealth management business, even though it is negatively affected by the capital market, volatile capital market.

Even though we are facing quite difficult time for sales of new mutual funds, but other businesses are moving ahead quite health -- in a healthy way and keeping a good momentum. So definitely will follow adoption from the Board and our management will stick to our original strategy and to create value for our investors.

And we take value for your opinions of [indiscernible] that is why I would like to attain this opportunity to tell you -- to share with you, my views. Thank you.

[Operator]

The next question is from Ms. Yan Meizhi from UBS.

[Meizhi Yan, analyst]

I am Yan Meizhi from UBS. As you have just mentioned, President Wang that in risk management, I have a question for asset quality, especially for real estate business.

We've noticed that by the end of September, the real estate business has decreased quarter-on-quarter. I'd like to know that if there is any changes on your development strategy in the real estate business compared with the previous arrangement. We see in the third quarter that the NPL from the real estate business has surpassed 3%, and we continue to see some default cases of the developers or unfinished projects and the market, bringing influence to the market condition.

I would like to know that from the end of this year and to next year, what do you see the trend of the NPL of real estate business? Where is the peak? The NPL formation ratio, provision ratio and the pace of disposal, what are your arrangement? And what are the risk condition of residential mortgage loan and credit card loan and other retail loan in your key areas? That is all for my questions.

[Liang Wang, executive]

The question will be answered by Mr. Zhu.

[Jiangtao Zhu, executive]

Thank you for your questions. As for the real estate risk, I believe it is of many people's interest question.

So CMB, our strategy is that we will remain consistent with our previous arrangement with no major change. As for retail -- real estate NPL, we pay special attention to not only the ratio but also the special of the formation ratio.

The NPL ratio is influenced by many factors, such as the scale, such as the collection pace, the collection actually can reflect the trend of changes in the industry to see from Q1, the formation ratio is RMB 4.7 billion. Second quarter, RMB 2.7 billion, and the third quarter, RMB 3.5 billion. And generally, the gap is narrow and narrower. This is a trend we see.

From my perspective, in Q4 and the next year, we will still continue to see the trend. This is all about the on-sheet real estate business risk condition as regarding off balance sheet risk by the end of September. Wealth management product that is -- with underlying asset real estate business is RMB 145 billion, among which nonstandardized RMB 66.4 billion, mainly focused on state-owned enterprises so that the risks are under control.

Agency sales balance totaled RMB 38.4 billion, among which corporate agencies sale RMB 4.1 billion, and most of them are default products. PB agency sales products, RMB 34.1 billion, which is 10% of our peak. So currently products that has already been deported was amounted to RMB 4.9 billion, which is focused on very limited amount of clients, and we have already got sufficient assets pledged.

So in the further basis, we will continue to strengthen our management in the existing period and conduct active communication to the asset manager. And to add to perform their capability and their performance of management and protect the consumers' rights. This is the off-sheet asset quality conditions. In regard of wealth management and agency sales products.

And as the generals' risk and disposal policy, we will apply on the real estate business. We will further enhance our assets and take multiple measures, except for the traditional measures such as collection. We will also take other investment banking way of segments such as [ AMC ] and et cetera, the disposal of risk assets takes a while. We understand that it will take a pretty long period of time to get it disposed.

And as for the provision for real estate business, the provision level of our real estate business is already 2x of our general provision level for the corporate banking business. So it has pretty strong resilience. As for another case where you pay much attention to, that is the stop repayment event happening in some projects.

By the end of September, we expect the total volume will be RMB 369 million, which is 0.02% of the proportion, so that the risk level is controllable. That is so much for my answer.

[Liang Wang, executive]

Thank you, Risk, Executive Vice President, Mr. Zhu. Next question, please.

[Operator]

Next question is from Xiao Feifei from Citic Securities.

[Feifei Xiao, analyst]

Question for asset liability allocation. As we see that there is a continuous asset shortage in the banking industry, I would like to know your strategy in asset allocation -- category asset allocation for Q4 and next year, especially growth rate for total loans and total advances and loans and total assets. And I'd like to know whether you will still take retail loan growth at your newly granted loan scale?

[Liang Wang, executive]

Thank you for your question. This year, we have made our budget according to deposit growth. Capital consumption capability and our market wallet share and also the figure announced by PBOC and also our asset structure, and these factors altogether contribute to our budgeting for next year's loan growth. So this year, due to market changes, we have made quite big adjustments.

The reason behind is that we don't have sufficient effect of credit demand, general loan growth was RMB 300 billion, and the corporate loan, RMB 120 billion and the retail loan, RMB 170 billion, and the rest are from the bills and from non-bank [ FI ] loan extension.

Relying on the increment, we see from the corporate loan, which is around RMB 60 billion or so that has, to some extent, offset the gap from the retail loan extension. Under such circumstances, we do not see sufficient loan extension.

And therefore, we have made corresponding adjustments in enhancing our efforts to lower investments, including investments to local government debt, policy bank debt and also foreign currency bond investments to flexibly arrange our asset allocation and makes good use of our -- use of the capital.

In Q4, we will act according to our plan established in the beginning of this year and strive our best to finish our target of loan extension. We will appropriately lower the loan extension to bills and interbank assets, and encourage our support to credit card and corporate banking loans, which is also what we've seen for the past -- for Q3 and Q4, the credit card loan and the retail and the consumption loans are getting back on their feet with good recovery momentum.

And I believe and this momentum will, to some extent, offset the gap we see from other types of retail loans. We will also encourage the loan extension to SME loan in the following period. And we hope that even though we have finished our budgeting target for SME loan and for these types of loans, we will still maintain our support in this area.

For corporate loan, we will still continue to enhance our efforts in extension loans to the corporate banking field, especially for M&A loans and for manufacturing loans. We've seen from the PBOC policy that a lot of new instruments were encouraged to be extended to the advanced manufacturing and green finance and some other fields. This is our overall plan for this year.

For next year, on the one hand, we will make a good finish of this year and we are also get prepared for a good beginning of next year and make relevant and corresponding plans for loan extension for the next year. Like last year and previous stages, we will maintain appropriate growth rate according to our RWA allocation capability to maintain our capability of capital endogenous growth.

With limited RWA, we will take full consideration of our future investment and loan extension plan to guarantee the growth of our retail loan and the growth of our net interest income so as to finish our general and final target of revenue growth.

And of course, we will act according to our risk management level and will not act too aggressive, too fast, nor will we be too low in our pace of development. We will make very reasonable arrangement of our loan extension plan. And we will also take a look at the nationwide loan growth and speed. I believe we will remain a double-digit growth in our loan growth, which is similar to what we have done in the previous years. That is for the size.

In terms of our structure, we will follow our established strategy, encourage our loan extension to retail banking business, SME, retail, consumption, real estate, mortgage loan, et cetera. But for housing loans, we need to follow closely to the trend of the market and make accordingly our plan by the end of September.

The residential mortgage loan was only increased by CNY 18.8 billion, which is far less than what we are making the target in our budgeting. And therefore, we need to innovate the way we promote such business and strengthen our efforts in promoting the second hand houses and this is for the loan structure.

And as for the corporate banking loan extension, we will serve the real economy -- SME, green finance, manufacturing loan and these aspects will be our focus. We will act according to our allocation of our industry understanding and our regional focus. All these conditions will be the considerable factors for our next year's plan.

[Operator]

Next question is coming from [indiscernible].

[Unknown Analyst]

Thank you very much for giving me this opportunity. My question is about asset quality as we see from the third quarter report that the NPL ratio has been kept at a low level, even a number below 1%. But overdue loan and special-mentioned loan are rising. So looking to the fourth quarter and next year, what is your view on your overall asset quality?

[Jiangtao Zhu, executive]

Looking into fourth quarter and next year, I think that the overall asset quality of the bank will remain stable and NPL ratio will be kept a low -- at a relatively low level. For corporate banking for the first 3 quarters, the new NPL form is coming from the real estate sector and around 70% I think for that.

But you see that, as I just said, sequentially, the new NPL formation of real estate is coming down. And so the other sectors are remaining quite stable. For virtual banking, and we think that the risk has risen a little bit compared to the middle of the year. And the main reason, one is corporate. In fact, the second one is real estate. And thirdly is we ourselves have further increased our standards for how we identify risk.

So our NPL ratio for mortgage is only at 0.29% and also for overall retail is [ 0.49% ] is at a low level. And another area that you might emphasize on is credit card. As we can see that in the third quarter, the early indicators for risk for credit card is performing better than what we have in the second quarter or first quarter.

So we think that for credit card, we'll stick to our policy with a stable and low volatile policy to mention the risk of credit card at a controllable level. Thank you.

[Operator]

Next question is coming from Mr. Yang Shuo of Goldman Sachs.

[Shuo Yang, analyst]

My question is about NIM. What would be the fresh for the second half and for next year. And another thing is about the repricing. How will the repricing affect the NIM next year? How will you take actions to counter the negative impact coming from repricing? And the third question is about what's your view on the decline in your deposit rate. And will that be September next year? What's your view on that?

[Unknown Executive]

For the group level, the NIM has been down by 7 bps on a year-on-year basis for the first 3 quarters. As for third quarter, sequentially compared with second quarter, it's only down by 1 bps. So the degree of decline has been narrowed sharply. As you may remember, in second quarter, we have a sequential decline of 14 bps. In the third quarter, we have seen very obvious improvements.

And looking into the future, we think the trend of NIM decline is still very obvious. And [indiscernible] for us to manage the NIM is very large, the main pressure is coming from the asset side, especially there is a lack industry demand in the market and there is fierce competition for quality assets. That is why banks are lowering down the financing cost as to compete for quality assets. That is why for many asset projects, there is some distortion on pricing. Some of the pricing for loss is even lower than their deposit rate. It's a kind of an irrational competition in the market.

So for CMB, we would need to take a rational way for competition in the market [indiscernible] should cover the risk and other costs. For loans with a very, very low pricing, we might give up the chances for the competition for those type of loans which cannot cover risk. That is why you see from the asset side, we are still facing downward pressure on that.

And from the liability side, from the third quarter, it's only up by 2 bps for the liability cost even though it's still rising. As you see, you can see that pricing for customers' deposit [indiscernible] goes on slowing down. This is a reason of the uprise of deposit cost, is because this year capital market is now performing well and then customers would like the term deposit products or term saving deposits. So in order to satisfy our customer's demand, we need to provide these kind of products to our customer.

Another good news for deposit side is federal banks absorbing the holding banks. In September, we collectively have decreased our deposit yield by 10 bps and this help us to relieve our burden on deposit side and help us to maintain stable NIM. This is the first time that banks collectively showed reduced deposit costs, and we think that is a reflection of the market marginalization, liberalization of interest rate. That is the rational course of the banks as well.

So in September, after we adopted the new deposit rate, definitely, it will have positive impact on fourth quarter and also for next year, will help us to cut down the deposit cost. So overall, we think that the NPL -- the NIM will still continues to be under pressure.

Another thing you will say about this repricing this year for long-term LPR has been down by 35 bps. And for first time homebuyers, the pricing came before this 20 bps below LPR and this can all be reflected in the first quarter of next year. I noticed that after the release of the third quarter, some banks have showed a symptom of negative growth of operating income.

I think that for the yield of assets and deposit cost and the fee growth, if we can now make a balance among that, would not face further pressure on the role of operating income. So we may need to be clear minded and have a right judgment of the external environment and to make sure that our approach will be stable in next year to minimize the impact coming from the LPR repricing on our operating income. And our goal is to achieve stable growth next year.

And it's also a very important thing [indiscernible] the process on in the fourth quarter. We are already starting to take approaches to counter the negative impact on the LPR repricing.

[Operator]

Next question is from Morgan Stanley, Xu Ran.

[Richard Xu, analyst]

The question for the fee income. Within the fee income, we see in the third quarter that regardless of the noninterest income or fee income or commission and fee income, the drop is larger than that in the interim report. And I would like to know the reason behind and what is your outlook with next year as we are faced with so many uncertainties in the external environment. What is your expectation on the commission and fee income's growth?

[Unknown Executive]

For commission and fee income, we have recorded CNY 102.7 billion, up by 1.85% year-on-year. It is a growth secured on a high base of last year's 21% growth. It is a 1.85% growth based on last year's high base. It is not very easy to achieve.

A major reason of our drop is because of the agency sales of our fund business. The degree of decline is around over 40% year-on-year. We are faced with the fluctuation and challenge and difficulties brought by the capital market, and we have taken multiple measures to dig deeper into business from other assets. To offset this negative influence brought by the agency sales of the bank, we have made achievements in agency sales of insurance products and wealth management products in asset management, asset custody and the bank card settlement commission and fee income. These assets have all contributed to stable growth to offset the negative influence brought by the capital market. This is the overall situation in Q3.

You see from the quarter-on-quarter growth, the commission and fee income has slowed down a bit, decreased. Noninterest income in Q3 was CNY 31.3 billion. And for the quarter-on-quarter decrease is around 7%. This is mainly because of the capital market fluctuation. And we see even drastic -- more drastic fluctuation in the market.

And as for the insurance product fee income, we have slowed down a bit in Q3. And for the first half, the insurance product revenue is very good, which has brought us some gap in a decrease. For the next year, we will take various measures to guarantee the growth of noninterest income and commission and fee income. On the one hand, we will make efforts in multiple assets, and we will not rely the commission and fee income on single type of products in case of the changes happening in the external environment.

And for the second asset, we will continue to enlarge our customer base, enlarge our AUM. The take, the AUM, will require us to enlarge. Even though with the very unsatisfying environment, we continue to bring our AUM sale up by CNY 1.2 trillion. As the AUM scale is larger, we believe there are still assets that can make generation make contribution to the profitability trends. Hence, therefore, we will still stick to our strategic direction of extensive wealth management. By leveraging this capability, we can enhance our capability in asset management, asset custody and in some other business segments. And that is what we can depend on in our future growth.

We believe the strategy of expensive wealth management can better optimize our structure of revenue. And therefore, we can remain a stable growth in our revenue, especially net noninterest revenue.

[Operator]

Next question is from CICC, Zhang Shuaishuai.

[Shuaishuai Zhang, analyst]

I've a question in the wealth management business. As we have seen [indiscernible] of economic growth and the headwind is the real estate sector. You have also mentioned some of the difficulties from the wealth management business. I would like to know your idea, your [indiscernible] on future retail client base and do you have growth? And also this year, especially in [indiscernible] to build these kinds of wealth management businesses as we see a prolongation in capital market. We also see decline in your retail wealth management business. I believe CMB being one of the best banks in retail wealth management business. And I would like to know what are the high points in your wealth management business. And if there are any rebounds in the capital market, will you be better and better compared with your competitor?

[Liang Wang, executive]

Just now, Mr. Wang -- President, Wang, has mentioned the commission and fee income in extensive wealth management, it is under pressure. So therefore, your question is quite a good one. CMB's retail banking business, especially in wealth management, our core competitiveness is -- what is our core competitiveness? I'd like to answer your questions from the perspective of client base, AUM business and some other aspects.

So first of all, AUM is the key to your retail banking business. This year, our client base has a good growth this year. Retail clients are now total 182 million until Q3, which is a 5.2% growth year-on-year. You see from the growth of our type of customers, we are featured by following 4 characteristics.

First of all, our customers tend to be younger. Golden card-level clients have shown fast growth rate. Among the clients from golden card-level clients, we see young customers' ratio increase from 28% to 33%, representing a fact that we are recognized by our young customers, especially the college students.

Second aspect is that we have seen fast growth in major city clusters, such as Yangtze River Delta and some other regions. There are a higher proportion of growth from these areas by 20 bps.

The third characteristic is that online wealth management has been addressed. Omnichannel wealth management business has increased to 42 million, which is 11% higher than that of the previous year. So generally speaking, acting according to our structure of retail business, the portfolio itself is quite reasonable. From basic level to -- card level to golden-card level to be above the structure is now rational and quite qualified.

So we are satisfied with the results we have achieved in managing our client base. Although influenced by some external factors such as the pandemic control, our customer acquisition might be a little less than that of last year since we have not completed this year, but the management quality is actually better than that of last year. Especially, we have comprehensively promoted the group-based finance. It has generated results.

Group base result -- group base solution is actually a close-loop business operation from customers to see and to be. It is integrated with corporate ID and retail finance, and we have seen quite healthy development path in this regard. This is about our customer base.

The second aspect is about AUM. We see pretty good growth in our AUM up by CNY 1.2 trillion compared with that of last year. We also see structural change due to the external factors influenced. Deposits grew a lot, and the second is banking, wealth management products. It is quite normal as there are fluctuation in the capital markets. So investors, our clients tend to be more risk hedge driven.

And therefore, we will definitely provide relevant arrangement due to our understanding of the timing and provide it to our clients. This is also reflected on our noninterest income. So therefore, there will be a drop in our agency sales fund products.

But generally, CMB has constructed a very long-term capability in our Wealth Management business. First of all, the first aspect is that our value. We have always take customer our standard and we create value for our clients. This has been our core value. This is closely related to our staff's understanding, our performance evaluation, our system and our results has generally been demonstrating.

The second is that our tree asset allocation philosophy has comprehensively launched. The TREE, T-R-E-E, allocation is key is to put in our customer segmentation and categorization to better understand your clients and have established an equity-based allocation discipline for our clients. We have a very scientific evaluation to see how much equity product to allocate for what type of assets. So therefore, it is also reflecting our philosophy to take our customer at the center. It is quite advanced in the domestic banking industry, and we have finished system establishments.

After implementing this system, CMB will be even more resistant to fluctuation in the capital market. And we can also enhance our competitiveness in the market.

For the third aspect, insurance products, and this year it grew -- the arrangement of insurance products. It is not just good performance from the statistics from our results. It is also a reflection of the increase in our capability, in our capability of making allocation. The structure we see within the increment of the insurance products are majorly regular paid insurance products. It is quite a complicated product and we are relying on our system capability, our staff capability and the product selection capability -- can we deliver such solution to our clients? And that is what we say that we are building our stronger and stronger capability in our wealth management business.

So therefore, the increase in our capability in building the insurance products has given us confidence overall. Well, actually, the slowdown in Q3 actually represents that we are doing too good in this year's target. So therefore, we proactively slowed down our pace. Moreover, we will still follow our overall strategy and follow the direction given by President, Wang, to continue to strengthen our capability.

And fourthly, online capability. It actually reflects our reach to our clients, increase in our efficiency and the cut of further cost by the end of September. The wealth management product clients that hold position has increased by 11% year-on-year, especially for some indicators. Wealth management transaction clients has increased by 3% in their repurchase ratio.

The 3 percentage points is very substantial, representing our online operation capability actually increased compared with the previous stages. Our online base or digital-based operation capability in the wealth management business actually has been further enhanced.

From January to September this year, the agency sales products through the online channel has remained a double-digit growth. Even though the agency sales of funds business has been quite difficult this year, but the online channel remained at double-digit growth. So therefore, it is another aspect reflecting our capability.

The third aspect I'd like to talk about some of the questions you're interested in. First of all, trust-based products. We actually see quite a large drop in the products of the trust-based business. We also see the performance in the overseas market. Nonstandardized trust in products -- this era has gone. Just now Mr. Zhu has mentioned that CMB has exited most of the products and remain a little volume within this product. So therefore, the exit is also, to some extent, reflects in our noninterest income though we remain a very limited proportion of such business.

And the second aspect is the equity-based product. As the capital markets fluctuate, we also see very natural decline in the sales of -- in agency sales of equity funds. In order to cope with this situation, we have taken multiple measures such as to enlarge our customer base and to verify our product selection to our clients. And therefore, you can see we have secured our position in the market, and we will wait for further warming of the market and we believe our equity fund based products will bring better customer experience to our clients.

And we believe that it is also another key factor for us to pay attention to when we are facing with the market fluctuation about how we serve our clients, and we believe it is also a good timing for us to allocate equity fund-based products to our clients during the lowest point in the market. We have continued to consolidate our capability, and therefore, we have full faith in the future.

[Operator]

Next question is from [indiscernible].

[Unknown Analyst]

I have 2 questions. We see that the net operating income is up by 14.1%. So a little bit slowing down compared to the first half and what the same as just Mr. Wang has said. So looking into the whole leader, what will be your catchment for your view on the whole year operating income and net profit? Second, we are looking [indiscernible] with enough capital, what will be your target for net profit and for ROE?

[Unknown Executive]

For the first 3 quarters, our profit has grown by 14.1%, again that is in line with our expectation. But negative thing that we are facing is a slowdown of our operating income. Operating income is now only 5.31%. Comparing with our peers, it's above the average level, but definitely, there is a declining trend. And one of the reason behind is the contraction of NIM and a slowdown of NII and also quite a low-based growth of the fee income. All this has resulted in a slowdown of the operating income growth.

We think that the operating income under the current situation, namely, we are continuing to face the lack of effective real economic demand. Under these negative environment, pressure for NIM is very large.

And the trend that the slowdown of the operating income growth is also still there. And in terms of the profit, we will strive to keep a stable profitability. But the key factor is asset quality, where we are facing a slowdown operating income only with a good asset quality ensure that there will be no loss or eroded risk factors. Then we -- this is the key to the profitability of the bank. Otherwise, profitability and operating income will now be able to meet our expectations.

I remember in 2018 and 2019, we have single-digit operating income. Now, we still have double-digit profit growth. Well, the reason behind that is we have a very good management of risk management and on time. So it's the same cycle again. What we are trying to do is to strive our best to keep a stable operating income and better manage the risk side and ensure asset quality and to reduce credit cost and to maintain a stable profitability. This is how we can realize the value chain. We will need to increase revenue to increase profitability.

And look into the next 2 to 3 years, what is our forecast on that. I think we need to look at the changes in the macro environment and look at monetary policy side and also financial markets and we need to look at ourselves, how we can control the cost side and how we can price the loans. And also for fee income, how we can grow the fee income. So that will be decided by many factors.

My judgment is for CMB. I'll try to be more neutral. I should not be too optimistic or pessimistic. So frankly speaking, I think that CMB [indiscernible] our ROE at a relatively high level and why the reward or value for the investors, investors namely will be objects that invest -- are worth investing in. This is the target or goal that we are working for. We need to take into consideration manufacturers like profitability, capital constraints and structural change, credit disbursement. So this is real economy and risk management.

And how can CMB maintain a stable operating in the downcycle. I think many emphasized on the 5 areas. It's like the 5 figures of the hand. This is transformation, namely transformation from traditional banking business model to the new banking model based on extensive wealth management based on digital operation. Certainly it should be innovative. Innovation means better mentality to ensure to enjoy the benefits from innovation. In the past, we were successful because we were innovative and now we will continue to be so.

And thirdly is to maintain the bottom line of our asset quality and to prevent risk. Fourth is to have a stronger staff force, especially for management. This should be in line with the future change of our banking system. I think it's the key to the success of the bank -- first is management. We need to strengthen management like cost management, risk management, strategy management. These should be the emphasis on the 5 -- it's like these might be 5 figures of your hand, neither of them eventually show to each other. And then if you put the 5 fingers together, it will be a fist. So make sure that the capability of the bank can be strengthened and further improved so the profitability can be returned to the investors. So that is why I say these are the 5 years we need to emphasize on and to make a strong force to maintain a stable operating income and it will reward [indiscernible].

In order to ensure the interest of all the investors, that is why we have broadcasted this results conference. Many investors have come in, not only to participants online, but also we have selected questions through e-mail. I think the questions are quite the same as the question that has been raised just now.

Now I would like to pick up another quite more representative question from e-mail. Our colleagues will broadcast -- will share the question.

In the third quarter, in CMB, in the structure of credit loss, as you can see that our provision for loan is rising quite fast but the provision for the loan assets is coming down quite a lot. What is the reason behind that? And looking to the whole year and next year, what is your view on your current ratio, credit cost. And this question will be answered by Mr. Zhu.

[Jiangtao Zhu, executive]

Thank you for the question. You may have your attention to the uprise about provision for loss is spending. First one is because of the risk coming from -- risk from real estate sector and also COVID has some impact on the retail loan business, this is why you have seen a more provision on loss.

But for now, loan assets is also affected by two factors. First is for interbank assets, mainly the repo -- reverse repo assets. The total size of that has been down by 90%. And secondly, for contingent assets because last year, we have made ample provision for that. And this year, it has declined a little bit. So these are the major reasons behind the decline of the provision for non-loan assets.

For the whole year, we think that the current ratio by the end of the year will decline a little bit compared to what we have at the beginning of the year, but we will continue to be cutting the relatively high level. And for credit cost, at the end of September, for the company level is around 0.81% by the end of third quarter. And by the end of the year, we'd think you it will be smaller than what we have in third quarter, but will be higher than what we have at the end of the year.

Now last question, please.

[Operator]

Next question is Ms. Ma Tingting Guosheng Securities.

[Ma Tingting, analyst]

This year, actually the growth for 6 months continued to come down, but trying to [indiscernible]. So my question is whether CMB has any plan to raise capital floor or respond in a capital market?

[Unknown Executive]

CMB will have replenished our capital from the market for over the past 10 years and to keep our indigenous capital growth is our own requirement for ourselves. And currently, we don't have any plan for that. And as I mentioned, our goal is to maintain a stable reasonable profitability path and profit is a factor for our capital replenishment. It's one of our strategy for that.

[Operator]

Due to the time constraint, CMB 2022 third quarter results conference has now come to the end. If you want to know more details you can search for our third quarter report online or through LiveZapp with our IR team. Thank you very much take time to attend today's conference, and thank you very much for your support for us. We'll continue to do our work and to provide a better return to the investors. Thank you very much. Goodbye.