Industrial and Commercial Bank of China Ltd

SSE:601398

Earnings Call Analysis

ICBC Reports Stable Q3 Earnings and Optimism

In their Q3 Earnings Call, ICBC presented stable and robust financials, with modest revenue growth of 0.8%, leading return on assets (ROA) and equity (ROE), and a net interest margin (NIM) on par with peers despite continuous pressure. The Earnings Call echoed a sentiment of positivity about future asset quality and credit demand as local policies take effect. Executives voiced confidence in the bank's ability to navigate interest rate changes, regulatory reforms on fees, evolving consumer credit trends, and global economic shifts. With constant innovation, diversified income sources, and prudent risk management, ICBC signalled strength amidst challenges and reinforced its commitment to investor returns.

A Glimpse into ICBC's Q3 Financial Health

ICBC's Q3 earnings call, led by Zou Xin and accompanied by Board Secretary Guan Xueqing and other management personnel, unveiled a stable and robust financial performance. Key indicators suggest a subtle improvement with profits marginally increasing to CNY 269.9 billion, demonstrating a 0.8% growth. Return on assets (ROA) stood at 0.86% and return on equity (ROE) at 10.56%, suggesting efficient capital deployment. However, a slight dip in net interest margin (NIM) to 1.67% aligns with broader sector trends, reflecting uniform pressures across the banking industry.

Dynamic Loan Landscape and Credit Strategy

ICBC's loan department underscored a historic rise in credit growth, with RMB 2.49 trillion in new loans marking a record for the bank. Growth stemming from key sectors such as major projects, rural services, and consumption promotion suggests a strategic targeting of lending. The emphasis on mid- and long-term loans, which now constitute over 60% of the total loans, positions ICBC favorably for future interest income. The bank also maintains a robust capital adequacy ratio of over 18%, ensuring resilience amid expansion. Looking ahead, ICBC plans to align its credit growth strategy with macroeconomic directives and opportunities, reinforcing its commitment to prudently balance growth and risk management.

Maintaining Stability Amid Interest Margin Compression

Investors showed particular concern for the Net Interest Margin (NIM), which narrowed to 1.67% in Q3. The contraction is mainly attributed to lowered Loan Prime Rates (LPR) and mortgage rate adjustments; nonetheless, the bank has implemented strategies to mitigate these pressures, such as optimizing internal management and adjusting deposit costs. Though the external environment continues to pressure asset yields, ICBC has seen positive signs, such as lowered new deposit costs and maintained medium-long term loan rates over 4%. These measures are part of broader efforts to stabilize NIM in the face of ongoing market adjustments. The bank's proactive stance and diligent interest rate management reflect a strong commitment to preserving margins.

Earnings Call Transcript 2023-Q3

[Unknown Executive]

Welcome to ICBC Q3 Earnings Call. I'm Zou Xin, GM of Corporate Strategy and IR department. Today, Board Secretary Guan Xueqing other management personnel from departments and subsidiaries are here to communicate with you. Our directors are also online. They are [indiscernible]. Our Q3 results have been released online. We can see that the Q3 results continue the robust performance, core indicators are stable and robust [Technical Difficulty] totaled CNY 269.9 billion, up by 0.8%. ROA was 0.86%. ROE was 10.56%, leading the year. Net interest margin was 1.67%. The decrease was the same as Q3 -- Q2 and the trajectory is the same with the main peers. NPL ratio was 1.36%, slightly lower compared with the beginning and the figures difference continue to be negative for 14 consecutive quarters as the quality improved further. Capital adequacy ratio was 18% more and provision coverage ratio was over 200%.

The deposit and loan increased robustly. The loans increased more than CNY 2.5 trillion, investments improved by more than CNY 850 billion, and the deposit increased over CNY 4 trillion savings, corporate and institutional loans increased all the peers. In the government business and customer GBC plus customer ecology and DIC DC, the digital ecology continue to optimize personal customers increased to 736 million corporate customers over 1.8 million. All kinds of customer base continue to solidify in the active customers of mobile banking exceeded 200 million with ever-growing innovation. This is a brief introduction of our Q3 results. Now we enter the Q&A session. Please identify yourself before raising questions. Thank you.

[Operator]

The first question, please. Richard Shu from Morgan Stanley.

[Unknown Analyst]

Thank you for the opportunity to raise questions. In the future, for my question is the outlook for the credit [Technical Difficulty] this year, we have seen the rapid growth of credit growth. What's your plan for the credit growth in the future? And also, we heard the PBOC had some meeting. How do you take on that about the future trajectory and also, we see some progress in diffusing debt for LGFV from the platforms or the last standard business I think we have more momentum. Is there any new demand in this regard in Q4 or next year, what's the contribution of it to the credit growth? How do you evaluate this issue?

[Unknown Executive]

I will invite Mr. [ Joe ] from the Asset and Liability department to answer your question.

[Unknown Executive]

Thank you very much. For the credit growth I would like to respond as follows. Since this year, we adhere to the strategy of the central government, and we continue our commercial sustainable principle. We brought the market need in the resumption of the real economy and the aggregate volume increased stably. For the first 3 quarters, the increment was RMB 2.49 trillion. The increment and the year-on-year growth recorded historical high.

The contribution comes from the major projects and also the grain innovation, rural area service, private sectors and also the consumption promotion areas are the major momentum and in the regional lending, especially in the major strategic regions, the proportion in the growth and the outstanding are both leading other regions.

In the mix of the loan book, the mid- and long-term loans proportion was 63.6% of the total and increased by over 20% year-on-year. The loans growth also accounts for more proportion increasing by 4 percentage points, the inclusive finance loans and other loans are the major momentum the bank notes and the discount decrease for the whole process, the lending would be focused on Q1. Disproportionate 34% of the total increment and then the Q2 and Q3 will see a slower pace. Despite that, the increase still totaled RMB 200 billion. For the end of this year, we will continue to maintain a year-on-year growth for next year and also after the lending for the consumption of capital. Just now [ Mr. Juan ] introduced the Q3 results and also the capital adequacy ratio.

The adequacy ratio was over 18%. In the mix allocation, the upgrading of mix, we are taking active measures the capital adequacy level lead the peers domestically and also internationally. We are in the first class among international peers. Despite the high growth of assets, our capital adequacy is still robust and balanced. Next year, for the credit expansion every year in Q4, ICBC starts to make plans for the market connection and the credit extension for the next year. We have seen the arrangement from relevant departments. And for the reserve of the loans, we are making plans.

For next year, we will hold meetings about the specific targets, ICBC will adhere to the requirements of the macroeconomic requirements and also make due allocation for the market opportunities and resource preparation, we will make our ample support for the credit extension. On the one hand, in the future, we will have an important meeting in the future. In the economic operation, according to the position, we will respond to the requirements. And second, we have issued a 5-year development plan. Under such framework, we will properly manage the growth and mix of the loan extension.

We have seen some positive growth quarter-on-quarter. So we are confident about the extension of the credit and the upgrading of the mix ICBC has been emphasizing the prioritized position of retailing loans and its proportion in a whole loan book in the future, I think we can foresee some positive effect. Thank you.

[Unknown Executive]

I'll give the floor to Mr. [indiscernible] from Credit and Investment Management Department.

[Unknown Executive]

I'll make some supplements. After the credit plan, the debt plans in this region, we see the external liquidation has improved. For our risk prevention, it plays a positive role. Second, for the demand of credits in these area, we will follow the law based principle in cash flow, the resolvent we will make our assessment. So as to ensure that they are sustainable. The second question.

[Unknown Analyst]

Thank you for the opportunity to raise a question. I wanted to ask about NIM. The NIM for the first 3 quarters were 1.67%. The single Q3 NIM was lower than Q2 and was contracted to a large extent. If we exclude the impact of LPR and suppose LPR will remain unchanged in the future? When can we see NIM start to be stable. Another question is about asset quality. What's the NPL ratio of developers loans in Q3? And what's the balance of the impairment for developer loans and provision level.

[Unknown Executive]

The first question will be answered by Mr. [ Joe ], General Manager of Credit for Assets & Liability department. When can we expect to see NIM can be stable.

[Unknown Executive]

As to your question about NIM. For Q3 we have seen ICBC's NIM was 1.67%. Maybe later, you can see for the entire banking sector, all of us face pressure of continuous contraction of NIM is mainly because of the lowering of LPR and also the adjustment of the existing mortgage loan interest rate. So that's the major pressure for NIM. Against this backdrop, the banks can also take multiple measures to deal with this pressure. For example, we have optimized and strengthened more refinery internal management. So as to optimize our performance in NIM.

So for the result of adjustments for mortgage retail, mortgage interest rate and LPR lowering. We have done our best. And you can see some marginal changes of some positive signs, for example, for the deposit cost, for the newly deposit cost. It was lowered by 1 bp. And for the newly savings, the deposit cost was also lowered around 13 bps. The yields from our assets, particularly from the loans has continued to face pressure. And it was 30 bps lower than that of the same period last year for the Q3 of last year. However, along with the adjustment of the mortgage interest rate level, we have seen some changes of the prepayment of mortgages.

For example, recently, we have noticed some positive changes of the adjustment of mortgage rate and even after adjustment of mortgage rates, the current rate is still above 4%. So it's also a good contribution for us to stabilize our NIM. In the first 3 quarters, the medium and long-term loans are accounts for over 60%, 70% of the total loans. The pricing of the medium and the long-term loans is also conducive for us in the future.

From our micro perspective, Q3, the deposit rate -- deposit cost and loan yield through our internal management improvement have demonstrated some positive signs and good momentum for better. This is not only our wish and the direction for us to go far as to achieve after twice of deposit rate lowering from the banks. We have seen the loss of our new deposit cost.

And this momentum will continue to play out in next year. And now the banking sector has formulated a kind of mechanism of a self-disciplinary and lower our deposit cost. We will also continue to discuss with our main peers and to see good opportunity to continue to guide down the deposit cost so as to stabilize a reasonable level of our NIM. On the demand and the term structure of liability and also the structure of our loans along with the mechanism of deposit cost adjustments, we expect to see continuous pressure for NIM but at the same time, we have seen some active positive signs for marginal changes for better. So that's why we have confidence for us to stabilize NIM in the future.

[Unknown Executive]

Now for the question about the asset quality of 12 loans and impairment. I would like to give floor to Mr. [indiscernible] from Credit Management department.

[Unknown Executive]

In Q3 along with the active effects of local government policies we have seen NPL ratio of our 12 loans have been lowered with the impairment of several loans in accordance with requirements of regulators. We have set and adequate impairment to developed loans. And we have also stepped up our efforts to dissolve [Technical Difficulty] developed loans. Usually, the actual loss will be lower than the impairment risk asset.

[Unknown Analyst]

Mr. John from [indiscernible] Securities. Thank you for this opportunity to ask a question. And the question is about retail. The government has issued a lot of policies about personal banking. And what's your prediction of the demand for consumption and in terms of retail credit towards your new policies and strategies. Another question is that this year, the mortgage for the banking sector is under lot of pressure. And what's the status of ICBC? And what's the status of mortgages provision of ICBC. Thank you.

[Unknown Executive]

I ask Madam [indiscernible] from the Personal Banking Department, to answer your question.

[Unknown Executive]

Currently for consumption credit, our provision of credit from the perspective of the first 3 quarters, I think it's quite proactive. For the first 3 quarters, the credit consumption loans and consumption loans with collaterals, we witnessed a great increase. And we also see that the consumption trend is getting better. So in the next phase, we are confident to expand this area. In the next phase, in terms of provision of consumption credit, our choice would be on one hand in terms of the credit loans, we focus on cooperation with the leading enterprises in terms of new energy cars and to also pay attention to the scenarios of online retailers and help boost the development for consumption financing. Besides, you also mentioned about mortgages.

In this year -- in the successful contest, mortgages provision is better than the same period of last year. From the figures on the book due to these factors such as the early payment of the mortgages as introduced by Mr. [ Joe ] from asset and liability department. We also notice that very positive changes in Q3 in the early repayment is reduced in Q3, especially in September. We did make a comparison between September and June when it was the peak for the earlier payment of mortgages. So to say that in terms of all retail perception loans we are quite confident in the next phase. Another question is, you answered about your consumption loans.

I noticed that there are also focus is that on the cars, electronic products, decoration of apartments and tourism, overseas education, ICBC's consumption loans, we have credit loans [indiscernible] loan, we have this product. And we also have a credit card overdraft, we have a large amount of credit card overdraft balance. And we also have the downpayment for the vehicles, home decoration and we also focus on the building of scenarios of consumption. And ICBC provides strong support for the recovery of consumption. Thank you for your question. Next question, please.

[Operator]

The next question is from [indiscernible] Securities.

[Unknown Analyst]

Thank you for the opportunity to raise questions. My question also concerns mortgage on 25th of September. Banks started to work on the adjustment of the first home loan interest rate. And also, the second home to the first home transfer interest rate. What's the impact on this action were there a resumption in the mortgage business for banks.

[Unknown Executive]

First the amount is not large for ICBC is influence on net interest margin and net interest income is limited -- the interest rates for new time deposits have decreased by more than 10 bps coupled with the improvement of the mix and also the interest rate decrease in the outstanding loans. These are conducive to the development of ICBC. So our yield led the average level of the sector. For the outstanding mortgage in its influence, the outstanding mortgage, your expression about it can be concluded as first, the adjustments, including the second loan to the first loan. The positioning is quite favorable to the consumers. For banks, there is pressure for all banks.

At the same time, you are concerned every time about that if you decrease the interest rate, the consumers will refuse to repay the loans but in July, if you refused to repay the CNY 10 billion loans calculated by today's interest rates there is still offset effect for banks. The decrease of the outstanding mortgage can have shocks to all banks. On the other hand, however, we focus more on the marginal change and the decrease in the prepayment of mortgage there is an offset impact for ICBC.

[Operator]

Next question comes from [indiscernible] Securities.

[Unknown Analyst]

I have 2 questions. The first question is about for the PBOC's monetary report in Q2. They also wish the commercial banks to maintain a reasonable profit. So what's your view on this? Are there any more measures to stabilize NIM in the future? Second question. We have noticed the political bureaus July meeting proposed to introduce a series of measures to defuse local government treasury bonds? And what more measures can we expect to see.

[Unknown Executive]

The monthly report of PBOC, stating that commercial banks should maintain reasonable level of profit have been noticed by the market. We agree with that the commercial banks should maintain reasonable profits and maintain sustainable development and which can also be a safe development. My view is that the external economic macro environment is beneficial for commercial banks to be able to maintain a reasonable level of profit. Since we are a publicly listed company, so we have to guarantee reasonable returns to our shareholders, which can all be only guaranteed by maintaining a reasonable level of profit actually this is a frequently asked question. Recently, in recent years, we have seen the pressure of our NIM contraction.

But we think this is related with the macro environment. We have seen our NIM now has been contracted to 1.67% because we think current market rate is relatively on the low level. So that's relevant with commercial banks low NIM currently in China. We think ICBC has been quite precise and optimized its management of NIM even facing with such pressure. You always ask when will be the lowest level of NIM? And when can we see the NIM will change for better? It's hard for us to predict the precise time. It will be dependent on the changes of demand and supply and also the market rate and also the capital markets, maybe when we see more deposit become demand deposits.

And maybe also, if we change our risk appetite, we have been always neutral to our risk appetite, we will not pursue high-risk assets just for the sake of high loan yield either from the liability cost and loan yield, we have been paying a lot of attention to optimize our management. In the future, as PBOC's monetary policy report mentioned, we will also maintain a reasonable level of profit and a reasonable NIM. As to your second question of LGFV-owned decision we have seen quite good progress in this aspect. As our exposure to LGFV is mainly loans and at a higher tier level like provincial level, and mainly in the developed regions and provinces.

As my colleague, Mr. [indiscernible] mentioned, we will participate in the debt diffusion in the principle of market-oriented and currently, the asset quality of relevant loans, are quite sound. And we also expect to see the measures to diffuse local government bonds will also be good for us to maintain the soundness of our asset quality in this regard. We would also expect to see we can maintain a reasonable level of profit in our assets in this regard. I would like to see whether my colleagues from credit department would like to add.

[Operator]

Next question is from [indiscernible] of CLSA.

[Unknown Analyst]

My question is about asset quality. And in which areas we are facing a lot of pressure including credit, noncredit. Some overseas banks also disclose their figures and the exposure to the real estate sector. What's your opinion about the asset quality in the real estate sector.

[Unknown Executive]

I'll ask Mr. [indiscernible] to answer your question.

[Unknown Executive]

In terms of asset quality and the different sectors, asset quality, we think that we need to pay customers' attention to real estate sector and relevant industry chains. Your question also addressed the question about that. In Q3, we see signs of implement, and we expect that the trend is that things will get better and the positive signs will remain. And local government all have the relevant policies in terms of market, and we see very positive responses in the increasing real estate factor the relevant risks are being cleared out. In the next phase, I think the new policies will be supportive to new issuances and we have a very good foundation for growth. So from this perspective, in the real estate sector, despite the current pressure, we expect that in the future, the marginal changes will be getting into the better.

[Operator]

The next question comes from [indiscernible] of China Securities.

[Unknown Analyst]

The question concerns diffusing debt you have emphasized the principle which is market based and rules based. In the last round, the swap of debt in 2015 and 2016 when the swap happens to the high rate debt. We have seen the fiscal deposits in 2017 and 2018, have played a greater role in the future for the new round of the debt swap under the market-based principles from local government perspective. Is there any makeup for banks as exchange for the help and especially for the loan -- with the loan interest rate loans.

[Unknown Executive]

First, we say it's based on market-based rules and rule based rules as transactions when the players can develop sustainably, we can reorganize the loans or expand the long term or change the financial conditions. No commercial banks around the world is an exception. This is according to the judgment of the bank. I think the financiers are the companies, they do infrastructure like high-speed railway and other infrastructure construction. Many of them are the productive projects covered by ample cash flows. I think the strategies are case by case. There is no such a thing like a makeup or remedy between banks and the companies, it's according to the risks and the risk premiums.

From the pricing, first, the cost of the fund, the lowest capital returns and other factors. These can form our pricing whether to extend or other arrangements. It is according to our judgment based on risks. This is what we call rule-based and market-based -- it is not what some people say the change with the low interest rate loans. ICBC always follows the market base and rule-based principles and also our subsidiaries and branches, the large banks all have branches. The local government and platforms are negotiating with the local branches. In the head office level, some teams will have case-by-case judgment for the projects and support diffusing the debt.

It is good for debtors and creditors. We do not hope to see a large amount of nonperforming loans. It is also good for the shareholders. So when they are willing and also capable to pay back their loans with the adjustment measures like extension or reorganization, this is the common practice for all commercial banks. I hope you can agree with me.

[Operator]

Next question comes from [indiscernible].

[Unknown Analyst]

I would like to ask about a question on fee income. We have seen the pressure continued on your fee income. Can you give us the breakdown of fee income? And what's the future trajectory and currency have seen tightened regulatory requirements on fee reduction can you give us more information?

[Unknown Executive]

I would like to take the floor to my colleague, Mr. [indiscernible] from the Financial Accounting department.

[Unknown Executive]

It's a very good question because the fee income is still very important part of our revenue. For the first 3 quarters our fee income, net fee income, continued a stable level. The total -- the size of our fee income continues to remain the largest among our peers. Of course, as you mentioned, certain fee income growth rate have been subject to some changes. I'd like to some information as to the breakdown and analysis. On the bright side, we have continued to drive the innovation and to improve our service level.

For the fee income in some key areas, we have witnessed faster growth. For example, the bank card -- bank card fees have increased rapidly as a result of the large increase of our transaction and business owners, customers and also as a result of implementation of our strategy of becoming the #1 personal banks and see as to the investment banking has also increased a lot. Another area is the fee income from the agency sales of insurance have witnessed the fast growth which includes also the products of our subsidiary ICBC-AXA insurance. And a big example is the traditional advantage of our large customer base, including the wholesale customers.

So our cash settlement fee income in the first 3 quarters have also achieved fast growth. So all the above-mentioned areas have contributed to the volume of incremental volume of fee income. Some other fee income have same contraction. For example, we have continued to implement the fee cut for example, from the commissions, but the general impact is completely controllable. The growth rate of our fee income is negative for the first 3 quarters. It's our judgment for the negative growth rate is first is in line with our peers.

Secondly, is also a result of the volatility of our capital markets and also an even distribution, which is structure in different quarters. But generally speaking, the fee income in the first 3 quarters have some bright areas and also positive signs. As to our outlook for the entire year in fee income we have our advantage in the customer size and products and service and also we expect to see the capital markets is quite likely to perform better which can also bring some positive changes for our fee income in the future. So in future we will continue to promote our fee income in the 4 areas.

First is wealth managed products income. We continue to improve our services to key clients and also comprehensive services and also the performance and daily contribution from our subsidiaries like ICBC Credit Suisse and ICBC-AXA insurance and also to increase our income from our investment banking business and other areas, we have already achieved the fast growth like bank card fees so as to maintain the leading position of a total volume of our fee income. And that's all from me for your question about the fee income.

You also asked about the regulatory requirements to lower the fee for the bank assurance business. I would like to ask a [Technical Difficulty] bank installment to add up to that. I think on the policy, the requirement from our regulators in this regard will cause some negative impact for certain periods. Now we are implementing -- we are trying to negotiate with the insurance companies to implement the new requirements. The adjustment phase, we hope to be minimized within the remaining months of this year and also the beginning of next year, we should be the jump start for the sales of insurer products. We will try to minimize the impact and try to maintain the stable contribution from this area.

[Unknown Executive]

I would also like to add up to that. Firstly, we will definitely implement new requirements from regulators. Secondly, we will also try to increase our fee income from the sales of insurance. First is to increase the size of the volume of the insurance products resale, we sell. Secondly, we try to optimize the structure to step up the sales of regular premium products. First off that, the negative impact of the fee income decrease.

[Unknown Analyst]

I have 2 questions. First one is that the Fed has ended its cycle of interest rate increase and I see some improvement of interest rates? And what's the influence our overseas business, including asset and liability, yield and investment. Another question is about the ForEx rate change is influenced on our foreign exchange businesses. I also noticed that there might be some government policies having influences our foreign currency deposit and loan businesses.

[Unknown Executive]

These are no small questions, but 2 very important major issues. And I'll ask Mr. [ Joe ] to answer your question.

[Unknown Executive]

First, about asset and liability and the SaaS increase of interest rate. And indeed, it has a global impact. In terms of the trend that it did take up a lot of RMB, but what's the trend for the future we cannot say, but we are doing continuous research in terms of the interest rate system we have quite vast measures such as the fintech measures to support our analysis and we are predicting the future trend for interest rates. So that -- so as guys as to deploy our assets and liability deployment overseas and the foreign exchange businesses. From the current status, the 10-year U.S. bond is picking up.

This is a very important reference of pricing. And such influence still exists. But as a commercial bank, especially ICBC, we are renowned for our stability. So we are not likely to bet on certain kinds of businesses. And from certain indicators, you may have noticed that the deployment of our overseas assets were acquired product including the duration exposure of the asset and liability and the structure of loans and bond the duration of customer deposits and pricing were quite prudent. And we also faced with the regulations of different governments, especially that the U.S. regulators put a lot of regulation earners.

And our indicators are compliant. We do not want to show you our ability in terms of compliance but I want to stress that they indicated themselves already indicate our prudent in terms of asset and liability deployment. For example, the duration for bond is quite short at about 1.6 years. We are quite prudent quite careful even if there is a rapid increase of interest rate and when we carry out a stress test, we could say that in terms of regulated indicators, we have a lots of buffer space. So our priority is for this and currently speaking, ICBC's overseas asset. We still have a positive growth in terms of maintaining and grow their value including bond.

The categorization of bonds and deployment, we all have a very good positioning and very sound strategies. And there is no great impact on our business performance. Another issue is about the domestic foreign exchange business in Q1 of this year, with overseas government increase of interest rates, it also has impact on the deposit rate also increased. However, at a certain point, some mechanisms will play it's role. And we think that we can also allow it to increase. And through the clear disciplinary measures, we have a cap of the interest rate for the deposit of foreign currencies.

So after such disciplined measures, we could see that in Q2 and Q3, the interest rate payout ratio dropped. And the internal pricing and excellent pricing, both helping the interest rate for foreign currency deposit to go down to original level. You also mentioned foreign exchange, the settlement, the sales and purchases of foreign currencies, we mainly do it on behalf of our customers in the global market department. However, throughout the year, we also according to our reasonable positioning to carry out regulatory orientation and requirement and we'll probably manage our foreign exchange business.

Generally speaking you may have noticed that the after the interest rate for deposit is dropped, generally speaking, it is conducive to maintain a very good foreign exchange status. If the interest rate is higher, more people would like to have their RMB exchange into U.S. dollar and have put the deposit in U.S. dollars. And after the interest rate in foreign countries dropped, the stress is released and the deposit is more balanced. But however, indeed, the SaaS has already have such a kind of strong stress. It is recommendable that we have such sound level of interest rates. Our scale is not large, but we are quite prudent and we make rational pricing. And to properly manage our asset and liability business.

[Unknown Attendee]

Let me supplement saying Ms. [indiscernible] , under such cycle, ICBC's overseas institutions maintained very stable business operation, and properly centered against the interest rate risk and the credit risk. Credit risk is at a sound level.

So generally speaking, the overseas institution is quite sound and within our expectations. With the end of the interest rate increase of dollars we are also adjusting our structures. You also pay attention to the sales and purchase of ForEx in domestically. Our increase in this sector is around 2%. So that is at a sound level and ICBC's overseas structure is sound, and we also have advantage in domestic market. And we have measures to manage all these resources. And the loan and deposit business in foreign currency, it's having a structural changes during this interest rate changes. And we have also disclosed that. You can notice that in our interim report and Q3 report.

Next, please.

[Operator]

The next question comes from Wang Yifeng from Everbright.

[Yifeng Wang, analyst]

First, about the real estate from January to September, the expansion of the loans increased by over 100% year-on-year. What about this number in ICBC? And for the extended loans, do you have more punishment for the interest? What about the situation? And second, for the fund interest rate what's your take on that measures about this? And also what's the impact of Basel III to the financial market business of ICBC.

[Unknown Executive]

I will invite Mr. [indiscernible] from the credit department and also the asset and liability management department to answer your questions.

[Unknown Executive]

The first question for ICBC the change is not that large. The reason is that the real estate market is sluggish previously. And the sales today are entering into a slowdown period. We are positive. However, we through negotiations, we do extension under the framework of the regulators, and we do arrangements. For the punishment of the interest, according to the contracts we made, if there is a default actions to the contraction according to the provisions of the contract, we will charge and calculate the more interest according to the calculation in the contract.

The second for the strategies for the debt transaction and also the impact on the financial market from Basel III, you said that the fund interest rate has increased. We are looking at the market every day. The lending rate increased largely previously. But in these 2 days, they have decreased. I think there are multiple reasons for the increase. Firstly, bond issuance, changed the fundamentals of the fund in the market and also with the ending of the term for some tax payments. So the 7-day fund interest rate increased, in the recent few days is decreased.

After the bond are going to the market, it is a objective phenomenon in the market. But for PBOC-MLF and the repurchase of fund they are using them quite flexibly. When we see the statements of PBOC, we can see that they are charging the situation of the market fund. After they monitor continuously, they will have few arrangements from the perspective of ICBC. We do not adjust our strategies only according to some days of change. We will decide our strategies based on comprehensive situations. We have CNY 700 billion more debt in the recent terms. In the future, we will have new investment in bond, and from the investment, from the returns, we also have some favorable tax returns.

So I think ICBC is positive. For the strategies, we will continue to orderly arrange the investments of debt for the whole year. Last year, the increment totaled CNY 1 trillion. You also mentioned the new Basel impact on financial market business, the change of Basel III, we are looking to the change closely. We are drawing to the window period. From today's situation, we can make a conclusion that the impact on ICBC is tend to be quite positive, but it's hard to have specific data. Financial market business have a part of the moderate risks. We also mentioned internally related to the positioning of risks after seeing that, we can draw a conclusion to the measurement of its influence on ICBC's business.

So I think it's relatively positive to ICBC for the lending and also financial market business, we believe the impacts are both positive. In the last 2 rounds of the adjustments of capital regulations, we are prudential. So we believe it will not form a shock to our business. This is my judgment at the moment.

[Operator]

Next question from JPMorgan.

[Unknown Analyst]

I have 2 questions, which might be relevant with the questions on the calls have already mentioned. This is about the LGFV debt result decision. According to the Xinhua News Agency, the banks are required to extend externally for some local government LGFV bonds. So what's the size for the internal extension? Secondly, about the development loans or other LGFV, the banks can give the extension to their loans. So how will you categorize them as NPLs or special mention loans and what are the size of those kind of loans?

[Unknown Executive]

As to your first question, what's the size for LGFV debt that qualified for extension and I would like to explain that for extension the debtors should make an application for extension. So as long as they are qualified for extension, then we can sign the agreements. Currently, we do not have -- we haven't seen a strategic level of a large size of those part of loans which have already applied for extension, not yet. And we also don't have a large amount of available data in the future. If we see qualified debtors, we will negotiate with them one-on-one case individually to see whether we will give them extension or restructuring, reorganization, we are not restricted to only extension of LGFV loans.

And as to the provisioning. Just now Mr. Guan, Board Secretary already introduced that for our exposure to LGFV, we mainly focused on the provincial high tier level. And so the provision is set aside in line with normal loans for some specific exposure to lower-tier local governments with not so good as a quality, where we will also categorize them accordingly and set aside adequate provision for potential risks.

[Operator]

Next question is Junliang Chen of Guosen Securities.

[Junliang Chen, analyst]

Thank you for this opportunity to ask questions. I want to ask about the growth of scale. We are quite fast in terms of growing our assets at 13% this year. And I think this is a common phenomenon for all the state-owned banks in China. And my question is that we have such a rapid growth speed. This is a phenomenon for this phase, or do you think this trend will last. If this could -- if this trend will last, it means that we'll have a larger proportion. And in which sectors we will have such a rapid growth? And if it's just a phenomenon for the space what's the prediction for the next year? I think that you mentioned Bank of Agriculture. Yes, I mean that the 4 banks also have a very rapid growth, you mean that, yes, and Bank of Agriculture also have very rapid growth. Whether such high-speed growth could be sustainable?

[Unknown Executive]

Mr. [indiscernible] , if we all continue this trend of growth at double-digit growth, if on the longer term, you won't see that any bank would have such a rapid growth. We know that in the past 3 to 4 years, we have a particular scenario. And we are also focusing on monetary policy and the monetary policy is still focusing on stabilizing growth and stabilizing economy.

And as for next year, whether we'll reverse this trend or whether there will be a group change. So the first question I will address the question of Mr. Xu from Morgan Stanley. I mentioned that there will be a very important meeting, and we have our own planning to have very sound deployment of our business structure in terms of serving the real economy and serving the economy.

I think of being in the banking sector for many years, the double-digit growth, about [ 13% ] growth is not a constant phenomenon. For me, personally, I think the double-digit growth for a long time won't be constant trend. The speed of growth is only manifested in the past 3 to 4 years. And in the past several years. And if you look at it in the longer term, we don't think this trend will be very protruding. So the asset growth of banks and credit growth, if we put it in the longer cycle, in the longer term, look back in the history and coupled with the common rules of international peers and I think you can have a more objective opinion, sometimes the monetary policy where it's very tight, we will have only a single-digit growth at the lower figure, because they will be restraining us from over expanding.

But currently, major banks will play a role of the real economy and stabilize the economy. And so it's only in this phase that we have such a rapid growth. And I don't think that growth will be very abrupt. And in a natural -- yes, I think the changes will be quite smooth. That is my preliminary judgment. I don't know whether my personal judgment could address your concern.

[Operator]

Next question is from Zhang Shuaishuai of CICC.

[Shuaishuai Zhang, analyst]

My question is a comprehensive one. In Q3, we can see that of course, the NPL formation, what's the mix? And looking forward, and also, we can talk about from the sectors, the reasons for the NPL formation and also the change trajectory in the future.

[Unknown Executive]

For the deterioration mix of loans, the real estate and real estate related sectors like building materials, we can see the NPL ratio are decreasing, but the increase is not that remarkable from the traditional categories like manufacturing, business circulation from the volume, it's maybe the largest ones. But for the deterioration rate, the level is slightly lowering down compared with before. For the industrial chain related to property in the future as the measures are taking effect, and the demands are picking up we think there are positive effects in the future for the building materials, decoration, and the areas influenced by the property industry, I think there will be positive changes. You also mentioned the measures of diffusing debt and the improvement will be conducive to the capability of cash flows and the debt repayment of related companies.

[Unknown Analyst]

I have [ Technical Difficulty] loans for several years as indicated by the regulators and product makers. We have single large bank quite rapidly [indiscernible] Close to finance against the backdrop of weak economy. What is the latest risk of your inclusive loan and the future trajectory. The second question about the wealth management business. We have seen some volatility in the capital market in September and due to the lack of good assets in the market. What's your expectation for the 4 years performance of your wealth management business? And what changes can we expect to see next year? And the government is encouraging more capital to be injected in the capital market. Can we expect to see good performance in the capital markets in the future?

[Unknown Executive]

Your first question is about the of NPLs of [indiscernible] finance. This question will be answered by Mr. [indiscernible] General Manager of our Inclusive Finance Department. The second question will be answered by my colleague from ICBC Wealth Management Subsidiary. Actually, this is combo package of questions about the wealth management business. So please adjust to [indiscernible].

[Unknown Executive]

Thanks to [ Juan Shen ] from Huatai Securities. As you mentioned, ICBC, same as our other large peers have developed quite well, in our inclusive finance, we have seen faster growth of our inclusive loans, price [indiscernible] we put priority of prevention of relevant risk or the asset quality of our inclusive finance expected by the end of September, the NPL ratio for inclusive finance is 0.83%.

The demand from Micro enterprises after many years of fast growth of them now have ended a relatively slower pace and period. But the momentum will continue. In this kind of situation, we pay a lot of attention to the asset quality of the inclusive loans, and we are well positioned and prepared for the potential uptick of the NPL support inclusive loan. Risk strengthening, enabling from our digital technology, we intend the criteria for customer entry on loan extensions and post-loan risk management.

So we can combine better with the digital technology and loan management of our experts. So we have introduced the digital technologies into different scenarios of our inclusive finance and try to pick more prime customers for inclusive loans. And also to recognize the potential risks through digital means to give pre-warning active recognition of any potential risk of our inclusive loans. We have also strengthened the cross validation of online and offline information by people and also by digital platforms for us to better recognize and assess risk. Based on our practices, the entire asset quality of inclusive finance have been managed quite well.

And in the future, we expect to see it will be also completely controllable, and we will continue to explore and strengthen more ways by better take advantage of our expertise to support the fast growth of our inclusive finance. We expect to see large room for us to further develop inclusive finance in the future. So we were trying to achieve a better quality development of our inclusive finance. As to your second part of your question of wealth management business, I would like to give the floor to Mr. [indiscernible] , the Vice President of ICBC Wealth Management Subsidiary.

[Unknown Executive]

As your questions. You asked us about the arrangement of our products. ICBC Wealth Management Subsidiary has already established for 4 years. We have introduced a series of new products which can be better accommodate to our customer needs. In accordance with different risk appetite of our customers, we have fully enriched our products, including mutual fund products, fixed income products, [ Mantri ], fund products for PR 1, 2, 3 proportion have increased to 1 to 2 to 5.

As to your second question about the research and investment, particularly at the equity market, for our company, we have always put a lot of attention to the research and investment so as to diversify our investment capabilities and asset allocation. So we have investment committee which will guarantee the sound decision-making of our investment at the company level about the equity market investment. We are also trying to improve our capacity to meet the goal of that to serve the real economy.

[Unknown Executive]

I would like to add up to his answer. What the volatility of the [ review ] of WMP, we think it's quite normal because it's relevant with the capital market performance for our subsidiary, [indiscernible] the ability of research, investment and also product sales capability. So as to enrich their supply from the assets end, some high-yield assets are not so easy to be developed. But for the performance of the fixed income products or fixed income plus products of our subsidiary, they have achieved quite good performance for next year's products arrangement. They are now starting quite closely about the capital markets and with a large balance of wealth AUM.

They will make the product investment arrangement in accordance with their research and the study of the entire capital market. About the equity market, ECM, we already have some exposure to the investment of equity capital markets. And in the future, they were also continue to be from a long-term investor and increase their investments in the equity capital markets within the framework of our regulatory requirements. We will also try to make more contribution to the ECM. Thank you.

[Meizhi Yan, analyst]

Yan Meizhi from UBS. I have 2 questions. The first one is about the real estate development. Until recently of September, could you please share with us your status in terms of your NPL status in terms of real estate development and mortgages. And for the real estate development, what's the proportion of those with the collateral? And for the existing on the repricing, and I think there's no -- do you have a new contract? Or do you continue with the old contractor and change their interest rate that is say -- do you sign a new contract or change the term of old contract?

My other question is about -- a general question. The economy is not on the rise. And I think the banking sector is also another impact. The profit growth for ICBC is indeed is I think it's lower than our peers. And I think your peers released some provision to support the profit growth. And in Q3 for the shareholders, I think the dividend, we have a 0 profit. And when you consider the profit growth and you reduced some provision. How do you make such a decision and do you have similar considerations when you have the positive profit growth? That's my question.

[Unknown Executive]

Thank you for your very professional questions. The detailed number will be given by the credit and investment management department. I think we have disclosed such figures that the NPL ratio with collateral or pledges, that is to say the interest rates for the mortgages. Do you change the contractor? Yes. I think that my colleagues will make detailed response.

[Unknown Executive]

So first about the real estate development loans. The NPL ratio will be disclosed in the interim report and annual report. And I think the figure is on the trend of decreasing. And those with the collateral, the Q3, have we disclosed that for Q3 is at about 6.2%, that is better than the interim report. And 6% have collaterals. And as for mortgages, the NPL ratio is 0.45%. Okay, let's continue. The existing mortgages, how do we adjust the interest rate? For the existing mortgages, we adjust the interest rate, mainly by the way of the change in the interest rate, but we also support the measure to change the contract itself.

The second question I'd like to say that we do not make our profit by releasing our profit. It's not our practice. Why? You pay attention to that. In the first half and the Q3 report, that our [indiscernible] income dropped. This is due to the interest rate decrease. However, we have, indeed, have a lot of growth in terms of scale. We have a growth of trillions of assets. And it, in some way, made up of the drop of the influence of the drop of interest rates. Our net profit growth is due to the following factors. First, you already noticed the negative factors. First, the NIM contraction.

Second, the drop of interest rate and the positive factor for our interest rate profit growth is that we grow in scale. Second factor, our tax dropped. Third, provision. Actually, the provision is not reduced the provision of our credit asset is actually on the rise. So we do not release the provision to make up for profit. That is not our practice. Last year, we have put aside a provision for the non-credit sector, that is due to the asset, Wealth segment asset. And we do not put aside the provision for that sector this year. This is a normal practice.

Third, several banks, I think the profit growth are shown in different signs. This is a result of actual and accurate accounting. So there's no such thing that banks have different figures. I think the all banks follow their own accounting rules and read their own conclusion. And the provision is an object sector and we just put aside the provision according to accounting rules. And if the profit will be negative, will let it be negative. So we do not follow -- have the practice of making the profit positive due to our measures about provision. I think it's a common practice, and it's common for major banks in the world to lose money for 1 year and make money for the next year. So it's all natural. And we have a very strict ECL model, and we have followed a very strict accounting practices and the profit is concrete, not manipulated.

And I suggest that you focus on more new momentum for us. First, and the competitiveness, we have changes. Second, customer structure, we have changes. Third, we also have changes in terms of asset and liability structure. And fourth, we also have changes in terms of risk management and as well as our structure for income. I think you've put a lot of focus on NIM. However, we have other growth factors. And we also have the recovery of bad loans that are already written off, but we have reclaimed and recovered some of our assets. And that is also a one source of our income. This is also a huge amount of our income of our growth of value.

So I encourage analysts to open up your vision and have a more thorough analysis of our balance sheet. And any supplements from Mr. [ Tang ] of Finance and Accounting Department?

[Unknown Executive]

Let me supplement briefly. First, ICBC in terms of accounting follow strictly the regulatory requirement and the accounting rules as mentioned by Mr. Guan, that in terms of the division, categorization of credit assets, we follow strictly the rules of the regulators.

In terms of provision, we have the ECL model. The utilization of this model is will be followed by very strict mathematics model support. And according to the regulatory requirements, we have effective categorization of assets and we use ECL model. And the provision we put aside could amply reflect our expected loss and we have ample ability to fund our risks in the future.

From the second from the management level, we don't have the intention. Now the necessity to balance profit and provision which is against the regulatory requirements. So our profit growth, as Mr. Guan mentioned, this is a result of our endeavor to fight against all the negative factors. For example, to enhance our management on asset quality to better effectively support our profit growth. For we made a lot of measures and we reached this profit.

Third, the growth of profit by ICBC is relatively lower than our peers. Different banks have a differentiated business operations. Another factor is that you should not ignore the scale of ICBC. ICBC is huge, and the profit scale is also different from our peers. The percentage growth for ICBC indicates a large differentiation in terms of the absolute number of profit. The percentage might be smaller, but our profit is huge.

[Unknown Executive]

Due to time limit, let us have 1 or 2 questions. Since the meeting have been lasting for 1.5 hours. So next one, please.

[Operator]

The next question comes from [indiscernible] of HSBC.

[Unknown Analyst]

Some of the investors raise questions about bancassurance issues. For the -- what's the proportion of bancassurance fees for your operating income? According to your perspective, is there any recovery from the motion of wealth management products from investors in Q3? In the future, will we see a better sales of insurance products? You also mentioned the provisioning in the first half of this year, the provision increased. We know credit assets -- is there any recovery of the asset quality? And the impairment also decreased, but there is no classification. Is the reason from the non-credit assets and what's your outlook for the asset quality in this regard?

[Unknown Executive]

I'll invite the personal banking department to answer your questions about the bancassurance fees.

[Unknown Executive]

The finance and accounting departments will respond. ICBC is a large company. The fee and commission income exceeded CNY 100 billion, while the operating income exceeded CNY 600 billion. So in the bancassurance portion, in the whole is not high. The fee-based incomes impact on operating income is low and it can offset by the growth in other parts of the income.

Questions about wealth management products. We have also seen that for the time deposit, allocation customers are increasing this part. The trajectory is that the time deposits are growing this year from our point of view of personal banking department is behind the growth of time deposits, it is the choice of the households for their money in Q4.

In bancassurance products, especially the high-yield products. Our judgment is the same with you. Some of the funds will go to the deposits again and some investment funds will also go to the wealth management products. So for Q4, our view is quite positive. The NAV changes can satisfy personal customers' demand for the yield and the stability in the relevant products. Then we think the volume of WMP will resume. For the non-credit assets, the provisioning and its outlook in this part, last year, we use ECL model and make calculations and we provisioned more for the non-credit assets and also the increase of [ CNY 220 billion. ] I think it's fully provisioned last year. So this year, we do not have any need for provisioning more.

So the proportion decreased this year. For the credit assets, we will provision more according to the risks. But it's not high according to the performance of the first 3 quarters. And also, we managed properly the asset quality and the risks and also our positive view about the development of real economy in the future. The provisioning for both kinds of assets, non-credit or credit, we will follow the accounting principles, we will make sure our full provisioning and keep it over 200% high in the banking sector.

[Unknown Executive]

For the interest of time, we will have the last question.

[Operator]

Last 2 questions from [indiscernible].

[Unknown Analyst]

I have 2 questions. First I would like to ask about the active liabilities. We have seen the similar trends for the banking sector and the assets allocation. So what about the active liabilities. Secondly, about the credit card loans. Now the pandemic has already ended. So what's the future direction for the credit card loan growth?

[Unknown Executive]

For your first question, you mentioned about the similar trends of the asset growth, asset allocation and Mr. [indiscernible] General Manager from the Asset & Liability Department will answer your first question.

[Unknown Executive]

The first 3 quarters of this year, actually quite similar with several years in the past. The one thing quite obvious is that we have become quite less dependent on the active liabilities. The entire ICBC Bank. We have introduced the strategy of encouraging GPC plus you call it customer ecological project to formulate a better ecology of our customers. So on one hand, we can continue to play out the [indiscernible] advantages of our customer base, and we have also improved our prime services to customers. So this year compared with last several years, we have seen traction of the size of active liabilities. We have seen positive changes, marginal changes of the deposit cost, liability cost. If we have the same size of liabilities as we had in the past, it's hard for us to reduce the liability cost.

So since the beginning of this year, we have attached great importance to the management of deposit cost and liability cost, including the less dependence on the active liabilities. So that has contributed to the better management of our liability costs. And about your question about the credit card, as you mentioned, the pandemic has caused some impact of our credit card loan extension, and we have also adjusted our business structure to stabilize our growth and maintain. We have successfully maintained the advantage in the size of our credit card loans. Meanwhile we have also tried to optimize our customer base, customer structure to stimulate the vitality and more demand of our customers.

So that also depends if we have seen the increase of consumption demand. So for Q3, we have seen the consumption loans increased, particularly from some other new emerging areas like installment, cards installment products from the car sales and decoration. So since the Q3 have realized the fastest growth of credit card loan growth since 2020. So that has also driven the growth of our profit from our credit card business.

[Unknown Executive]

Due to the limited time, so that's the end of our Q&A session. Now let's give the floor to Mr. Guan for his conclusion.

[Xueqing Guan, executive]

Thank you to all our investors and analysts in participation and your questions. Secondly, I would also like to advise our investors and analysts to pay attention both to the short-term performance and indicators as well as our medium-term and long-term changes, particularly about the changes of the entire banking sector and also positive changes of the macro of China.

In the future if you need any one-on-one meeting or one off of group meetings, please contact our IR team. Thank you for your time and participation. Thank you. Also thanks to Dr. [indiscernible] and the heads of relevant departments from our head office. Welcome to contact IR for any further questions. So that's all for today's meeting. Wish you all the best. Thank you. Bye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]