China Construction Bank Corp

SSE:601939

Earnings Call Analysis

CCB's Q3 Earnings Highlight Steady Growth and Strategic Focus

CCB's Q3 results show total assets rising to CNY 40.9 trillion, up 6.87% year-on-year, with a net profit of CNY 257.1 billion, a 0.7% increase. The bank's focus on the real economy led to a 17.95% growth in green finance loans to CNY 4.58 trillion. The NPL ratio improved slightly to 1.35%. With guidance suggesting a stable profit outlook for the year, CCB aims to enhance loan disbursements, specifically in personal and corporate sectors, projecting continued support for emerging industries and sustainable development initiatives.

Summary of CCB's Performance in Q3 2024

China Construction Bank (CCB) reported a net profit of CNY 257.1 billion for the first three quarters of 2024, marking a modest year-on-year increase of 0.7%. As of the end of Q3 2024, their total assets reached CNY 40.9 trillion, reflecting growth of 6.87% compared to the end of 2023.

Solid Return on Assets and Equity

CCB maintained strong financial metrics with an average Return on Assets (ROA) of 0.87% and a Return on Equity (ROE) of 11.03%. Notably, their Non-Performing Loan (NPL) ratio stood at 1.35%, slightly improved from the previous year, showcasing effective risk management.

Robust Growth in Noninterest Income

Noninterest income for CCB soared to approximately CNY 26 billion, an increase of CNY 19.1 billion year-on-year, surpassing last year’s figures by 3%. Driving this growth were gains in foreign exchange transactions (CNY 7.2 billion), stable investment in bonds, and equity market recoveries contributing CNY 2.8 billion.

Capital Position and Loan Growth

With total deposits reaching CNY 28.5 trillion, CCB continues to solidify its capital base. The bank disbursed new loans totaling more than CNY 1.9 trillion in the year-to-date, focusing on key areas such as corporate loans at CNY 14.6 trillion and personal loans at CNY 8.4 trillion.

Focus on High-Quality Development

CCB is aligning its strategy with the Chinese government's push for high-quality economic development, emphasizing investments in green finance, infrastructure, and support for strategic emerging industries. Green finance loans alone amounted to CNY 4.58 trillion, reflecting an impressive growth rate of 17.95%.

Future Outlook and Guidance

Looking to the future, CCB anticipates continued progress, projecting stable profits amid positive economic signals. They indicated that they will focus on enhancing net interest margins (NIM), which currently stands at 1.52%. As the borrowing costs shift and competition intensifies, CCB aims to maintain a competitive edge in pricing across personal and corporate loan segments.

Strategic Responses to Market Conditions

In response to changing market conditions, including a variety of favorable government policies, CCB expresses readiness to adjust loan structures and optimize asset allocations. They are also continuously enhancing their digital finance services to meet evolving customer demands.

Risk Management and Asset Quality

CCB reported effective risk management, as evidenced by the stable NPL ratio. They are dedicated to maintaining quality asset standards while supporting vulnerable sectors of the economy, reaffirming their commitment to managing risks prudently.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the meeting. Now let's give the floor to the moderator.

[Unknown Analyst]

Distinguished investors, analysts and friends from the media, ladies and gentlemen, good afternoon. Welcome to CCB's Q3 press -- Performance Release. Thank you for your attention and support and interest in CCB.

Today, we have with us Chief Finance Officer, Mr. Liurong Sheng; Board Office, asset & liability management department, finance & accounting department, asset & liability management department, credit risk management department, corporate finance department, financial inclusion department, personal finance department, housing finance department, credit card center, financial market department, group's asset management department, Fintech department, corporate culture -- corporate & culture department.

[Li Jianjiang, executive]

I'm Mr. Li Jianjiang, Vice President of CCB. Just now, we've announced our Q3 results. I'd like to briefly report to you the performance. CCB has been insisting on present [indiscernible] philosophy and to implement the requirements and arrangement of the Central Government and further fulfill our responsibility as large state-owned banks. We also aim at developing high-quality development and also fully serve real economy and to seek high-quality development.

By the end of the third quarter of 2024, the total assets stood at CNY 40.9 trillion, up by 6.87% from the end of 2023. The loans and advances is around CNY 25.7 trillion. In terms of liability, the total liabilities stood at CNY 37.6 trillion, up by 6.9% from that of end of last year. The total deposits is around CNY 28.5 trillion. For the first 3 quarters, our net profit stood at CNY 257.1 billion, up by 0.7% year-on-year. The average ROA is around 0.87%. ROE 11.03%. NPL ratio stood at 1.35%, slightly down, that is 0.02 percentage points compared with the end of last year. The PCR stood at 237.03%. PPL or provision-to-loan ratio, 3.2%.

Since this year, we have also been making progress in serving the real economy and to better serve the people. We have strengthened our investments to further promote the high-quality development of the economy. At the end of the third quarter, the corporate loan stood at CNY 14.6 trillion, personal loans CNY 8.4 trillion. So we will focus on the financial services for priority areas to support -- to modernize the infrastructure development, and also in transportation, inventory and et cetera. And also including manufacturing long-term -- mid- to long-term support for the manufacturing industry. And also to support the priority strategies of the Central Government and to focus on the main areas like the Greater Bay Area and et cetera, to support the development.

So this year, we have been also trying to do a better job in the 5 priorities of the financial sector. We built the financial service system to develop lot of integrated financial solutions to support financial and innovative enterprises, especially offering them differentiated solutions. By the end of the third quarter, for strategic emerging industry, the loans extended is CNY 2.74 trillion. So these have actually achieved rapid growth. In terms of green finance, we further deepened green finance development to promote economic and social development, especially in a green manner. By the end of the third quarter, the green finance loan is around CNY 4.5 trillion, up by 17.95%.

For our own proprietary bond investment, especially to green finance, it has also made great achievement. Fitch ESG rating, our rating is much higher than the market peers. For financial inclusion, we focus on medium and small enterprises, and to better serve the agri-related customers, focusing their needs and demands to better serve those clients.

By the end of third quarter, financial inclusive loans is around CNY 3.9 trillion. Agri-related is CNY 3.35 trillion. In terms of pension finance, we strengthened our support for the pension industry, offered differentiated solutions so as to implement the national strategies on this part. We guide our credit resources to the pension-related industries and to better promote the pension finance and also the pension services to create the pension-related ecology. In terms of digital finance, we continuously promote the mobile phone-related development, the digitalized development of our services. For example, we have the dual star APG. And we're also trying to support the digital economy. For Q3, the total loans stood at over CNY 750 billion, up by 15.98%.

Since this year, we've continuously strengthened the granularized management at the group level. We stick to the commercialized and sustainable development of the bank to continuously improve the digital transformation of the bank, and to enhance the granularized management of the group. We've also strengthened the asset/liability management and we established the enterprise-level sound and to offer integrated financial services.

In terms of the business management, we -- in terms of the net interest income, it has also increased -- it is better than our peers. In terms of fee structure, we've also optimized the fee structure. We've increased the cost to income ratio. Cost-to-income ratio stood at 25.25%. We've also strengthened the intensive capital management to continuously improve the capital efficiency, and to guide capital or resources to the asset-light and high-return industries. The CER ratio stood at 19.35% to provide a very solid foundation to serve the real economy.

And also, we continuously strengthen the Fintech development to actually allocate our Fintech resources to satisfy the customers' needs, and also strengthen risk prevention, et cetera. And also to strengthen the digital asset management, optimize the service solutions to our customers to improve the efficiency and the customer experience.

Since this year, we've also been trying to enhance the comprehensive risk management, and stick to the concept of risk prevention as the priority and uphold the principle of stability, prudence and comprehensive risk management and to establish a comprehensive active -- proactive and intelligent modern risk management system. And to strengthen the active management of asset quality, we have dissolved the risk in key areas and to strengthen the IT risk management and ESG-related risk as well as other new emerging risks.

By the end of the third quarter, the NPL ratio is around 1.35%, maintaining stable asset quality. Currently, the global economy momentum is a little bit weak with major economies exhibiting different or divergent performances. For example, like U.S. and developed economies, they are in down -- their interest rate cycle -- if interest rate is the downward cycle, and to go guard against risk in key areas, we have made achievements in this aspect. And also, we have promoted high-quality development so as to provide very good conditions for the sound development of banking sector.

Going forward, CCB will continue to promote high-quality development to continuously strengthen the risk awareness, comprehensive awareness, customer-centered awareness, et cetera. And we will also try to stick to innovation to focus on our main businesses and we shoulder our responsibility of the financial sector and to improve people's well-being. And we'll take real actions to continuously bring return to our stakeholders and also the shareholders. Thank you.

Now we'll enter the Q&A session.

[Operator]

[Operator Instructions] The first question from Morgan Stanley -- JPMorgan.

[Unknown Analyst]

Can you hear me?

[Unknown Executive]

Yes, we can.

[Unknown Analyst]

I would like to know the profitability of the first 3 quarters, any changes to the first half of the year? So how can we view the performance for the first 3 quarters?

[Unknown Executive]

For this question, I would like to invite Mr. Sheng to answer the question.

[Liurong Sheng, executive]

Thank you. Thank you for your question. And also, I'd like to welcome all the analysts and investors for joining us at the meeting because it's actually not the working time -- working hours right now. So thank you for your time. And thank you for Madam Li's question.

This year -- since this year, since 2024, in accordance with the central government work arrangements, we focus on high-quality development as our first priority. Especially, we focus on our main businesses and to serve the high-quality development of the real economy. And during the process, we've also realized the benign development of ourselves. So we have maintained a stable operation. The net profit has increased by 0.65%. The key financial indicators have also been quite good. For ROAs, 0.87%. ROE, 11.03%.

According to our knowledge, we are in a leading position among our peers. So generally speaking, in terms of our operating performance, there are several features. Let's look at the revenue and the cost, there are 4 features. The first one is the net interest income maintained stable. The NIM's drop has been narrowed down. So firstly, we have been strengthening and serving the real economy and unleashed resources in multiple channels.

For the first 3 quarters, the interest-earning interest rates have been up by 0.81%. You can also see that actually for the total asset, it grew by around 6.8%. The interest-earning assets actually grew by 8.1%. That's higher than the total asset growth rate. And for loans and bonds, all these assets, they have actually accounted for a large share. So for the first 3 quarters, the loans and bonds investment, the percentage has been up by 0.92 percentage points. So we're also trying to expand the value loans and control the cost of our capital.

And thirdly, we've tried to enhance the refined management of the loan pricing. For the first 3 quarters, the NIM was 1.52%. We are still ranking among the top among our peers. So compared with that of last year, NIM has been narrowing down, has been decreasing. For -- we can also see that for a lot of the loans, we can see there has been a lot of decreasing in terms of the interest of the loans. And then in terms of serving the comprehensive services of the customers, the noninterest income has also been increasing -- has been decreasing.

We can see that for the total banking sector, the fee and commission of the banking sector has been dropping. And also, we can see this is true for the whole industry. And for the fee shrinkage, the shrinkage market is narrowed down, and we have been deeply rooted in building the scenarios. For example, for credit cards, a very important source of income. Credit cards and key products have kept a steady growth. And for noninterest income, had year-on-year increase of CNY 19 billion. That is because RMB ForEx has been adjusted back. So ForEx gains and losses have been affected.

We have also enhanced securities investments. At the same time, for our subsidiaries, there are some equity assets. Mainly, the market fluctuations have affected the fluctuations of assets, so income increased. Third characteristic is cost management has been quite effective. Cost to income ratio is leading among our peers versus our peers. We have a comprehensive cost management to increase the input to output ratio -- output to input ratio. And we have also kept very good refined management of cost.

More financial resources are allocated to strategic push of customer account expansion. For the first 3 quarters, cost to income ratio is 25.25%. According to international accounting standards, this has been kept at a leading level versus our peers. And fourthly, in terms of the risk and cost control, risk control has been quite effective, and down to us, we have guided very well the bottom line of risks. And VP, Jianjiang has mentioned, NPL ratio is 1.35%, a decline of 0.02 percentage points compared with the end of last year. And PCR has kept a very high percentage. And asset liability ratio has kept a very good sustainability.

You also asked about the outlook for the whole year. We can say that China's economy is faring well and turning for the better with more and more favorable factors. You have paid attention. I'm sure that since September '24, in order to promote high-quality economic development, macroeconomic policy regulation has been enhanced, different departments of the government has released a series of measures including for monetary policies, IRR and interest rates were cut. And for fiscal policy, debt limits have been raised and special bonds have been issued. Support was given to key areas to help local governments to alleviate their debt level. And for the real estate sector, there have also been favorable policies. And there are also favorable policies for the stock market, unprecedented favorable policies.

Therefore, if you look at the October situation, since the launch of these series of measures, as you know, capital markets began to rally. And we can see for real estate sector, the transaction volume began to rally too, including some agency business, for example, agency insurance, agency fund. Transaction volume has begun to rally and pick up. So taken as a whole, market expectations are turning for the better and the operating environment is also gradually turning for the better.

Going forward, we'll center around high-quality development, lay a solid foundation for long-term sustainable development and cease opportunities to have better results for the key priority areas. It is estimated the whole year profit level can be kept at a stable level. Thank you for your question.

[Operator]

Next, Xinhua News Agency, China Economic Information Daily.

[Unknown Analyst]

I have a question on loan disbursement and pricing. As we all know, currently, the loan growth rate has been slowing down. So my question is for 2024 credit plan of CCB, how is the progress of implementation and dispersed to which areas? And pricing level of Q3, what is the level? And what is your outlook for Q4 and also the credit demand of 2025?

[Unknown Executive]

Thank for the question from the journalist of Xinhua News Agency. I will respond to this question. At present, domestic economic, new and old growth drivers are switching and the structural adjustment is going deeper. And loan growth rate has been slowing down for the whole society. CCB has kept its support for real economy. We are the main force for serving the real economy and the balance for maintaining financial stability. For the first 3 quarters, we disbursed loans and advancements increased by CNY 1.9 trillion compared with the beginning of the year higher than the average level of the whole industry. And we are also consolidating the leading position in retail sector. Volume and price are balanced for personal loans and inclusive finance loans balance reached, respectively, about CNY 8.7 trillion and CNY 3.29 trillion, both tapped a leading position compared with peers.

For the first 3 quarters, personal housing loan and inclusive financial loans disbursement has been leading in the industry. Personal consumer loans, incremental part also leading in the industry. And the profit level is also kept at quite good level compared with peers. For corporate loans, corporate loans have been growing rapidly. For key areas, share percentage is increasing. First, we supported the economic [indiscernible] transformation, Green Manufacturing Center and sci-tech innovation sectors share of loans have been increasing. We have been supporting the green and low-carbon transformation of society. Green finance, green credit balance is CNY 4.58 trillion, an increase of 17.95%. This is to support, and for upgradation and transformation of manufacturing center, more than 300 -- more than [indiscernible].

And we have -- this has effectively improved the sci-tech innovation enterprises CNY 2.74 trillion for sci-tech in enterprises loans. And for tech enterprises, balance is CNY 1.94 trillion. And second, we have also been consolidating traditional growth drivers credit for infrastructure-related industries, electricity and heating sectors loans, growth rate more than double digit. And for other sectors of infrastructure, growth margin is kept flat compared with last year. We are also ensuring the delivery of housing for people, and we are working on the 3 major projects in real estate sector and through listed loans incremental part, basically kept flat compared to last year.

Going forward, our country is pushing forward economic upgradation and transformation with a lot of favorable policies, which are playing out with good effect. And Mr. Sheng has talked about that. So the series of new policies with a blockbuster effect means the national economy will continue to turn for the better. This means that loan demand will continue to rally. CCB will fully tap the effective credit demand, and convert reserve projects to real growth that credit will have a balanced growth and orderly disbursed. Also promote retail credit projects and consolidate traditional advantages of real estate and keep the steady growth of personal consumer loans and tap the potentials of self-employed individuals, MSE, merchants and farmers.

We also strengthened the financial support for vulnerable sectors of the real economy and continue to work hard on the major -- 5 major initiatives and strengthen the hold for strategic and emerging industries, tech finance, spring finance, inclusive finance, pension finance and digital finance.

You mentioned the Q3 newly disbursed loan's pricing at present,since LPI is lowered and personal housing loans lower limit is eliminated and competition is fierce in the market. So for weighted interest rate of corporate and personal loans still at historical low at the lower level. This is true in the whole sector, whole industry, while supporting the real economy in order to increase income level and to keep the order of the market, we will adjust the credit structure and enhance our capability to have differentiated pricing with quite good results.

In Q3 2024, CCB newly disbursed corporate loans, inclusive finance loans, personal consumer loans and corporate business loans, interest rates of these loans have kept at the leading level versus peers. We have been keeping the pricing advantages. That's all for my response to your question. Thank you for your question again.

[Operator]

Next question, Citibank [indiscernible], please.

[Unknown Analyst]

Senior management for this opportunity to raise a question. I'm analyst, [indiscernible] from Citibank. Senior management team, I have a question. On September 24, at the state council information office news conference, Central Bank said it will cut interest rates, and this is having neutral impact on interest spread. What is CCB's estimate of the overall trend of next year? I would like to ask assets, liabilities department to answer the question.

[Unknown Executive]

Thank you for your question. In terms of the policy impact, LPR is lowered and also cost of interest rate for housing mortgage loans and cut of interest rate of the interest-bearing assets of the bank. [indiscernible] cut can release low-cost available stable funds and the deposit rate synchronous cut can also help banks to offset assets lowering of income. About the overall estimated number, the impact at this moment is neutral, but in terms of the repricing of loans and deposits, the cycles are different.

So in the short term, for the liabilities products, the impact is limited. NIM of banking sector will continue to be under pressure. About the NIM trend in -- for the first 3 quarters of this year, CCB's NIM is 1.52%. CCB continues to keep a leading position compared with peers. Since LPR was lowered and the loans are reprice -- are being repriced and the effect is being played out and the existing housing interest rate is also lowered down. Therefore, deposits will be more, term deposits, long-term deposits and switch to wealth management products.

Therefore, in 2025, NIM will still be under pressure. In light of such complex operating environment, in light of the market interest rate changes, we'll make adjustments and optimization of assets liabilities structure, product structure, regional structure, and term structure and customer structure. In the first 3 quarters of this year, CCB's loans, securities, interest-bearing assets percentages further increase for high-cost liabilities are kept at a reasonable level. And NIM indicator of this year will enjoy a very solid foundation for a good bearing.

And going forward, we will work hard from the following 4 perspectives to improve NIM so that 2025 NIM can continue to be kept at a leading level compared with peers. First, we'll optimize assets allocation to promote assets ROE to further increase, while increasing high-yield assets. In light of the market environment and our strategic goals, we'll appropriately reduce low marginal yield asset allocation to increase the profitability of the overall asset portfolio.

Second, we'll also enhance our liabilities management's capability so that the liabilities cost can be driven down steadily. Digitalized, differentiated refined deposit management structure can be realized so that we can increase the customer viscosity so that settlement funds can be increased. At the same time, we will guide and control high-cost deposit percentage so that deposit -- term deposits and long-term deposits impact will be reduced. And third, we will also have segmented management of peers, customers through optimizing the assets and liabilities structure through that inter-peer deposits. Financial securities can be used while ensuring stability of the peers' loans.

We can also more proactively manage the liabilities and have more diversified liability structure, also continue to optimize the pricing strategy by establishing discretionary mechanism so that the interest rate is kept at a good level compared to the peers, we can maintain the assets overall return level and the stability of the asset return.

[Operator]

Next from Citic Securities.

[Unknown Analyst]

I'd like to ask the senior management. Have you observed that in the policies responding to insurance market, our agency insurance and agency fund business have actually experienced some growth. And I would like to know what's your future plan for wealth management business? Personal finance department, please.

[Unknown Executive]

Thank you for your question. So for the bank insurance business, we have these new ledger policies for consistency submission and implementation. We can see that actually, the total volume have been driven down. But actually, for the long term, it's good for the high-quality development of our insurance industry. Recently due to the unleash of the RAC Policies, like monitoring and [indiscernible] policies, the risk preference of customers have been increasing. Market -- the capital market is turning for the better. Since the quarter of 2024, the agency business of CCB has -- the decline has been improved. The growth rate year-on-year has been narrowed down in terms of the slowdown. And in terms of agency fund business and insurance business, our market share as compared with the Q2 has been improved.

So going forward, we'll continue to strengthen or stick to the philosophy of strengthening our wealth management business and leverage our specialized team for wealth management to better serve the customer and use better asset allocation strategies to serve the customer. And also, we will strengthen to improve the asset allocation for customers and to improve customer experience and create values for them, and promote the asset value to be increased and preserved.

In terms of agency insurance business, we've been actively adept to the new environment of assumed interest rate to enter into the 2.5% environment. We further promote insurance products to transition from the fixed interest rate, plus floating interest rate products. And we'll make insurance product for customers to resist financial risks and to better satisfy customers' needs for pension and old-age care.

In terms of agency fund business, we'll try to expand the AOU of the fund business and to grasp market opportunities and optimize the strategies and stick to the equity plus fixed income products, and to better supply more products and to enrich our product shelf. And also we'll focus on fixed income products, monetary, and technology-related products.

And to actually establish a CCB brand to improve our professionalism in serving the customer. Thank you.

[Operator]

[Operator Instructions] Now Huatai Securities, Juan Shen, please.

[Juan Shen, analyst]

I would like to talk about a question concerning deposit because we can see that there has been a rally on the Asian market. So I would like to know if you have noticed that actually the customer for this business are increasing, and what are the impact for our deposit business? And also, is it that the interest rate for the deposit is also dropping? So this question goes to asset lability management department.

[Unknown Executive]

Thank you for your question. Generally speaking, the deposits have grown steadily. By the end of September, the total prep deposits is around CNY 28.7 trillion. So we can see that personal loans have grown fast compared with that of last year, and it has been increasing by CNY 1.28 trillion. That is 8.5% growth. And in terms of the total percentage, it's about [indiscernible]. And for time deposit -- term deposit, we can see by the end of September, it has increased CNY 959 billion.

The percentage has increased by 6 percentage points and is also in line with the market trend. So for the time deposits to move to a mid and long term, this has been eased. For the above 3 years time deposits compared with that of last year, it has dropped. For the stock market, whether the active stock market will actually kind of divert some of the funds from our deposits, I think generally speaking, there is limited impact, but customers' mentality has changed. We can see that there have been decreasing customer deposits, personal deposits and increase in nonbank deposits. So the active capital markets has a limited impact on our general deposit.

By the end of September, there were a series of policies from the government. Our general deposit from September 23 to October 11, it has increased by around CNY 190 billion. And so it is slightly higher than that of last year. For CTS, customers is around CNY [indiscernible] million. So with the improvement in the Asian market a lot of the customers, we can see there has been net inflow from -- in terms of -- between the bank and the securities.

So you can see that it has reached a peak to around $240 billion -- CNY 24 million. So with the Asia dropping from its peak, we can see that the net inflows from -- has been dropped to the normal level, and the nonbank deposit have grown very drastically. From September 23 to October 16, it has increased around CNY 600 billion. So looking at the interest rate changes, there has been -- the effects have been unleashed. We can see that the interest rate of deposits has also been dropping. And also, we have been trying to develop the system and to expand our customer to better introduce the capital with low cost. And also, we are trying to better manage the loan maturity loans in order to maintain a very good mix of customer loans, thus to resist the dropping interest rate. So for RMB personal loan, the interest rate is around 1.61%, a little bit drop from that of last year. Since 2019, that's the lowest since 2019. Thank you.

[Operator]

Next, China News Agency.

[Unknown Analyst]

So I'd like ask the question that concerns the market. Since the end of September, we will adjust the mortgage rates. So have you accomplished or completed the rate adjustment. And how much do you think it will be downward adjusted? And what is the impact, especially with so many housing policies have been rolled out? Housing finance department, please.

[Unknown Executive]

Thank you for the question. For reducing the mortgage rates of existing housing loans, this is a very important measure. We will implement PBOC's announcement and respond to the market-based pricing and to promote the downward adjustment for personal mortgages. And in October, we've issued the relevant announcement on adjusting downward the mortgage rates. After calculation, eligible loans is around CNY 120 billion. And after the adjustment, it will ease the customers' difficulties in repaying the loans.

Since September 24 to 30th, we can see that there has been a lot of repayment of customer loans. So going forward, we still need to wait and see. Since the September 24 announcement, there has been a lot of policies. And in September, the fourth week, the daily processed loans have actually increased. And after the National Day holiday, the daily processed loans have also been increased. So we'll continue to implement relevant policy to improve customers' service to repay the loans -- mortgage loans and to better improve their needs for housing. Thank you.

[Operator]

Next, Merrill Lynch.

[Unknown Analyst]

I would like to ask the questions about the investment yields. We know that there's a lot of adjustment to the bond market in response to the policy changes, I would like to know the yield, the returns on our bond investment and also our future asset allocation strategy?

Financial Markets department, please.

[Unknown Executive]

Thank you for your question. For bond investment business, it's a very important tool and also a focus area of our asset allocation, up with active participation in the financial market, supporting the physical policy and to [indiscernible] own needs. So this year, the yields have been dropping, generally speaking. By the end -- after the policies of the Central Bank, we can see that the yields have been rising. Ten-year government bond has actually recovered from 2.4% to 2.6%. So in terms of bond investment, we maintained the philosophy of stability and soundness and we mainly rely on interest income. And we will adjust the tax-free effects in bond investment.

Under the current interest rate environment, we would like to provide -- to invest in stable instruments with high return. We also grasped the whole investment amount and will serve to ensure the performance. So the total financial in terms -- increased by 14% going forward. We'll continue to follow closely the market -- the financial market development to improve our asset allocation to make it more granularized and more proactive through qualitative and quantitative strategies, serve to leverage -- like the maturity, the product types and even the yield curves, et cetera, to optimize the investment structure, and to promote bond investment business to maintain a stable and sound manner.

[Operator]

[Operator Instructions] Now let's welcome Financial Times, [indiscernible], please.

[Unknown Analyst]

I'm from Financial Times. I would like to know the small and medium-sized enterprises, especially the renewal postings of such loans because we know we have been like optimization required by the renewal policies of the SMEs. So I would like to know, going forward, how can we actually better balance the renewal of these companies?

Financial inclusion department, please.

[Unknown Executive]

Thank you for the question. On September 24, the NFRA has issued the renewal requirement for SME loans to improve their operation. Against such a background, it's better for SMEs and private-owned enterprises and also the agricultural households to improve the situation.

So it also applies to medium-sized enterprises for a period of 3 years. After we get the regulatory requirements, we have been improving credit extension work to increase and optimize the services for SME. First of all, we have optimized the [indiscernible], risk level, serviceabilities, we are optimizing our loan service model for SMEs, we are appropriately setting the terms of the loans so that the repayment models of settlement can be diversified.

And second, we have enhanced the renewal efforts to constantly improve the loan renewal products and functions so that SMEs can avoid the scenario of bridge loans due to inability to repay the loans. So for qualified customers, if the loan should be renewed, then we will renew the loan. And thirdly, we have also improved the due diligence exemption mechanism, NPL tolerance and performance evaluation and due diligence accountability waiver have been combined so that when the liability should be revert, it is reversed so that the supply is ensured, the price structure is appropriate for the SMEs. We'll proceed from serving high-quality development of the economy to deepen the supply side structural reform and optimize resource allocation so that we can better serve the real economy with an inclusive credit system.

[Operator]

Next question, JF Securities. Eugene, raise the question.

[Unknown Analyst]

I'm Eugene, Banking Analyst of JF Securities. CCB assets kept very well -- exposure pressure for real estate sector loans have been alleviated. What will be the future areas that we should pay attention to?

[Unknown Executive]

Thank you for the question from the banking analyst of JF Securities. I will respond to this question. CCB has been implementing the decisions and deployment by central government and CPC Central Committee on real estate sector. We are now fully aware of the current situation and got the bottom line of risk very well to ensure robust asset quality to support high-quality development. At the end of Q3, the asset quality of CCB has been kept stable and for key areas, the risks are controllable.

As was mentioned, NPL ratio of the whole group declined by 2 bps. If you look at the current situation, we have effective mechanisms and measures to cope with the risks. One thing is we stick to serve high-quality development of the national economy. We deem it as a systematic project to take effective measures to serve the real economy for key areas, key strategies and the vulnerabilities of key areas. We provide quality financial services so that we can address the problems while developing for green -- the loans for inclusive finance, green finance. And certain industries have been stabilizing and turning and increasing.

And also, we are also forming synergy for risk control. In light of the new challenges in terms of risk, we'll have synergized efforts to -- for different customers and different business lines, they have different characteristics and risk profiles. We have accumulated a series of effective control measures and means. Risk mitigation and NPL resolution quality is also increasing. Overall, asset quality is stable, and key areas of risks are within control. Risk compensation capability is also strong.

For corporate business, including real estate sectors loans, NPL ratio has followed the trend of declining of Q2, still stabilizing and declining. For personal loans, NPL ratios have been kept at a good level. Although at present, the economy faring is still facing some problems and challenges. But China's economy is resilient. I'm sure with the playing out of series of different policies, economy will be rallying and for the risks of key areas, they will be managed better. We'll continue to keep calm in our management and do a good job in risk determination adjudication. So therefore, the new issues and new challenges, we'll do a good job in risk mitigation to ensure robustness of asset quality and ensure the risk is in control. Thank you for your question.

[Operator]

Next question, [indiscernible] please.

[Unknown Analyst]

[indiscernible]. The government is planning to increase the core Tier 1 capital of large commercial banks was the plan of CCB. And what is your plan for the usage of the capital? And when asset quality is kept stable, will you increase the percentage?

Assets liabilities department, please answer the question.

[Unknown Executive]

Thank you for the question. For the capital replenishment measures, it will reflect the central government and CPC Central Committee support for state-owned banks, this can boost market confidence and maintain stable operations of the financial system. CCB is actually actively following up about the specific arrangements of Ministry of Finance for capital replenishment and everything is going orderly.

Although for the new capital rules, face by face, it has increased the CAR of our bank. But for the capital management rules adjustment, the favorable policy is mainly reflected in Q1. And while we keep doing a good job for serving the real economy and have reasonable concession of profits, our profitability in terms of the accumulation of indigenous capital, it has been slowing down. And the support for macroeconomic policy will result in the stable growth of core assets. And indigenous capital accumulation will not be adequate to support the capital consumption. For core Tier 1 capital, it is still showing a downward tendency.

Since CCB has [indiscernible], at the beginning of 2028, we need to meet the requirement of TLAC Phase 2 requirement no less than 22%. So capital replenishment needs to be put on our agenda. CCB will continue to anchor on high-quality development theme. We'll resolutely promote high-quality and efficient management and transform the model structure and improve the quality to work hard on the 5 major initiatives and support the development of new quality productive forces. While the economy is transforming, we will provide strong financial support for that. CCB will continue to stick to the combination of indigenous accumulation of capital and capital replenishment from outside so that we can have more high-quality and efficient management of the capital.

Especially we should make full use of the low utilization level of capital so that we can create better value and serve the economy with higher quality and provide capital guarantees so that capital increase will have a good return. Currently, CAR and ROE among the major state-owned banks, we are having a leading position. We have very high shareholder returns. We'll continue to work hard in this round of capital replenishment. We will strive to have more support after capital is replenished.

Our capital position will be further consolidated and enhanced. Our ability to reduce risk and to growth and make profits., the situation will turn for the better. We'll continue to monitor the wishes of the shareholders and keep doing a good job at dividend payout ratio to return, to pay back to the trust of shareholders with very good performance and dividend payout.

[Operator]

[Operator Instructions] Now the floor is given to 21st Business Herald. [indiscernible], please.

[Unknown Analyst]

My question is for the favorable policy, it replaced old ones with new ones, it also [indiscernible] and total retail sales of September growth rate is more than 3% for credit card, consumer loans and other consumer loans. Have you realized the rapid growth, NPL ratio has been slightly higher in the first half and how about the second half of the year?

Now I would like to invite credit card center to respond to the question.

[Unknown Executive]

Thank you for the question. We have noticed since the beginning of the year, the government has released policies on consumer goods, replacement of old ones with new ones. And from January to September, personal consumer loans, newly disbursed more than CNY 28.7 billion, a monthly disbursement of loans have been stabilizing and turned for better. That means consumer confidence is increasing in terms of credit card business. In light of the spirit of the Central Economic Work Conference, we are promoting this business to benefit the people and drive consumption growth so that we can also drive green finance. We have enhanced the credit circulation and interest-bearing credit expansion.

By the end of Q3, CCB's credit card loan balance reached CNY 1.27 trillion. We are the first bank whose credit card loan balance exceeding CNY 1 trillion. And since Q3, credit card loan increase has been on the right track for this quarter compared with last -- for the first half, it has been increasing and market share is also steadily increasing. Going forward, we'll continue to focus on key customer groups, key scenarios and key areas so that online payment deployment and consumer scenarios can be further deployed so that we can work on consumer finance and inclusive finance so that daily consumption, auto loans, housing loans can receive support including efforts to drive the development of the new energy vehicle so that new energy vehicles sector can be a new highlight of our consumer loans. We also continue to expand the scale of credit card loan balance. Thank you.

In terms of the loan asset quality, I would like to add the following points. For personal consumer loans, NPL ratio is kept at a very stable level, although slightly higher than the year beginning, but still at a good level. Credit card and NPL ratio is also better compared with peers. We will stick to high-quality development and see the policy opportunities that we can expand domestic demand and expand consumption and deep disbursing loans with higher quality. And we are also proactively adapt to new challenges and new situations so that asset quality will remain robust.

[Operator]

Next question. Securities Times, [indiscernible].

[Unknown Analyst]

[indiscernible] from Security Times. We can see banks are conducting sales increase business. What's CCB's situation? How do you ensure earmarked funds are used for the earmarked purposes?

[Unknown Executive]

Thank you for the question. Up to now, CCB has formulated and released stock repo loans for listed companies. And the major shareholders of listed companies, we have seen their demand. The users cover stock repo and increase. In order to ensure the implementation of the business, we have organized the business outreach session, and training session to expand the policy background, product characteristics and working requirements principal is market-based and low based.

We need to monitor the situation, and we are working on it steadily. By the end of October 30, state-owned enterprise, some private enterprises, some of them, we have reached agreement with them. Once the procedure is completed, we'll work hard and do a good job at the loan disbursement. In terms of the funding uses in the management measures on stock repo, we classified the -- specified the procedures and operational requirements. The listed company, which is the applicant and the major shareholders should have separate accounts to be dedicated to the use of repo of our shares, and increasing the holding of shares. We also start to monitor management of the loans so that the loans are used for the earmarked purposes and it's the closed-loop operations.

[Operator]

Next question, Citic Construction Investment. [indiscernible], please?

[Unknown Analyst]

I'm from Citic Construction Investment. I have a question about other noninterest income. CCB performance is very good for the first 3 quarters. The growth rate is expanding compared with the previous year. What are the main drivers behind this?

Finance and accounting department, please?

[Unknown Executive]

Thank you for your question. Just as you mentioned, for the first 3 quarters, the noninterest income has been performing quite well. Just now, Mr. Sheng when talking about profitability has also mentioned about this, our noninterest income has actually constituted CCB -- the negative growth of profitability is a very important driver. So for the first 3 quarters, the total noninterest income is around CNY 26 billion, up by CNY 19.1 billion. So the increase was [indiscernible]. And that's 3 percentage points higher as compared with that of last year. Our analysis are as follows.

There are 4 reasons. The first one is because these PBoCs ForEx stability and also ForEx structure. For the first 3 quarters, ForEx business of CCB has increased by CNY 7.2 billion. And the second reason is because of the decreasing bond yields and also our increasing investment in a robust profit-related bond investment. So that is to say, our investment and purchase have increased by CNY 130 million. And thirdly, because of the capital market easing and also a lot of policies, ever since the third quarter, we can see that the stock market rally and equity investment, equity tools, especially subsidiaries like asset management subsidiaries, their equity investment tools, including fund investment, the gains from these investments has increased by CNY 2.8 billion.

And fourthly, it's because with our business operations, we've actively compressed these structured loans ratio, the interest rate payment for such loans have actually decreased by CNY 1.8 billion. So that is basically the reasons behind the performance of our noninterest income. So mainly it's because of our business opportunities. Because if we look at the whole year, for CCB, in terms of noninterest income, I think it will maintain such a sound momentum.

If you look at the figure at third quarter, the economy is also making progress amid stability. And for CCB, we'll follow closely the market development and grasp the market opportunities and strengthen market research. So in this way, we should reasonably arrange the equity and bond instruments allocation. And we'll also try to enhance the management for the fluctuations of the fair values of those instruments to maintain such a good momentum. In the meantime, we will also enhance the stability of our operational stability. Thank you.

Thank you. Thank you all the investors, analysts and media friends. Due to time constraints, so our last question, please.

[Operator]

The last question from [indiscernible].

[Unknown Analyst]

I would like to ask a question. We know that in the latest press release, the regulator said they will use a lot of policy tool measures to actually renovate the urban villages, et cetera, and also to further improve the housing finance-related policies. So I would like to know in terms of supporting the housing market, what are the measures we'll take?

Corporate finance department, please.

[Unknown Executive]

Thank you for your question. On September 26, the [indiscernible] have actually launched a series of policies like enhancing the support for the white-list company, et cetera. So recently, the regulator have also issued several supporting policies. So I think that these policies will provide very solid support for the recovery of the housing market. CCB will take the following measures.

Firstly, we will implement the work arrangement of the central government and the state council, we will follow and comply with the requirement and promote the coordination of finance for the housing market and to -- extension of loans to the white-list companies or projects. And also, we will further balance the business development and guard against risks. We will follow market and law-based principles to trade -- to treat the housing projects in a balanced manner and equal manner.

And secondly, we'll also ensure the work ready to white-list companies or projects. We will promote the coordination mechanism for our housing finance. And going forward, we will also follow revenue requirements to implement the compliance of those projects. For the projects, they should be supported, we should extend loans to them and to optimize the loan extension methods always to those companies. And to strengthen the asset or capital management for those projects so as to better meet the rigid housing needs and also their needs for upgrading apartments, et cetera.

In response to the question to what you mentioned, the monetary allocation of around 1 million renovation projects for urban villages or shanty houses, we communicate with the regulator regularly to get to know the specific requirements in this regard. And we will also try to study the strategies for the business. And we will also work out the specific measures within the bank. On the other hand, we will also work with the local government and to use all these policies and to ensure our policy selection and screening, and also to help unleash more housing needs. And also to try to promote the healthy market to develop in a stable manner.

[Operator]

Okay. Since time is up, so much for the Q&A session.

[Unknown Executive]

Thank you for your time. Just now, the senior management and the related department heads have actually shared with you in very candid and in-depth manner. I hope that this will help you to better understand our strategic measures, our business operation and performance. If you have any other questions, please contact our Board office. The performance release conference is over. Thank you, and wish you a good day Thank you.

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