Industry Observation｜China Merchants Bank Running a Marathon
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Currently, the banking industry is shifting from high-speed development to a new stage of high-quality development. The general trend of differentiation is how to break through. This is a common challenge facing all banks.
“The operations of the banking industry are affected by cycles, and China Merchants Bank will strive to achieve better performance in the up cycle and more stability in the down cycle.” On March 27, Miao Jianmin, chairman of China Merchants Bank, said at the 2023 annual results conference.
Two days ago, China Merchants Bank disclosed its 2023 annual report. Some investors expressed opinions and criticism because the annual revenue growth rate of CMB did not turn negative into positive. Some investors also expressed their affirmation of CMB’s performance and dividend rate increase to 35% after comparing the industry environment. Wang Liang, President of China Merchants Bank, said that they have studied carefully and will use criticism as a spur to continue to maintain relatively good operating results.
“Maintaining” stable operating performance through cycles reflects CMB’s determination to create value sustainably in the long term. As Wang Liang wrote in his annual report speech: “Bank operations are a marathon, which competes with the determination and endurance to make steady and long-term progress.”
Judging from Wang Liang’s previous external communication explanations, to win this marathon, China Merchants Bank has anchored the “road” of value creation in the direction of pursuing “quality first, efficiency first, appropriate scale, and reasonable structure” in the process.
The confidence and challenges behind increasing the dividend rate
“Since the dividend rate has increased, we have no intention of lowering it.” Regarding whether the dividend rate can be maintained, Miao Jianmin said to investors at the performance conference.
After raising the dividend rate to 33% in 2019, China Merchants Bank has maintained a dividend of more than 33% for four consecutive years, and this time it has been further increased to 35%. Miao Jianmin said that increasing the cash dividend ratio is to increase the overall return to shareholders, which is an important part of building a value bank and creating value for shareholders.
Behind the increase in dividend rate, as Miao Jianmin said in his annual report speech, is that China Merchants Bank’s “fundament remains unchanged, its foundation is very thick, and it is very confident.” Since 2004, China Merchants Bank has not conducted common stock financing for 20 years. With endogenous capital growth mainly based on profit retention, the bank has long maintained industry-leading capital levels, provision levels and risk compensation capabilities. According to data disclosed by the State Administration of Financial Supervision and Administration, as of the end of 2023, the overall provision coverage rate of the banking industry was 205.14%, and the loan provision rate was 3.27%. China Merchants Bank’s provision coverage ratio is as high as 437.70%, and its loan provision ratio is 4.14%, which is much higher than the industry average.
Miao Jianmin said that China Merchants Bank will continue to balance the relationship between cash dividends and medium- and long-term capital accumulation, hoping to maintain a strong endogenous capital growth capability while not doing equity financing, while maintaining a reasonable and high dividend ratio.
This goal seems simple, but the challenge is not small. Currently, China’s banking industry has bid farewell to the “golden age” and is now characterized by “low interest rates, low interest spreads, and low profits.” As of the end of 2023, the asset profit margin of commercial banks has dropped to 0.7%, and the net interest margin has dropped to 1.69%, the lowest level since records began in 2010; when the third quarterly report of 2023 is disclosed, the overall revenue of listed banks will show negative growth, and the revenue of all joint-stock banks Growth rates are all negative. From 2016 to 2017, national listed banks also briefly experienced negative revenue growth. However, a research report pointed out that the current situation of bank revenue is more severe than that in 2017, with declining financing costs, narrowing net interest margins and declining asset growth. Against this background, we still have to wait for the time when revenue pressure is relieved, and the low revenue growth of major national banks may continue. For China Merchants Bank, the challenge is particularly huge. Lower interest rates on existing mortgages, adjustments to insurance and fund sales rates, and fluctuations in the capital market will have a greater impact on China Merchants Bank, which is good at retail and is focusing on wealth management.
Although short-term financial indicators are under pressure due to environmental influences, it can also be seen that the fundamentals of China Merchants Bank’s customer base are more solid. In 2023, CMB’s retail customer base will reach 197 million, and its corporate customer base will reach 2.82 million, an increase of 7.07% and 11.66% respectively from the beginning of the year. The customer base and customer management capabilities are important criteria for judging a bank’s sustainable development capabilities. This is also the source of many investors’ confidence in China Merchants Bank’s long-term success.
A new model of high-quality development driven by the two wheels of management and innovation
High-quality development not only represents the beginning of a new stage, but also represents the transformation and change of business concepts, models, and capabilities, which determines the resilience of future development and the foundation, foundation, and confidence of value creation.
The current market has gradually formed a consensus that the banking industry has entered the stock era from the incremental era, which puts forward higher requirements for the transformation and upgrading of bank business models and refined management.
Wang Liang wrote in the president’s speech in the annual report: At present, scale-driven extensive development is unsustainable, the “100-1=0” effect of risk has become more prominent, and the logic of management-determined development and innovation-driven development has become clearer. CMB will continue to use management and innovation as the two-wheel drive to create a new model of high-quality development. Use strict management as a shield to improve the level of intensive development; use integrity and innovation as a spear to create new advantages in more subdivided areas.
Europe, Japan and Taiwan are all veterans of the low interest rate era. The interest rate spread of Japan’s banking industry was as low as 0.7%, that of Germany was as low as 0.86%, and that of Taiwan was as low as 1.4%. Low interest rates and low interest spreads have brought about great differentiation in the banking industry in these regions, but banks that have successfully transformed have achieved breakthroughs. In Taiwan, China, some banks have controlled the non-performing ratio to 0.3% through effective risk management in a low interest rate environment, striving to ensure that profits are returned to their warehouses; the European banking industry has increased innovation in wealth management and asset management businesses, and increased Large organizations use digital innovation to reduce costs and increase efficiency.
It is worth mentioning that CMB has strengthened risk management, and the non-performing loan ratio has further dropped by 0.01 percentage points to 0.95% compared with the end of 2022. The non-performing loan ratio in the real estate sector has dropped by 0.26 percentage points from the high point at the end of June 2023; in terms of cost management, CMB’s business and management fees decreased by 1.40% year-on-year. In terms of innovation, the bank proposed that it will accelerate the move from “online CMB” to “smart CMB”, focusing on “technology + products”, “people + digitalization” and “AI + finance” to accelerate product innovation, business innovation and model innovation. Innovation, management innovation.
The balanced synergy of the four major sectors demonstrates value
In the first three quarters of 2023, JPMorgan Chase accounted for 20% of the total profits of the U.S. banking industry, which attracted a lot of attention. With a history of more than 200 years, JPMorgan Chase has been able to survive previous financial crises and interest rate adjustment cycles. An important reason is that its business sectors are relatively balanced, and the east is not bright and the west is bright.
An important part of the value banking strategy proposed by China Merchants Bank last year is the “balanced and coordinated development of the four major business sectors of retail finance, corporate finance, investment banking and financial markets, wealth management and asset management”. This is exactly the hope that all businesses will complement each other and interact with each other. Replenish positions and enhance the ability to cope with various complex environments.
“Working alone is fast, working together is far.” Wang Liang said that China Merchants Bank will continue to maintain its position as the strategic main player in retail banking, but retail development alone will be difficult to achieve alone; the four major sectors can develop collaboratively and promote each other to better support retail players and Create new business growth poles.
In Wang Liang’s view, the balanced and coordinated development of the four major business sectors, strengthening the capital-heavy business and expanding the capital-light business, can make China Merchants Bank stronger, have a more complete product line, and be able to survive economic cycles. This is in line with the successful experience of advanced international banks and the future development trend of the domestic banking industry.
Merchants Bankretail financeFaced with the influence of multiple factors, it still showed “systematic advantages”. Major indicators such as customer base and scale continued to grow on the basis of a high market share; the balance of total assets under management (AUM) of retail customers was 13.32 trillion yuan, an increase of 9.88% from the end of 2022; the balance of retail customer deposits and loans increased by 12.13% and 8.49% respectively. %; retail finance’s contribution to operating income and pre-tax profits exceeded 55%.
China Merchants Bank’s corporate finance segment is also quite competitive.In 2023, the number of the company’s customers will continue to grow rapidly, and the company’s deposits will reach 4.56 trillion yuan. Judging from the data in the 2023 semi-annual report, China Merchants Bank ranks among the top among joint-stock banks in terms of its corporate customer base and corporate deposits. Last year, China Merchants Bank proposed to create characteristic finance in the corporate finance sector and further optimize the structure. The bank’s technology enterprise loans, green loans, and manufacturing loan balances increased by 44.95%, 26.00%, and 25.06% respectively compared with the end of 2022, which was higher than the bank’s loan growth rate. .
In the investment banking and financial markets sector,China Merchants Bank also ranks among the top in many segments. For example, CMB’s 2023 annual report shows that according to data from the National Association of Financial Market Institutional Investors, CMB ranks third in the industry in terms of the scale of debt financing instruments it underwrites; according to data from the China Banking Association, CMB’s custody business ranks first in the industry in terms of total scale and direct bill distribution. Ranked second in the post business volume market.
Wealth management and asset management sector,It is an important carrier of China Merchants Bank’s “big wealth management” strategy. At the results conference, Miao Jianmin said that “the road to wealth management is tortuous, but the future is bright”; Wang Liang said that China Merchants Bank will firm its direction, give full play to the advantages of wealth management business and asset management subsidiaries, and accelerate its progress towards the top. In 2023, the number of customers holding positions in CMB’s retail wealth products increased by 19.13% compared with the end of 2022; the number of service customers of the “TREE Asset Allocation Service System” increased by 12.15% compared with the end of 2022, achieving rapid development; asset management including CMB Wealth Management and China Merchants Fund The total business scale reached 4.48 trillion yuan, continuing to grow compared with the end of 2022.
Create new moats and growth points: smart China Merchants Bank and key regional branches
The strong rise of big language models in 2023 will become the first year of general artificial intelligence and will have a profound impact on the financial field. Domestic and foreign financial institutions have begun an “arms race” for artificial intelligence talents. JPMorgan Chase will recruit globally from February to April 2023. 3,651 AI-related positions.
Miao Jianmin wrote in his annual report speech: “Build a new moat with smart banking as the core.” The annual report disclosed that China Merchants Bank’s technology investment in 2023 will exceed 14.1 billion yuan, accounting for 4.59% of operating income. The annual reports of each bank have not yet been disclosed, but from the historical According to the data, China Merchants Bank’s technology investment as a proportion of revenue has long been ahead of its peers.
At the performance conference, Wang Liang systematically introduced the achievements of China Merchants Bank’s technological capability building around “online, digital, intelligent, platform-based and ecological”. In terms of onlineization, China Merchants Bank has basically realized the onlineization of all businesses; in terms of digitization, it is accelerating the promotion of data as a core asset; in terms of intelligence, it has created five smart engines of wealth, operations, risk control, customer service, and marketing. Last year, AI It saved 17,000 manpower and launched a new smart wealth assistant trick; in terms of platformization, China Merchants Bank will achieve full cloud migration in 2022 and create a technology middle platform and a data middle platform; in terms of ecologicalization, it will embed financial services into various business and life scenarios.
It is worth noting that China Merchants Bank has integrated its own development into the overall national major regional strategies, keenly grasped development opportunities in key regions, and regarded the development of branches in key regions as its new growth point. The annual report disclosed that the growth rates of core deposits, AUM and corporate loans of CMB branches in key regions such as the Yangtze River Delta, Pearl River Delta, Chengdu-Chongqing and Haixi are all higher than the bank’s average. “Based on its own development needs, China Merchants Bank will increase investment and layout in these key areas, clarify goals and tasks, and promote the gradual improvement of branches in key areas in terms of various businesses and profit contributions, so as to make the profit structure of China Merchants Bank more balanced.” Wang Liang said.
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