China Merchants Bank performance meeting full transcript: Retail banking executives confront "sensitive" topics

On March 27, China Merchants Bank held its annual performance communication meeting. Chairman Miao Jianmin, President and CEO Wang Liang, Vice President, Chief Financial Officer, and Board Secretary Peng Jiawen, and Chief Information Officer Zhou Tianhong attended and answered investor concerns. Additionally, there were non-executive directors, independent directors, and heads of relevant departments from China Merchants Bank present.

Regarding market concerns such as ROE, dividends, net interest margin, non-interest income, views on the bond market, and even the use of DeepSeek, the management provided frank and detailed introductions.

Valuation "Value for Money"

Regarding whether China Merchants Bank's valuation is considered "expensive," the bank's senior management provided an answer.

Relevant executives stated that China Merchants Bank is one of the more expensive banks among listed banks, but investors find value in investing in China Merchants Bank. This is because, among listed banks, the value of China Merchants Bank is relatively high.

How to manage market capitalization effectively is a consideration for the management of all listed banks and companies. The core of effective market capitalization management lies in good operational management and enhancing profitability. If profitability is insufficient, effective market capitalization management will be difficult. Therefore, solid operational management is the foundation of market capitalization management.

In the current operating environment, the banking industry first needs to enhance profitability, secondly strengthen risk management capabilities, and thirdly enhance innovation capabilities, continuously creating value for customers, shareholders, employees, partners, and society.

For market capitalization management, the core is to create value for shareholders. When profitability and risk management capabilities improve, asset quality remains stable, innovation capabilities are enhanced, and core competitiveness leads the industry, even establishing a strong moat, it lays a solid foundation for creating value for shareholders. Enhancing profitability is the basis for market capitalization management, and on this basis, it is necessary to maintain a stable dividend policy to increase the cash value for investors.

How to View Dividend Rate?

Recently, the dividend rate of banks has sparked heated discussions in the market, to which the senior management of China Merchants Bank also responded.

Relevant executives stated: Some investors expect this year's dividend rate to be relatively high, while others believe the dividend rate aligns with their expectations. Since 2013, China Merchants Bank has maintained a dividend rate of over 30%, which has been written into the company's articles of association, making it the first listed bank to do so.

"Last year's (implemented) cash dividend rate reached 35%, and this year's forecasted cash dividend rate is 35.3%, with two yuan per share, which can be considered a quite good dividend rate."

Of course, some investors hope for a higher dividend rate. The management of China Merchants Bank believes that maintaining a high and stable dividend rate is important for creating value for investors. If this year's dividend rate increases but decreases next year, it would be detrimental to creating value for investors and would not be conducive to sustainable development and stock price stability. Therefore, they hope to maintain a leading and relatively stable dividend ratio in the industry, which is also an important aspect of market capitalization management.

On the other hand, for the company's long-term sustainable development, it is necessary to maintain good communication with investors. However, if the core of market capitalization management becomes merely telling stories, then it will be difficult for market capitalization management to succeed China Merchants Bank has established a market value management approach, but ultimately it must return to operations, enhancing profitability, risk control capabilities, and innovation capabilities to strengthen the core competitiveness of China Merchants Bank and build a moat. In this way, market value management will be more effective; even if the valuation is a bit high, it will still be worth it.

ROE Advantage Will Be Maintained

Executives of China Merchants Bank stated at the earnings conference that the current macro environment indeed poses significant challenges for bank operations, while also nurturing numerous opportunities.

From the external environment perspective, the main challenge is uncertainty. From the internal environment perspective, since the central government launched a series of incremental policies on September 26 last year, market expectations have significantly improved, the real estate and stock markets have stabilized, and the economy has shown signs of recovery. Therefore, the relevant executives believe that China can effectively respond to the uncertainties brought by external factors.

Recently, the Beijing Development Forum also sent a strong signal indicating that if external environments cause significant shocks, there are more policy reserves, providing a relatively certain operating environment for banks to improve operations.

He also mentioned that the main challenge facing banks currently is the long-term low interest rates, low interest spreads, and low fees brought about by demographic changes, which pose challenges to profitability. Nevertheless, China Merchants Bank's advantages in the industry remain evident.

Relevant executives stated that China Merchants Bank's net interest margin is still the highest among benchmark banks in the industry. Although the net interest margin is also narrowing, the extent of the narrowing is relatively small, and the absolute level of the net interest margin still surpasses that of other benchmark banks, which is a significant advantage.

In terms of non-interest income, China Merchants Bank also has advantages in financial market operations, but the advantages in financial management are even more pronounced. Therefore, as long as the net interest margin remains leading in the industry, the advantages in wealth management can also be maintained, allowing China Merchants Bank's return on equity (ROE) to remain at the forefront of the industry.

The executive also expressed the hope that China Merchants Bank's ROE can be maintained above 15% in the long term. However, this depends on the external operating environment. Even if it cannot be maintained above 15%, due to the competitive advantages in net interest margin and wealth management, he believes that China Merchants Bank's ROE will still be the highest among benchmark banks.

In addition, a significant difference from other banks is that China Merchants Bank is very cautious about common stock financing, thus keeping E (equity) relatively stable. As long as R (net profit) outperforms other banks, ROE will be better.

Accelerate "Four Transformations"

Wang Liang proposed at the earnings conference that China Merchants Bank should accelerate the "Four Transformations," specifically accelerating international development, deepening comprehensive operations, creating differentiated competitive advantages, and accelerating digital transformation.

The reason for proposing the four transformations is mainly to respond to the changes in the current banking operating environment.

First, China's banking industry has entered a period of low interest rates, low interest spreads, and low fees. In such an operating environment, banks need to explore how to expand revenue sources and maintain stable profitability.

Second, a large number of Chinese enterprises are "going global," implementing international layouts and operations, which requires Chinese banks to provide corresponding financial services for these outbound enterprises and consider how to meet the needs of enterprises "going out" to enhance global service capabilities Third, the current transformation of the financial technology industry, represented by artificial intelligence, has also brought new opportunities for the development of the banking industry. China Merchants Bank has relied on technological strength in the past, leading the industry in the fields of online banking and mobile banking during the internet and mobile internet eras. In the current wave of large language model technology, it is necessary to consider how to maintain a leading position in the transformation towards smart banking and further enhance service levels.

Fourth, the homogenization competition in the mainland banking industry is becoming increasingly severe. In this context, it is essential to consider how to maintain the characteristics and differentiated development of China Merchants Bank, forming its unique competitive advantage.

In response to these four changes, China Merchants Bank has proposed a strategy to accelerate the "four transformations," which is also based on the existing foundations of these four aspects.

In terms of internationalization, China Merchants Bank has established 66 branches overseas and has three subsidiaries.

In terms of diversification, it has multiple licensed subsidiaries that are licensed financial institutions in areas such as credit card business and financial fund trading, maintaining good development momentum and leading positions in the industry. China Merchants Bank is committed to maintaining competitive advantages in wealth management, asset management, investment banking, financial markets, credit cards, and leasing in their respective segments, to provide diversified services alongside China Merchants Bank, meet customer needs, form competitive capabilities, and become new revenue growth points.

In terms of differentiation, it is dedicated to maintaining China Merchants Bank's advantages in retail banking and systematically building new competitive advantages to form differentiated competitive capabilities.

In terms of digital transformation, thanks to the strong support of the board of directors, a financial technology fund has been established, with last year's investment reaching 13.5 billion, accounting for 4.38%. China Merchants Bank will continue to increase investment to maintain its technological leadership.

They believe that through the "four transformations," China Merchants Bank can lead the industry, achieve revenue diversification, stabilize its business, effectively respond to low-interest rate cycles, enhance competitive development capabilities, and provide stable and sustainable returns to shareholders.

What is the outlook for the trend of net interest margin?

Peng Jiawen, Vice President, Chief Financial Officer, and Secretary of the Board of China Merchants Bank, responded to questions regarding the interest margin.

Peng Jiawen stated that in 2024, the net interest margin of China Merchants Bank is expected to be 1.98%, a year-on-year decrease of 17 basis points. Although the interest margin has decreased, the decline is less than the industry average, and the net interest margin still maintains a leading position in the industry.

Moreover, the trend of interest margin changes in 2024 is a decline in all four quarters, with decreases of 27, 17, 14, and 10 basis points respectively. This indicates that while the trend of declining interest margins is clear, the extent of the decline is gradually narrowing.

In 2024, he predicts that this trend (of declining net interest margin) may continue. The main reasons include several commonly mentioned factors; aside from the macro environment, from the meso and micro perspectives, one is last year's interest rate cuts, with the LPR being adjusted down three times; the second is the overall reduction in the interest rates of existing housing mortgage loans, which will continue to have an impact in 2025 In 2024, Peng Jiawen also judged that there were signs of a bottoming out of the interest margin, but at that time he added a premise that there should be no major policy changes. Currently, there have indeed been some new policy changes, such as the reduction of the LPR in October and the adjustment of the interest rates on existing housing mortgage loans.

From the overall situation in 2025, the central bank's policy statements indicate that it will selectively lower the reserve requirement ratio and interest rates, adopting a moderately loose monetary policy. The implication behind this is that there may still be a process of interest rate cuts, which could also exert certain pressure on the interest margin.

While facing challenges to the interest margin, competition in assets is also becoming increasingly fierce. Due to insufficient overall demand, various financial institutions are competing more intensely for (high-quality) loans and assets, which may lead to a decline in yields.

At the same time, this also includes changes in the loan structure. For example, if the demand for relatively high-yield credit cards and housing loans further declines, the proportion of these loans in total loans may also decrease, which will also put pressure on the interest margin. Overall, these are all pressure factors.

Meanwhile, there are also some favorable factors. For instance, the decline in deposit costs. In 2024, the deposit cost of China Merchants Bank decreased by another 8 basis points from the market's lowest level. Moreover, since the beginning of this year, the downward trend in deposit costs has continued.

Additionally, regarding interbank demand deposits, the cost for China Merchants Bank in 2024 is 1.29%, but against the backdrop of further strengthening interbank self-discipline in 2025, it is expected that the cost of interbank demand deposits will further decrease.

Another factor is that the proportion of demand deposits has marginally changed. By the end of September 2024, the proportion of demand deposits at China Merchants Bank dropped to a low of 48%, but by the end of the year, it rebounded to 52%. Although it cannot be definitively stated that this marks a reversal in the trend of demand deposit proportions, it has indeed brought about some marginal changes.

In 2025, Peng Jiawen also observed a decrease in the proportion of demand deposits at a certain point in time, but the overall trend has not fundamentally changed. Based on the relatively good foundation of demand deposits established at the end of 2024, the daily average incremental demand deposits have significantly increased year-on-year.

Considering these factors comprehensively, Peng Jiawen believes that the trend of narrowing interest margins may still continue, and the pressure will persist. However, the goal is to hope that in 2025, the extent of the narrowing of interest margins will improve compared to the previous year, while maintaining a leading position in the industry.

Loan Growth Arrangement

The annual report disclosed the plan for loan growth in 2025, setting a target of 7% to 8%.

Peng Jiawen stated that whether the target is ultimately achieved indeed depends on various internal and external factors, including changes in the external macro environment and the institution's own strategic arrangements.

They hope that the annual loan growth can take into account two points:

First, the growth of loans needs to be adapted to the external macroeconomic environment, such as matching the growth of GDP and the central bank's arrangements for social financing and loan growth, which is the first consideration.

Second, they hope that the growth rate of loans can transcend the economic cycle and maintain relative stability. Excessive fluctuations in loan growth itself pose a risk Therefore, the loan growth rate has been maintained at a relatively stable state, although it may be slightly adjusted based on changes in the external macro environment, stability is still hoped to be preserved.

For example, taking 2024 as an example, the growth rate of various loans and advances is 5.8%, but if we exclude bill discounting, the combined growth rate of corporate loans and retail loans is actually 8%, which still maintains a relatively stable growth rate compared to previous years. Therefore, in 2025, it is also hoped to continue to maintain a relatively stable loan growth rate through its own asset organization and structural arrangements in various aspects.

Wang Liang added that currently in the mainland market, with the continuous advancement of interest rate marketization, the financial logic that assets determine liabilities is becoming increasingly prominent. The competitiveness and development capability of asset business, as well as the ability to organize high-quality assets, are crucial for the sustainable operation of banks.

Therefore, China Merchants Bank maintains a loan growth rate of 7% to 8% because only reasonable loan growth can better maintain internal stability; only with reasonable loan growth can it leverage more customers through asset business and attract more sources of funds, especially low-cost sources of funds, which may bring more valuable business.

Thus, in terms of asset organization, it is necessary to consider not only the total national credit loan issuance but also to balance this aspect according to the constraints of endogenous capital growth resources.

Asset Quality Remains Stable

Wang Liang introduced that, overall, the asset quality of China Merchants Bank has maintained a stable level. Last year, the non-performing loan ratio remained at 0.95%, and the provision coverage ratio remained at a high level. However, there is also a high awareness of the rising trend of retail loan risk pressure.

For example, the non-performing rate of credit card loans last year was 1.75%, basically flat compared to the previous year, but the amount of non-performing loans reached 39.3 billion yuan, slightly increasing compared to the previous year. Therefore, the credit card non-performing rate remains high but relatively stable. Additionally, the non-performing rate of consumer credit is 1.04%, while the loans under concern and expected categories are also showing an upward trend. The non-performing rate of mortgage loans is 0.48%, but the loans under concern and expected categories also show an upward trend. Micro and small loans exhibit similar characteristics.

Overall, the non-performing level of retail credit remains leading in the industry, but from the perspective of expected or concerned loans, there is an upward trend.

From the perspective of the entire bank, there is a strong emphasis on preventing retail credit risk. On one hand, optimizing risk management models; on the other hand, selecting customer groups, further optimizing customer groups for credit cards, micro and small loans, and consumer credit.

The third aspect is optimizing regional layout. Based on model analysis, identify which areas are high-risk and which are low-risk, and actively develop high-quality customers in low-risk areas.

The fourth aspect is about mitigation tools. For micro and small loans and housing mortgage loans, further optimize these tools, as many loans have sufficient collateral rates. For example, the collateral rate level for mortgage loans is 37%, and even in the event of overdue and non-performing loans, the loss rate is relatively low. In micro and small loans, the proportion of secured loans exceeds 80%, and although risks have increased, the loss rate remains low Therefore, in different types of asset businesses, these five categories of assets have their specific positioning, customer base, and risk characteristics. Targeted risk control measures have been formulated based on the characteristics of these retail asset businesses.

With the steady improvement of the economic situation, the central government places great importance on employment issues and the stability of income levels. If the overall situation improves, the asset quality of retail credit will also tend to stabilize.

Despite uncertainties in the external environment, China Merchants Bank still regards retail credit business as an important direction for asset allocation. Based on its pricing level, risk status, and funding costs, it believes that retail loans have a stronger ability to create value. Therefore, it is necessary to effectively control risks while accurately positioning customers and markets to maintain reasonable growth in retail credit business.

Capital Adequacy Ratio is Not Enough for "Peaceful Sleep"

Peng Jiawen introduced that, according to data released last year, whether under the advanced approach or the standardized approach, China Merchants Bank's Tier 1 capital adequacy ratio is at a relatively high level among listed banks. However, it is necessary to analyze the reasons for this from a dialectical perspective.

On one hand, this is due to its own strengthening of capital return management and asset-liability management, thereby improving the endogenous growth capacity of capital. On the other hand, the increase in capital adequacy ratio last year was also influenced by the dividends brought by new capital regulations. These two factors work together to keep the capital adequacy ratio at a high level.

However, from the perspective of its own capital planning, the internally formulated capital plan has actually been disclosed, hoping to maintain a buffer of 2.5 percentage points based on regulatory requirements. Behind this 2.5 percentage points, on one hand, is due to the additional capital requirements for systemically important banks, and on the other hand, the second pillar of capital also has additional requirements for capital, including stress testing, etc. Therefore, based on relevant calculations, he believes that maintaining a buffer of 2.5 percentage points is necessary. Adding this 2.5 percentage points, the actual core capital adequacy ratio should be maintained above 10%, which is the bottom line requirement set by China Merchants Bank.

In relation to this requirement, the advanced approach capital adequacy ratio is worry-free, but the standardized approach capital adequacy ratio does not necessarily mean it is secure, as the current core Tier 1 capital adequacy ratio under the standardized approach is 12.43%, and the current capital adequacy ratio has not yet reached a level where one can "sleep peacefully."

Of course, what the market may be concerned about is how to balance ROE and capital adequacy ratio, as well as why dividends are not increased.

In fact, it has always been necessary to achieve a good overall balance. Internally, there is certainly a desire to provide more returns to investors, but based on the fact that the capital adequacy ratio has not yet reached a level of complete reassurance, China Merchants Bank maintains a prudent attitude towards reducing more capital to improve ROE.

In addition, Peng Jiawen further stated that regarding the denominator issue, namely risk assets, especially risk-weighted assets. He believes that to maintain the endogenous growth of the capital adequacy ratio, the key is to ensure that the return generated by RWA (risk-weighted assets) is sufficiently high, referred to as RAROC (Risk-Adjusted Return on Capital). Only by maintaining RAROC at a high level can endogenous capital be achieved Not only should efforts be made on the numerator's strategy, but also on managing the denominator effectively. Looking back at 2024, the growth rate of risk assets has significantly declined compared to recent years. This is mainly due to the impact of new capital regulations, which have changed some factors affecting the bottom line, resulting in a slower growth rate of RWA reflected on the books than in the past. However, in reality, the growth rate of risk assets has remained relatively stable, generally maintaining between 7% and 8%, despite some decline.

Therefore, in assessing the future growth rate of risk assets, under normal circumstances, a growth rate of 5% is not considered satisfactory; a relatively stable growth rate should be maintained. The board's requirement for the growth of risk assets is not that it should be as low as possible, but rather that it should not exceed an upper limit while remaining relatively stable.

The volatility of risk assets itself is a form of risk and needs to demonstrate a capability to traverse cycles. When considering the growth rate of risk assets, three factors are typically taken into account: first, the impact on capital adequacy ratio; second, the influence of maintaining risk control within risk appetite; and third, the effect on returns and profits. A growth rate of risk assets that is too low is not believed to bring about good profit growth. It is necessary to balance profit growth, risk, and capital adequacy requirements to maintain a reasonable growth rate.

Therefore, in future operations, the growth rate of weighted risk assets will still be kept at a relatively stable level.

Optimization of Customer Growth Structure

Wang Liang introduced that China Merchants Bank places great importance on customer growth. Over the past two years, the retail customer structure has continuously optimized, with the total number reaching 210 million by 2024. At the same time, the company's loans reached 3.16 million last year, maintaining a rapid growth trend, with the structure also continuously optimizing.

For the sustainable development of China Merchants Bank, it is necessary to adhere to three fundamental bases. The first fundamental base is the customer base. It is essential to continuously strengthen, optimize, and expand the customer foundation. The scale of customers determines the development scale of China Merchants Bank, and the quality of customers also determines the quality of development. Therefore, starting from the core value concept of being customer-centric and creating value for customers, how to better serve and manage these customers becomes the core task, which is the most important fundamental base.

In terms of customer acquisition, especially in retail growth, there has been a strong focus on market trends in recent years.

First, there is a strong focus on the growth of college students and young customer groups. More than 10 million college graduates enter the market each year. If China Merchants Bank can capture this market through credit card and debit card services, it will have tremendous growth potential and sustainability for the bank's long-term development.

Second, there is also a strong emphasis on parent-child services. Many affluent families are planning for their children's education and asset management. China Merchants Bank is committed to encouraging parents to open accounts for their children from a young age, so that these children may become long-term customers of the bank when they grow up.

Third, there is a focus on cross-border customers. With more and more children studying abroad, these customers' assets need to be globally allocated. It is necessary to consider adapting to the financial service needs of these customers, which also holds great potential In addition, China Merchants Bank places great importance on pension finance. A large number of individuals born in the 1960s and 1970s have created substantial wealth, and as society ages, meeting their pension financial service needs and managing and inheriting their assets also holds tremendous potential. Previously, our country launched pension accounts, and last year's incremental growth maintained a leading position in the market, with the amount contributed ranking among the top, all of which demonstrate significant market opportunities and growth potential.

Services related to family trusts and the inheritance of family assets also have great potential. China Merchants Bank is also at the forefront of the market in these areas.

These are all measures to adapt to changes in customer needs and demands, and it is essential to continue adapting to these changes to maintain sustained growth in the customer base.

Therefore, as long as the customer base is firmly held, and service products are continuously innovated to meet new financial service needs, there is enormous development potential. This will further consolidate China Merchants Bank's advantages in retail business.

The situation is similar on the company side. The market share of corporate clients currently served by China Merchants Bank is still quite small, and many new enterprises are registered and established each year. In terms of deposits, settlements, and loan businesses, many new growth clients are newly established enterprises. Therefore, only by capturing these newly registered and established enterprises can new growth points be seized and future growth ensured.

As these enterprises grow and expand, China Merchants Bank can continue to serve them and grow alongside them.

China Merchants Bank has served many new economy and new momentum platform enterprises, starting cooperation with them during their entrepreneurial phase. After one or two decades of development, they have now become industry giants, and the bank has continuously served them for decades, growing together.

Therefore, regardless of the type of corporate clients, it is essential to continuously expand the customer base, especially by tapping into newly established new economy and new momentum enterprises, which will lay a solid customer foundation for the long-term development of China Merchants Bank.

Non-Interest Income Different from Last Year’s Situation

Peng Jiawen admitted that, based on the trend of non-interest income changes in recent years, the banking industry is indeed facing pressure, especially in the context of reduced insurance fees, reduced fund fees, and various fee reductions and concessions from the year before last. The banking industry is generally facing pressure from declining fee income. For China Merchants Bank, due to the high proportion of income related to insurance and funds, the pressure it faces is even more significant, which is an objective fact.

However, analyzing the trend of this change, non-interest income can be divided into fee income and other non-interest income for analysis, and the environmental analysis of these two may differ.

From the perspective of fee income, 2024 actually experienced negative growth, but the extent of negative growth narrowed each quarter. The decline in the first quarter was 19%, while by the end of the year, it had decreased to 14%. This is mainly attributed to the decline in the year-on-year growth rate of wealth management income, which was a significant change last year.

At the same time, in non-interest income, due to the overall decline in bond market interest rates in 2024, bond valuations rose, bringing good profit opportunities. From the income of China Merchants Bank, the growth rate of other non-interest income reached 33%, contributing to the turnaround of non-interest income from negative to positive Looking ahead to 2025, he believes that the changes in non-interest income may differ from last year. First, fee income is expected to stabilize. At the end of September 2024, there was a significant change in macro policy, which overall is favorable for the growth of China Merchants Bank's fee income. With the recovery of the capital market and the introduction of a series of measures, fee income rebounded significantly in the fourth quarter of 2024. In addition, the growth of asset scale in the fourth quarter of 2024, with a quarter-on-quarter increase of hundreds of percentage points, provides a good foundation for fee income. Therefore, if the capital market can establish a stable upward trend overall, China Merchants Bank's fee income will be able to remain stable and achieve a steady recovery.

For other non-interest income, this part is mainly influenced by the trend of bond market interest rates. In 2024, the overall bond market interest rates fell rapidly, with the 10-year government bond yield decreasing by 88 basis points. However, in the first two months of this year, there was a significant rebound in bond market interest rates, which had a certain impact on bond valuations.

In a volatile market, a team with strong professional capabilities can achieve more returns. Last year, the financial market department of China Merchants Bank delivered a satisfactory report card, and they will not disappoint investors and shareholders this year.

From this year's overall layout, it is still relatively appropriate, especially during the market rebound, some investment allocations were increased, which is a good arrangement.

He believes that there will still be good returns in this part this year, but the specific returns will depend on timing and operational capabilities. Moving forward, he hopes to maintain relative stability in non-interest income.

Provision Coverage Ratio and Loan Provision Ratio Will Maintain Market Leadership

Management stated that regarding asset quality, China Merchants Bank has adhered to a prudent and cautious principle for many years, maintaining strict standards for the classification of asset quality. The definition of non-performing loans is very strict.

For non-performing loans or even loans under scrutiny, sufficient provisions will be fully accounted for to cover risks, ensuring development without burdens. This includes timely adjustments to the provision model in response to recent real estate risks and the rising pressure of retail credit risk, increasing the provision accrual to cover these risks.

In 2024, China Merchants Bank's cumulative risk reserves reached nearly 40 billion, which is 1.3 billion less than the same period last year. In addition, the overall balance of risk reserves currently stands at 270.6 billion. Although the disposal of non-performing assets last year consumed a large amount of reserves, the total amount of risk reserves still increased by more than 700 million compared to the previous year.

The provision coverage ratio decreased by 25 percentage points, mainly due to a 4 billion increase in non-performing loan balances last year. The increase in the denominator, while the growth of provisions was relatively small, led to a decline in both the provision coverage ratio and the loan provision ratio.

This fully reflects that during good economic conditions and strong profitability, sufficient provisions are made, which enhances our provision coverage ratio and strengthens our ability to withstand risks; on the other hand, it is also beneficial under the current circumstances, as sufficient provisions can absorb these risks even in the event of risk occurrences, maintaining the stability of profitability Regarding the future levels of provision coverage ratio and loan-to-deposit ratio, the first priority will be to maintain sufficient risk coverage to ensure the steady development of China Merchants Bank, leaving no risk hidden. At the same time, necessary provisions will continue to be made based on changes in risk conditions to fully cover risks. Therefore, it is believed that the provision coverage ratio and loan-to-deposit ratio of China Merchants Bank will maintain a leading position in the market, which is beneficial for better risk resistance and enhancing risk resilience.

Actively Researching and Demonstrating AIC

Wang Liang introduced that during this important meeting, regulators announced the expansion of the pilot scope for Asset Investment Companies (AIC). This is the first time since the establishment of AICs by the five major banks in 2017 that more qualified commercial banks are allowed to apply for the establishment of AICs, and support is provided for insurance funds to participate in equity investment pilots to increase support for technological innovation and private enterprises.

He stated that the introduction of this policy is conducive to further supplementing long-term capital and patient capital, better supporting equity financing for technology innovation enterprises, and promoting the development of these enterprises. This can also enhance the comprehensive service capabilities of commercial banks, especially in equity direct investment and investment-loan linkage businesses, which can play a positive role.

After learning about this policy, China Merchants Bank is also conducting serious research and demonstration. The bank has sufficient capital strength and a business foundation in this area. CM International has accumulated rich experience in equity investment and achieved good investment results. Many clients served, in addition to loan financing needs, also hope to share risks and benefits in equity investment with China Merchants Bank, indicating such demand. Therefore, establishing such an AIC company is very meaningful for China Merchants Bank.

During the research and demonstration process, the bank also needs to go through the board approval process. Once there is necessary news, it will be announced to the public in a timely manner.

Continuous Investment in AI Technology

Chief Information Officer Zhou Tianhong introduced that since the establishment of China Merchants Bank, the bank has adhered to the concept of promoting the bank through technology. From the internet to mobile internet, from digitalization to intelligence, China Merchants Bank has basically seized every opportunity for technological change and launched numerous innovative products and services. At the same time, the entire technology system of China Merchants Bank is continuously iterating and upgrading.

For example, the mobile banking service for retail customers is recognized as the best retail mobile banking in China. Cloud migration is an inevitable trend in technology, and China Merchants Bank completed the full transition of its technology system to the cloud by the end of 2022, leading among large banks in China.

In the strategic transformation direction of China Merchants Bank's "Four Modernizations," digital transformation is also one of the important strategies. Of course, the work content of digital transformation is very rich, but the most important opportunity at present is intelligence.

As for the impact of intelligence on the management of China Merchants Bank, he could not provide a definitive conclusion.

Firstly, everyone has some perception of the disruptive nature of large models, which is a disruptive technology. However, whether large models will disrupt the world is a question that he believes still needs observation, as there are different viewpoints.

For the banking industry, since it is itself a form of digital economy with high digital characteristics, large models will undoubtedly play an important role China Merchants Bank has been very quick to act, establishing an artificial intelligence laboratory as early as 2017. The bank began laying out its strategy for the intelligent era many years ago and was the first domestic bank to establish such an institution, accumulating a wealth of talent.

Since the emergence of ChatGPT in November 2022, China Merchants Bank has placed great importance on this technology, and the management quickly formed a working group focused on AI+ finance. The bank is determined to become an intelligent bank and to lead in this area. Since then, investment in this aspect has significantly increased , and although GPUs are very expensive, China Merchants Bank has already purchased many GPUs.

To effectively work with large models, it is essential to build a complete technical system around them; merely addressing a few points is not sufficient . The large model technical system of China Merchants Bank consists of four levels: the bottom level is the computing infrastructure layer, above that is the foundational model layer, then the AI middle platform, and at the top is the application layer. The bank has constructed a complete system, and currently, more than 120 applications have been implemented.

Overall, in terms of effectiveness, colleagues in major business areas have developed a profound understanding of large models. There is a general consensus on further in-depth applications of large models to promote better and faster development of China Merchants Bank and to bring new competitiveness.

He provided an example, stating that in the retail sector, they developed an AI assistant to empower employees in various positions, with the number of empowered employees exceeding 30,000, including key roles such as client managers, product managers, wealth middle office, and remote agents, effectively enhancing the speed, depth, and breadth of service.

In the area of inclusive finance, addressing the characteristics of small amounts and numerous transactions, the developed large model assistant can assist client managers in writing due diligence reports and can also aid in loan approvals, improving the processing time for each loan by 54%, which is a significant figure.

In investment finance, a robot has been developed in the interbank money market that can provide quotes and inquiries, with over 50% of the work being handled by the robot.

In the fields of middle and back office operations, risk management, capital management, anti-money laundering, and others, many large model applications have been implemented. Overall, the application of large models in various areas of China Merchants Bank has shown a certain degree of breadth.

Of course, it is still in the early stages, but by 2024, the new productivity created through large model applications is preliminarily estimated to be equivalent to more than 5,000 full-time personnel, forming a significant force.

In this direction, China Merchants Bank will make a firm investment, aiming to become a benchmark for intelligent banks in China's banking industry.

Of course, when mentioning large models, there is one thing that must be noted: it is still a new technology, and large models may produce hallucinations and make mistakes. China Merchants Bank takes this very seriously, generally adhering to a prudent principle and taking various measures to eliminate technological uncertainties, particularly paying close attention to strictly complying with financial regulatory requirements and protecting customer experience. In the promotion and application of large models, efforts will be made to maximize their positive aspects while minimizing their shortcomings Regarding whether China Merchants Bank will apply DeepSeek, Zhou Tianhong introduced that this is indeed a hot topic in the technology field at present. The V3 and R1 large models mark a significant breakthrough in China's large model technology. They play a crucial role in three directions: the popularization of large models, innovation in large model training technology, and innovation in large model applications. It is particularly noteworthy that these two models have had a positive impact not only in China but also globally.

China Merchants Bank also attaches great importance to this. Shortly after the launch of the V3 and R1 models, they achieved full-size model deployment on a private cloud and have already built post-training capabilities for these two models. This means that the models can be fine-tuned to meet the specific needs of China Merchants Bank in financial scenarios.

However, since these two models were launched relatively recently, although they are powerful, they also have some hallucination issues. In the prudent industry of finance, the principle of prudence is still adhered to, and the application of the models is advanced with a cautious attitude. China Merchants Bank will ensure that while applying these advanced technologies, it can also control risks and ensure the stability and security of financial services.

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