China Merchants Bank (CMB), a leading financial institution, has disclosed its interim results for 2024, revealing a dip in net operating income and net profits compared to the previous year. Despite headwinds like shrinking interest spreads and falling rates, CMB has taken strategic steps to sustain stability and profitability.
The bank has reported transaction values of RMB2.21 trillion, affirming its industry dominance, and has seen a 7.61% increase in featured finance. CMB's comprehensive strategy encompasses asset allocation, liability management, customer base expansion, and a focus on digital transformation and innovation.
Key Takeaways
- CMB experienced a decrease in net operating income and net profits year-over-year.
- The bank has maintained a transaction value of RMB2.21 trillion and a 7.61% increase in featured finance.
- CMB is concentrating on asset allocation, liability management, and customer base expansion.
- There is a strategic emphasis on retail, corporate, retirement finance, and transaction banking segments.
- Digital transformation and innovation, particularly in AI, remain a priority for CMB.
- CMB plans to balance asset growth with capital adequacy, liability structure, and profit growth, targeting an 8-9% loan growth rate.
Company Outlook
- CMB aims to differentiate competitiveness and improve operational efficiency.
- The bank is committed to strengthening risk management and upholding fundamental principles.
- Technological advancements and high-quality growth are at the forefront of CMB's strategy.
Bearish Highlights
- Net interest margin (NIM) faces continuous pressure, with a decrease of 2 basis points from the previous quarter.
- Challenges in retail loans and asset quality are anticipated due to external factors.
- Fee and commission income growth is under pressure, particularly from insurance and mutual fund agency sales.
Bullish Highlights
- CMB maintains robust capital strength and a leading position in the industry.
- The bank has achieved balanced development across key financial segments.
- Asset management and wealth management products have seen growth.
- International development includes branches and subsidiaries in various countries, focusing on cross-border finance services.
Misses
- A decline in the proportion of credit card and residential mortgage loans contributed to the NIM decrease.
- Pressure on non-interest income growth and a smaller contribution from bond trading are expected in the second half of the year.
Q&A Highlights
- President Wang emphasized stabilizing fundamentals, asset quality, and market share as key goals.
- The decision on interim dividend payout will be based on capital adequacy ratio and business development needs.
- CMB will focus on increasing management efficiency and reducing costs to ensure profit growth.
In summary, China Merchants Bank (CMB) is navigating a challenging financial landscape with strategic initiatives aimed at maintaining its market position and ensuring long-term profitability. The bank's focus on digital transformation, asset management, and international development, coupled with its prudent approach to risk management, positions it to manage the current headwinds effectively. CMB's leadership remains confident in their strategies to drive growth and stabilize key financial metrics in the upcoming periods.
InvestingPro Insights
China Merchants Bank (CMB) has a long-standing reputation for financial stability and growth, which is reflected in its recent performance metrics and strategic initiatives. According to InvestingPro data, CMB boasts a market capitalization of $109.32 billion, underscoring its significant presence in the banking industry. Despite a slight decline in revenue growth over the last twelve months as of Q2 2024, with a -0.87% change, the bank has managed to maintain a high operating income margin of 59.34%, which is indicative of its efficient operational management.
InvestingPro Tips reveal a mixed picture for CMB. On the positive side, the bank has demonstrated a commitment to shareholder returns, raising its dividend for 10 consecutive years and maintaining dividend payments for 22 years. This consistency is a testament to CMB's financial resilience and its position as a prominent player in the Banks industry. The bank's P/E ratio stands at an attractive 5.62, which may suggest that its stock is trading at a low earnings multiple. However, it's important to note that this is paired with a PEG ratio of 3.86, indicating a high P/E ratio relative to near-term earnings growth—a factor investors may want to consider.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/CIHKY, which could provide further insights into CMB's financial health and market performance. These tips could be particularly valuable for understanding the bank's cash flow situation, gross profit margins, and profitability predictions for the year.
In summary, while China Merchants Bank faces some challenges, its strategic focus on digital innovation, asset management, and international development, coupled with its strong operating income margin and consistent dividend payments, suggest that it is well-equipped to navigate the current financial landscape.
Full transcript - China Merchants Bank Co Ltd (CIHKY) Q2 2024:
Xia Yangfang: Dear investors, analysts, good morning. CMB 2024 Interim Results presentation will now begin. I am Security Representative of China Merchants Bank and General Manager of the Office of the BoD, Xia Yangfang. CMB has announced its 2024 interim results last Thursday evening. Today's event is being conducted via live streaming. I would like to now introduce the members of the bank's senior management who are with us today. They are Mr. Wang Liang, President and CEO; Mr. Zhu Jiangtao, Executive Vice President; Ms. Wang Ying, Executive Vice President; Mr. Peng Jiawen, Executive Vice President, CFO and Secretary of the BoD. We have also invited independent Non-Executive Director, Mr. Chen Dong attending the event online. On behalf of China Merchants Bank, I would like to welcome you all to the conference, and thank you for your long support and interest in -- and investment in CMB. In today's presentation, we will have two sessions. The first session will be given by Mr. Wang Liang to review our financial highlights. And the second session will be a Q&A session, which lasts around 90 minutes. Simultaneous interpretation in English will be provided for both the sessions. Now I would like to give the floor to President Wang on the introduction of the 2024 interim results.
Wang Liang: Hello, everyone. Good morning. Welcome to CMB's 2024 Interim Results Presentation. Today, my presentation will be divided into three parts. First, is an overview of the first-half of 2024 performance. Second, it is about specific operational information. And finally, we will briefly address operational strategies for the second-half. In first-half, to the strategy of building a value creation bank and promote high-quality development and carry out various business activity in a sound manner, achieving dynamic balanced development of quality, profitability and scale, which was mainly reflected in the following six aspects. First, the group pursued progress on its stability and maintain sound profitability. In the face of unfavorable factors such as narrowing interest spreads, declining rates and insufficient effective credit demand, the group took proactive measures to respond and key profitability indicators such as operating income and net profits remain resilient. Net operating income amounted to RMB172.92 billion decreased by 3.11% year-on-year. Net profits attributable to the shareholders of the bank, RMB74.74 billion, decreased by 1.33% year-on-year. ROAA and ROAE were 1.32% and 15.44%, decreased by 0.13 and 2.11 percentage points year-on-year, respectively, maintaining its leading precision in the market. NII was RMB104.45 billion, representing a year-on-year decrease of 4.17%. Given the continued decline in return on assets and the continued trend towards time deposits, the asset and liability management has been continuously strengthened. The NIM was 2%, representing a year-on-year decrease of 23 basis points, which was still a relatively good level in the industry. Net non-interest income was RMB68.47 billion, representing a year-on-year decrease of 1.43%. Affected by the continuous impact of fee reduction, capital market fluctuation and the decrease of customer risk appetite, net fee and commission income was RMB38.33 billion, representing a year-on-year decrease of 18.61%. We seized the market opportunity of bond investment. Other net non-interest income was [RMB30.15] (ph) billion, representing a year-on-year increase of 34.71%. Affected by a decrease in operating income. Cost-to-income ratio was 29.75%, increased by 0.68 percentage points year-on-year. As the operating income remains under pressure, we adopt lean management to control the cost and achieve cost reduction and efficiency enhancement. On one hand, we ensure fintech input and input in key regions and key areas. On the other hand, basic expenses such as premises, operations, equipment administration were further reduced. We also actively promote green and low carbon operations. Initial results were seen in expense control with operating expense, debt decreased by 0.5%. Second, we continue to optimize and improve efficiency of asset allocation. We strive to overcome challenges of insufficient effect of credit demand and take multiple measures to strengthen asset origination and maintain reasonable and stable proportion of high-yield assets. Total assets were RMB11.57 trillion, representing an increase of 4.95% from the end of the previous year, among which total loans was RMB6.75 trillion, an increase of 3.67% from the end of the previous year and accounting for 58.3% of the total assets remain at a high level. We grasped the pace of bond investments. The volume of it increased by 2.95% from the end of the previous year. We strengthened coordinated management of the interbank assets and built assets. Interbank assets increased by 42.78%, as compared with the end of the previous year. The discounting balance decreased by 7.71%, as compared with the end of the previous year. Thirdly, we enhanced liability management and maintained funding cost advantage. We promoted growth of global cost core deposits, strengthened deposit cost control, advanced the growth of high-quality deposits and maintained our core advantage of low-cost liability. Total liabilities were RMB10.46 trillion representing an increase of 5.18%. Among the total deposits, RMB8.66 trillion, representing an increase of 6.22%. Average daily balance of core deposits increased by 4.42%, compared with the previous year, accounting for 86.2% of the total. Average daily balance of demand deposits accounted for 52.32% of the total, representing a decrease of 5.70 percentage points. Cost ratio of interest-bearing liability was 1.72% increased by 1 bp year-on-year. Among them, average cost ratio of customer deposit was 1.6%, decreased by 2 bps year-on-year. Fourth, we consolidated structural advantages and maintained high proportion of non-interest income. We continue to optimize business structure and income structure with retail business contributing to over half of the value creation and the proportion of net non-interest income increased in a steady manner. Balance of retail loans was RMB3.54 trillion, an increase of 3% from the end of the previous year and accounting for 52.48% of the group's total. Retail business with its proportion of net operating income and profit being 55.48% and 57.11%, respectively, continue to serve as a milestone of the group's business. Net non-interest income accounted for the 39.6% of net operating income with a year-on-year increase of 0.67 percentage points. Fifth, we maintained stable asset quality and strong risk compensation capability. NPL balance totaled RMB63.43 billion, an increase of RMB1.8 billion, as compared with the end of the previous year. NPL ratio, 0.94%, a decrease of 0.01 percentage points. Annualized credit cost ratio was 0.77%, a year-on-year decrease of 0.11 percentage points. Allowance coverage ratio was 434.42%, a decrease of 3.28 percentage points, as compared with the end of the previous year. Allowance to loan ratio 4.08%, down by 0.06 percentage points, remaining at a high level. Sixth, the group sustained robust capital strength with continuous endogenous growth. The core Tier 1 CAR and CAR under the advanced measurement approach were 13.86%, 16.09% and 17.95%, respectively, an increase of 0.13, 0.8 and 0.7 percentage points, respectively, as compared with the end of the previous year. So under the weighted approach, core Tier 1 CAR, Tier 1 CAR and CAR were 11.64%, 13.51% and 14.6%, respectively. It would be increased if eliminating the effects of annual cash dividends. The second part is about the following information. In the first-half of the year, the company made progress, while maintaining stability in terms of its business development. The three fundamental customer base as a quality and market share were more solid. It was mainly reflected in the following five affects. First, the company continued to expand customer base with more solid customer foundation. We adhere to the core value of being customer-centric and creating value for customers and further enlarge the basic customer base, deepen the operation of the value customer base and achieved remarkable results. Retail customers was 202 million, an increase of 2.54%, as compared with the end of the previous year. Among them, number of gold and sunflower and above customers was 4.996 million, increase of 7.67%. Number of customers holding wealth management products was 54.73 million, an increase of 6.52%. Active credit card users amounted to 69.35 million, a decrease of 0.59%. Corporate customers totaled 2.974 million, an increase of 5.46%, as compared with the end of the previous year. Among them, newly acquired corporate customer was 255,000, number of customers for withholding transaction was 1.19 million with a year-on-year increase of 13.19%. Number of sci-tech enterprise customers was 1,449,000, an increase of 5.8%, as compared with the beginning of the year. And second, we achieved balanced development of four major segments with more distinctive business features. Retail Finance business in terms of wealth, we focus on the basic needs of customers in deposit low-end and remittance and continue to improve customer service system, strive to be their principal bank for settlement and the principal wealth management bank for customers and further consolidating our leading position. Retail AUM, AUM from retail customers surpassed RMB14 trillion, achieving RMB14.2 trillion, representing an increase of 6.62%, among which AUM from Golden sunflower and above customers increased by 7.03%. Deposits from retail customers increased by 8.52% and accounting for 43.14% of the total deposits, an increase of 1.04 percentage points. Under the circumstances of weak demand from residential mortgage loans and credit card loans, the company proactively adjusted the loan structure and achieved steady growth, representing an increase of 2.98%, as compared with the end of the previous year in terms of the retail loan. We're dealing in concrete strategy of stability and low volatility of the credit card business. Operating income of the credit card business was RMB44.708 billion with a year-on-year decrease of 1.17%. And the transaction value was RMB2.21 trillion, remaining the leading position in the industry. For Corporate Finance, we further refined and strengthened to develop new advantages of featured finance, FPA to corporate customers totaled RMB5.99 trillion, representing an increase of 7.61% over the beginning of the year. In response to the policy of national industry upgrading, the growth rate of loans in key areas such as sci-tech finance, green finance, inclusive finance and manufacturing finance was higher than the average of the loans granted by the company. Retirement finance business was regarded as the strategic business of the group. With continuously increased of resources, we have issued a total of 68.89 million electronic social security cards, an increase of 10%, as compared with the end of the previous year. We provided entrusted annuity and account management service to more than 900 -- 9,000 enterprises and the number of accounts under management reached 2.21 million. Cash and funds under custody amounted to RMB1.17 trillion, an increase of 11.43%. Transaction banking business was actively integrated into the digital transformation of enterprise. Domestic trade finance business volume increased by 12% year-on-year. The focus on the characteristic cost for the customer groups provided one-stop solutions for the global operation of enterprises, both for the finance recorded $258.11 billion of international BOP for corporate customers. We pursue professionalism and innovation in investment banking and financial markets gave full play to the characteristic of integrated operation of IB and CB and provided three-dimensional all-round and multilevel financing support to clients. We continue to build our unique advantages in IB business and strengthen our ability to serve the rural economy. Debt financing instruments with us as the lead underwriter record a year-on-year increase of 11%, ranking third among our peers. We strive to build differentiated competitive edges in the financial market and provided tailored solutions against financial market risks such as exchange rate and interest rate risk faced by enterprises. Transaction volume of renminbi bond investments recorded a year-on-year increase of 17.39% and transaction volume of clients with trainings with total customers reported a year-on-year increase of 11.66%. We focus on interbank clearing, settlement and depository business scenarios to expand sources of low-cost liabilities. We partnered with 107 security companies from third-party depository services and served 17.14 million customers, an increase of 3.13%, as compared with the end of the previous year. Well, management and asset management business, we continue to further expand and strengthen. We actively grasped the needs of residents and enterprise for wealth preservation and appreciation and improves our asset allocation capabilities. Balance of retail WMP amounted to RMB3.76 trillion, an increase of 7.3%. Agency distribution of non-money market neutral bonds and premiums from agency distribution of insurance products increased by 89% and 11%, respectively year-on-year. Average daily balance of corporate WMP increased by 14.59%, as compared with the previous year. Under the TREE Asset Allocation Service, the number of customer conducted allocation underwrite reached 9.98 million, an increase of 9.35%, as compared with the end of previous year. We continue to improve our professional capability in asset management. Business scale of asset management amounted to RMB4.46 trillion, which remains basically stable. Asset custody business made new breakthroughs with the balance of assets under custody reaching RMB22.06 trillion, an increase of 4.45%. Thirdly, we accelerated development in key regions and continue to improve synergies within the group. Facing the low interest rate environment, we expand new areas, develop new advantages and promoted branches in key regions to improve quality and efficiency. We also enhance the competitiveness of subsidiaries that upgrade value contribution to achieving positive operating results. For branches, in key regions, their growth rates of value customer for deposits, AUM and other net operating income were higher than the average of the bank. Our Hong Kong subsidiaries and branches developed in a steady manner. CMB Wing Lung Bank gave full play to the full license advantage, continue to improve comprehensive service for customers and realized a total assets of HKD447.03 billion, increase of 4.78%. Hong Kong branch of the company achieved net operating income of HKD1.59 billion. CMB International Capital reported net profit of HKD 871 million, year-on-year increase of 6.74% with its IPO underwriting share ranking top in Hong Kong market. The company's subsidiary developed in a sound and healthy manner. The balance of WMPs under the management of CMB Wealth Management amounted to RMB2.44 trillion, a decrease of 4.31%, as compared with the end of the previous year, maintaining leading position in the industry. The scale of asset management business of China Merchants Fund increased by 3.87% and total asset of CMB financial leasing increased by 8.8%. Both we strengthened comprehensive risk management and prevent risks in key areas. We made strict classification of assets, fully exposed risks, persistently reduce and dispose of risk assets and effectively manage all kinds of risks including risk, market credit risk, market risk, liquidity risk, operation risk and compliance risk, maintaining stable asset quality across all businesses. Retail NPL ratio was 0.9%, a slight increase of 0.01 percentage from the end of the previous year. Corporate NPL ratio was 1.13%, a decrease of 0.06 percentage points from the end of the previous year. Newly formed NPLs amounted to RMB31.9 billion, an increase of RMB1.4 billion year-on-year. Annualized NPL formation ratio was 1.02%, a decrease of 0.02 percentage points year-on-year. The ratio of NPL balance to the balance of loans overdue for 60 days was 1.14%. The company closely monitor changes in the situation and continue to strengthen risk prevention and resolution in key areas. Corporate real estate loans, the balance of it was RMB303.9 billion remaining stable. NPL ratio was 4.78%, a decrease of 0.23 percentage points from the end of the previous year, making a decline for four consecutive quarters. In terms of manufacturing loans, we closely monitor industry capacity changes, dynamically adjust and optimize industry credit policies. The NPL ratio for the manufacturing industry was 0.48%, a decrease of 0.05 percentage points from the end of the previous year. In terms of retail loans, we closely monitor trends in risk changes, continuously select high-quality customers and maintain overall good asset quality. NPL ratios for residential mortgage loans and microfinance loans were 0.4% and 0.63%, respectively, up by 0.03 percentage points and 0.02 percentage points, respectively, NPL ratio for credit card loans and consumer loans were 1.78% and 1.04%, respectively, representing an increase of 0.03 percentage points and a decrease of 0.05 percentage points from the end of the previous year. Fifth, we adhere to innovation-driven development to build digital CMB. We enhanced acceleration of cutting-edge technology applications with “AI +finance as a key focus, shifting from online CMB towards Smart CMB. We continue to implement the AI +finance strategy. In customer service, the intelligent wealth management assistant, Xiao Zhao, was evolving into a listening and responding bank assistant, significantly enhancing its service capabilities. Internally, we advanced the application of AI large model within the bank scenarios. We continue to develop the new service model of people + digitalization with CMB App and CMB Life App MAU totaled 117 million. The online processing rates for financing business and foreign exchange business continued to improve. We strengthened internal intelligent applications over 500 operational process, completed intelligent transformation and applications with process efficiency of key businesses increased by 56%. The workload equivalent to 16.33 million working hours that was completed by intelligent application up 36.72% year-on-year. We fully leveraged the benefits of cloud infrastructure and further explore data potential, given the construction of data middle office and technology middle office to enhance R&D efficiency lower data application thresholds. Big data service covered 60% of the employees in the bank. Finally, I will briefly introduce our business strategy for the second-half of 2024. At present, the external environment is characterized by intertwining trends, cyclical, structural and policy factors leading to increased uncertainty for the banking industry. First, the macro environment is complex and changing. Since this year, China's economy has continued to pick up. However, the external environment has brought adverse impacts, such as insufficient effective credit demand, differentiated economic operations with numerous risks and potential risks in key areas and the shift from old to new growth drivers involves difficulties. In second-half, macro policies will continue to play an important role, strengthen countercyclical adjustments, and carry out reform as a driving force to promote steady growth, structural adjustment and risk prevention, which are conducive to the positive trends of economic recovery. Second, the banking industry faces both challenges and opportunities. In the face of challenges such as lowering interest rates and declining fee rates and the interest rate spread of the banking industry has been narrowing and the profit has been under continuous pressure bringing a major test to the sustainable development of banks. Meanwhile, the government's measure of promoting Chinese modernization developing new quality productive forces and advancing high-level opening up generates a large number of market opportunities. Residents and enterprises have strong demand for wealth preservation and appreciation and extensive wealth management business still has a broad space for development. Third, technological revolution has accelerated industrial differentiation, represented by AI. The technology revolution has driven the transformation of the banking industry to be digital and intelligent resulting in intensified industry differentiation with strong strength of technology development, we rely on technology innovation to lead innovation in products, service models, management to realize earlier transformation and adapt faster to the future development. In the second-half, the group will adhere to its strategic goal of building a value creation bank and continue to promote high-quality development, driven by the dual engines of adopting strict management, upholding fundamental principles and breaking new ground. We will maintain our strategic focus, consolidate advantage and tap into the potential to strengthen, improve and expand our service to the rural economy, thereby creating greater value for our customers, employees, shareholders, partners and society. First, we will maintain our strategic focus and continue to build differentiated competitiveness. We will consistently adhere to a differentiated development strategy to sustain our market-oriented vitality. And first let me speak to the strategic position in retail finance, consolidated and expanded systematic advantages of retail business and accelerated development of corporate finance, investment banking and financial markets, wealth management and asset management segments in order to better meet the multilayered and diversified financial needs of the customers. Second, the company will improve its operational efficiency and effectively strengthen value creation capabilities. We will return to our original focus to expand, strengthen and improve the customer base and promote the long-term sustainable growth of the three fundamental business, asset liability and intermediary business so as to improve the returns of all business segments. We will actively cultivate new business and new advantages, continue to improve the development of key regional -- key branches in key regions, improved the service capabilities of overseas branches and subsidiaries and gave full play to the synergistic effects of comprehensive operations and accelerate a new growth momentum. We will strictly thoroughly guard against risk, protect bottom line and enhanced comprehensive risk management capability. We will uphold the study and prudent risk culture, solidify the foundation and effectively implement risk management. We will respond closely to changes in the risk landscape, rigorously control risk in key areas and firmly maintain the confidential quality of our assets. We will fourthly, reinforce strict management and improve sustainable development capabilities. We will enhance refined management of costs, make efforts for sound management of funding costs, operating costs, risk costs and capital costs and improve the scientific refined and digital level of internal management and with an aim to establish a long-term mechanism for cost reduction and efficiency enhancements. Fifth, we will insist on upholding fundamental principles and breaking new ground to fuel high-quality growth. We will insist on ensuring technological input focus on cultivation of digital talent and promote digital transformation. We will keep pace with the wave of the AI, accelerate the research and application of large language models, beat up the release of benefits of data assets, continue to lead innovation in model business, products and management through technology, innovation and deepen the draw empowerment of people + digitalization and technology plus business in order to create a new moat for the future development. This is my introduction. Thank you.
Xia Yangfang: Thank you, President Wang. Now we will enter into the Q&A session. Please follow the instruction given by the operator to raise questions. And please introduce your name and the agency you represent before you raise the question.
Operator: [Operator Instructions] The first question is coming from CITIC Securities, Ms. Xiao Feifei.
Xiao Feifei: Thank you for giving me this opportunity. My question is about the business model. We found that the growth rate of your loan at the end of June is a little bit slower than in the first quarter. So against this backdrop, what is your strategy for expansion of your asset book? And are you expecting to slowing down your growth rate of your assets? And as your target for loan growth this year, continued to be 8% to 9%, if you want to slow down your asset growth rate, how can you balance the relationship between capital adequacy ratio, asset and liability structure, as well as the profit growth? And in the future, whether you are laying more emphasis on returning more to your shareholder? Thank you.
Wang Liang: Thank you for your question. And before answering your question, I would like to grant my thanks to all the participants today. And last Thursday, we published our semiannual results and I saw many reports and analysis about our report. And I thank you for all your suggestions that you have posted in your reports. And there are many questions raised by investors this time. And I would like to share with you my views on our developments currently. I think there are three major characters. The first one is we are even more clearer in terms of our targets, and our target is to become a value-creating bank to create value for shareholders, employees, our cooperators as well as our society and our shareholders. So this is the goal of us mainly to build a value-creating bank to support a long-term growth. Secondly, I think we are having a steady pace of growth. In order to reach the goal of value bank, we emphasize on efficiency, asset quality, as well as asset size growth. We want to keep a balance among different business sectors, namely four major business sectors, including retail, corporate, investment banking and asset-light management and wealth management, and we have achieved quite a results in this regard. And thirdly, we think that our foundation is even more solid than before. We continue to consolidate our foundation for business, for management and also for our talent teams, and we have reinforced our efforts in this regards to support the long-term growth. And fourthly, and we are -- we think that in the first-half of the year, we are stronger in terms of our financial statements. Our asset quality is still fine with a low risk rate, and we have quite a high coverage ratio over 430%, and we continue to grow our capital indigenously so that we can offset the unexpected risk and also to support our business growth. And I actually didn't directly answer your question, but I would like to share my views on this four aspects. I would like to say that we are strengthening our capability to sustain our long-term development. And also this year, we also say we want to reinforce our internal management and to reinforce innovation to drive our growth in the future. These are all the ways that we want to tackle with a low interest environment and also to tackle with the environment that with even more unexpected factors. So this will help us to keep healthy growth. And just now your question was about whether we want to slow down our growth rate in terms of assets and also in terms of loan and how we can strengthen our asset allocation to sustain a stable growth and to optimize our asset and liability structure. Just now I share my philosophy of management with you. I think we will continue to stick to the principles namely under the backdrop with less effective demand and also facing the pricing of loans coming down. And also, we are facing quite a fierce competition among peers. And our banks are trying to lower down the loan price so as to compete with each other. And CMB will stay firm to our strategy and to be rational in terms of asset growth. So to strike a balance among asset size, efficiency as well as asset quality. And these are -- continue to be our principle namely asset quality will be the first top priority. And then we will place profitability efficiency before asset size growth. And this is our main philosophy about how we go around with our asset growth. And with this principle, we think, in terms of asset allocation, we will continue to optimize that. And very importantly, we will expand our customer base and to ensure that asset quality is stable and optimize our loan structure and also to maintain our advantage in terms of retail loans. Retail loan will continue to be the backbone of our loan book. And in terms of corporate loan, I think we will also continue to improve, increase our loans in terms of the manufacturing green loan, but with a precondition that the risk will be under control. And currently, we are facing a problem with less effective demand. So we will also increase our investment into bonds or interest rate bonds and also credit bonds to supplement that less investment in loans. And also at the same time, we will also increase our interbank assets placement with this nonbank financial institutions to -- at the same time, ensure the profitability and ensure the stable asset size growth. So that just means that at the same time to ensure asset quality will be guaranteed. And also at the same time, we will continue to ensure us to achieve a stable NIM as well as asset growth. Second question, please.
Operator: Second question is from Mr. Xu Richard from Morgan Stanley (NYSE:MS).
Xu Richard: Thank you for giving me this opportunity. I got a question for mortgage. The Bloomberg had a news that it might be possible there will be a refinancing scheme for mortgage or lower down the existing mortgage again. So what will be the impact on CMB and how CMB will cope with that?
Wang Liang: Thank you for your question. And for this refinancing of mortgage, we also learned the news from the media, but we haven't got any official notice from PBOC or the financial regulatory authority. They haven't consulted us. And I think that we don't have any clearance or confirmation about these news. These are only media reports. But I think if this policy is rolled out, this will definitely have some negative impact on the rate, on the existing mortgage. I think the regulators will study the policy, the impact on the study, and we'll do it in a prudent way. Thank you. Next questions, please.
Operator: Next question is from Gary Lam from HSBC (LON:HSBA).
Gary Lam: Thank you. Gary from HSBC. My question is about asset quality. In this quarter, I think CMB's asset quality is stable, but many other bank peers, as a quality, we are seeing quite a big rise in terms of non-performing loans or non-performing loan rate. So could you please share with us your views on asset quality, including your retail assets or corporate assets?
Xia Yangfang: And yes, Mr. Zhong will answer this question.
Desheng Zhong: Thank you. As for asset quality and also the forward-looking of our asset quality, I would like to share my views on that. In the first half of the year, we stick on our strategy of value-creating bank and stick to the principle to have a coordinated development between the asset quality, efficiency and also scale. And we have maintained a stable asset quality by the end of June. Just now Mr. Wang has given you a review in his presentation. And if we look at the structure and also dynamic change of our asset quality, I would like to give you some details. In terms of corporate, and we select customers in a stable manner, prudent manner and corporate banking asset quality is stable. By the end of June, the NPL ratio is 1.13%, and it's down by 0.06 percentage points. And also NPL formation rate has also declined compared to the end of last year. And the industries which have a higher NPL ratio also have seen their NPLs decline, including manufacturing, and it's down by 0.05 percentage point compared with the last year. And also for the transportation industry is 0.27%. NPL ratio is also down compared to the end of last year. And also property industry is also down by 0.03 percentage points compared to the beginning of the year. So as you can see, it's quite stable. In terms of retail banking loans, it's also one of our featured business. And first, we have a sound customer base and it's highly diversified. And our retail asset quality is also stable with NPL ratio 0.9%, but for sure, we have seen in the first-half of the year the special mentioned loan ratio and our overdue loan ratio has increased a little bit. I think this is also the same trend with the industry for special mentioned loan and overdue loan. I think there are two factors. One is objectively and one is subjectively. In a more objective way, we can see that in corporate banking, some industries have been affected by economic downturn. And we have seen cash flow problems in customers. In some industries, we are seeing some customers, they have to see overdue, like in the customers in the property sector, just as I mentioned. As we are seeing continuous adjustment in the property sector and the sales volume hasn't recovered yet, so it definitely had some impact on the customers' cash flow. And this is one of the factors. And in terms of corporate banking, we have seen overdue loan and special mentioned loan ratio has also increased a little bit. SML ratio is up by 0.07% and also overdue loan up by 0.08 percentage point compared to the end of -- beginning of the year, but it's still quite stable. And some of the individual customer also have seen difficulty for repaying back the loan, it's also the same as we -- they have their subjective factors. Like for some credit card customers, we have done tailor-made kind of installment payment scheme for some individual customers. And we reinforced our risk classification. We marked this kind of customer as overdue or special mention. So this is because we strengthened our risk management by risk classification internally. So this is about what we have in the first-half of the year. If we look into the second-half of the year, and we think that there are many complexities and changeable factors in our external environment, so risk arising. And we have done investigation and also stress test for our asset quality. And in the second-half of the year, we are confident we can continue to maintain a stable asset quality. Overall speaking, I think our asset quality will be in a stable manner. The main rationality behind that are as follows, namely, why we can maintain a stable asset quality? Firstly, we have a prudent and stable risk culture, we continue with this culture. Secondly, in terms of asset structure and also customer structure, we continue to have our advantage, and we continue to dynamically adjust that this ensures that we have a solid foundation for our stable asset quality. And actually, we try to build up our risk capabilities so that can go through cycles and to face the future. That is why we have a higher proportion of our retail loan. Just as Mr. Wang has said that retail loan just as Mr. Wang has said that retail loans due accounted for over 50% of the total loan book and retail loans are highly diversified and more collateralized. Retail customers are more -- we have a more quality retail customer, so which means that we are -- is more risk -- can guard against the risk and can go through cycles. In terms of corporate banking from the beginning of this year, we continue to deepen our understanding about industries. We emphasize on 13 industry clusters. And to do our loan business, the 13 industry clusters are highly emphasized also by the national strategy is more target in industries which can -- which have potential in the future, like the new productivity for industries that is more affected by cyclical factors, we also have intensified risk management for these industries. So we have diversified different industry policies for different sector to ensure that we have continued to optimize our asset and customer structure. And thirdly, in terms of risk disposal or risk mitigation, we're stepping up our efforts such as in the property sector. For newly increased business, we have diversified business. We emphasized on quality regions, quality customers and quality projects. For existing, property projects, I think risk management is the top priority. We have tailor-made risk management measures for each project and each customer. We are accelerating risk mitigation for projects with a projected risk. So as you can see, we have a lower proportion of property loans in our total loan book and also our asset quality is stable. As you can see, the proportion of our property loan in our total corporate loan book is 12.26%, is lower from the level at the beginning of the year. And also NPL formation for property loan has also come down. And the coverage ratio for public sector is much higher than the average ratio for corporate loan book. So it's a sufficient number -- sufficient coverage for that. And for the local governments, we are seeing that is also stable local government financing vehicle, this also asset quality is stable, and we are continuing to optimize the loan structure. For these kind of LGFV business, so we have a very sound asset quality with a very, very low NPL ratio. And this is mainly because our -- we have classified and diversified risk management for this kind of LGFV customers and our credit policy for different regions are also different. For small- and medium-sized financial institutions where we're prudent on that, for our own balance sheet business, we don't have any NPL. So these are the major areas I would like to emphasize on. And fourthly, we continue to consolidate our risk management system and also to improve our approach and also capability in this area. And we think that we are more effective in this regard and more forward-looking when we continue to improve our capability on that front. And fourthly, we continue to dispose the NPLs as well. In the first-half of the year, we have disposed around CNY30 billion NPL assets is up by around CNY2.2 billion. So it means that at the same time, we are optimizing our asset quality, and we are disposing the existing NPLs as well. So I think that looking ahead, we will continue to stick to our strategy and risk will remain the top priority and maintain a stable asset quality to make sure that asset quality will be stable and sound. Next question, please.
Operator: The next question is from CICC, Mr. Wang, Ziyu.
Wang Ziyu: Thank you, senior management for giving me this opportunity. I'm the analyst from the banking industry from CICC, Wang Ziyu. I have a question about wealth management. For the past two quarters, we see that the client number and AUM growth of CMB Wealth Management has hit the bottom and rebound. So we also see an announcement from CMB about the active fee reduction in the mutual fund product. So I would like to understand that what internal improvement that CMB has been made during the current capital market situation? And what is your mindset behind the active arrangement of fee reduction?
Unidentified Company Representative: So that our Wealth Management business for this year -- so the customer base and AUM growth is -- we see very good performance. That's the fundamental of Wealth Management business. For customer base, our retail customer number has remained steady growth, especially the customer base quality improved a lot. For debit card, the Golden card and above customers growth rate was 6% higher than the average growth rate of 3.7% and last year's growth rate of 5.3%. So credit card users up by 4.2%. And also, we see higher user activities of the two apps and our MAU has achieved 117 million, up by 18%. To see from the customer base level, we stick to a sustainable acquisition of customer, payroll customers and high level of activity customer will be our focus. And also we satisfy our clients' needs in terms of remittance and lower and some basic other needs. And we also pay attention to the inclusive financial needs of our customers and build a better product delivered to our clients. And also, we deliver better products based on cross-border finance and retirement finance and other special services that we deliver to our customers. The second part is that our AUM has experienced a very good growth, hit history high for the past three years, achieving RMB14.2 trillion, and we see even more balanced structure. In terms of our AUM, non-deposit AUM growth has accounted for 67% of the total, up by 11% year-on-year. And we see even more balanced structure, for instance, in wealth management products. Net wealth management products increment increased by 73%. And for the past year, we see that negative growth in the past year of around 53% in the one month non-money-market fund products. And we also see increase in many more aspects, AUM increased by 22 bps. Mutual fund increased by 93 bps. This is what we have built as a strong base in terms of customers and in terms of the UN. How do we make such improvement in terms of our Wealth Management business? Firstly, we continue to promote TREE asset allocation service system. From the asset management perspective, we transform our perspective to provide services to customers through the TREE asset allocation system. We've done a lot in terms of building the underlying model to recognize customer portage, to allocate scientific assets and to provide quantifying services to deliver wealth management services. We have also provided scientific and database services through our relationship manager to deliver our clients. And third, we make sure that relation managers can provide standard services to our clients based on our unified service model from the tactic strategy perspective, from the system perspective and from the service delivery perspective. We have made improvements in all these levels. To lower our customers' entry level to pursue wealth management products and cooperate with our partners, to innovate new products, such as the soft products and provide accompanying service and investment and educational services to our clients. The international leading partners in the international community have always learned from these perspective, to always put our customer in the center and to transform to make income from consulting services and providing suggestions to our clients. So this is what have been improving in terms of our capability. In terms of our brand meeting in July about wealth management business, we have announced the big news of making 90% discount of our subscription fee. This includes all fees for all channels for all product types. But for this time, we have made a thorough fee reduction. And why are we making such kind of selection? Because we have always adhered to our principle of taking customer at the center to create value for our customer. It is our core and sincere starting point to create value for our clients, to let our clients make good investments from the products on our shelf. When the interest rates in the market is challenging, when the external market is challenging, we decide to make such a prudent decision, even though it would have influenced our intermediary income. It's a multiple choice questions. It is based on what we have select as our philosophy. Of course, we have made such decision based on careful consideration because we can take the negative impact brought by it. Of course, we have seen the income from clients holding wealth management products, has accounted for a higher proportion in terms of our total. And that's why we think that the discount we made in the transaction fee to sustain because we have been transforming from the traffic-driven operational model to a size-driven, a scale-driven operation model. We aim to be an expert to provide accompanying service to our clients so that they can make us more focused on customer strategy and some other strategies that allow us to provide long accompanying service to our clients. We wish that we can provide customers with more lower fee with more diversified product selection and more accompanying service to our clients. We believe that it is one direction from us to transform into an investment consultant in terms of company service, in terms of the sales of products. These aspects are all what we need to focus on in the next phase of our transformation in the Wealth Management business. Next question please.
Operator: Next question is from Mr. Wang Zhifeng from Point72.
Wang Zhifeng: Dear Senior Management. Thank you for giving me this opportunity. I’m Wang Zhifeng from Point72, I have a question about the NIM. We see in the second quarter, the decrease of NIM has narrowed. I would like to know what measures have you taken to stabilize the NIM? And what is your outlook of the next half of the NIM trend?
Xia Yangfang: The question will be taken by Mr. Peng.
Peng Jiawen: So this question is basically often asked by our analysts. So my answer is that continuous pressure will be seen in the NIM trend. So as you mentioned that even though our quarter-on-quarter decrease has narrowed, but generally, we see a decrease in NIM. For the quarter-on-quarter decrease, there is 2 bps compared with the first quarter with 4 bps of the last year. So year-on-year decrease of 23 bps is still a great pressure for us. But we think that the result is very hard to achieve. The core is that we think it's lying on the asset liability portfolio management. We have seen some results of our hard work, and the factors are basically the following aspects. The first one is about repricing, including LPR cut about existing residential mortgage lowering. These repricing influence continue to release its negative impact. The second is about supply-demand relationship change. For instance, the competition for high-quality projects, for residential mortgage loans, these have all lead to the repricing decrease, and this has bring us some pressure in terms of the downward trend. This is also reflected in our liability side. Even though influenced by the self-disciplinary mechanism, but we still see the deposit cost continue to be rigid because of the market competition -- the fierce market competition. The second is about the supply side and demand side change relationship. The third part is about loan. Credit card loan, residential mortgage loans proportion has decreased in a total retail loan, which has driven to the lower asset yield. And also in the deposit side, the lower proportion of demand deposit has also led to higher liability costs. And basically, these three factors will continue to exist. You must be concerned about the trend in the future. For quarter-on-quarter decrease, it will narrow. And the slowing pace will be more moderate. So compared with last year, it is also a phenomenon what we can see. For quarter-on-quarter decrease, it has been narrowed. It is also a fact compared with the 27 bps and the 23 bps quarter-on-quarter. For the third and fourth quarter, the trend will still go on. This year, I've also made my point clear with several communication with analysts. The pressure will continue, but the pressure will be released to some extent. We believe that -- if the external environment will not experience a lot of changes, under such backdrop, we believe that the NIM for the next year will stabilize. So I would like to introduce my three point of views. Firstly, is that the China's economic growth momentum will be positive. The supply-and-demand relationship will also sustain so that the trend, the momentum would be positive compared to this year. The second is that the regulator have been paying special attention to the NIM of the banking industry. And we can see the industry average level of the NIM has around -- has been around 1.5%. From the liability side and from the asset side, we will see more policies coming out to support such kind of situation. And through the both sides of supporting policies from the liability side and from the asset side, this will make the commercial banks NIM more stable. And the third, I think, is from our proactive measures taken by CMB. It is the time to fiercely test about a bank's asset and liability management capability, how to stabilize their relationship, their structure. It is an ongoing effort for CMB and it is what we will continue to do to drive effort to focus on. Additional areas, for instance, the repricing of our liability and we will pay special attention to the management of our structure. Well, sometimes we believe that how to manage the structure will influence even more on the NIM. Regarding deposit cost, it's even a very important influencing factor. For quarter-on-quarter decline of the NIM, it was 7 bps, is a very obvious decline. It is because of our demand deposit NIM decreased by 5 bps. And compared with the proportion of the demand deposits, we believe that the whole process of the liability management rely more on the structure to attract -- to acquire high-quality deposits as a grafting instrument for us. To evaluate our internal performance, we will pay more focus on the settlement-related deposits, low-cost deposits, payroll and the deposits arising from the growth of our customer base. We believe this is our core competitiveness. And for loan structure from asset structure, these are also very important perspective, how to better allocate our structure, how to make good investment of our interbank assets -- bill assets. And we continue to increase the proportion of retail assets in the total assets. These are all the aspects I would like to express. So based on our current management model, we will keep focusing on repricing. We will focus on the structural construction. And all in all, I believe that in the following trends, we will maintain our performance that is better than the market and outperforming our peers. I would like to make one additional point about the trend of NIM. So for China Merchant Bank, our NIM was 2% according to our latest report, and the average level of the industry was 1.54%, is still a leading position in the market. For our next step, we will guarantee the CMB's NIM to outperform our peers. Our NIM will be marginally enhanced and will be drifting towards a good positive and continue to stabilize. And at the same time, CMB will continue to lead the market in terms of the NIM. That is our basic judgment. Thank you. Next question please.
Operator: The next question is from China Security, Mr. [Indiscernible].
Unidentified Analyst: Dear Senior Management, thank you for the question. I have a question about international development. We see many Chinese companies going global, and there are many retail clients are seeking global allocation of assets. In your annual and interim reports, you have spent some content introducing the cross-border finance business. We noticed that China Merchants Bank have a lot of quality declines in domestic market. You have also developed overseas branches and subsidiaries. I would like to know about serving the Chinese companies going global. You might have to face challenges from the Chinese banks and also foreign banks. How do you continue to maintain our professionalism and competitiveness? What is your core competitive edges? And what kind of business will serve as the key product that you can use to serve your clients? I would like to learn from both the corporate and retail client side. Thank you.
Unidentified Company Representative: I will take this question. Thank you. International Development. This is what CMB has been focusing on, and this is also one of our core strategy. Since our inception, we have attached great importance to the international business. And through years of development, we have explored and establish our own featured advantages. We have established overseas networks to better serve Chinese companies going global. In New York, Sydney, Singapore, Luxembourg, London, we have established branches. We are also preparing for a new Dubai branch to better serve Chinese companies going to Middle East. In Hong Kong, we have CMB Wing Lung Bank and CMB International. We have consolidated our advantages. And also, we have established a subsidiary in Luxembourg called CMB Europe. In terms of this network, in terms of our branches and subsidiaries establishment, we have already construct our global presence. The second aspect is that we strive to construct the cross-border finance product metrics. The PBOC has granted us with an offshore banking license that we can provide services to companies registered in the overseas market and our cross-border settlement business, our overseas syndicated loan, our trade finance business, these are all what we can deliver to our clients. And for the third aspect, for -- and overseas foreign banks, we have established good relationships. They have established a large network across the globe. They have strong capabilities in providing professional services, and they have developed very strong risk and compliance culture. As we collaborate with these banks and provide collaborative services to our clients, we believe that these banks can offer us help in terms of risk understanding and to disrupt some local -- risk arising from local operations. And of course, CMB has already established a very comprehensive product system that is account system. For instance, the OSA account. The overseas registered companies can open OSA accounts with CMB and for companies registered in a Free Trade Zone and for the overseas enterprises, we can provide OSA and NRA, FT and EF accounts services to them, and we can also leveraging on our overseas branches to provide local account services to them. And for these years, we strive to provide these kind of services -- comprehensive services to our clients. As for the M&A financing and et cetera, these are all products and businesses that are undergoing fast development. For retail business, international development, our International Wealth Management business has actually cooperate with our license we have and the key areas that we focus. In Hong Kong and in Singapore, we aim to focus on these two areas to develop wealth management and private banking business. And in Hong Kong, we have obtained three licenses that can provide the retail banking service to clients and to provide better coverage of Hong Kong residents and residents from the domestic market that is traveling or studying in the Hong Kong market. In Singapore, we continue to build up the capability of private banking service in -- through our Singapore branch and to help Chinese citizens going to Singapore, the residents in Singapore to purchase real estate and et cetera. CMB's international business, a foreign exchange business and overseas business, we wish that the proportion of this business could continue to grow. We have been learning from the Japanese banking industry that in the past years, they continue to press on the development of international business to offset the negative influence brought by the market, the business in its domestic market. So basically, the international business development, to some extent, could bring us some new growth engine of our whole development.
Operator: Thank you, Mr. President Wang. We'll have the next question.
Unidentified Analyst: Thank you for giving me this opportunity. My question is about the asset quality in terms of retail banking. And we are seeing deterioration of retail asset quality among the industry. So would the management share your view on with us that what is your view on the outlook of retail asset quality? And especially for your retail loan, what would be the major point for loan growth in retail?
Xia Yangfang: And Ms. Wang Ying will answer this question.
Wang Ying: I think two parts. The first one is for our own calculation, we have a separate calculation of risk quality for retail loan, which doesn't include our credit card. In terms of retail loan, we have quite credit growth is growing by 117 billion for retail loans and also the higher proportion of market share. But I think that there are more pressure on asset quality. That is why you are seeing increasing in terms of special mention loan ratio and overdue loan ratio. But definitely, our level is ahead of our peers. Our NPL ratio and our special mention loan ratio and overdue loan ratio have all increased a little bit compared to the beginning of the year. And according to our own forecast in the second half, we're looking ahead for quite a while, we're still facing seeing pressure in terms of deterioration in terms of asset -- retail loan asset quality. We are expecting that overdue loan and special mention loan ratio might continue to increase, but I think we will continue to optimize our risk structure and using the quality measure and also we are reemphasizing the disposal and different measures to do risk management in retail banking. And second, we'll continue to focus on quality, customer quality regions and quality products. And also, we'll use more fintech technologies. And to increase the application of data to maintain a sound asset quality. And just as Mr. Zhong said that we -- our risk appetite is quite prudent so we have a sound customer base and we have quite a rational retail loan product. I think it's very proper. We have totally RMB2.5 trillion retail loan, 80% are collateralized -- and over 80% are collateralized. For mortgage loan, the one study is seen first and second-tier cities accounted for 87%. For newly disbursed loans this year, for the loans in first and second-tier cities accounted for around 90%. And for the LTV is around 23% and is only a little bit as 0.15 percentage points compared to the beginning of the year. So it's a rational retail loan structure. So we think that even though our NPL or special mention loan ratio or overdue loan ratio might continue to increase in the second half, but it's still under control. This is for retail loan. And next is about credit card. For credit card business, there is a high level of risk. Our business strategy is stable with low volatility. We cope with external pressure and to maintain a stable business. NPL ratio is 1.78% and it's quite stable quarter-on-quarter basis. And around -- NPL formation is around 20 billion and a little bit down compared to the last year. And as Mr. Zhong says for credit cards, special mention loan and also overdue ratio for credit card has seen increase compared to the beginning of the year and as compared to the first quarter. This is mainly because we see weak recovery in the economy and people's capability to repay has -- is deteriorating. And secondly, we strengthened our management -- risk management and also risk classification for the business. That is why you are seeing more SML and also for overdue loans. So I think by the end of this year, the NPL ratio and also NPL amount will be quite this thing versus last year. And we think that NPL formation will be a little bit higher than last year. And NPL formation ratio will be lower than that of last year. I think -- looking ahead, I think that for retail loan, for secondary mortgage will be one of the major points that we would like to lay more emphasis on and micro loan and also consumption will also be a main focus. And for credit card loan, I think we'll lay more emphasis on installment payment products like the auto installment. So in conclusion, for asset quality for retail, no matters for retail loan or credit card loans totaling around RMB3.5 trillion. I think I will a very brief summary. I think in terms of risk, we will face more challenge and pressure. We will not lose our guard on that. I will be very prudent to tackle with external environment. Secondly, because just now I shared with you that we have a sound customer base and also structure, that is why I think that the risk asset quality -- well the risk will be under control. And thirdly, for newly increased loans in this areas will be moderate growth in this area. And also, we are very prudent in this area. Over speaking, I think the overall asset quality will be sound. While I still remember in the past times, when Mr. Ma Weihua who was the President of the bank, he said that to be faster, better -- there will be faster, it will be better. So as the Mr. Wang Liang said in terms of risk management for retail loans, well, we cannot decide where the risk condition will go. We can only decide is how we do our capability, is the only thing that we can decide by ourselves, which means that we'll be fast -- move faster in terms of risk management to have a better asset quality.
Operator: Next is from CLSA, Mr. Shen Hu.
Shen Hu: Thank you very much for giving me this opportunity. My question is for retail loan assured. Just now, we are seeing that we are having increasing risk in -- risk on whether you are sufficiently provided for? And what is your expectation for credit costs and also coverage risk ratio?
Xia Yangfang: The first question will be answered by Ms. Wang Ying.
Wang Ying: We have a sound risk classification, and we have sufficient provision.
Xia Yangfang: And the second question will be answered by Mr. Zhong.
Desheng Zhong: As for provision for credit cost and also for coverage for the whole bank, I think, in terms of provision, we have been very prudent. We are classifying the assets in a very strict manner. This is the principle that we always stick to. And this is also what we will do in the future. By the end of the first-half, Mr. Wang has already given you a very detailed presentation. We still continue to have quite a high coverage ratio around 4% -- 3%, 4%. And also, we have a coverage loan ratio is 4.08%, is much higher than the industry average and credit cost is 0.77%. And it's a little bit higher than the year of last year. But compared to the same period of last year is a little bit down by 0.1 percentage points. So we continue to have a reasonable credit cost. So looking ahead, I think that I would like to explain the logic behind that for provision. It still is dependent on the real condition of our asset quality, namely how we expect -- the expected loss will go ahead. In the first-half, there are some factors affecting these productions. The first one is loan, continue to grow in a stable manner. This is one factor behind the provision. Secondly is the structure of the loan structural changes. Just now, as I said, in terms of corporate and retail, we have our strategic focus. And at the same time, we are dynamically optimizing our loan structure. And thirdly, it's highly relevant to asset quality. In terms of asset quality, NPL ratio, 0.94%. So down by 0.01 percentage points and NPL formation is also coming down. So this is also one reason behind the credit cost. If we look ahead, if we continue to have loan growth in a stable manner, but since some industries like property sector are seeing increasing risk or involving risk and also spreading to upstream and downstream industries, and at the same time, just now, as Ms. Wang Ying in terms of retail, as there are some potential risk pressure, one thing I would like to supplement is that our virtual loan in terms of where we are looking at the total asset book, I think retail loans still -- is still a very good product when we look at both profitability, risk and also the asset size. And if you look at the historical loss given before and it's highly diversified, it's highly collateralized and the customer quality is sound. That loss was actually very small for retail loans. That is why I think in terms of provision, when we look ahead, we think that our -- my forecast will be quite the same as the asset quality. For the whole year, the cost ratio and also coverage to loan ratio will be stable and might slightly decline. So this is my judgment under the current condition. Thank you.
Operator: Next question from Guosen Securities, Ms. [Indiscernible].
Unidentified Analyst: Thank you for giving me this opportunity. I have two small questions. From a whole year's perspective, what will be the driving force for fee-based income for your non-interest income. If we look at the whole debt market, especially for the other non-interest income, what will be the complete contribution from that part?
Xia Yangfang: Yes, Mr. Peng Jiawen will answer this question.
Peng Jiawen: Thank you for this question. As for noninterest income, I think, we are still facing pressure. In the first half, for noninterest income growth, has declined by 1.43%. But this negative growth compared to the first quarter is also the level of decline, has also narrowed down. Some changes have happened. When we look at the holistic composition, the first one comes to fee and commission income, the second one comes to other non-interest income. When we look at the fee and commission income, it's declined by around 18%. This is a quite high level of decline, but it's also narrowing down quarter-on-quarter basis. And the main reason behind that is from the negative impact coming from insurance and also the mutual fund agency sales, especially for insurance. We have seen declined by over 50%. And for agency sales of mutual fund is over 20%. I think from -- yes, the impact from last year was quite big because of the fee rate cuts. And in terms of structure and also in terms of business volume, we are continuing to doing more effort on that. And for insurance, we will have more sales volume year-on-year basis. And for agency sales, we are also moving towards more -- we have more sales on the funds, which have a higher rate. This cannot fully offset the negative impact coming from fee rate cuts. In terms of the other new driving points is for the growth rate for -- it is sales of WMP, is by 40%. This is mainly because our ARM and also customer group is growing. As Ms. Wang Ying and Mr. Wang Liang has just shared with. WMP's volume -- sales volume has grown quite good together with fee income. And at the same time, some of the profits are coming from the asset allocation for our customers currently. We still are seeing very low risk appetite from customers. So to have more WMP for customers is also in line with customers' risk appetite trend. So even though we are seeing decline in fee coming from insurance and also mutual fund, but we're seeing still growth in terms of WMPs. Secondly, for other noninterest income, including for bond trading and also for bill discounting trading and also for some equity investment. This accounted for around 40% of our fee -- our non-interest income, is quite at a stable level. Just now you mentioned how much is coming from the bond trading. I think over speaking, bond trading is still, we are talking about the duration management is from interest management perspective to sell some of the loan duration bond. I think it's a good point for that. This proportion is a small amount. It's mainly coming from -- profit is mainly coming from mark-to-market, fair value of this -- of the holding of the bonds. And looking ahead, I think that actually, this part has grown very fast in the first-half of 34% and has contributed quite good to the total income, but we think that in the second-half, the market will be more volatile. And actually, in the first half, it will be a one-way bull market for the bonds. But in the second-half, I think, it will be more volatile, no matters from the investor's mood or it has become more rational. And interest market rate is quite stable. So this contribution from this part will be smaller than that of the first-half. So the growth also will be slower than the first-half. This is my judgment for that. This is for other non-net interest income. But definitely, for the total growth of our non-interest income will continue to focus on fee and commission income, targeting -- we're continuing to focus on AUM and customer group and this solid foundation that will drive the future fee and commission base income, of course. But we also have other driving points like the investment banking, settlement clearing, risk assessment transaction and also trade finance. These are all the areas that we will emphasize on to be the driving points for fee based income. Next question please.
Operator: Next question is from [Indiscernible] Asset Management [Indiscernible].
Unidentified Analyst: Can you hear me?
Operator: Yes.
Unidentified Analyst: Thank you Senior Management for this opportunity. My question is about corporate finance business. As we can see that Mr. Zhu has assumed his position to be in charge of the Wholesale Finance, and we can also see that Mr. Zhu himself has assumed a position in the branch. So he has the frontline business and also have experience in risk management. In general, the investors tend to have more positive and confidence in his new business in charge, so I would like to understand that what do you think about the good and things that you need to improve in terms of the corporate finance business? And what is your next step?
Unidentified Company Representative: Unfortunately, thank you for your question, Mr. Zhu was on a business trip, and he is not able to take the question himself. I believe that if he were here, he would have a lot of information to exchange with you. And I believe that, for the information sharing, I think me, myself, could take some of your questions. For China Merchants Bank. 20-years ago, we have conducted our second transformation into taking retail finance as our major position. This has formed our future advantages and what people both ourselves as king of retail, we have nurture, cultivate and improve our corporate finance business and our capability in the market. For the Chinese market, it is a large landscape. Retail finance has very strong potential. That is why we need to cultivate retail finance business. But for corporate finance, China is the second largest economy in the world to provide good services to corporate clients. It's also very important to us. That is why we improve our internal capability. However, in the past, due to our limited resources, we prioritize to develop retail finance business. We have put more human resources and other resources to retail finance business. And for corporate finance, the resources might be quite limited, but due to our limited input that has forced us to build corporate finance with selected focus to cultivate our distinctive features in our Corporate Finance business. So I think we have advantages in corporate finance in the following aspects, which is also a good opportunity to show to the market that you might have not developed enough understanding that the first one is that we have developed segmented and classified management of our customers. For corporate customers, we have divided it into strategic at the head office level, to the branch level, to basic customers and to micro and finance a small-sized customers level. And we have, according to different industries and according to different scales to categorize our corporate clients, to provide targeted and customized service to them and provide professional and systematic solutions to different kind of customers according to our segmented and classified management model. And secondly, our product metrics offering to the corporate clients, not just deposit, product, low-end products, settlement products, but also as we have other limited resources back in the old days, we have to leverage on online banking to provide services to our corporate clients. And we strive to build our cash management that is cross-bank solution to our clients. And now it has evolved into the cash management cloud, the treasury cloud, the wealth management, management and financing management and to strive to formulate a whole all-in-one platform, a treasury management service to our clients. These offerings -- these products has evolved based on technological revolution and based on clients' needs, it continue to iterate, it continue to be our advantages offerings to our clients. And right now, we have around 3 million corporate clients. It's also quite a leading position in the domestic -- among our domestic peers. And by offering these products to our clients, we have accumulated rich experience. 60% of our corporate clients are contributing to our demand and settlement type of deposits. And while providing good services to these clients, we can acquire more and more low cost of liabilities from these type of deposits. And for the next point I want to mention is that, we strive to build a special mechanism that is one entire for one customer. When customers are going global, these type of clients would require services across the bank. They would require a comprehensive and all-around services from our clients. So that's why, regardless of branches and domestic or in the global market, CMB need to provide comprehensive services to these clients. Wherever our clients are, they can enjoy a unified and standard level of service from CMB. Well, since the working conference held by the central government last year, according to the new external situation and requirement, how do we respond better to the requirement, how do we develop better in terms of the business of the five priorities. For instance, we have established a special kind of subbranch called the sci-tech branch to provide better services to sci-tech enterprises. And for instance, for retirement finance, we can provide better services to our clients. And in terms of low-end and bond investment and for other perspective, we need to put more focus on developing the green finance. We have especially established a digital office for developing digital finance. And these will all be our focus and emphasis laying on developing the business in the five priorities to follow the policies released by the central government. And for this perspective, these efforts are all we have been made in terms of developing our Corporate Finance business. So this is, from my perspective, what we have been done in the corporate finance sector. Well, in the previous communication, I think that corporate finance, this topic is rarely mentioned. I think it's a good question coming from you. And I will pass your question to Mr. Zhu himself, what achieved we have made, what shortages that we have been making up and what future plans we have. I will pass them to Mr. Zhu. And thank you. We’ll have the next question.
Operator: The next question is from Judy Zhang from Citi.
Judy Zhang: Thank you for giving me this opportunity. I am Judy from Citi. I have a question regarding the profitability growth for the past CMB has rather strong valuation premium compared with the state-owned banks. And basically, we see the profit growth for CMB comparatively the same level, as the state-owned such as ABC. We have quite a high level of the allowance coverage ratio. Is it possible that we can release some allowance to bring the profit back to positive growth?
Wang Ying: Well, as we have quite strong valuation compared with the state-owned banks, well, last week, we see the interim reports released by our peers, and I have taken a closer look at those interim reports. The revenue and profit growth have both shown negative growth. It is fundamental. But for some banks, we see a positive growth in the revenue and in the profit. And for some bank, the revenue recorded a positive, while the profit recorded negative growth. For the mainstream banks, CMB is just like them, both recorded decrease. But for us, for the second quarter compared with the first quarter, the magnitude has been narrowed in terms of our decrease, in terms of the profit and is showing a quite positive trend. How to better sustain the condition and to narrow the decrease in terms of the revenue and in terms of the profit? It remains to be our question and it remain to be problems that we need to tackle, but we will not attach too much importance to the result of the financial indicators. We need to attach importance in the process of operation for China Merchants Bank. In the external environment that we see lower market interest rates to provide better environment for the real economy. We believe that for China Merchants Bank, we need to do the right thing to stabilize our three fundamentals, to strengthen, enlarge and optimize our customer base. The second is to guarantee our asset quality to maintain it to be stable so that we are able to achieve the growth of our profit. The third is to improve our market share, our wallet share in the market in different regions and in different business areas. By increasing our wallet share in the market, we can see progresses when the market environment changes, when the market environment reverse so that we can see silver lining in terms of our profitability and operating income. These serve to be our three fundamentals that we will continue to improve. And at the same time, in order to guarantee our growth and profit, we will continue to increase our management efficiency and reduce costs. We have continued to improve our cost and to control our administration expenses down by 0.05% year-on-year so that to better guarantee the growth in our profits. And at the same time, we will better manage our funding costs and a low on yield to guarantee the growth in the profit. More importantly is that we need to control the risk cost, is also in a decreasing trend. By increasing our asset quality, I believe that the risk cost could also decline accordingly so to guarantee the increase in our profit. So we would not -- so by doing, decreasing the allowance to release more allowance to the profit level, I believe it is not our approach to realize the growth in our profit. I believe it is what we focus on to increase our operation efficiency to improve our business, to strive to build our operation and management capability, to make more contribution to the profit growth. We have the confidence to make further progress. And at the same time, we will control risk costs to lower the allowance. And finally, we achieved a good growth in the profit so to deliver better results to our shareholders. Thank you.
Xia Yangfang: Thank you, President Wang, due to time limit, we will have the last question to guarantee the write-off individual investors, we have collect questions from them via e-mail. As most of them overlap with the questions that we have just discussed, we will choose one representative questions to answer, please have the staff read the questions we have collected beforehand. My question is, many of the listed banks have extended interim dividend payout, why did not CMB extend such kind of arrangement? Do you have any dividend payout plan for the interim period in the future?
Wang Liang: Thank you for your question. As the interim result released many banks have arranged the interim dividend payout. We have attached great importance to them. CMB has focused on creating value for investors to deliver better returns to our shareholders. The interim dividend plan, we will act according to our CAR and the business development requirement. And to collect more advice and suggestions from our investors, to make thorough discussions and decision-making. And for CMB, the process, the cost is also within our consideration, and we will take it seriously and attach great importance to such arrangement and learn more from our peers so that we will make our plans accordingly. Thank you.
Xia Yangfang: Due to time limit, CMB 2022 interim results presentation will now conclude. For further details, please refer to our results announcement released on the website. For more questions, please feel free to contact our IR team. Thank you for joining us today. Thank you. Goodbye.
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