Currently, the banking industry is shifting from rapid development to a new stage of high-quality development. The general trend of differentiation and how to break through is a common challenge facing all banks.

"Banking operations are affected by cycles, and China Merchants Bank will strive to achieve better performance in the upward cycle and more stability in the downward cycle." On March 27, Miao Jianmin, Chairman of China Merchants Bank, said at the 2023 annual results conference.

Two days ago, China Merchants Bank disclosed its 2023 annual report. Some investors expressed opinions and criticisms because China Merchants Bank's annual revenue growth rate did not turn negative into positive. Others expressed their affirmation that China Merchants Bank's performance and dividend rate had been increased to 35% after comparing the industry environment. Wang Liang, president of China Merchants Bank, said that they have studied carefully and will use criticism as a spur to continue to maintain relatively good operating results.

"Maintaining" stable operating results throughout the cycle reflects China Merchants Bank's determination to create value sustainably in the long term. As Wang Liang wrote in his annual report speech:"Banking operation is a marathon, which is a comparison of determination and endurance to move steadily and far."

Judging from Wang Liang's previous external communications and explanations, winning this marathon will anchor the "avenue" of value creation in the direction of China Merchants Bank, while pursuing "quality-oriented, benefit priority, moderate scale, and reasonable structure" in the process.

The confidence and challenges behind increasing dividend rate

"Since the dividend rate has increased, I have no plans to lower it again." Regarding whether the dividend rate can be maintained, Miao Jianmin told investors at the performance conference.

Since increasing the dividend rate to 33% in 2019, China Merchants Bank has maintained a dividend of more than 33% for four consecutive years, and this time it has further increased it to 35%. Miao Jianmin said that increasing the cash dividend ratio is to improve the overall return of shareholders, which is an important part of building a value bank and creating value for shareholders.

Behind the increase in the dividend rate, as Miao Jianmin said in his annual report speech, China Merchants Bank has "the same background, a strong foundation, and a strong confidence." Since 2004, China Merchants Bank has not conducted common stock financing for 20 years. Relying on endogenous capital growth mainly based on profit retention, the bank has maintained industry-leading capital levels, provision levels and risk compensation capabilities for a long time. According to data disclosed by the State Financial Supervision and Administration, as of the end of 2023, the overall provision coverage ratio of the banking industry was 205.14%, and the loan provision ratio was 3.27%. The provision coverage ratio of China Merchants Bank is as high as 437.70%, and the loan provision ratio is 4.14%, which is much higher than the industry average.

Miao Jianmin said that China Merchants Bank will continue to balance the relationship between cash dividends and medium-and long-term capital accumulation, hoping to maintain strong endogenous capital growth capabilities while maintaining a reasonable and high dividend ratio while not making equity financing.

This goal may seem simple, but it is not small. At present, China's banking industry has bid farewell to the "golden age" and is showing the characteristics of "low interest rates, low interest margins, and low profits." As of the end of 2023, commercial banks 'asset profit margins fell to 0.7%, and net interest margin fell to 1.69%, the lowest level since records began in 2010; when the third quarterly report of 2023 was disclosed, the overall revenue of listed banks grew negatively, and the revenue growth rate of all joint-stock banks was negative. National listed banks also briefly experienced negative revenue growth from 2016 to 2017, but some research reports pointed out that the current situation of bank revenue is more severe than in 2017. In the context of declining financing costs, narrowing net interest margins and declining asset growth, the time point for revenue pressure to ease will still need to wait, and low revenue growth of major national banks may continue. For China Merchants Bank, the challenge is particularly huge. The reduction in existing mortgage interest rates, the adjustment of insurance and fund consignment rates, and fluctuations in the capital market have a greater impact on China Merchants Bank, which is known for its retail sales and is making efforts to manage wealth.

Although short-term financial indicators are under pressure due to environmental impacts, it can also be seen that the fundamentals of China Merchants Bank's customer base are more solid. In 2023, China Merchants Bank's retail customer base will reach 197 million, and its public customer base will reach 2.82 million, an increase of 7.07% and 11.66% respectively compared with the beginning of the year. The customer base and customer operating capabilities are important criteria for judging a bank's sustainable development capabilities. This is also the source of many investors 'confidence in China Merchants Bank's long-term success.

A new high-quality development model driven by management and innovation

High-quality development not only represents the beginning of a new stage, but also represents the transformation and transformation of business concepts, models, and capabilities, which determines the resilience of future development and the background, foundation, and confidence of value creation.

At present, the market has gradually formed a consensus that the banking industry has moved from an incremental era to an existing era, putting forward higher requirements for the transformation and upgrading of banking business models and refined management.

Wang Liang wrote in his speech at the president of the annual report:At present, scale-driven and extensive development is unsustainable, the effect of risk "100-1=0" has become more prominent, and the logic of management determining development and innovation driving development has become clearer. China Merchants Bank will continue to drive by management and innovation to create a new model of high-quality development. Use strict management as a shield to improve the level of connotative intensive development; use integrity and innovation as a spear to create new advantages in more subdivided fields.

Europe, Japan and China Taiwan are all "people" from the era of low interest rates. Japanese banking spreads were as low as 0.7%, Germany as low as 0.86%, and China Taiwan as low as 1.4%. Low interest rates and low interest rates have brought about great divisions in the banking industry in these regions, but banks that have successfully transformed have achieved breakthroughs. In China Taiwan, some banks control the non-performing ratio to 0.3% through effective risk management in a low-interest rate environment, striving to ensure that the benefits are returned to their positions; European banks have increased innovation in wealth management and asset management businesses, increased organizational and digital innovation, and achieved cost reduction and efficiency improvement.

It is worth mentioning that China Merchants Bank has strengthened risk management, and the non-performing loan ratio has further dropped by 0.01 percentage points to 0.95% compared with the end of 2022. The non-performing loan ratio in the real estate sector has dropped by 0.26 percentage points from the high point at the end of June 2023. In terms of cost management, China Merchants Bank's business and management fees dropped by 1.40% year-on-year. In terms of innovation, the bank proposed to accelerate the transition from "online China Merchants Bank" to "smart China Merchants Bank", focusing on "technology + products","people + digitalization" and "AI+ finance", and accelerating product innovation, business innovation, Model innovation and management innovation.

Balanced collaboration of the four major sectors demonstrates value

In the first three quarters of 2023, JPMorgan Chase accounted for 20% of the total profits of the U.S. banking industry, attracting a lot of attention. An important reason why JPMorgan Chase, which has a history of more than 200 years, has been able to survive previous financial crises and interest rate adjustment cycles is that its business segments are relatively balanced, with the east side not bright and the west side bright.

An important part of the value banking strategy proposed by China Merchants Bank last year is "balanced and coordinated development of the four major business segments: retail finance, corporate finance, investment banking and financial markets, and wealth management and asset management." This is precisely the hope that various businesses will complement each other and complement each other and enhance their ability to cope with various complex environments.

"Walking alone is fast, and traveling together is far away." Wang Liang said that China Merchants Bank will continue to maintain its strategic entity position as a retail bank, but it will be difficult to rely solely on retail development; only by coordinating and promoting each other can the four major sectors better support retail entities and create new business growth poles.

In Wang Liang's view, the balanced and coordinated development of the four major business segments, strengthening capital-oriented businesses and expanding and light-oriented businesses, will enable China Merchants Bank to have stronger capabilities, a more complete product line, and a better ability to travel through the economic cycle. This is not only in line with the successful experience of international advanced banks, but also in line with the future development trend of the domestic banking industry.

Faced with the influence of multiple factors, China Merchants Bank's retail finance still shows "systematic advantages." Major indicators such as customer base and scale continue to grow on the basis of high market share; the total assets (AUM) balance of retail customers under management is 13.32 trillion yuan, an increase of 9.88% from the end of 2022; the balance of deposits and loans of retail customers increased by 12.13%, 8.49% respectively; retail finance accounted for more than 55% of operating income and pre-tax profit.

The financial sector of China Merchants Bank is also quite competitive. In 2023, the number of company customers will continue to maintain rapid growth, and the company's deposits will reach 4.56 trillion yuan. Judging from the 2023 semi-annual report data, China Merchants Bank's customer base size and corporate deposits are among the top among joint-stock banks. Last year, China Merchants Bank proposed to create characteristic finance in the corporate finance sector and further optimize the structure. The balance of the bank's technology enterprise loans, green loans, and manufacturing loans increased by 44.95%, 26.00%, and 25.06% respectively compared with the end of 2022, which was higher than the bank's loan growth rate.

In the investment banking and financial markets sector, China Merchants Bank is also at the forefront of many segments. For example, according to data from the China Association of Interbank Market Dealers, China Merchants Bank ranks third in the industry in terms of the scale of debt financing instruments; according to data from the China Banking Association, China Merchants Bank ranks first in the industry in terms of the total scale of custody business and second in the market for direct bill placement business volume.

The wealth management and asset management sector is an important carrier of China Merchants Bank's "big wealth management" strategy. At the performance conference, Miao Jianmin said that Big Wealth Management "has a tortuous path and a bright future"; Wang Liang said that China Merchants Bank will strengthen its direction, leverage the advantages of its wealth management business and asset management subsidiaries, and accelerate its progress towards the top. In 2023, the number of customers holding positions in China Merchants Bank's retail wealth products will increase by 19.13% compared with the end of 2022; the number of customers serving by the "TREE Asset Allocation Service System" will increase by 12.15% compared with the end of 2022, achieving rapid development; including China Merchants Bank Financial Management and China Merchants Fund The total scale of asset management business reaches 4.48 trillion yuan, which continues to grow compared with the end of 2022.

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Create new moat and growth points:**

Smart China Merchants Bank, key regional branches

The strong rise of the big language model in 2023 will become the first year of general artificial intelligence and will have a profound impact on the financial sector. Domestic and foreign financial institutions have launched an "arms race" for artificial intelligence talents. JP Morgan Chase recruited 3651 AI-related positions around the world from February to April 2023.

Miao Jianmin wrote in his annual report speech:"Create a new moat with smart banks as the core." The annual report disclosed that China Merchants Bank's investment in technology in 2023 exceeded 14.1 billion yuan, reaching 4.59% of operating income. The annual reports of various banks have not yet been disclosed. However, based on historical data, China Merchants Bank's investment in technology in revenue has long led its peers.

At the performance conference, Wang Liang systematically introduced the results of China Merchants Bank's scientific and technological capacity building around "online, data-based, intelligent, platform-based, and ecological". In terms of online integration, China Merchants Bank has basically realized the online integration of all businesses; in terms of data integration, it is accelerating the promotion of data as a core asset; in terms of intelligence, it has built five smart engines of wealth, operations, risk control, customer service, and marketing. Last year, AI saved 17,000 people and launched a new smart wealth assistant trick; in terms of platform integration, China Merchants Bank will achieve comprehensive cloud integration in 2022, creating a technology and data middle platform; In terms of ecology, financial services are embedded into various business and life scenarios.

It is noteworthy that China Merchants Bank has integrated its own development into the overall strategic situation of the country and region, keenly grasped development opportunities in key regions, and regarded the development of branches in key regions as its new growth point. The annual report disclosed that the growth rates of core deposits, AUM, and corporate loans of branches in key regions such as the Yangtze River Delta, Pearl River Delta, Chengdu-Chongqing and Haixi of China Merchants Bank were higher than the bank's average. "In response to the national strategy, China Merchants Bank has increased investment and layout in these key areas according to its own development needs, clarified goals and tasks, and promoted the gradual improvement of branches in key areas in terms of various businesses and profit contributions, so as to make China Merchants Bank's profit composition more balanced." Wang Liang said.