Financial Services Association, April 2 (Reporter Wang Hong) At the Bank of China's 2023 results conference today, Vice Governor Zhang Yi said that due to the further decline in the return on RMB assets, the rigidity of deposit costs, and the Federal Reserve's entry into some interest rate cuts, interest spreads are still under great pressure this year and will actively manage both sides of the assets and liabilities to improve the decline in net interest spreads. In terms of capital replenishment, the issuance of 220 billion second-tier capital bonds has been completed, and the issuance of perpetual bonds, second-tier capital bonds, and TLAC non-capital debt instruments will continue to be steadily promoted in the future.

Risk Director Liu Jiandong said that within the overall manageable range of real estate defects, real estate financing coordination mechanisms will continue to be earnestly implemented, and various methods such as restructuring, write-off, and transfers will be actively and comprehensively used to effectively prevent and mitigate real estate risks. Strengthen the disposal of real estate projects where risks are concentrated to ensure that the quality of overseas assets is stable at a reasonable level.

Closely monitor monetary policy trends in major economies to prevent negative effects on net interest spreads

Zhang Yi explained that interest spreads are still under great pressure this year, mainly due to the fact that the return on RMB assets will also decline, the rigid characteristics of deposit costs are remarkable, and the Federal Reserve has entered some channels to cut interest rates.

“In terms of the decline in return on the asset side, the RMB LPR fell twice last year, which will have an impact on the whole of this year. In February of this year, the 5-year LPR dropped by 25BP, affecting pricing for the next three quarters. In September of last year, the adjustment of interest rates on stock mortgages also put a lot of pressure on the whole of this year. Furthermore, although interest rates on deposits fell three times in 2023, there is a clear trend of regular and long-term deposits, and market competition has also intensified the downward momentum of costs,” Zhang Yi said.

“Last year, the Bank of China's net interest spread was 1.59%, down 16 BP, but the decline was relatively small among listed banks,” Zhang Yi said. This year, proactive management measures will be used to improve the decline in net interest spreads and try to stabilize at a better level among market peers.

Specifically, the asset side optimizes the asset structure to fully guarantee the financing needs of entities. This year, efforts will be stepped up to support the transformation and upgrading of residents' consumption, increase investment in personal housing loans and consumer loans, and at the same time accelerate the revitalization of inefficient credit resources. The debt side continues to push down debt costs, while vigorously reducing high-cost deposits. Overseas, increase the scale of high-interest assets and strengthen the management of active liabilities. The term of debt is appropriately shortened during the interest rate cut cycle.

Zhang Yi also said, “The Bank of China's foreign currency business accounts for more than 1/4 of the Bank of China's assets. Foreign currency entered the interest rate hike channel last year, which provided positive support for interest spreads. If the Fed enters the channel of partial interest rate cuts this year, last year's advantage will be a disadvantage.” This year, it is also necessary to closely monitor monetary policy trends in major economies such as the Federal Reserve, and take forward-looking responses to effectively prevent the negative impact of exchange rate and interest rate risks on net interest spreads.

Actively use restructuring, write-off, transfer and other methods to resolve real estate risks

Liu Jiandong said that in 2023, the Bank of China increased its negative exposure and settlement efforts in real estate. Bad performance at the end of the year “double fell” from the end of 2022, with a bad balance of 48,172 billion yuan, down nearly 7.8 billion yuan from the end of the previous year; the non-performing rate was 5.51%, down 1.72 percentage points from the end of the previous year.

“We think bad real estate is within overall manageable limits. “The Bank will continue to earnestly implement the real estate financing coordination mechanism, including various policies such as the “three major projects” and rental housing, adhere to the principles of marketization and the rule of law, keep real estate financing smooth and orderly, and help improve the balance and liability situation of housing enterprises; at the same time, strengthen the monitoring and treatment of credit risk of housing enterprises, especially actively and comprehensively use various methods such as restructuring, write-off, and transfer to effectively prevent and mitigate real estate risks,” Liu Jiandong also said.

In terms of the quality of overseas assets, Liu Jiandong explained that in 2023, due to multiple factors such as the overall US dollar interest rate hike and domestic housing risk spillover, the Bank of China's overseas business asset non-performing balance and non-performing ratio increased throughout the year, and the non-performing ratio reached 1.49%. This is also a common situation faced by overseas peers. The next step will be to step up efforts to dispose of concentrated risk real estate projects through continuous optimization of the credit structure, especially strengthening the investigation and judgment of risk trends, to ensure that the quality of overseas assets remains stable at a reasonable level.

The issuance of 220 billion secondary capital bonds has been completed

“In order to support the development of the real economy, assets grew by 12.25%, loans grew at a rate of 13.7%, and RMB loans maintained a 16% growth rate, corresponding to an acceleration in capital consumption,” Zhang Yi said. 2024 is the first year of the official implementation of the new capital regulations, that is, the first year of the official implementation of the “Commercial Bank Capital Management Measures”, and the most critical and final year for TLAC to meet TLAC standards. It will adhere to the bottom line of compliance, strengthen capital constraints, and ensure that TLAC meets the standards as scheduled next year.

Specifically, the molecular side is speeding up the enrichment of capital strength, proactively strengthening net interest spread management, expanding revenue sources from intermediary businesses, expanding endogenous capital accumulation, and making good multi-channel capital replenishment. The shareholders' meeting has approved the Bank of China's 450 billion capital instrument and 150 billion TLAC non-capital debt instrument supplementary plan. Up to now, the issuance of 220 billion second-tier capital bonds has been completed, and the issuance of perpetual bonds, second-tier capital bonds, and TLAC non-capital debt instruments will continue to be steadily promoted in the future. Refine capital management is achieved in terms of denominators.

Zhang Yi said that in the next stage, the capital allocation of overseas institutions and integrated management companies will be coordinated to guide integrated management companies to combine the characteristics of the industry and strengthen their collaborative contribution to the group. Strengthen capital return assessments, focus on improving the level of return, and promote the Group's capital adequacy ratio.

The Bank of China's dividend payout rate in 2023 is 30%. Zhang Yi said that in the future, the Bank of China will closely focus on the goals of the Group's “14th Five-Year Plan” and capital plan, consider factors such as the Bank's operating performance, financial situation, and future development to reasonably determine the level of dividend payments and maintain a stable dividend policy.