The continuous contraction of net interest margins is a pain that the asset-liability-dependent banking industry finds difficult to bear.

In the third quarter of 2024, the net interest margin of commercial banks, which had temporarily "stabilized," fell to 1.53%, a decline of 0.16 percentage points compared to the same period last year.

Under the increasing pressure of declining traditional business, moving towards a light asset transformation is one of the few lifelines to survive the "harsh winter of the cycle," and it is also the source of anxiety for major banks at present.

A comprehensive review of the industry performance in 2024 shows that the long-promised "light asset transformation" by various banks has yet to provide sufficient performance support.

Middle business income (hereinafter referred to as "intermediate income"), viewed as the "second growth curve," generally shows weak growth.

Data from Wind show that in the first three quarters of 2024, the intermediate income of state-owned banks and major joint-stock banks collectively declined; China Construction Bank, Industrial And Commercial Bank Of China, and Agricultural Bank Of China all fell by more than 5%, while among joint-stock banks, China Everbright Bank, Hua Xia Bank, Ping An Bank, CM BANK, and Industrial Bank all saw declines exceeding 15%.

However, the pressure on performance does not imply a negative outlook on strategy.

In order to break free from the path dependence of traditional Crediting, major banks have been actively seizing the wealth management and comprehensive financial markets with one hand on retail and the other on corporate business before dawn.

In terms of overall performance, the overall income of major banks in the first nine months of 2024 has shown signs of recovery month-on-month.

After experiencing a "scramble for shares" at the cycle bottom, the light asset landscape may welcome a more intense competitive format in the near future.

Fortress Defense of Wealth Management

Breaking free from the "tightening spell" of on-balance sheet Assets and net capital is a long-standing wish for many banks.

In retail, major wealth management, representing light assets, faces the financing and asset management needs of long-tail clients. With declining interest rates and increasing demand for preserving and growing wealth among high-net-worth individuals, it is viewed as a "battleground" for the transformation of major banks.

Looking back, the name "blue ocean" for wealth management was definitely not without basis.

As the year 2021, a year of opportunity, saw CM BANK report a year-on-year growth of 12.04% in revenue and 23.35% in net profit, outpacing the overall growth rates of 42 listed banks by 2.72 and 10.94 percentage points respectively.

In total revenue, non-interest income accounts for nearly 40%, and fees and commissions increased by 18% year-on-year.

Wealth management, Asset Management, and REITs have become the core factors driving CM BANK's performance, with increases of 29%, 58%, and 28% respectively.

However, now the "king of retail" struggles against the cyclical winter.

In the first half of 2024, CM BANK's net income declined by 16.9% year-on-year. The weakness in the equity market combined with product fee reductions led to a decrease in CM BANK's income from selling insurance, REITs, and Fund by 57.34%, 37.52%, and 23.35% respectively.

On one hand, since 2021, the Capital Markets have been volatile, with the returns on financial products represented by public funds being unstable, making it more difficult for banks to sell them.

On the other hand, commercial banks have reduced fund fees to attract customers and have lowered insurance fees in response to the "reporting and operation integration" policy, both further exacerbating the decline in performance.

For example, not long ago, Luo Yanjun, director of the personal insurance department of the financial regulatory bureau, stated that since the implementation of the "reporting and operation integration" for bank insurance channels in August 2023, the average commission level across the industry has decreased by 30% compared to before.

The temporary "shrinking" in the broader environment has not dampened the enthusiasm of various sectors to strengthen their efforts in the wealth management market.

Overall performance in the Industry shows that banks oriented towards wealth management continue to strengthen their Global Strategy.

For example, CM BANK President Wang Liang stated in 2024, "In a low interest rate and low interest spread environment, there is strong demand for wealth management, which presents significant opportunities for Asset Management."

Since April 2024, CM BANK has centralized its retail clients with AUM scale of 0.2 million and below to the head office, which is managed by the newly established Remote Service Center under the Retail Customer Group Department.

The Retail Customer Group Department has set up several secondary departments including comprehensive teams, basic customer teams, and dual-gold customer teams, with a restructuring that reflects the overall approach of "tail end integration, middle detail enhancement, high-end refinement."

Shanghai Pudong Development Bank president Xie Wei stated that the bank will focus deeply on the wealth management market, adhere to professional leadership, and build a team of asset allocation experts and a high-quality wealth planner team.

As the end of 2024 approaches, several banks including Agricultural Bank Of China, Bank Of Communications, and MINSHENG BANK have announced fee reductions, offering transaction fee discounts for certain publicly offered fund products, with rates reduced to as low as 10%.

Secondly, during the overall significant reduction in performance, each bank remains actively expanding AUM scale, the number of private banking customers, and other Indicators.

For instance, in the first half of 2024, the reduction in deposit interest rates has generally benefited the bank wealth management market during "deposit relocation," with a total growth of 7.38% in the scale of wealth management products from 25 banks' wealth management subsidiaries.

Eight wealth management subsidiaries, including China Postal Savings Bank Wealth Management, Hua Xia Bank Wealth Management, Shanghai Pudong Development Bank Wealth Management, and Bank Of Communications Wealth Management, have all experienced growth rates of over 15%.

The disclosed data shows that the retail and private banking AUM of national joint-stock banks maintained a certain growth rate in the first half of the year.

For example, the retail AUM of China Construction Bank Corporation and CM BANK increased by 6.7% and 6.62% respectively since the beginning of the year, while the number of individual customers at Shanghai Pudong Development Bank and China CITIC Bank Corporation grew by 3.82% and 3.2%.

The private banking AUM growth rates of Industrial And Commercial Bank Of China and MINSHENG BANK exceeded 10%, and the growth rate of private banking customer numbers at China Construction Bank and Agricultural Bank Of China also exceeded 10%.

Banks that have obtained personal pension sales qualifications ahead of others are also actively laying out in this track.

According to data disclosed by the Enterprise Early Warning Network, as of the end of the first half of the year, the number of personal pension accounts at CM BANK has reached 6.68 million, ranking first among the disclosed companies; additionally, four other joint-stock banks and city commercial banks have account numbers exceeding 1 million.

The growth of the above indicators also indicates that the wealth management cycle has reached its "bottom," with various banks actively "grabbing shares," hoping to "lock in" their market share before it warms up.

Focusing on comprehensive finance.

If the wealth management sector represents the light asset transformation banner for Banks to Consumer (ToC), then the investment banking business might focus on the Business to Business (ToB) sector.

From the current transformation paths of the banking industry, many banks are focusing on direct financing such as bond financing and Private Equity in addition to inter-bank public Crediting, viewing the concept of comprehensive finance as a breakthrough from path dependence.

The transformation of the former 'king of the industry,' Industrial Bank, is one such representation.

For example, after facing setbacks in inter-bank business post-2017, Industrial Bank focused on 'light assets, light capital, high efficiency' as its main line.

At that time, after determining the path of light assets, Industrial Bank chose not to enter the more discussed wealth management sector, but instead, based on the accumulated advantages of being the 'king of the industry,' focused its goals on the public sector, setting a 'commercial bank + investment bank' transformation strategy.

In terms of organizational structure reform, it actively abolished the original financial market headquarters and established the inter-bank financial headquarters (customer line) and investment banking and financial market headquarters (product line), providing comprehensive financial services to large clients.

Starting from 2020, Industrial Bank's FPA (total public financing) growth rate has consistently maintained around 10%, with both on-balance and off-balance sheet balances showing growth; the growth rate of traditional public loans once approached 20%.

There are quite a few banks showing characteristics of comprehensive finance in their actions.

Around 2017, the Industrial And Commercial Bank Of China also proposed the "Large Investment Bank" strategy, promoting the mutual promotion of traditional and emerging businesses, the linkage between domestic and Overseas, and the integration of Banking and non-Banking businesses;

Ping An Bank proposed the "Commercial Bank + Investment Bank + Investment" approach to develop comprehensive finance;

China CITIC Bank Corporation clearly strengthens the connection between commercial banking and investment banking, as well as between on-balance and off-balance activities.

In specific practices, the "Investment Bank" strategy of many Banks has begun to show results.

For example, in the first half of the year, China Construction Bank Corporation provided direct financing to real enterprises using investment banking methods, with an existing scale exceeding 950 billion yuan and new direct financing exceeding 200 billion yuan;

Postal Savings Bank Of China promotes comprehensive financial services of 'financing + intelligence + credibility', with investment banking revenue increasing by nearly 50% year-on-year.

Among the leading city commercial banks, Bank Of Beijing's bond underwriting scale increased by 46% year-on-year, and the scale of technology innovation notes increased by 80%.

The collaboration between Bank of Shanghai's commercial and investment banking has led to a 43% increase in corporate customer acquisition compared to the end of last year, and assisted in expanding wealth management agency distribution channels, which increased by 160% compared to the end of last year.

From the perspective of income structure, whether investment banking business can make up for the gap in public credit caused by the reduction in interest margin remains uncertain.

For example, since 2023, the growth rate of investment banking scale in Industrial Bank has slowed, and revenue growth still relies on on-balance sheet business.

In the first three quarters of 2024, the year-on-year growth rates of interest income and non-interest income were 2.39% and 0.61%, respectively, with a decrease of 15.16% in net fee and commission income.

Even in the investment banking business, where bond underwriting significantly leads the industry, there is still a problem with low profit margins.

Moreover, the new 'ticket' for public comprehensive finance is still only suitable for leading banks with complete licenses and advanced capabilities.

For example, promoting comprehensive financial services requires diverse licensing qualifications as external support; on the other hand, complex business and homogenization under a 'price war' also impose higher demands on banks' service, risk management, and pricing capabilities.

From the perspective of the light asset strategies of various banks, betting on both ends in a crowded field is a more common approach among leading banks.

For example, CM BANK, known for its wealth management business, is also promoting the integration of investment and commercial banking under its "light banking" development strategy; in the first half of 2024, the contribution of investment banking business to the FPA balance increased by 12.60% compared to the beginning of the year, the transaction volume of wholesale customer business increased by 11.66% year-on-year, and the number of bill clients increased by 24.01% year-on-year.

One of the earliest banks to focus on investment banking, Industrial Bank has also established an online AI wealth advisor available 24*7, dedicated to providing comprehensive wealth companionship throughout the pre-investment, during investment, and post-investment stages; during the same period, retail AUM reached 4.88 trillion yuan, an increase of 1.88% compared to the beginning of the year.