July 14, 2024

Industrial & Commercial Bank of China Ltd. (OTCPK:IDCBY) H1 2022 Results Earnings Conference Call August 30, 2022 6:30 AM ET
Company Participants
Guan Xueqing – Board Secretary
Liao Lin – President
Zhang Wenwu – Vice President
Zhou Yueqiu – Chief Economist
Conference Call Participants
Unidentified Company Representative
Hello. Welcome to Half One Earnings Call of ICBC. I’m [indiscernible], General Manager of Corporate Strategy, Investor Relations Department of ICBC. Thank you for joining today’s earning call. And also, thank you to you for your support and attention to our bank.
In today’s call, the management team of ICBC led by President, Mr. Liao Lin, will have a free and in depth communication with you. Today’s call is a global investor call. We are joined by President, Liao Lin; Vice President, Mr. Zhang Wenwu; and Board Secretary, Dr. Guan Xueqing. And we are also joined by our directors, namely Mr. Lu Yongzhen; Mr. Feng Weidong; Ms. Cao Liqun; Ms. Chen Yifang; Dong Yang; [indiscernible]. And we are also joined by the Chief Economist and general manager from financial accounting department, credit management department and ALM department, and all the general managers from other 21 relevant departments from the head office are also joining us via phone.
Now I would like to give the floor to Dr. Guan Xueqing to give you highlights of half one earnings of 2022.
Guan Xueqing
Since the beginning of the year, facing the increasingly complex, severe and uncertain external environment, ICBC implemented in depth the important requirements for COVID prevention, economic stability, and safe development. And we have made stability as our top priority and pursued progress while ensuring stability, and with an aim to pursue a high quality development.
We have continued to pay attention to people and customers, adhere to the balanced development path with Chinese characteristics. As a result, we have delivered on internal results, which was better than expected and outperformed the same period of last year.
Firstly, the bank fulfilled its responsibilities as a large bank to assist in maintaining stable macroeconomic performance by giving into [indiscernible] the dual functions of volume and structure of investment and financing. Secondly, we have achieved crucial breakthroughs in implementing our development plans and fully demonstrates the feature of strong, excellent, large and distinctive operations. Thirdly, we have solidified the lines of defenses in risk management by giving priority to actively forestalling financial risks. Fourthly, we have unleashed the drive for reform and innovation. We have revised the articles of association and the stability and the effectiveness of corporate governance will further improve. Fifthly, the bank ushered in a new stage of team building and continued to create a highland for talent and a leading bank by talent.
And to give you more details, firstly, we have improved our services to the real economy and made our contribution to stabilize the macroeconomy. The domestic RMB loans exceeded RMB 20 trillion, up by RMB 1.61 trillion compared to the end of last year and additional increment of over RMB 34 billion. And the bond investment balance hit RMB 8.93 trillion, up by 10.1%.
We continue to enhance our support to the key areas with distinctive features of our credit extension, among which the balance of our loans to the manufacturing sector totaled RMB 2.79 trillion, up by 29%, and balance of loans to strategic emerging sector totaled RMB 1.42 trillion, increased by 38.7%. Green credit, the balance of green credit was RMB 3.5 trillion and balance of inclusive finance was RMB 1.4 trillion, up by 27.4%. Agriculture related loans was RMB 3.08 trillion, up by 16.2%.
Secondly, we continued to enhance our value creation capability and demonstrated strong, excellent, large and distinctive features, with core metrics continue to improve for the first half. For example, [indiscernible], the capital adequacy ratio was maintained over 18%, ranking the top among the global peers. And ROE, 11.25%, and ROA, 0.93%, both ranking relatively good levels compared to our peers globally. Against the backdrop of margins compression in the banking sector, our NIM stood at 2.03, continue to be positioned in the reasonable range. And we continued improved our strength in terms of the size of assets, capital loans and deposits.
In the first half, we realized an operating income totaled RMB 443.8 billion, up by 4.5% and the net interest income grew by 4.5%. Net fee-based income totaled RMB 76 billion, registering a positive growth, and other non-interest income grew by 15.4%. PBT increased by 3.1%. Net profit grew by 4.9%.
Firstly, we continue to leverage our strengths, tackle areas of weakness and the solidify the foundation for further development. In terms of the strong sectors for us, the corporate loans grew by 9.2% and the size of institutional deposit and interbanking deposits continued to rank the first among our peers. And the corporate settlement accounts also increased by RMB 0.6 trillion compared to the end of last year. In terms of the number one personal financing bank, the personal AUM totaled nearly RMB 18 trillion, and with the proportion growth from the personal business.
And in terms of the forex business, the balance of our forex deposit also grew by 5% and sharpening competitive edge in key region strategy of the deposits and balance of loans from the key five areas continued to rank the first among our peers. And we have also progressed our urban/rural collaborative development strategy.
Another key important sector for us is the acceleration of the ICBC construction from the five dimensions of digital ecosystem, digital assets, digital technology, digital infrastructure, as well as digitalizing.
The construction of D-ICBC won the first place in the annual integrated fintech supervision rating from CBIRC. We continue to deepen our GBC+ initiative by promoting synergy between G end, business end and the consumption end. We have developed our customers for both – for G, B, C and by a large margin.
The customer ecosystem continued to be optimized both in terms of the total volume. The personal customers exceeded 712 million customers and the corporate customers exceeded 10 million and private banking customers totaled 216,000. The number of customers with daily average assets over 10,000 continue to grow by a large margin and the total number of personal mobile users and MAU and also legal customer, online customers, all ranked the first among our peers.
Through all this work done, we have managed to grow our deposits quite outstandingly. By the end of June, incremental deposits for the first time exceeded RMB 3 trillion. Firstly, we continue to enhance our risk management by effectively manage five accounts book, namely the domestic and overseas institutional balance sheet and off-balance sheet business, commercial banking and investment banking, and other business, online and offline business, as well as the parent company and the subsidiary companies.
We continue to pay attention to conventional risk as well as other newly emerging risks to ensure all kinds of risk is manageable. We further improved our asset quality with core metrics continue to improve. By the end of June, NPL was 1.41%, down by 1 bps compared to the end of last year. And our operating ratio was 1.2%, down by 3 bps. The gap between overdue loans and NPL loans was negative RMB 47.3 billion, remaining to be negative for consecutive nine sectors and creating the history low.
The provision coverage ratio was over 200%. And going forward, ICBC will continue on the path of building financial development with Chinese characteristics and make high quality development. Thank you.
Unidentified Company Representative
Thank you to Dr. Guan’s highlights. Now we are opening the line for Q&A. Please state your name and organization before raising the question. The first question, please.
Question-and-Answer Session
Operator
A – Unidentified Company Representative
Mr. Xu [ph] from Morgan Stanley.
Unidentified Participant
I am concerned that the economy in the first half of this year, with the complicated international environment, coupled with the pandemic domestically, I think the macroeconomy of the country is under pressure and the loan interest is decreasing. And we also have the pressure of lack of proper assets. And I would like to ask, in the next phase, how will you maintain the growth, the stability and sustainability of the growth of this operation income? And what’s your outlook for this year? And what’s the main drive for further growth?
Unidentified Company Representative
Of course, operating income and net profit are very important. In the first half, the whole bank, our operation income maintained very sound growth, with an increase of 4.1% under the international standard among our peers. In the interim, we exceeded the threshold of RMB 400 billion. And you could also notice that the structure is optimized.
So, from the first half, we could see the three features. First, we continue to enhance investment and financing to support the stability of the economy. And we make up the price with the volume and we realized that our net interest profit is growing very steadily.
In the first half, new loans is added a volume of RMB 1.6 trillion and this beat for growth is more than 8%. And the increment is RMB 350 billion. And with this volume, we made the narrowing of the NIM through our measures to sharing our profit with the real economy. And in the first half, the interest on net income is RMB 351 billion and the growth is 4.5%. That is to say that this is a feature for the first half of this year. That is, we make up for the narrow down of the NIM with increased volume.
And second, we tap our potential and try to conquer the factors that will lead to reduced income. And our fee and commission-based income maintained a positive growth. And indeed, in the first half of this year, some of the income are under impact, but we have the potentials. And in the areas of asset management, settlement and clearing, and bank cards, in these sectors and products, we increased our income.
We also like to remind that – we also reminded the whole bank that we need to pay attention to the key products, for example, asset management products, settlement, clearing products and bank cards products. And for these areas, we have achieved 8% to 10% increase in terms of income increase. And with such a very good growth in four key products, our fee and the commission based income is fully supported. And that made up for the gap in other areas such as the agency sales fund commitment and investment banking business.
And we correctly judged the situation that we realized that the agency sales fund and commitment and investment banking, in these areas, we will have reduced income. And with such a judgment, we correctly chose other products to make up for the gap in these areas. And I’m very satisfied with our achievement. And so, our fee and commission based income maintained a positive increase. And for the first half, this is about RMB 76 billion.
And third, we take the initiative to carry out the innovation and to have diversified income source. We expand the transaction and improve the other non-interest income. This is also important. With a larger transaction volume, we have debt to equity swap, and we increase our income in this area. And the income increased by RMB 2 billion and we chose the good opportunities and chose the good bonds and enhanced our transactions.
And we have this advantage of our non-bank subsidiaries and our other non-interest income realized the growth of RMB 16.3 billion, up by 15%. And that account to as much as 2%. That is a proportion of this – the contribution in this area has increased to 4% from the 2% in the previous years. And from this aspect, we could realize that ICBC is such a big bank. And since we are other large flagships and we have very ample space for maneuver to support the structural change of our business operation income, that’s a third feature for the first half of this year.
And as for the next half, I believe that ICBC, according to such a correct judgment and the timely adjustment of our strategy and with the implementation of the bank, in the next phase, our operational income for the next phase will be balanced and coordinated and sustainable and we’ll have this – maintaining the momentum of high quality development and will also serve the real economy, especially that will optimize the mid and long-term asset layout.
As for the mid and short-term liability layout, these are two sectors that is very critical to us – that is the mid and long term asset layout and short and mid-term liability layout. And in the next phase, we will also focus on our wealth management businesses and investment transaction as well as other non-interest businesses. We will further have detailed development of wealth management products and build a resilient operation and management system.
In the first half, we have this GBC+ ecology product in terms of settlement volume and the transaction and customers. And our head customers could lead our SME customers. Such ecology has already yielded very remarkable results. And I think that the pressure on the economy will be eased and the economy will pick up again. And looking out for the whole year, I expect the operation income will maintain a balanced, coordinated and sustainable growth.
Unidentified Company Representative
Next question from Daniel [ph] of Credit Suisse.
Unidentified Participant
ICBC has a large deposit with rapid growth in the first half of the year. However, the cost of deposits also increased. How did you balance the quantity and pricing in terms of these deposits? What is your outlook for deposit growth in the future? Furthermore, this year, we’ve seen mounting pressure faced by the entire wealth management sector. What is the latest development of ICBC’s wealth management business? What is your outlook on wealth management contribution to the bank’s value from the full year’s perspective?
Unidentified Company Representative
This question will be answered by Vice President, Mr. Zhang Wenwu.
Zhang Wenwu
I will try my best to answer your question. You have noticed that the deposit for ICBC is very eye catching. By the end of June, our client deposit has increased by RMB 2.83 trillion compared with the first half of the year, an increment of RMB 1.4 trillion. And the balance of deposit including interbank deposit has exceeded RMB 30 trillion, which we’re the first in the market.
There are two features. Since the beginning of the year, we have achieved a sustained and fast, rapid growth of deposit. And second, all kinds of deposits have achieved good growth and has reached a historical high. Mr. Guan has mentioned of this while introducing our performance of the first half of the year. This result is achieved due to two reasons.
The first of the market factors – the willingness of the residents to pursue fixed term deposit has increased. But I believe the major reason is that we are forming high quality development of deposit. And meanwhile, we are promoting the establishment of client ecosystem by implementing GBC+ and not making any pension program. Our foundation of clients are most consolidated.
In recent years, we are pursuing the best mobile banking bank and increased the efficiency and the quality of physical outlets. Our capacity to serve clients have been increased. Besides, by digitalized transformation, we can accurately match our services with clients’ demands.
While our deposit is increasing, we have noticed the problem of increasing interest payment cost. This is due to both market factors and some other factors. While the capital market is very weak, the residents’ willingness to pursue deposits has increased. So, this has contributed to the increase of interest payment cost to some extent.
While providing sound services and optimizing client ecosystem, we have done the following works. First to stabilize the growth of deposit, our deposit growth rhythm is very sound. And second, we have optimized the term, interest rate product, interest of deposits and controlled the extension rhythm to maintain the interest rate of deposits at a relatively soft level compared with payers.
Third, we have optimized the structure of deposits. Since June, the interest rates of new fixed term deposits is lower than the industrial average level and the interest rate has decreased notably compared to the same period last year. This means, our capacity to coordinate the volume and price of deposits has been notably increased. For the next step, we will constantly optimize client ecology and optimize the new deposit structure and term structure to control the cost of deposits and to maintain the deposit growth at a moderate level.
Your second question is also concerned by the market. ICBC is a large wealth management bank among the peers and in the market. The propaganda is relatively weak in this regard. We have nearly 60 million wealth management clients, increasing by 9.8% compared with the beginning of the year. The AUM of the wealth management clients has stood at RMB 6.3 trillion. The fee and commission based income from wealth management business has increased by 3.3% year-on-year. So, overall, ICBC has achieved a steady and sustained growth in terms of wealth management business.
We have done work from four aspects. We have established our own development path to promote inclusive and steady growth of wealth management products and, second, to adapt to the changes in the market. In the first half of the year, the market is relatively volatile, especially the capital market. So we have adjusted our strategies. We have strengthened the cooperation with the flagship operations in the market and industry. And second, we have increased the life insurance products and guaranteed wealth management product. Besides, we have increased the matching between the product and clients’ demand. And finally, we have strengthened the education for investors.
For the next phase, our wealth management community will open to the market, and we will increase our team building and R&D in wealth management development. So, we have expectation, as well as confidence in our wealth management development in the next stage.
Unidentified Company Representative
Next question from CICC.
Unidentified Participant
My question is about the credit mix. Over the past three decades, ICBC has been the leader of China’s banking industry. Now standing on a new turning point of China’s economy growth, we are facing declining demand from conventional industry like property. And for banking sector, the credit also converting to some other new areas, like green energy, inclusive and advanced manufacturing. So, what is your outlook on your credit extension? And as a leading bank, how will ICBC cope with this change and continue to remain as the leader?
Unidentified Company Representative
I would like to invite Mr. Zhang Wenwu to answer your question.
Zhang Wenwu
In the first half, for ICBC, our RMB loan growth by RMB 1.6 trillion. And that’s just an extra incremental volume of 346.5% Y-o-Y. And with the balance with the loans extending to manufacturing sector of RMB 2.79 trillion, a growth of 29%, with a balance of the loans to manufacturing and growth rate ranking the top of – in the market. And the balance of inclusive finance totaled RMB 1.4 trillion, a growth rate of over 27%.
And currently, the prioritized area for credit expansion mainly includes the following. First is the advanced manufacturing industry because we see a bright future for the development of manufacturing industry in China. And we think the relevant risk is also totally manageable.
Secondly, we see opportunity in developing green finance, and we will continue to make more efforts to grow our green finance, particularly to low carbon areas like new renewable energy sector. Certainly, we will step up our efforts to fintech financing.
Fourthly, we will also enhance our support and credit expansion to some key infrastructure areas, particularly those kind of projects in the new infrastructure area in the mid-China and the Western China. We will also step up our efforts to grow our credit extension to inclusive customers in the agriculture area.
Another key area for us will be the personal prime mortgage. We will continue to grow our personal consumption loans, including the card overdraft business. And we will also pay a lot of attention to the business owners over RMB 100 million and to provide more relevant services to them.
So, going forward, we will continue to leverage our comprehensive strength and to acquire more synergy between the parent company and our subsidiaries and branches and also synergy between commercial banking and investment banking, synergy between credit extension and bond investment and to provide comprehensive services to meet diversified demand from our customers.
In terms of the regional location, we were mainly focused in the area like [indiscernible], Yangzi River Delta and Chongqing, Chengdu, Greater Bay Area would be the five key areas and we will continue to enhance and leverage our strengths in terms of talents and other kind of resources and continue to optimize our credit mix.
Unidentified Participant
I’m from Fidelity International. My question is about asset quality. We know that the NPL ratio of ICBC maintained stable, but there is a slight increase. And currently, with the pandemic and the complicated external environment, what are the key risk points we are concerned with? And how about the fluctuation about risks? I know that the exposure of ICBC to the real estate industry is relatively low. How about our exposure to the high risk real estate developers? And will the NPL ratio in the real estate sector further increase and will strengthen your write-off?
Unidentified Company Representative
I’ll ask Mr. Zhang Wenwu to answer your question about asset quality.
Zhang Wenwu
Since this year, ICBC effectively conquered the multiple difficulties such as the rebound of the pandemic and the complicated internal and external environment. The risk is quite stable. And the call indicators are stable and getting better, though we have a slight increase in terms of the deterioration of loan quality, but we use the – write-off the provisioned resources and the profit increase. We strengthened the disposal. And we have managed to maintain the decreasing momentum for NPL ratio.
And the overdue loan is about 1.20%, down by 0.03 basis points. And the gap between overdue loan and NPL long is negative or RMB 47.3 billion. And it’s a negative for the ninth conservative quarter. And the loans falling to the category of attention is 1.87%, down by 0.12 bps. And the proportion of risk loans is further reduced.
In areas such as real estate, wholesale and retail and credit cards, we have a slight increase of NPL ratio. And for some big borrowers, we have exposure of credit risk. And in terms of the risk management, we have the philosophy of [indiscernible] philosophy. The risk concerning the management is credit risk, market risk since the global market is constantly changing, and also we have the impact for geopolitical issues, etc. But in general, our market risk is very sound. We also pay attention to new risks, such as climate risk, data risk, information security risk and third-party risks.
This year, we pay a lot of attention to the risk management in the real estate sector, already taking serious measures to strengthen management and the disposal. Period-end of – during 2020, the NPL ratio for the real estate sector is 5.47%, up by 87 basis points as compared to last year. This is mainly a result of the default of some large borrowers that the disposal and the restructuring are in very good progress. And in general, I think the risk exposure in the real estate sector is fully exposed. And the quality for the asset in the real estate sector is also temporal. And we have recovered a lot of the NPLs. And the actual loss is limited and the value reduction is limited. And we have strengthened ability to control risks and our strong fiscal ability on the face of that, we will be able to embrace such impacts.
Unidentified Company Representative
Next question from Goldman Sachs Asset Management.
Unidentified Participant
This is John [ph] from Goldman Sachs. My question is about internationalization. How have recent geopolitical tensions impacted ICBC’s ongoing international strategy? For example, is there an impact on your business in Russia from the recent conflict in Ukraine? With this backdrop, what are some of the biggest risks the business is facing overseas? And what are your plans over the next two to three years to mitigate such risks?
Unidentified Company Representative
It’s in line with the international background in this area. I would like to invite Mr. Guan, Board Secretary, to answer your question. He has a working experience in overseas.
Guan Xueqing
I’m very delighted to answer your question. Goldman Sachs has close contact with ICBC. As China’s largest commercial bank, ICBC has promoted international development for over 20 years. We have established 421 overseas institutions in 49 countries. And our development capacity in overseas has basically been formed. Despite anti-globalization, geopolitical pressure and impact of COVID-19, ICBC’s confidence in international strategy will not be changed. And ICBC will adhere to international strategy, so as to service our major clients.
Second, facing these new changes, we will still seek progress while maintaining stability, timely and dynamically adjust our strategies and policies while pursuing global development. To ensure high quality development of overseas institutions, we adhere to the bottom line of risk management, closely follow country risk, credit risk, market risk and compliance risk as well as AML risks, sanction risks and control well the exposures of various risks.
Our overseas institutions complying with regulations and supervisory requirements. In the first half of this year, the overall operation of overseas institutions is very sound. By the end of June, the total assets of overseas institutions have reached US$44.2 billion. Profit before tax, US$2.3 billion. And the NPL ratio is lower than the group level.
Meanwhile, we closely follow the changes and impacts of regional conflicts and changes, pay high attention to the impact on overseas institutions by these geopolitical conflicts. We examined the risks, established preparation, and currently, the ICBC Moscow’s operation is well and sound. In the coming two to three years, ICBC will adhere to international development strategy, promote compliance development and operation of overseas institutions, serving high quality opening up of the state, and conduct various businesses according to marketization principles and professional operation standards, so as to increase the quality and efficiency of international development.
Unidentified Participant
Question from UBS. My question is about the net interest margin. We have seen the entire banking sector facing the pressure of contraction of margins. So, going forward, on the asset side, we have seen the continuous declining of LPRs, particularly for the five year term LPR and governments are asking the banks to provide – to lower the loan rates to support their economy and the demand for loans have been also weakened.
And on the liability side, we have seen the mechanism of deposit pricing, self-displaying adjustment can help to alleviate pressure on the deposit cost. So, against the backdrop of the change of term, change for deposits, could you give us some color as to the trajectory of margins for the second half of this year? And what is the impact of the repricing for the existing mortgage by January next year on the margins? Will COVID continue to be lowered?
Unidentified Company Representative
And I think margins are paid a lot of attention by investors and analysts. However, I don’t see there is need for investors and analysts to consider too much about the compression of margins for China’s banks. We have studied the margins trend for out years, both from domestic and abroad. And particularly for the international peers, we have seen a U-shape of their margins recently. For some of them, margins stood at 2%. Some of them are higher than 2% and some of them are lower than 2%. And basically, we have seen a U shaped trends for margins development.
We believe the margins for China’s banks will continue to be stabilized in the reasonable range. And for ICBC, due to the impact of COVID-19 and slowdown of the macroeconomic growth and also some other unexpected factors, the margins contracted overly speaking. And for ICBC, we are also in the same – in line with our peers.
For the first half, our NIM was 2.03% which has seen a contraction comparing to the beginning of this year, but also in the same trend with our main peers. And I think it’s closely related with our GDP growth, LPR reform, etc. The contraction of our margins is also related with the changes of our deposit and loan mix.
You just now mentioned during your question. On the asset side, we have seen the lowering of interest rates of loans. And on the liability side, we have seen a very good growth of deposits for large banks. However, we did see a trend of the deposit to become a term deposit because – as a result of wage, the liability cost will also be rising.
Compared to our international peers, the margins of our domestic banks are actually in line with them. We have a strong team which are working closely on their core indicators. And we have also started on the 1,000 banks on their indicators – on the 1,000 banks published by England Bankers Magazine.
Besides that, we have also studied closely on the performance of the four big banks from America. We do see there are a lot to be comparable with them. And based on our study with our international peers, we are also working closely as to future work, how to stabilize our margins in the future. Currently, we do think the changes of our margin is in line with the global environment and also our international peers. For large banks in China, we do not see our first decline for our margins in the near future. And for ICBC, specifically speaking, we will adopt multiple measures to slow down the further tightening of our margins and try to stabilize margins. And maybe just like before big banks in America, to make sure the margins perform like a U shape. And we are trying our best to slow down the declining of our margins. So, from the management and strategically speaking, we will continue to implement our key strategies, namely the number one personal bank and to become the preferred bank for forex business, and also the synergy between rural and urban areas and also to enhance our competitiveness in the five key areas.
Another effort we will make is to accelerate our D-ICBC construction, to enabling and empowering by technology and the digital transformation. In the first half, we have seen a very good growth of deposit because that is attributable to the solid foundation of our customer base. And most of them are prime customers and the leaders from different industries. So that constitutes a very good ecosystem for our clients, which enables the flow of capital of our customers within ICBC.
We will also try to improve our assessment and evaluation system to mobilize the branches, to strike a balance between the volume growth and pricing and try to achieve a sustainable growth.
In terms of the customers, client base, we will continue to try to optimize the client base. As we all know, the ICBC is quite strong at our prime customers. And we will also try to step up efforts to grow our mid-size and then also small and tail customers. While exploring more potential – tap more potential from our prime customers, we believe we can also further optimize our customers of mid-sized and smaller sized and micro sized customers, which has already been proven quite effective from our first half one performance.
And on asset side, we will continue to improve our asset mix. And on the liability side, as Mr. Zhang just now answered the question, ICBC has a very strong deposit growth. We cannot also the change the trend of the deposit becoming more term deposits. At the same time, we have taken the initiative to compress our active liability products, so which can help us to lower the liability cost to a large extent.
As to the asset allocation, while providing our support to the key projects, we will also step up our efforts to grow our personal business and retail business, particularly for the medium term and long term personal loans, and also try to increase the yield of our personal customers by leveraging our strength in the settlement and transactional banking, which we have heritage legacy strength.
Fifthly, we have paid a lot of attention to grow our corporate banking and the wholesale banking. Now, we are also trying to grow our personal and retail business. With all those measures taken, we are confident that our margins will be managed at a reasonable range and also be stabilized within a reasonable range.
Unidentified Participant
[indiscernible] Asset Management. I know that, in the first half, you have huge growth in terms of the inclusive and SME loans and the impact of the pandemic. How about the demand for credit?
Unidentified Company Representative
I ask Mr. Zhang Wenwu, our Vice President, to answer your question.
Zhang Wenwu
About ICBC carry out inclusive finance as a key strategy out of the need to fulfill our social responsibility as well as need to gain more commercial value, we have maintained very high speed and high quality development in inclusive finance. And the structure is also huge. By the end of June, the volume for inclusive finance loan is RMB 1.4 trillion. And our speed is leading in terms of our peers and our risk management is also sound. The NPL ratio for inclusive loans is only 0.78% or down by 0.06%. And the interest rate also reduced at 3.9%. The growth is also sound. It’s also fast.
I should say that we maintained the very good momentum. For example, we continue deepen our models. We have online product lines and have the digital application. And our digital inclusive finance is pertinent, fluid and smart. And we enhanced the integration of information and the connection of ecology, so that the financing service is more convenient and accessible. We continue to provide a comprehensive service. We provide not only the funding, but also the intelligence and business opportunities. So, we have the diversified and whole chain financial support for SMEs. And for the manufacturing industry and for this specialized smart and new sectors, we also strengthen our support. And with all these measures, we want to achieve more effective inclusive finance supply. And we also coordinated development and risk management. We have a coordinated risk management online and offline. And we have this closed loop management of all the risks. And I think that we still have quite some demand for the sector and we will enhance our ability to provide and achieve a healthy development.
Unidentified Company Representative
The next question from [indiscernible] of China Securities.
Unidentified Participant
My question is about capital and dividends. ICBC has to reach TDOC [ph] standards in the coming two years and there were still some lagging behind in terms of capital. How has ICBC’s plan for capital management for the coming years and how to balance capital management and dividend payment?
Unidentified Company Representative
According to our calculation, if we maintain the current 30% dividend ratio and maintain 5% profit growth for the coming years, we need to supplement RMB 100 billion capital to reach the TDOC [ph] standards.
Unidentified Participant
Our calculation may not be that accurate, but my question is about how to balance this kind of business demands for capital and the expect of demand of investors for dividends.
Liao Lin
President Liao Lin speaking. I believe ICBC’s CAR is relatively high. And while conducting road show in North Europe, the investors all mentioned that our capital adequacy ratio was very high. I would like to invite Mr. Guan Xueqing to answer your question.
Guan Xueqing
Mr. Guan speaking. Your question is very long, but very important. Indeed, we need to balance dividends payment and capital management. To serve the real economy and develop our business, we will maintain – we will balance the short term profits and long term interests of our investors. As you can see, the current CAR of ICBC is relatively high, about 18%. And the time for us to reach TDOC [ph] standard is not that sufficient.
According to our analysis, we have established the three-year plan for capital management and the relevant departments have refined the calculation for capital management. We believe our capital tools for capital management is very sufficient and the pressure for reaching the standards is not that high. At appropriate time, we will launch the issuance of TDOC [ph] bonds.
Overall, we will stick to supplementing our capital by endogenous way – that is by supplement the core Tier 1 capital through retaining profits. On the other hand, we will supplement capital management by issuing other Tier 1 capital and Tier 2 capital.
In terms of profit sharing, you can see that our profit sharing level is at a moderate level. And we have won the recognition of investors in terms of long term value. The senior management will balance serving real economy, long term development, capital supplement as well as profit sharing. Based on endogenous supplements, we will pursue capital saving businesses and restoring capital management to increase our capital management capacity and optimize the capital structure, so as to stabilize ROE level and give return to investors.
Unidentified Company Representative
Next question is question from CLSA.
Unidentified Participant
I have several questions about the mortgage, about the demand and the asset quality. From the demand side, we have seen a relatively low transaction volume of the property market and a lot of customers prepay their mortgage. But judging from ICBC, how is the prepaid mortgage of your customers for your bank? And the shrinkage of the residential mortgage, is this a trend or just a transitional problem? And from the perspective of asset quality, we have seen a rising of the NPL of your mortgage loans. What is outlook for the NPL for your mortgage loans for the second half?
And as a lender, how were ICBC participate in the disposal of the uncompleted property projects?
Unidentified Company Representative
Mr. Zhang will take your question.
Zhang Wenwu
This is a very heated topic, which was paid close attention by the market. I think it’s a quite difficult question. But I can share with you some figures. As for the first question of the prepaid mortgage of our customers due to the low transaction volume of property markets, judging from ICBC, few mortgage customers pre-paying their mortgage mainly because of improving their assets and liability structure recently. But compared to previous years, it’s not a remarkable change in the first half of this year. The total mortgage repaid totaled RMB 381.9 billion, and with the prepaid mortgage totaled RMB 263.9 billion. Owing increased by RMB 32.3 billion compared to the same period of last year. However, we have to take into consideration of the total volume growth of the mortgage in this first half, so we can see the prepaid volume also is in line with the general growth of our mortgage loans without any remarkable changes.
You also asked me about the shrink, compression of residential mortgage, whether it’s a trend or transitional question. We don’t think it’s highly likely for the leverage of residential mortgage to be recovered. However, we do think that changes will not be altered, which is the investment nature for our property will continue to be changed for consumption. And at the same time, there were also huge room for the demand for houses purchase and also demand for improving their living conditions. So this is a solid foundation for our mortgage loan growth.
[indiscernible] will lay a solid foundation for mortgage loan growth in the future while providing mortgages. We will also try to enrich our product lines to meet more diversified demand from all customers for housing purchase or renting.
As to the asset quality of our mortgage loans, I would also like to give you more data to shore up your confidence. The mortgage NPL for our bank was 0.31%, up by 7 bps. NPL relating with the suspension of mortgage totaled RMB 637 million, same as we made the information disclosure back in June. We haven’t seen any changes, remarkable changes as to the NPLs relevant with the mortgage boycott.
Among our total mortgage, the first house loans making up 76% and the new house making up some 76% of first buyers, making up 90%. The LTV is over 50%. So, all this data have shown that we have a solid quality for our mortgage loans and also a security buffer for our mortgage asset quality.
And according to our monitoring statistics, the mortgage loans relating with the uncompleted real estate projects is quite small, which has no obvious impact to the total mortgage asset quality.
As to the part we will play in terms of disposing the uncompleted property projects, firstly, we will make our due contributions to coordinate and support the work of guaranteed delivery of buildings and maintain the stability and to support relevant property developers to mitigate their risks.
Secondly, on the precondition of implementing guarantee and effective risk insulation, we will give more grace period of existing loans and also provide to meet the demands from developers and mortgage borrowers and also to conduct more M&A loan business.
Thirdly, now the market are paying close attention to stringent requirements for the pre-sale proceeds. So for our bank, we will also try to optimize the monitoring system for the pre-sale proceeds to make sure there will be adjust to the particular projects and guarantee the legal rights and the lawful interests of the homebuyers. Fourthly, we’re going to try to monitor more closely as to the relevant risk of our mortgage and try to prevent from any more further risks.
Unidentified Participant
My question is mainly about green finance, which is ICBC’s main focus for the past several years. Last year, we noticed that we have seen the fast growth of green loans. And what’s the target for this year, especially considering the macro situation, especially the climate change this year and some energy issues for this year? And what’s the target for green finance for this year and how about the pricing for green finance? And in terms of issuance, do you have some regional concentration? I have also noticed that the various banks and the guidance of the government, 30/60 target, banks facilitate accelerating the issuance of green loans and what’s the competition situation for our green finance project reservoir?
Unidentified Company Representative
I’ll ask Mr. Zhang Wenwu to answer your question.
Zhang Wenwu
In the recent years under the target of the carbon summit and carbon neutrality, ICBC pay a lot of attention to ESG, green finance and climate change management. We seized the opportunities for green finance development and upgrade – increase our support for the clean energy, green upgrading of infrastructure and the ecology development. We have plan for every year and continue to increase the proportion of green loans and also enhance the green transformation of our loans. By the end of June, the volume for green finance is RMB 3.5 trillion and we underwrite the green bonds by the amount of RMB 26.27 billion. And we are the number one in this area and in the areas where the transformation is faster and we have faster growth of green loans.
It is ICBC’s opinion that green finance is very critical for the green transformation for the national economy. According to the 30/60 target, we also have our action plan. First, we will manage our own carbon emission. On the other hand, we will properly manage the low carbon transformation of our financial assets. Our target is to continue to maintain and solidify our position as the number one green loan bank to optimize the threshold pricing and resource allocation for green loans. And firstly, we increase the assessment weight for green finance. Second, optimize the threshold standard. And third, to have proper FTP. Four, we have favorable quotation for green finance.
So, in general, we are quite competitive in terms of capital, customer and funding. And we are also quite competitiveness in terms of the reservoir for potential green finance projects. In the next phase, we will further implement the growth for green finance. First, optimize strength and our support for industries and properly push for the transformation of eight major industries to have this low carbon transformation. And second, properly manage climate risks, reduce our credit risk exposure to brown finance and to support the transformation of our high carbon industries. Third, we will continue to manage ESG and develop a sustainable finance. Construct a more optimal ESG management and disclosure and sustainable financial development system. At the management level, we have ESG and the sustainable financial development committee. And we have issued ESG and green finance, annual report and interim report. And here, I would like to ask our analysts and investors to pay attention to our ESG and green finance report that we’re going to release.
ICBC is a responsible bank. We’ll fulfill our commitment, push forward our ESG building, our green finance and sustainable development finance to enhance a diversified disclosure system, properly titled ICBC Story. We expect more attention and recognition from the investors and the society.
Unidentified Participant
I’d like to ask a question about monetary policy. We noticed that the environment is going through a downward trend. And overseas, we also have some pressures. And I would like to ask about, how about the monetary policy in the government? We noticed that MLF interest and we also have a symmetrical downward trend. I would like to ask that, do you think there will be further space for the reduction of interest rates? And while the economy is under plenty of pressure and without opening the faucet for the unlimited liquidity, what kind of monetary tools could we use? So what have we got in our toolkit? This is a very macro. I should ask our Chief Economist, Mr. Zhou Yueqiu, to answer the question.
Zhou Yueqiu
I think you have asked the three questions. The trend for the interest rates and the further space and the monetary policy tools. The trend, I think we need to first look at the whole economy. Let me review the economy for the first half. I think the government coordinated the pandemic prevention and the economy, socioeconomy development. And I think the economy is picking up. And the GDP grows is 2.5%. And for Q1 and Q2, the growth is 4.8% and 0.4%. And indeed, I could say that we have faced the pressure and realized the positive growth. It shows the strong resilience of Chinese economy.
Well, in the second half of this year, in the political bureau meeting, there’s a sentence that will solidify the trend that the economy is picking up and stabilize employment and price and make sure that the economy is in the proper spectrum and strive to achieve the best outcome. And I think this is a very important layout for the macroeconomy. I think the government has already taken a series of fiscal and monetary measures to maintain growth, maintain the [indiscernible] players, maintain expectation and maintain and stabilize employment. And with such policy support, I think compared to the first half, the next half will see better economic growth. This is one angle.
And another angle is that the global economy. And we realize that the global economy is faced with quite some daunting challenges and pressures, especially that in Europe and the United States, they are faced with very severe inflation, which is quite different from China. And the inflation is about 8% to 10%. Well, the cumulative CPI for the first seven months is only 2%. So, the environment for monetary policy is totally different.
And basically, in terms of choosing the monetary policies, they have to have this faster increase of interest rates. However, overseas increase of interest rates, of course, we will have this pressure of imported inflation. But as we previously said that our CPI is at a relatively low level. So I think that, compared to Europe and United States and America, we are faced in different environments for monetary policies. So, I think that our monetary policy will just speak to the keynote to see our own situation as the main base for adjustment to provide strong support and high quality support for the real economy as the sole basis for adjustment of interest rates.
You mentioned that, recently, the one-year LPR dropped by 5 basis points. And for five year LPR, it just dropped by 15 basis points. It fully shows that the government stick to the policy, that will not turn on the faucet for the unlimited liquidity and we stick to the pertinent conduit for monetary policy. And ICBC as the largest commercial bank will properly conduit this monetary policy into the economy and guide the downward trend of the actual interest rate to enhance the real economy and the market players’ willingness to invest and to consume. And this is also very good choice for the commercial banks, which will open up for a very good environment for commercial banks to operate, which is also conducive for the management of asset quality and management of risks.
Thirdly, the monetary policy tools in terms of volume and in terms of price and structure, I think that the government have plenty of monetary tools to choose from. And these tools can also combine. And monetary policy is not isolated. It can also work together with other macro policies such as fiscal policies. The two can work together to create a synergy and it could also be used together with regulatory policies, industry policies and regional policies to create better results. And I think this is my opinion on your question. And this is also on my own judgment.
Unidentified Company Representative
The next question from CITIC Securities.
Unidentified Participant
My question is about fee and commission based income. For the long term, ICBC has maintained a high proportion of fee and commission based income by transformation of business structure. And within the two years, the growth of fee and commission based income is relatively weak, especially against the background of the [indiscernible] profits by reducing fees. And what’s your judgment for the outlook for the fee and commission based income for the 2022 whole year? And what will be the major drivers for the income for the coming years?
Liao Lin
President Liao Lin is speaking. Actually, I have mentioned this issue while talking about operating income in the first question.
Your question is very good because it’s from a long-term perspective. ICBC is a banker with a long history. From 1984 to 1994, the first 10 years of ICBC has achieved a good development of personal finance. And in the next 10 years and for different 10 years developmental, ICBC has different features. And now we have made full preparation to serving, modernize the economy and country. We are improving the implementation of strategies and coordination and coordinated development capacity, as well as digitalize the transformation capacity, the risk control capacity as well as the visionary judgment capacity. So, it’s very rational to look at the bank’s development from long term perspective.
For your specific question about fee and commission based income, I think we don’t have to worry about this issue. The operating income has changed a lot. The structure has changed a lot. For the first half of the year, the net income of fee and commission-based income reached RMB 76 billion, positive income, and we have consolidated our leading advantages.
The contribution mainly comes from two aspects. First, the clients; and second, products. The products are mainly insurance, wealth management products. The AUM of fund and wealth management subsidiaries has contributed a lot in this aspect. Second, the expansion of customer base, especially in corporate settlements and acquiring business. These two aspects have contributed a lot for fee and commission based income in the first half of the year. And these are two pillars for fee and commission based income.
For other aspects, agency sales fund, investment banking, commitment and guarantee business have been decreased due to the impact of downward economic growth and the volatility in capital market.
For the next step, we will increase our fee and commission based income from three aspects [indiscernible] expenditures. We will increase equity investment, bond investment and other transaction income to stabilize the sustained development of fee and commission based income. And we will seize the major businesses, such as third-party payment, RMB settlement and foreign currency settlement.
Besides surrounding the demand of our clients, we will increase our potential for income and [indiscernible] insurance etc. In particular, we will play our advantages in GBC coordinated development. Strengthen the coordination of wealth management, asset management and investment banking. And of course, we will control the expenditures. So, we fund our management in terms of fee and commission-based income.
Meanwhile, we will strengthen of our profits by cutting the fees. We will accompany our clients and retaining our clients. This is also the basis for our sustainable development and increase the contributions and the loyalty of our clients. And a strong ecosystems will be established to support our development as well as the fee and commission based income.
End of Q&A
Unidentified Company Representative
That’s the end of Q&A session. And thank you for your enthusiastic participation. The senior management has candidly answered investors’ concern and questions and we believe this will help the analysts and investors to make a better judgment for the future development. And thank you for your long-term concern in ICBC. If you have any more questions, we welcome you to contact with us. Wish you all the best. Thank you.

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