Interim 2014 Bank of China Ltd Analysts Presentation

Aug 19, 2014 AM HKT
601988.SS - Bank of China Ltd
Interim 2014 Bank of China Ltd Analysts Presentation
Aug 19, 2014 / 08:45AM GMT 

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Corporate Participants
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   *  Fan Yaosheng
      Bank of China Limited - Secretary to the Board of Directors
   *  Chen Siqing
      Bank of China Limited - Vice Chairman & President
   *  Yue Yi
      Bank of China Limited - EVP
   *  Zhang Jinliang
      Bank of China Limited - EVP

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Conference Call Participants
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   *  Lia Min
      Ping An Securities - Analyst
   *  Tracy Yu
      Deutsche Bank - Analyst
   *  Editor

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Presentation
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 Fan Yaosheng,  Bank of China Limited - Secretary to the Board of Directors   [1]
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 Ladies and gentlemen, good afternoon. I am Fan Yaosheng, Board Secretary of Bank of China Limited. Welcome to our 2014 interim results presentation. Altogether, there are analysts from investor banks attending the meeting today. This presentation is made in Beijing and audio and video linked to our Hong Kong venue. The analysts who are not available to attend the meeting can watch the live webcast through our website. Our 2014 interim results has been published in the Hong Kong Stock Exchange as well as the Bank's website. The newsletter and the presentation are also available on our website.

 Before we proceed further, please take note of the disclaimer on this slide. All the financial data in our presentation here are prepared according to the IFRS unless otherwise stated. There will be a Q&A session at the end of the presentation during which we will allocate time between Beijing and Hong Kong venues. First of all, may I introduce our management team who are with us here today. They are Mr. Chen Siqing, President; Mr. Yue Yi, Executive Vice President; Mr. Zhang Jinliang, Executive Vice President; Mr. Ren Deqi, Executive Vice President. Now, may I invite President Chen Siqing to make a speech.



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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [2]
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 Ladies and gentlemen, good afternoon. Welcome to attend today's results announcement. The development of Bank of China has received your longtime support and help. I would like to express my sincere gratitude to you all and hope that you can continue to take care and support our Bank in the future. Today, I'm pleased to introduce the Bank's interim results with three Executive Vice Presidents. To my left is Mr. Yue Yi, Executive Vice President. Since most of you are very familiar with Mr. Yue and you're already good friends, I will not introduce further. To my right is Mr. Zhang Jinliang, Executive Vice President. Mr. Zhang obtained his doctorate degree in economics from Xiamen University in September 1997. He is a certified public accountant.

 After joining the bank in 1997, Mr. Zhang worked in the financing and accounting department for many years and he took position as the Vice General Manager of the department. From October 2003 to February 2007, Mr. Zhang served as Deputy General Manager of the financing and accounting department of the Head Office, the General Manager of IT Blueprint Implementation Office, so on and so forth. To my left is Mr. Ren. Mr. Ren graduated from Tsinghua University and have worked in the Bank of Construction of China for many years and he was the General Manager of the Risk Management Department, General Manager of the Credit Approval Department, as well as the head of Hubei Branch as well as the Risk Management Department. In May 2014, he joined our Bank and he took the position of the Executive Vice President of the Bank since July 2014.

 Now, I will introduce the Bank's interim results first and then answer questions with Mr. Yue, Mr. Ren, and Mr. Zhang. In the first half of the year guided by the strategic goal of serving society, delivering excellence; we calmly responded to the complicated operational environment, enhanced our business development, tightened risk management, deepened reform and innovation, strengthened team voting, thus delivered excellent results. The Bank recorded a profit after tax of RMB93.4 billion and profit attributable to equity holder of RMB89.7 billion, increase by 10.97% and 11.15% respectively. The ROA and ROE recorded at 1.27% and 18.57% respectively. Asset quality remained stable in a reasonable range. The NPL ratio stood at 1.02% with NPL coverage ratio at 217%.

 Advanced capital management approach was approved to implement by the regulator. The capital adequacy ratio and the common equity Tier 1 capital adequacy ratio recorded at 12.41% and 10.11% respectively. The Bank actively sought upstream and downstream customers along industrial supply chain and strived to develop fundamental businesses such as payroll disbursements agencies and agency of collection and payment. As a result, its customer base expanded and the customer deposits grew steadily. As at June 30, 2014 the Bank's customer deposits amounted to RMB11.19 trillion, an increase of RMB1.09 trillion or 8.8% compared with the prior year-end. The domestic RMB deposits reached RMB8.45 trillion, an increase RMB735.3 trillion or 9.5% compared with the prior year-end.

 The funding costs are under pressure due to the rise of market interest rate. The Bank expanded sources to absorb lower cost funding by issuing bonds globally and actively developed cash management platform, custody, and bond underwriting businesses in order to gather stable customer deposits. In order to meet the needs of the real economy, the Bank continuously optimized its credit structure and maintained balanced growth in its loan portfolio. The Bank's loans and advances to customers amounted to RMB8.42 trillion, increased by 10.7% compared with the prior year-end. The domestic RMB loans increased RMB338.1 billion or 8.1% from the last year-end. During the Q&A session, we will share more information with you.

 The Bank made greater efforts to support the key areas and components of the national economy. The proportion of the domestic RMB personal loans to domestic RMB loans increased 0.4 percentage points from the last year-end. The growth rate of loans by BOC Credit Factory and the loans to medium-sized enterprises exceeded the overall growth rate of domestic corporate loans by 5.7 percentage points and 1.1 percentage points respectively. The loans to strategic emerging industries increased 21.8% and the balance of agricultural related loans increased by 6.1% from last year-end. In the first half of the year, the Bank focused heavier pressure given the uptrend of the funding cost.

 Due to the proactive efforts to optimize its asset and liability structure and enhance profitability of overseas businesses, the Bank expanded net interest margin by 3 basis points from the last year to 2.27%. Adapting to customer demands, the Bank made great efforts in product innovation and promotion to expand the sources of non-interest income. In the first half of 2014, non-interest income increased 13.4% year-on-year while net fee and commission income increased 14.6%. Non-interest income represented 33.3% of total operating income. The Bank strengthened its traditionally competitive businesses such as international settlement and foreign exchange business and achieved rapid growth in fee income from its custodian, consultant, and bank card businesses.

 Seizing the market opportunities arising from RMB internationalization and Chinese enterprises Going Global; the Bank set up the collaborations of its domestic and overseas operations, improved its global service capabilities, and enhanced its market competitiveness. And we really hit our target of making the local services overseas and making the overseas business long haul. In the first half of 2014, the Bank's total overseas assets increased 21.3% compared to the prior year-end and accounted for 27.8% of the total assets. The overseas profit before tax increased 35.8% year-on-year and accounted for 22.2% of the Bank's total profit before tax. The deposits and the loans of overseas commercial banks achieved rapid growth rate of 16.1% and 24.1% respectively.

 The Bank strengthened the support of Chinese enterprises Going Global and provided loan processing all around the cross-border financial products and services to assist the overseas expansion. In the first half of 2014, the Bank had supported 1,187 Going Global projects with its loan commitment growing 26% year-on-year. The RMD internationalization business expanded advantage as well. The Bank continued to focus on its contribution to RMB internationalization process and expanded its competitive advantage. In the first half, the Bank conducted cross-border RMB settlement and clearing volumes amounted to RMB2.79 trillion and RMB112.5 trillion respectively, an increase of 63% and 98.7% compared with the same period of the prior year ranking first among its international peers.

 RMB global clearing network was further expanded. Its Frankfurt branch became the first RMB clearing bank in Eurozone. The Bank further enhanced its 7 times 24 global RMB clearing service network centered in Hong Kong and Shanghai. Overseas RMB assets and liabilities expanded rapidly. The Bank actively pushed forward the insurance and underwriting of offshore RMB accounts and seized the business opportunities arising from the Shanghai Free Trade Zone to explore and promote the RMB internationalization business. The Bank further leveraged on the competitive advantages arising from the diversified business platform including investment banking, insurance, investment, and the leasing businesses enhancing the synergies across the board and provided comprehensive and high quality financial services to our customers.

 The Bank's comprehensive business income stood at RMB33.7 billion, a year-on-year increase of 20%. The proportion to the total operating income increased by 0.71 percentage point. The Bank actively promoted e-finance bank construction, diversified and improved e-banking service channels, optimized product functions and operating processes to enhance customer experience. The Bank's substitution ratio of e-banking channels for traditional outlets continuously increased as e-banking transaction volume grew by 29.7% compared with the same period in the previous year. The Bank continuously improved its open platform and launched online wealth management; Financial e-Manager, e-Home, online cross-border financial products, mobile payment, BOC e-Shipping, and other innovative services.

 Its Future Bank flagship branches achieved preliminary development. Meanwhile we also enhanced the comprehensive risk management. In the first half of 2014, the banking industry faced increasing pressure on asset quality in the process of economy structure adjustment and growth rate slowing down. The Bank continuously improved its comprehensive risk management, strengthened risk prevention, early warning and resolution, and maintained asset quality in the reasonable range. As at the end of June 2014, the non-performing loans ratio was 1.02% and overdue loan ratio was 1.35%, up by 0.06% and 0.19% from the previous year-end. Special-mention loan ratio recorded 2.28%, down by 0.21%. The provision was sufficient and the ratio of provision to total loans for domestic institutions increased by 9 basis points to 2.71%.

 The Bank enhanced non-performing assets resolution. In the first half of 2014, the non-performing assets resolved by domestic branches amounted to RMB27 billion, up RMB9.2 billion year-on-year basis in which cash recoveries accounted for 48%. The Bank strictly controlled the overall credit exposure to local government financing vehicles and strengthened the risk management of overcapacity industries; real estate, wealth management businesses, innovative inter-bank businesses, so on and so forth. Adhering to the balance of safety, liquidity, and profitability; the Bank maintained sound liquidity situation. Looking into the second half of 2014, with a series of stabilizing growth policies implementing and effecting, the internal impetus to economic growth would be gradually stimulated.

 The economy will maintain stable growth, but still face downward pressure. Banks are expected to operate in the less advantageous environment and will face dual challenges from NIM contraction as well as asset quality pressure. The Bank will stick to a strategic goal of serving society and delivering excellence because we feel full confident and we feel that even though there are challenges, there are opportunities as well. And we will earnestly carry out China's macroeconomic policies; it will deepen reform to promote transformation, improve service to win market, strengthen collaboration to consolidate competitiveness, enhance efficiency to control risk, and strengthen fundamental construction to [improve] team building. The Bank will make great efforts to deliver sound results and bring long-term sustainable values to our shareholders and [improvise] as far as the society. Thank you.

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 Fan Yaosheng,  Bank of China Limited - Secretary to the Board of Directors   [3]
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 Thank you, Mr. Chen. Now, I would like to open the floor for questions. Please identify yourself before you ask a question. You may put up your hand for a question. For the interest of time, please raise only one question for each round. May I invite questions from the Beijing venue and then Hong Kong venue. Now, questions please. The first question came from this lady in white, first row.

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Questions and Answers
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 Lia Min,  Ping An Securities - Analyst   [1]
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 My name is [Lia Min] from Ping An Securities. First of all, congratulations on your good performance in the first half of 2014. My question is about your equity and this is for Mr. Chen. Before that, we noticed that in the communications bank there is a reform which is called a mixed ownership reform and the announcement there. And as we have heard that it seems that the BOC is going to carry out the same result and the same reform. So can you please clarify whether it is true and how does the management think about this mixed ownership reform in big banks in China? Thank you.

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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [2]
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 Thank you for your question lady and thank you for your support to Bank of China. There are rumors in market and I [won't] make any comment on all the rumors there. But you mentioned about the reform on the mixed ownership and now I would like to share my opinions on it. During the third premier session of the 18th Party's conference, it is put forward that there will be a cross-shareholding between state owned capital, collective owned capital, as well as the non-state owned capital. This is kind of a cross-shareholding and it is a very important form of shareholding for our fundamental economic structure. It will have to reserve the value of our capital and it will also have to make all these capitals owned by different parties supplemented to each other and promoted to each other and this is a very good idea.

 During the government's working report, it is also further put forward that the mixed ownership reform will be carried out in the stated way. The reform among all the banks is called by its own inner reform and it will have to optimize the ownership structure of banks and it will also have to improve the motivation mechanism, which will have to improve the competitiveness of all the banks in the international world. We noticed that government departments already called for all the banks to accelerate their steps in the ownership reform. We believe that this reform will be of great significance of all the banks. We believe that in order to carry out this mixed ownership reform, we have to first of all adapt ourselves to the market, which is being featured for the marketization, internationalization, as well as some informationization.

 I believe that there are three dimensions that we can look into this reform. First of all, we have to expand our investment channels in order to optimize the ownership shareholding. Number two, we have to [prioritize] our corporate governance mechanism. And number three, we have to keep the same pace with the ownership reform as well as the growth of the capital market. We will definitely implement the spirit from the third premier session of the 18th Party's conference and in order to a good job in the reform. The second question, please. That gentlemen in the second row.



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Unidentified Audience Member   [3]
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 I'm from Morgan Stanley. We noticed that the overseas business is growing very fast and it seems that this business is contributing more and more to your overall business. So I just want to know what will be your strategy for your overseas business in the upcoming years? We also noticed that there's a trend of RMB internationalization and it is not there to be ignored, we believe that there are opportunities and I just want to know what is the updates for this progress. Thank you.

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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [4]
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 Thank you for your question. Mr. Yue is in charge of the overseas business and may I invite Mr. Yue to take your question.

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 Yue Yi,  Bank of China Limited - EVP   [5]
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 Thank you, Mr. Chen. It is true that in the homeland and operate overseas, this is something that we are different from other banks in China. In the past few years, we have made use of both markets in China and outside two types of resources in order to optimize the cross-border operations. In the first half of 2014, our overseas assets as well as the profit before tax grew dramatically. As Mr. Chang shared with you, it is over 35% of the overseas assets as well as the profit before tax. And the total overseas also accounted to 27% and 22.2%; these are the proportions of our total overseas markets as well as the profit before tax. The rapid growth of such businesses also bring along the growth of other businesses in the group.

 In terms of advantages, you can see that first of all we focus on giving a full play to our traditional strength; which is the international settlement, trade financing, double factoring, as well as the foreign exchanges. For example in the first half, institutions in China and outside has handled international settlement of RMB782 billion, which accounted one-third of our total trading volume. As for export, the double factoring for exports, the business volume reached RMB5.658 billion, ranking in the first place in the world. As for the settled and sold foreign exchanges amounted to RMB376 billion, also ranking in the first place in the world. Based on these advantages, we also worked very hard to help Chinese enterprises to go global. So, this is a good opportunity for us to set up a channel for the Chinese enterprises for going global as well as invite foreign companies to China.

 In the first half, we supported 1,187 projects which are from the Chinese enterprises and the loans commitment was $102.8 billion, up by 26%. As for the acquisition projects, 100 and the overseas operating loans 1,034 projects altogether. Particularly if you look at the foreign markets, some successful acquisitions were made and they have won great international attention. For example, we successfully supported China Moly to acquire an Australian mineral company as well as the Fosun International acquired a Portugal insurance company as well as the Shuanghui acquired a Smithfield. All of our branches in China and outside involved in these international acquisitions and they have made great contribution to these big projects just like big loans in the syndicates.

 Thirdly, we also captured the opportunity of RMB being internationalized. In the first half, the total settlement and trade volume reached RMB2.7 trillion non-trading as well as RMB112.5 trillion trading, up by 63% and 99% and we are the biggest RMB service provider both online and offline. BOC Hong Kong, BOC Macau, as well as BOC Taipei were appointed to be the settlement banks of RMB. Recently our Frankfurt branch was also appointed to be the RMB settlement bank in Europe. Therefore you can see that we have already set up a network in Shanghai and Hong Kong and in this half we can provide 7 times 24 hours RMB settlement service to our customers in the world. Talking about the future, how we grow our international businesses and what is the potential, basically there are two points.

 Number one, RMB will continue to be internationalized and the market dividend will also grow. RMB being one of the settlement currencies as well as reserve currencies in the world, you can see there is the trend of a rapid growth be it in Southeast Asia or Europe even in North America, many countries are very interested in using RMB for settlement. This has given us great confidence in conducting more cross-border RMB businesses since we are the pioneer and we take big market share in RMB business overseas. Meanwhile in our country, we adopted an open-end strategy. A lot of Chinese enterprises are going global, they invest overseas and they set up factories in other countries particularly in energy. This is very, very helpful for our energy strategy expectation of our equipment as well as the transformation of capacity industries. This will lay a solid foundation for the future growth.

 In the future, we'll continue to speak to our strategy to promote the expansion of our overseas organizations. Meanwhile we will also improve the network of our overseas service and improve the quality of service. We will provide greater support to those projects in compliance with our national strategy in terms of cross-border businesses. We will continue to expand unified universal RMB settlement system in order to promote the building of offshore RMB center in many countries ultimately turning ourself into one of the major service provider of RMB settlement. And we will help to turn ourself into a major source of RMB settlement as well as the major RMB service provider as well as the foreign exchange service provider because we have a long history in foreign exchange services and since we are one of the major service provider of offshore RMB business as well as foreign exchange, there's just still much room for us to grow. Thank you.

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 Fan Yaosheng,  Bank of China Limited - Secretary to the Board of Directors   [6]
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 Now, I would like to invite questions from the Hong Kong floor. Is there any questions from the floor? That lady in the second row to the right.

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 Tracy Yu,  Deutsche Bank - Analyst   [7]
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 My name is [Tracy Yu] from Deutsche Bank. My question is about the growth of deposits as well as NIM growth. We noticed the rapid growth of deposits, very good performance and also for the NIM, there was up by 3.3 basis points. So my question is what is the reason for such a good performance for both deposits and the NIM? And along with the implementation of the interest rate marketization, how do you think about the performance of deposits and the NIM in the second half? Thank you.



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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [8]
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 Thank you for your question. Actually the question you're concerned about is exactly what we're concerned about as well. How to grow our deposits continuously in the second half and how to further improve the NIM performance, we have great concern about it. May I invite Mr. Zhang to take your question.



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 Zhang Jinliang,  Bank of China Limited - EVP   [9]
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 Recently we implemented a motivation mechanism in the Bank in order to improve the performance. For example, we linked the loans as well as the deposits in all the banks in order to promote the deposits. Actually this mechanism proves to be very effective in motivating all the employees in all banks to attract more deposits. The market share grew in the first half and the deposits grew up in the first half as well. Mr. Chen already shared with you the detailed figures and I wouldn't elaborate too much. Along with the market changes as well as the Internet financing, we are facing challenges. We will continue to manage the active debts and we will also spend more efforts on the key areas. For example, the wealth management settlement and made them (inaudible) to the deposit attraction. Meanwhile, we also take the opportunity to attract direct deposits.

 The cross-border RMB will be another major area that we have to look at. Meanwhile for the inter-bank deposits as well as the (inaudible) deposits will also be areas that we cannot impact in order to attract more deposits. NIM performance was up by 3 basis points to 2.27%. This is because of foreign currency. Because of the foreign currency environment, the loans in foreign currency as well as the gains in foreign currency loans also up by 10 basis points. Through financing in the market, we successfully reduced our financing cost through adjusting our asset structure, we also made more gains. The NIM in the overseas market was also up by 1 basis point, but RMB was a different story. Because of the market competition, the NIM RMB narrowed a little bit. In the second half together with the interest marketization, we believe that the capital cost will be up, our NIM will continue to suffer from great pressure from the market. Thank you.



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 Fan Yaosheng,  Bank of China Limited - Secretary to the Board of Directors   [10]
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 Next question. May I invite the question from that gentleman over there?

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Unidentified Audience Member   [11]
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 My name is (inaudible) from Goldman Sachs. We noticed that Mr. Chairman wrote an article talking about the Shanghai Free Trade Zone. It says that Shanghai Free Trade Zone stands for a new direction for China. So I just want to know what kind of opportunities Shanghai Free Trade Zone has brought to BOC and what kind of measures are you going to take and what strategy do you have for it?

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 Zhang Jinliang,  Bank of China Limited - EVP   [12]
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 Thank you for your question. Shanghai Free Trade Zone is a great opportunity for us. Mr. Chairman valued it very much and we have meetings dedicated to discussions on how to promote our businesses in Shanghai Free Trade Zone. May I invite Mr. Chen to take your question.



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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [13]
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 As Mr. Zhang said before, Shanghai Free Trade Zone is a bridge of opportunity for us and we are working very hard to build a platform of it. So, how we think about this opportunity. First of all, it is a Free Trade Zone, it is a pilot and it is about reform. The focus is to promote investment and trade and make them more convenient. Recently the State Council issued policies on the Free Trade Zone and local governments also issued over 60 policies, regulations, guidance, and recommendations particularly in the first half this year. Our separate accounting system as well as the detailed regulations simplifies that the financial reform entered into substantial operations in the Free Trade Zone and this will bring great historical potential for us.

 For enterprises in the Free Trade Zone, it will be more convenient to make investment and there will be great breakthroughs. Foreign companies will also find it easier to come into China and the local companies will find it much easier to go global. Meanwhile the customers will find that there will be a more convenient platform for them to conduct international trading and cross-border investment. For a commercial bank, Shanghai Free Trade Zone has already set up an accounting system based on the free trade system in the zone and the system covers both offshore and onshore businesses and it is integrated to the international markets. So therefore, you can say that there will be integrated operations of the cross-border RMB, their big transaction as well as the global cash management.

 All these comprehensive services will enjoy a bigger and better platform in the Shanghai Free Trade Zone. Meanwhile the logistic services and transportation as well as other services will also provide good opportunities for our Bank in our different business segments. We highly value the strategic opportunities brought by Shanghai Free Trade Zone. Being the most internationalized and the most advanced bank in China in terms of trade financing, we believe that we will be able to take this opportunity and enjoy the reformed dividend. On the exact day that the Shanghai Free Trade Zone was established, we also set up our own strategic growth plan. We set up our plan to grow our businesses and meanwhile we coordinated with different departments for resources and enhanced our internal collaboration between different departments in order to explore businesses in the Shanghai Free Trade Zone.

 In the first half of this year, our Bank was successfully accepted by the People's Bank of China and becoming the first bank that was accepted by the People's Bank of China in the separate accounting systems. In terms of in many areas, we are also now taking the lead in the markets. In the second half, we will continue working on the building of this platform and improve it into a platform for global cash management, cross-border businesses, as well as the global cash management that could enhance our leading position in the market so that we can really hit our target of turning ourself into the Best Bank in China.

 The next question. May I invite the question from the gentleman over there?



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Unidentified Audience Member   [14]
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 I'm from (inaudible). My question is about asset quality. We noticed that this is the double up in NPL both in volume and percentage. I just want to know what industries or what regions are these NPL and NPL ratio and how do you think about the performance of NPL and NPL ratio in the second half. Just now in the presentation you said that you are handling this NPLs by packaging them and handling. I just want to know what kind of plan do you have for the second half in handling these NPLs in packages. Thank you.

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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [15]
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 Very good question. In the first half this year, we have done a big effort in order to stabilize our assets quality as well as the risk management. In the second half, we will continue working hard on it by taking even stricter measures. Once Mr. Zhang got onboard, he began working on [increasing] charge-off in these areas. Now, may I invent Mr. Zhang to take your question.

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 Zhang Jinliang,  Bank of China Limited - EVP   [16]
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 Thank you for your question. For the NPL, the positive impact actually this is the common issue for all the banks and this is something that all analysts are concerned about. In the recent years, our NPL performance you can say it is at (inaudible) and this is a big pressure for us to manage all the NPLs. By the end of June, our total NPL was RMB85.9 billion, up by RMB12.6 billion and the NPL ratio was 1.02%, up by 0.06%. If you look at industries, basically they are from manufacturing, wholesaling, and retailing, as well the transportation and still transportation as well as some SMEs, they are major areas. If you look at the regions, most of these NPLs are in Guangdong, Guangxi, Shenzhen, and Shandong; those coastal regions.

 We believe that such a positive impact is because of the slowing down of our economy in China and as well as the structure adjustment. However, this range is still within the normal range because according to CBRC, the reasonable range is below 1.08% and ours is 1.02%. In order to handle this great pressure of asset quality, we are working very hard to control the credit proving procedure as well as the early warning system. By the end of June this year while the special-mention loans the NPL was only 2.28%, down by 0.21%. In the first half of year, the credit cost is 0.69%, up by 30 basis points. NPL provision coverage was 215%. In the first half, we totally absorbed RMB27 billion and including the collection of our cash of RMB13.1 billion as well as the writing-off of RMB9 billion in which the packet transfer of NPL totaled RMB7 billion particularly in the Zhongshan River Delta as well as the Southeast, the coastal regions.

 In the second half, the pressure will continue. We believe that we can continue working in these areas. Number one, through active risk management in identifying all these risks early so that we can find out which areas are riskier and which customers are riskier. If we can find them earlier, we can handle them earlier. Numbers two, we must enhance our management of the allowance for the local government's financing vehicles overcapacity and property and real estate industries. We will enhance our risk warning system for the off-the-book and in-the-book management. And finally, we will make use of all measures in order to absorb all these NPLs as quickly as possible, particularly by taking market highest measures in order to improve our total performance. We believe that through our efforts above, we can keep the NPL and NPL ratio within a reasonable range. Thank you.

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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [17]
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 Next question. May I invite this question from that lady over there to the left?

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Unidentified Audience Member   [18]
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 First of all, congratulations on your good performance. My name [May Yan] from Barclays. My question is about your capital adequacy. I do know that the BOC is planning to issue priority shares in China and outside, I just want to know the latest updates. Are you going to issue the priority shares in the overseas market first? Do you have any plan to issue any subprime debts? Is there any news about that? And for the high interest method, what benefits will there be to the Bank?

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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [19]
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 Thank you for your two questions. Actually I can take your questions at the same time. One is how to increase our capital and how to save our capital. I would like to invite Mr. Zhang to take your questions.

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 Zhang Jinliang,  Bank of China Limited - EVP   [20]
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 Thank you, Mr. Chen. Actually during the presentation, Mr. Chen already shared with you that according to CBRC, our legal person as well as the group is going to implement the capital management advanced method. Currently it is at 12.41% and at 10.11%, this is the capital adequacy ratio as well as the core capital Tier 1 capital adequacy ratio and this is up. According to the resolutions from the Board of Directors as well as the shareholders' conference in the period of 2013 to 2016, our target is 11.5%. In the future, we will continue sticking to our strategy of accumulating internally and supplementing from the outside. Meanwhile we explore more channels to supplement our capital in order to promote more new vehicles for issuance.

 About the issuance; according to the resolution of our Board of Directors and the shareholders conference, we have already set up a plan for issuing the shares in this year. In the debt market we have already reissued debts of [10 maturity] in the market with the interest rate of 8.5%. As for the remaining part, we are still waiting for the approval from the Supervisory Department. We will finish the issuance as quickly as possible. The Board of Directors as well as the shareholders' conference already approved the plan to issue the priority shares with no more than RMB100 billion in China and outside. We have already got the official approval from CBRC and we will be able to issue no more than RMB60 billion senior shares in China and in which the total issuance in China will be no more than 32%. Thank you.

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 Fan Yaosheng,  Bank of China Limited - Secretary to the Board of Directors   [21]
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 We still have some time and may I invite more questions from our Beijing venue. That gentleman over there in the second row.

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Unidentified Audience Member   [22]
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 My name is [Tai Jin] from BOC International. We noticed that this growth in the total loans in the first half. I just want to know what are the destinations of these loans along with the amount of stimulus policies in place, I just want to know what will be the loan growth target in the second half and what will be the distribution of these loans. The second question is that we noticed that the State Council issued a policy on reducing the finance cost for all the enterprises so there are 10 measures altogether. I just want to know how you think about these measures. How you interpret these measures? And are you going to introduce the loans cost in order to help those enterprises borrow money from banks? Thank you.

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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [23]
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 Two questions from you and these questions involves the total volume of loans, the destination of loans, as well as pricing of loans and they are very difficult questions. May I invite Mr. Yue to take your questions.

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 Yue Yi,  Bank of China Limited - EVP   [24]
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 For the first half of this year, our total loan scale did grow very fast and your question is about what will be the destinations of the loans in the second half. Well, let me take it. It is true that by the end of June this year, the total loans amounted to RMB8.42 trillion, up by 10.7% compared with the same period last year; in which the growth of RMB in China grew by RMB338.1 billion, up by 6.1%. In the first half, the total loan increased with the following three characteristics. Number one, individual loans grew by 7.3% in China that is to say the individual buyers and this growth is higher than the 6.1% overall growth. It is because of more loans were put available for those mortgages for the individual buyers and in the first half, the newly added individual buyers accounted to 88%.

 The second characteristic is that we spent more effort to support the key areas as far as the critical areas for the national economy, particularly for those medium-sized companies as well as those small companies. The medium-sized companies grew by 8.1%. As for the strategic and the emerging industry loans as well as the agriculture related loans, there were also growth of 21.8% and 6.1%. Meanwhile we are also trying to control the total loan size of the local government financing vehicles. The third characteristic is that in the overseas market, the growth was 24.1%. This is mainly because of the way we utilized the advantage of our integrated domestic and overseas operations. As Mr. Chen already shared with you, I don't want to elaborate that much.

 As for the strategy for loans in the second half, we will continue to be prudential as well as the steady currency policy. Meanwhile we will also take our own core capital adequacy into our consideration as well as the requirements from the regulators and supervisory departments in order to set a reasonable target for the loan growth in the second half with an ultimate goal to reach balanced loan growth. Specifically, we will continue to transfer more support to the key projects or products undergoing, which have great future in the market in strategic industries or emerging industries such as information services, (inaudible) services, particularly the upgrading of traditional industries because they have greater growth rate, but also provide more support to those companies who are going global.

 Secondly, we will continue to transfer more efforts to support the micro companies as well as small medium-sized companies as well as the agriculture related loans because we are a commercial bank and we have to share our social responsibilities. So therefore, we will continue to support those medium-sized and micro companies. Meanwhile we will also carry out a differentiated financing loan policy. We will control our total loan size to the high energy consumption, high pollution emission, and overcapacity industries. Meanwhile we will stick to our policy and further promote our assets securitized in the future. Your second question is about the loan pricing, right? For Bank of China, our loan pricing is a tool for us to improve our name as well as our operations efficiency.

 Mr. Zhang already shared with you just now that in the first half we maintained 3 basis point growth in our NIM performance. In the second half even though the pressure is still there, however we will continue working hard to deliver a good performance in our NIM. When we talk about the loans with our customers and how to spot their projects, we will first of all look at their own direction and what is their strategy, we will also consider the risks involved. More importantly, we will consider about the pricing very carefully. Recently it is put forward that for the new projects generally speaking, it will be at minimum benchmark ratio, ideally above the benchmark rate.

 Of course for those key industries spotted by the government, we will have different policies. But we will worry also about the income from the relevant businesses from these projects. So generally speaking, we have to continue working hard to improve our NIM performance in the second half and we will also absorb more time deposit, long-term deposit, and other deposits in order to improve the liquidity. And as you know that we are operating in China, outside in Europe, the liquidity is good enough. Because of the linkage between these two capital markets, we think that it will be very helpful to further improve our asset structure as well as improve our NIM performance in the second half.

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 Fan Yaosheng,  Bank of China Limited - Secretary to the Board of Directors   [25]
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 Thank you, Mr. Yue. The last question please. This lady in the first row?

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Unidentified Audience Member   [26]
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 My name is (inaudible). My question is about the fee income as well as the commission income and it seems that there is a rapid growth. It seems that after the August 1, there were announcements from different banks saying that they can reduce their fee levels. I just want to know what kind of a service fees were adjusted down and what kind of impact to our fee performance in the second half. In the future, what is the long-term strategy for this interest income?

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 Chen Siqing,  Bank of China Limited - Vice Chairman & President   [27]
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 Thank you for your question, it's very good one. In the first half, there is a very good growth in the fee income. However, in the second half, a lot of our fees will be stopped so how to maintain the growth? It is a dilemma. May I invite Mr. Zhang to take your question?

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 Zhang Jinliang,  Bank of China Limited - EVP   [28]
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 Thank you for your question first of all. In the first half, there was 13.4% of growth in our non-interest income and if you look at all the peers, we are still one of the leaders there and I wouldn't talk about these detailed figures. Talking about the inter-bank businesses, the fees will be critical. So this is the way for us to implement the national policy as well as the sharing of our social responsibility. From August 1, we started implementing the new policies from the government and we also streamlined all the projects and some of their fee levels were adjusted down. In order to further to [relieve] some small sized and medium-sized companies, we exempted a lot of our financing costs for those companies. A series of service fee involved in these exemptions.

 In the short run there will be some influence, but in the long run these will be very helpful for us to set up a good interaction between our Bank and our customers. And it will be helpful for us to build a healthy strategy and this is also in compliance with our (inaudible) transformation of the Bank. We will continue to adapt to the market situation and enhance our product innovation. We will also strengthen our (inaudible) in the operations in China and outside by turning ourself into a comprehensive service provider, specifically we will have our clearance service settlement business costs with our traditional business. Meanwhile we will also explore more on the asset management as well as the investment bank through the linkages between China and outside. The international settlement as well as RMB international businesses will also be key areas in our innovation so that we can ultimately keep improving the performance of our non-interest income.

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 Fan Yaosheng,  Bank of China Limited - Secretary to the Board of Directors   [29]
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 For the interest of time, this is the end of the Q&A session. If you have any further questions, please don't hesitate to contacting our IR colleagues after the meeting. So, this is the end of the results announcement. Once again, thank you for your coming. Thank you.

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 Editor,    [30]
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 Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.




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