Interim 2015 Bank of China Ltd Analyst Conference
Aug 28, 2015 AM HKT
601988.SS - Bank of China Ltd
Interim 2015 Bank of China Ltd Analyst Conference
Aug 28, 2015 / 10:00AM GMT
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Corporate Participants
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* Geng Wei
Bank of China - Secretary to the Board of Directors
* Chen Siqing
Bank of China - President
* Zhang Jinliang
Bank of China - EVP
* Xu Luode
Bank of China - EVP
* Zhu Hexin
Bank of China - EVP
* Ren Deqi
Bank of China - EVP
* Gao Yingxin
Bank of China - EVP
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Conference Call Participants
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* John Yao Gang
BOC International - Analyst
* Maya Peng
Barclays - Analyst
* Lucy Feng
UBS - Analyst
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Presentation
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Geng Wei, Bank of China - Secretary to the Board of Directors [1]
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(interpreted) Ladies and gentlemen, distinguished analysts. I am the Secretary of the Board, Geng Wei of BOC. Welcome to participate in 2015 interim result announcement of BOC. First of all I would like to apologize that we are 20 minutes late in schedule.
Thank you for waiting. And the main venue for this conference is in Beijing and they will be audio-linked to Hong Kong, so for those who are not available to attend the meeting can watch the live broadcast through our website.
On the other hand our 2015 interim results have been publishing on Hong Kong Stock Exchange and the Bank's website. The newsletter and the presentations are also available on our website.
Before we proceed further please take note of the disclaimer on the slides and all the financial data in our presentations here are prepared according to IFRS unless otherwise stated. If you have any questions you can save them until the Q&A session after all the speeches have been made and we will allocate time between Beijing and Hong Kong.
Now I would like to introduce our management team here today. They are Mr. Chen Siqing, President; Mr. Zhu Hexin, Executive Vice President; Mr. Zhang Jinliang, Executive Vice President; Mr. Ren Deqi, Executive Vice President; Mr. Gao Yingxin, Executive Vice President; Mr. Xu Luode, the Executive Vice President.
Now let's invited President Chen to make a speech in terms of our interim results for the first half of 2015.
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Chen Siqing, Bank of China - President [2]
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(interpreted) Ladies and gentlemen, dear friends, good afternoon. Welcome to today's result presentation. I'm very -- quite pleasant (sic) to meet you, friends and also thank you for your long-term support and care to the Bank of China.
We have taken the principle of serving society, delivering excellence and participate in international development. Leveraging on our record overseas business growth and advantages in diversified operations, the overall business realized steady growth and achieved new development under the new economic normal.
Profit after tax stood at RMB95 billion and the profit attributable to equity holders is RMB90.7 billion, increased by 1.69% and 1.14%. Asset quality control was strengthened and the provision remained sufficient. The NPL ratio stood at 1.41% and the ratio of provision to total loans of domestic institutions reached 2.6%.
Capital equity (sic - slide 4 refers to capital adequacy) was strengthened with rising international standards. The Bank successfully issued RMB28 billion of second tranche preference shares and completed the conversion and redemption of its convertible bonds during the period. As a result the Bank's tier first capital increased about RMB41 billion and became the fourth largest, among the world's top 1000 banks, rising three places compared with the previous year.
For the first half our asset structure has been optimized and we also accord with the acceleration of rate maximization. We have strengthened our support, financial support to the real economy.
The Bank's loans and the balances to customers amounted to RMB8.9 trillion, increased by RMB413 billion. The domestic RMB loans increased RMB340 billion or 5.6%. We actively support China's economic restructuring and industry transformation and upgrading, loans to high-end equipment and manufacturing, new energy resources and other industries has rose 8%.
We actively supported SMEs' development and key projects under growing global efforts. This served people's livelihood and their consumption needs with the proportion of domestic personal RMB loans to total domestic RMB loans up by 0.5%.
We closely [checked] financial market and then (inaudible) actively adjusted the structure of our investment securities portfolio. With increased size of its investment in domestic RMB loans, its investment securities increased rapidly.
The Group's security investment has enjoyed a rapid increase of 23.1% (sic - see press release 21.3%) and also the domestic RMB investment expanded 20 basis points year-on-year in the interest rate downward trend. We have also noticed that we will focus on expanding our resources. In our capital you can see that market liquidity remains quite adequate and the competition for deposit became more fierce.
As analysts all know that [CPRC concentrated] a lot on the savings and the deposits of our Bank.
We have strengthened our ability management and strictly applied deposit deviation control. By the end of June, we are the best performer in the four major banks in terms of deposit deviation control the customer deposits amounted to RMB11 trillion, an increase of RMB651 billion or 60% compared with last year. And the domestic RMB deposit is increased by RMB457 billion.
We strengthened our product innovation. By expanding funding resources we vigorously attracted more deposits from administrative institutions which has exceeded over RMB2 trillion, and our target will be RMB3 trillion. We are actively promoting our salary payment agency services and cash management of multinational companies.
Recently, the cross-border cash management promotion has been quite good and has been incorporated into our business. We are also expanding the third party custodian business and has won several competitive bids for corporate annuity custodian services.
We have made full advantage of our internationalization edge to expand our overseas business and our funding resources. The overseas funding balance reached $61.2 billion. The steady pre-provision profit growth we can see that for the first year the overseas and domestic interest rate underwent downward trend.
The Bank has been faced with net interest margin pressure. The NIM has recorded at 2.18% and we can see that the growth of domestic economy continued to slow down and we are willingly fulfilling social responsibility by actively providing financial support to rural economy and SMEs.
We have subsequently reduced a lot of charges and service fees and you can see that the non-interest income decreased by 3.5%. With such operating pressure we have strengthened our business structure adjustment and to expand our income sources its agency and [bank card] businesses achieved fast growth, which drove the net fee and commission income to rebound.
For the first quarter it's about 200 million and the second quarter is also seeing an increase. We are also trying to save cost and to further optimize this expansion allocation mechanism and you can see the cost to income ratio decreased by 69 basis points year-on-year, maintaining at a low level of 25%.
Our Bank's provision of pre-provision profit realized a steady growth. We can also see that we have a smooth development of overseas businesses. We seized the opportunity arising from RMB internationalization. For the first half of the year our overseas assets has totaled $800 billion, an increase of 6.8% compared with last year and also the profit before tax was $4.6 billion and accounted for 28% and 23% of the total Group assets and POB asset -- profits.
We are also expanding our global service network. We have 635 overseas institutions in 42 countries and regions. We constantly improve our cross-border service capability while consolidating its traditional edges.
We are also trying to provide more innovative methods and services for overseas investment. We have set successfully cross-border match-making services for SMEs in China, Europe and American and ASEAN countries. We have attracted over 1000 SMEs and to help them to go global and Coming In.
In terms of One Belt One Road initiative we are seizing great opportunities and to make it a very important part of building a financial archway for One Belt One Road. We are focusing on internationalization and combining together with One Belt One Road initiative, we strive to be the go-to bank for Chinese enterprises and to be the main channel to our cross-border RMB business. We'll expand our global service network along One Belt One Road countries and improved organizational design, coordinated all of the efforts to push forward and made a strong start in building a financial archway for the Belt and Road initiative. In the strategy we have conducted the following.
First, we have successfully issued the first Belt and Road bonds which is offered in four currencies and listed on five exchanges simultaneously, setting a new record as the largest overseas bond issuance by a Chinese bank. We also actively support the key projects along One Belt, One Road and we follow up nearly 300 projects with institutional credit about $68 billion.
We deepened cooperation with financial institutions along Belt and Road and proactively pushed forward cooperation with bilateral development institutions. And with the current 460 correspondent banks along One Belt One Road, the Bank strengthened cooperation with key correspondent banks and signed One Belt and Road business cooperation memoranda. Of course, this enhanced foreign exchange quotation capability for countries along Belt and Road and became the first bank providing forward exchange and swap services for Russian Ruble and Kazakhstani Tenge against RMB.
We're also accelerating the expansion of our service network along Belt and Road and open up the Vientiane branch in Laos and others. Currently the Bank is also setting up overseas institutions in 16 countries along Belt and Road. The Bank and BOC Hong Kong kicked off the outlets restructuring projects in ASEAN and made good progress.
Meanwhile the competitiveness of RMB internationalization also expanded. In the first half our RMB settlement volume (inaudible) reached RMB263 trillion while our cross-border RMB clearance volume reached RMB148 trillion, maintaining a leading position globally. We also got certification in Hungary, South Africa and successfully launched RMB clearing services in Sydney and Kuala Lumpur.
It formally launched the Hong Kong Offshore RMB Centre and the market share in underwriting the offshore RMB-denominated bonds ranked top among the domestic peers. The Bank pushed forward cooperation with global major exchanges, forming a truly global network of settlement bank services for major exchanges.
The Bank further consolidated its leading position in the Free Trade Zone businesses. It led peers in terms of Free Trade Zones and in account numbers and deposits and the loan balances in Shanghai Free Trade Zone and established market-leading position in new Free Trade Zones in Guangdong, Tianjin and Fujian.
The steady diversification of our platform is another highlight. The Bank's diversified business platforms achieved outstanding performance. BOCI debuted the Crude Oil Index and it became the first Chinese financial institution to launch an international benchmark commodity index.
BOCI China's commission fee from brokerage business has increased significantly. BOCIM's AUM increased by 22% compared with the prior year. BOC Aviation's aircraft leasing business also achieved sustainable growth and its external rating was upgraded to A-minus.
BOC Insurance successfully completed the acquisition of Samsung Air China Life Insurance Corporation Limited. BOCG Investment vigorously supported the Group's One Belt and One Road businesses and realized rapid growth in their operating performance in the first half. The Bank's pre-tax profit of its diversified business platforms increased by 42% and becoming their major propeller for their gross profit business.
We pay close attention to the economic growth. We also set up the credit guidelines in order to meet the requirements on the risk management. We also focus ourselves on the other risk management measures such as the post-lending management, collateral management, risk classification and regular risk investigations to avoid systematic and regional risk to stabilize asset quality.
At end of financial year its non-performing loans result was 1.41% and the special-mention loan ratio was 2.3%. The provision to local loan of our domestic institution was 2.68% and the Group's credit cost was (inaudible) to be 0.63%.
The Bank also stepped up debt collection and resolution of non-performing assets with comprehensive measures. In the first half the non-performing assets resolved by the domestic institution amounted to 43.4%, up by RMB16.5 billion and in which cash recovery amounted to RMB19 billion, up by RMB5.9 billion.
The Bank continued to enhance the risk management on overall credit exposures under strengthened risk control on key fields such as local government financial vehicles, overcapacity industries and real estate sector. The Bank anticipates country risk management and risk management on collaboration businesses to prevent risk transfer between domestic and overseas markets. The Bank comprehensively enhanced the liquidity risk management based on new regulations and its liquidity coverage ratio is above regulatory requirements.
The Bank continued to enhance its efficient and effective (inaudible) channels. It accelerated the construction of a smart office, thus improving each office performance and increasing daily average customer deposits and loans. The customer numbers and achievements of each channel steadily increased as e-banking transactions volume grew by 15% and the promotion of our business continued via e-channels, so overall business increased by 86%.
The Bank continued to improve with the competitiveness of e-channels, e-finance offerings, the number of e-finance customers and the related transaction volume recorded a sustainable increase of 63% and 52%. It improved online cross-border service systems and consolidated a leading position.
Looking to the second half after 2015, the world economy still exists uncertainties while China's economy is still facing downward pressure. As you are all analysts you know that in the past two months the forex market, the interest rate, as well as the stock market are suffering from a lot of changes.
And if you look at the global economy as well as the capital market, there are a lot of fluctuations as well. So facing with such a situation with so many changes we have to continue to undertake our social responsibility (inaudible) strategy and for BOC this is also a direction for our future strategy.
So four things. Number one, we increase our revenue, stabilize our growth in order to further improve our operational efficiency. Number two, we will readjust our structure and promote a transformation in order to further enhance our propeller for the business growth. Number three, risk management and get rid of the NPLs to improve the quality.
Number four, control internal better so that we can lay a better foundation for the future. So we will undertake our social responsibility and [determine ourselves] to be the best bank in China. We'll continue for internationalization the marketization as well as diversification of our business so that we can really do a good job in our financial management to bring better returns to our shareholders. Thank you.
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Questions and Answers
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Unidentified Company Representative [1]
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Thank you very much, Mr. Chen. Now I would like to open the floor for questions. Please put up your hand if you want to ask a question and please remember to identify yourself before you raise a question. For the interest of time -- I'm sorry, I'm afraid I can allow one question one person. We will start from Beijing venue first.
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Unidentified Company Representative [2]
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Okay, the man sitting in the center.
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Unidentified Participant [3]
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(interpreted) Okay, good afternoon, I'm from Goldman Sachs and have a question about your overseas business.
Well, historically our overseas business is an advantage of BOC and we can see that for the first half of the year that we have made such a great achievement in terms of Belt and Road, but I've also noticed that the overseas business growth rate has been lower than last year. I want to know, what is the main reason? And also, what is your business strategy for the next half of the year in terms of overseas business?
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Chen Siqing, Bank of China - President [4]
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(interpreted) Thank you very much. I will take this question. Thank you very much. Well, as I introduced in PPT slides, that for the first half of the year our overseas business, including our diversified business in overseas countries, has made very good achievements and growth.
For the first half of the year the profit actually coming out of our overseas business quite a lot and as you can see, that the contribution of profit before tax from overseas business have been improving. And we can see that our interest spread or interest margin has been lower than others and why we have made such good achievement is because we have a very strong layout in overseas countries.
We have an asset of around RMB800 billion and accounted for 23% of the total profits and the assets account for 28% of the Group's total. So let me give you a very simple metaphor that the change in interest rate changed by 3%. Well, we don't want to judge whether it is a good thing or a bad thing but for BOC in our balance sheet the benefits are that it would contribute to our profits.
[New interpreter]
In the year 2004.
[New interpreter]
You can see that our -- that assets have been shrinking. Why? That was because the appreciation of RMB and we can see that the overseas markets have been benefiting from such changes. And nowadays we see that RMB has been depreciating for the time being and I think that it is a positive sign for our overseas business, the assets proportion of overseas business has been increased relatively and we can also see that this 3% is relatively a minor factor.
But I want to emphasize is that the foreign exchange rate changes or fluctuations will be continuing to occur in years to come and we don't want to see RMB depreciation in years to come but we are seeing that we have to add to the fact that the RMB exchange rate is always changing and this will help us to reduce our risk in overseas business. And also Chinese economy and foreign economy are in different cycles.
So with this multi-cycle situation the risks are there so I should say that we need to have a better balance of the assets, those in China and the overseas countries. So these are all good factors for our overseas business.
And for the first half the growth has been slowing down. That is because we have a large volume out there already, so -- and it will be better that we grow slower than relatively faster because you know, when we were growing fast people may say that we're growing too fast. But I should also emphasize that our growth rate in terms of loans and deposits are very good.
So I think that they are good factors to our overall business situation, and I should say that this will continue to be the case that we see fluctuating exchange rate, but with the weakening export we have suffered some loss and slowing down of some income growth. We should accept that, so I think that the overseas market is still key in our strategy and we have to continue to work hard to boost our overseas business.
In our strategy we make overseas business, our internationalization and Belt and Road initiative as one. So our overseas business will also need to face problem of structural organization. Well, in the past maybe we just focused on the financial market but nowadays or in the future we are looking towards our being a big player in the financial market but also play a big role in Belt and Road initiatives.
We need enter other markets, for instance African markets and also to expand our network and layout to set up more institutions and purchase in overseas markets et cetera and et cetera. So what would be the direction in the future? I think we have three types of customers, and then we have 10 different kinds of products. We have three platforms and the fourth one is we would like to cover 50 countries. Right now we are in 42 countries already. At the end of the year we will reach 50 countries and we will also give a bigger role to BOC Hong Kong. Actually the role of BOC Hong Kong has been very important in expanding our overseas business and we will lay down a good foundation for our future development which may get a good advantage for all of us. Thank you.
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Unidentified Company Representative [5]
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(interpreted) Thank you. May I invite the second question from Beijing? This gentleman in the front row.
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Unidentified Audience Member [6]
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(interpreted) Thank you very much, management, for this opportunity today, [PN Security, Yan Do Chee]. My question is about diversified operations. We have already seen that BOC has been a leader in the cross-disciplinary business and from the business performance in the first half, with a very diversified platform it also contributed quite a lot in the business growth. I just want to know in the future, in terms of the cross-disciplinary business operations, what is your long term strategy and what are the specific measures you're going to take? Also, in order to reach such a platform, is there any specific area that you will give special question to?
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Unidentified Company Representative [7]
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(interpreted) So may I ask you a question first, for this, the PN Security and the PN Group, what is the relationship between them? Is it a subsidiary?
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Unidentified Audience Member [8]
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(interpreted) Yes.
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Unidentified Company Representative [9]
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(interpreted) Thank you. Now I would like to ask Mr. Zhu, our Vice President, to take your question.
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Zhu Hexin, Bank of China - EVP [10]
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(interpreted) Thank you for your question. PN Group is actually also exploring their diversification of business and it is also one of the leaders. Mr. Chen already mentioned in his presentation that BOC has also made great progress in our diversified platform, particularly with so many highlights in the first half. Talking about the diversification of our business, we have already run a petition among all the peers and in terms of our capacity of business, it is definitely our strategy for supporting our continuous profit making in the future.
At the national level or in order to build up a multilevel in-depth capital market, the Central Government has been (inaudible) great effort [in deposit] rate. This also provides a new support for, [and acts as] a propeller for our own diversification business. As I said, with the diversified platform we enjoyed a 42% for growth and investment is 78%, insurance sector 59% and the wealth management also a very big growth. So this fully shows that diversification is already playing a more and more important role for our business and it is also serving as a condition for future growth. (Technical difficulty - audio skips).
[New interpreter] The most diversified banks usually have in the domestic market (technical difficulty) security business, (technical difficulty) [bank] business and the property insurance business while in the international market they have security business as well as the property insurance (technical difficulty - audio skips).
[New interpreter] Overseas we have a leasing platform, we have security platforms as well, so in fact we have a full set of licenses for these businesses. You know that recently we, among our diversification, we just got a new one that is the something Air China Life Insurance, so with the coming of this, for instance, how can we give full play to our bank insurance and how to make better use of the process adding? I believe that for the future it provides a better platform and better potential for growth.
Next, I can use two words to describe; number one is convergence, number two is explore. For converge, we know that we have a very big platform that covers a lot of entities, so we need to converge all of them in order to generate new dynamics of growth. Number two, as well the convergence also needs to be done between different platforms internally. As for explore I mean currently we are opening up the capital market in the multilevel, in depth way, so we will integrate the market trend, together with our own strategy in order to explore what will be the best way for us to grow our diversified platform. I would like to borrow what Mr. Chen Siqing said, that we use the model to run the single mode bank to support our diversified platform. Thank you.
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Unidentified Company Representative [11]
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(interpreted) Thank you very much, Mr. Zhu. We also have many analyst friends from our Hong Kong venue, so maybe we would like to thank you very much for coming. We can give the floor to Hong Kong venue and pass the floor to our host in Hong Kong. So we will have the lady on the first row.
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Lucy Feng, UBS - Analyst [12]
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(interpreted) Good afternoon. I am from UBS and my name's Lucy and I would like to ask about the net interest margin. Well since the end of last year, the Central Bank has reduced many times the interest rate and this has imposed pressure for many banks NIM. So I would like to know that what is the reason and to give it an analysis in terms of the cost to the demand and the pricing and maybe let us know what are the factors behind that phenomenon and to what extent. I would also like to know what is (technical difficulty - audio skips) the expectation for the NIM for the second half of the year because recently we also see another round of lowering interest rate.
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Unidentified Company Representative [13]
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(interpreted) So we will give this question to Mr. Zhang.
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Zhang Jinliang, Bank of China - EVP [14]
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(interpreted) Thank you very much for your question. As reflected by the lowering interest rate and also the activation of interest rate, we see that our NIM has been 2.18% or seven basis points down from 2014. In the second half we see that we are still facing these pressures in terms of [I&C] as it moves out of our [marketization] of interest rate.
We have to consolidate our management of assets and debts and we are doing this in two ways. First is on the side of the debt. We will make the customer deposits as a foundation and we know that this is very important and we will do it through innovation in products and our services in order to increase the core deposit proportion in the overall assets. Also we will enter into a competition that is featured with low financial cost and at the same time, we have to control the cost of the deposit, we have to play our advantages and to strengthen our management of debt to issues and bonds and to use the market financing tools and to diversify our financing channels.
The second is in terms of the assets side. We have to optimize our asset structure and to lift our assets yields. In terms of loans, we would like to liquidize our assets and to invigorate to stock assets. We are also making good use of the additional loan resources to the areas with higher [REOC] level, especially the key areas and key industries. We're also trying to strengthen our loans to individuals and to increase the percentage of individual financing services. We are also making more investment in terms of domestic and foreign currency bonds. As you can see, that percentage has been always improving.
On the other hand, is that we have to consolidate our (inaudible) construction and to adapt to the interest rate liberalization environment and to improve the internal capital transfer and pricing system and acquire each business unit as well as branch office to price deposit and a loan in a reasonable manner. We will accelerate our construction of foreign capital pool and to connect domestic and foreign capital markets and to improve our capacity to allocate globally our assets.
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Lucy Feng, UBS - Analyst [15]
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(interpreted) Thank you very much.
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Unidentified Company Representative [16]
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(interpreted) Next question, this gentlemen in the first row.
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Unidentified Audience Member [17]
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(interpreted) Good afternoon management, CICC analyst, [Mao Junhua]. My question is about the RMB ForEx rate fluctuation as well as that your ForEx exposure is very big in BOC and you have a competitive advantage here. So can you please share with us what kind of influence to you after you apply the implications of a ForEx rate between RMB and other currencies? So for example in terms of your fee income, in terms of your ForEx exposure and in terms of your (inaudible) guarantee and guaranteed loan to Chinese enterprises. Thank you.
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Unidentified Company Representative [18]
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(interpreted) Thank you very much, I would like to invite Mr. Ren to take your question.
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Ren Deqi, Bank of China - EVP [19]
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(interpreted) Thank you for your question. There is just the one small correction, for we have overseas assets and our assets and reliability for the proportion is higher, so that is more internationalized. However, our ForEx exposure is not very big, so think about the influence actually really depends on the exposure, how much exposure they have, just as you said. It is true that ForEx is a very common concern and also a very hot topic of all people. Recently the ForEx market is also changing with some new characteristics.
So to summarize, these are the characteristics. Number one, it is because of the (inaudible) for interest height of the USD, so USD will get stronger this year and people have a high expectation of it, so this is also the trend. For euro and the yen, they are still very slack, very weak. For the emerging currencies, amongst the new entities, depreciate already, our actual ForEx rate actually is also getting stronger and it is also [debating] from the market's expectation. But end of June, they see the spot foreign exchange, future RMB and the USD already appreciated by 30%. The PBOC announced the ForEx rate reform, therefore you saw a lot of [exploitations] in the market. I think that this will definitely have to release the pressure because of the depreciation of RMB earlier so that the ForEx rate can really reflect the market's expectation. I think this is a very important step in the ForEx and the reform.
For us, we will enhance the exposure management in terms of ForEx market in that it can further control any exposure in our business, as well as in our overseas market, our facility have already covered 42 countries and regions. Our assets and liabilities basically account for one third of total, so for the ForEx exposure, actually it's a very important management task for us. We have to commit very seriously and we have already set up very established and effective tools and mechanisms in place through adjusting the source of foreign currencies [and select utilization] so that we can minimize the mismatching of such capital so that we can effectively reduce the impact of such activities.
Also, through more managerial measures, we can effectively control the exposure of our ForEx stabilization as for [talk about the influence], it is still within the acceptable range. As you all know, for the operations activities in different countries, different regions, there are different regulatory requirements and we need to allocate some resources and assets, therefore there will be exposures. So by the end of June, just as we disclosed, our exposure in the overseas market dramatically reduced at the end of last year. In the future, we will continue to keep a close eye on the changes in the international market and dynamically adjust our own judgment measures on the ForEx exposures, so this is about the control of such risks and exposures.
Meanwhile, while we will enhance our management under liquidity, because such fluctuations seen in the market, we definitely impact liquidity directly for as you see, we have been sticking to the principle of safety, liquidity as well as profitability. We maintain the balance between these three. I believe that we have a very sufficient liquidity in the Bank. In the currency market, for a very long time we are a very important player and coordinating the market. Particularly recently, because of the fluctuation in the ForEx market, liquidity narrowed down in RMB, so we give full play of our settlement bank and the clearance bank in overseas markets so that we can effectively ease the fluctuations in the local markets overseas. So through managing the exposures and risks, meanwhile it has the liquidity so that we can better undertake the responsibility of the big Bank.
We are also a very professional bank for the foreign trade and foreign exchange. While managing the liquidity, we are also making full play of our competitiveness. The fluctuations for ForEx also gives us opportunities for new business. This is what we see about this reform. So actually with this reform, our customers realize that they have a better awareness about their foreign exchanges. So under one directional market, we recommended a lot of the value reserving products. A lot of customers, they are more willing to accept such products. So out of the fluctuations this time, in the past, a lot of our customers accepted our value reserving products and they got more gains out of them. We do have a lot of customers -- they made a profit within just two weeks and actually the gains were even higher than the yearly gains out of these two weeks.
However there are some other customers that had debts and they didn't accept the value reserving products and now they realize about it. As the next step, we will capture the market opportunity. This fluctuation actually gives people a lesson. We will steadily launch more products about options, futures and forwards, so all these derivatives, so that we can provide our customers with more foreign currency, debt, as well as other products for better value-adding and value reserving. Thank you.
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Unidentified Company Representative [20]
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(interpreted) Next question from the gentlemen on the third row.
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Unidentified Audience Member [21]
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(interpreted) Thank you very much for offering this chance. I am from Deutsche Bank, Mr. (inaudible) [Shaw]. I would like to ask about the loan to deposit ratio. Well this is a relatively high indicator in the peers and we think that the cancelling of the restriction on loan to deposit ratio is a good sign for banks. So I would like to know what would be the new strategies in attracting those deposits. I would like to know in what rate will this grow.
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Unidentified Company Representative [22]
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(interpreted) Thank you very much for your question, so we will have Mr. Gao to answer this question.
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Gao Yingxin, Bank of China - EVP [23]
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(interpreted) Thank you very much. Well as for the loan to deposit ratio, historically there are some features and it used to be a compulsory indicator and now the restriction has been cancelled by the state consul. If that has been passed, then it will be a very good sign for the commercial banks' operation. As you mentioned, that because of historical reasons, for BOC, compared with other commercial banks, the loan to deposit ratio is relatively higher, so this impact will be also applied to BOC. So as mentioned, although that there will no longer be a restriction on the loan to deposit ratio, it will still be monitored and it would still have impact on our management on liquidity as well as our deposits.
So I should say that deposits will continue to be a very, very important foundation for our business, that is, to expand our deposit volume and also to focus on the structure and quality of deposit, it will be even more important in the future. So for BOC, in the coming days and years, I think that we will continue to expand the volume of deposit and loans and to focus more closely on the structure of the loans and deposits. I should say that for the following three aspects.
First that we will focus more on the daily deposits, rather than time sensitive deposit and another is that we will focus more on customer instead of being deposit oriented. The third one is to focus on the structure of the deposit rather than the volume of the deposit, especially we need to comply with the requirement of the LOCI as well the liquidity coverage ratio, as well as the asset management. We have to pay more attention for those deposits that are not going away, for instance, SMEs' deposit and individual deposit.
We also need to look closely at those customers, for instance the settlement, the salary payment services, the agency services, those services bring along deposits. So for that side, we should also be very conscious about that and pay attention about this.
Another one is that we need to comply with the requirement on the interest rate as well as other related requirements. We have to make it sustainable and well-balanced. We need to make it stable and healthy in terms of our loans and deposits. As introduced by my peer, we need to follow closely the national strategy and to discover the new (inaudible) of our business, no matter is Belt and Road or Yangtze River economic zone or new free trade zone. Also we would like to support the development of our people's livelihood to support internet plus, as well as innovation industries. This will be our key industry focus and also we would like to adequately and reasonably allocate our financial resources in order to provide better and more comprehensive financial services that are across region and across market. Thank you very much.
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Unidentified Company Representative [24]
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(interpreted) The next question comes from the gentlemen on the third row.
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Unidentified Audience Member [25]
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(interpreted) Thank you management. Morgan Stanley analyst, (inaudible). My question is about asset quality. We notice that there is big pressure of the asset quality, so my question is, in the first half, for the NPL, so (inaudible) versus that of last year and then your risks, for those NPLs, where are they or from what industries? Can you please share with us what about NPLs for the second half and any new changes? Thank you.
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Chen Siqing, Bank of China - President [26]
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(interpreted) Thank you very much analyst from Morgan Stanley. Thank you for your question, let me take your question. Analysts look at two things particularly. Number one is the spreads of the revenue, including the spreads of the yields. Number two, asset quality; for a bank, for ourselves, this is also what we are concerned with the most. The controlling of asset quality takes up most of our time, including all the management. We spend a lot of time on asset quality control. If you look at the economic situation in China, particularly the overlapping three tiers, this (technical difficulty) of the trend of asset quality for all banks. Up to now, if you look at all the banks, it's all the same.
So for some small and medium sized banks, maybe it's a little bit different, but for all other banks, actually the NPLs have started coming up, even though objectively everybody is working so hard to control it. However, no matter what measures you take, actually it has not reverted better trend, therefore up-going NPL level is only a matter for how much you reduce it. Currently the total NPL in China is RMB1.09 trillion and the NPL ratio is also 1.5%.
In China, in the domestic market, our NPL ratio is above 1.5%. However if you look at our total assets allocation in the world, at the Group level the NPL ratio is controlled to be 1.41% only. So from this perspective, our NPL ratio compared with all the peers, it is under the average, according to the official statistics. However, this is no reason for us to keep so optimistic, because there are still a lot of challenges waiting for us in the second half, as well how to control the NPLs and how to revert in such up-going NPL ratio, how to collect and absorb most of the NPLs in order to improve our collection ratio, to consolidate to further enhance our NPL and balance sheet. There are a lot of things for us to do.
So currently, if you look at our asset quality, there are the following characteristics. Number one, it is not traditionally what we think about at the three tiered loans. There are local governments financing vehicle, property real estate industry or the other capacity industry. Actually we don't have so many NPLs in these three categories. If you look at slide 12 in my presentation, for each of the three categories, so for NPLs, for the local government financing vehicle, it says 0.07% only, very well controlled, 3% of provision already. As for the overcapacity industry, only 0.46% only NLP ratio and the real estate, 0.79%, so these are all below our average of 1.41% of our global level.
So actually two other areas, number one is the equipment manufacturing and the other is the wholesaling and retailing. These two sectors actually our NPL ratios are higher. So this is by industry. By region, our NPLs are mostly located in China and the overseas NPL ratio is very low. Domestically, they are [aligned with] the big provinces in the coastal provinces, so this is the second characteristic.
With regards to the size of NPL, we are not the biggest bank. Either we are not the smallest one, but we are in the middle or middle to big.
By product, our NPLs, some of them is about the working capital, just like the trade and financing. Some others, they are for the fixed assets allowance. So basically the financial and the multilateral trading. So this is about allowance and by currency, most of them are in RMB. So if you look at our allowance, because it is BOC, we have the following characteristics. As for [the organizations] that have NPLs, usually they are below the tier two banks. Of course there are some other big NPLs.
So I don't hide anything. I don't hide anything from our analysts. For our -- we -- for our allowance, we do have a lot of allowance but generally speaking, for BOC, our risk management system is very well in place as well as we have taken a lot of measures to [fight]) against the NPLs compared with other peers, we do have our strength even though we do have a lot of NPLs. As for what we do in the second half, actually your analysts, for each time when we talk to analysts, you can look into what we -- what our plan is. We have to win this battle.
As for how, I can summarize our strategy in short. Number one, we will stick -- we stick to our good planning. Number two, we will manage the main categories. Number three, we will take three measures and more measures simultaneously and number four will be explore more channels to control the NPLs. For the interim part (inaudible) leverage much but generally speaking, as a general thought, we will reduce the NPLs and reduce the NPL ratio. This is the focus of our job and we will evaluate the performance based on how well you can fight against the NPL, particularly in terms of the risk management and we will analyze what are the reasons for the NPLs and how to solve, how to get rid of these reasons.
Ultimately, we will improve the overall quality of our assets. Firstly, for all the newly issued loans, we will take reference of the downward economic growth and when we issue the allowance, we will never allow such a situation that new NPLs happens while we're issuing new loans. So because the economy is going downward, we have to set up special strategies to cater to such a situation. For the existing NPLs that are sitting in our balance sheet, for some of the allowance that are not NPLs yet, we will conduct a pressure test or stress test to see whether or not they can stand, whether or not we need to increase our credit or asset security, and securitization to handle.
For those NPLs, existing NPLs, we have to categorize all of them to further analyze. So some needs to be immediately collected, some needs to be transferred or sold or some to be sold or handled through other measures. So we will categorize all of them and analyze all of them so that we can control and manage them respectively. While we issue loans, we will focus on the three measures and the three measures must be conducted simultaneously. Number one, so this is the optimization. There are lots of reasons that contribute for the NPLs, yet it's not that -- we will note that who issues, who collects. That was the practice in the past.
In the future, so there will be professionals for the collection. So for example, for the [bank card], is that we will link it to our credit. Some must decentralize to the provincial bank, some will be centralized, at the headquarters level, so there is a centralization and categorization is also -- so with collector, without collector or with equity or without equity. So we have to look into each case and we need to be professionalized. Some people, they are good at issuing, they are not good at collecting. We need experts from a legal perspective, from collection perspectives and we have experts of all disciplines. So we need to set up a team of experts.
So with so many professionals in place, I think we are happy with the collection of such NPLs. So let the professionals do the professional thing and then marketization. This is another thing we can do. So we have a collector. So we have to handle these collectors. Some of them, including the [capture operations] measures that will be adopted. So some of the collectors, we have to follow up with the handling of such collectors. So optimization, professionalization, as well as marketization. These will be the three measures that (inaudible) so that we can improve the collection ratio and the recovery ratio.
The NPL is also [a kind] of asset. So we have to manage them well and finally, we have to take different measures at the same time because it is not a simple matter and it cannot be resolved in a simple way. For we have to link it with our social responsibility. So we support the physical -- the real economy. Sometimes we need to keep supporting them, even though there is an NPL.
Sometimes we need to provide a buffer to them, just like a bridge, to help them get out of the difficulties first. For some of the assets, we have to -- there is a lot of work for us. Within -- or off balance sheet, within the balance sheet, we have to look into the picture for each NPL to capture the -- to adopt the right measure. We have confidence that we can handle the NPL as well. I know that all the analysts are concerned about it, that's why I spent a little bit more time to explain this matter. Thank you.
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Unidentified Company Representative [27]
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So the last opportunity goes to Hong Kong venue. The fifth row, the gentleman sitting in the middle.
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Maya Peng, Barclays - Analyst [28]
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(interpreted) Thank you very much, management. Barclays analyst, [Maya Peng]. We noticed there are a lot of big major banks, for the now interest rate revenue is now growing so fast. Recently the central government as well as the CBRC also conducted a lot about the discussions as well as the issuance of guidelines and policies on the internet financing. So BOC for your management, how do you think about how to interpret these new businesses? So among these major banks, (inaudible) that it seems that these new business -- we don't know much about it so it seems that we heard a lot about the IT blueprint. However for these new businesses, we haven't heard much. So we just want to know how the management think about this internet financing, how you are going to make use of these new measures to interpret them within your existing products and services?
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Unidentified Company Representative [29]
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(interpreted) I would like to invite Mr. Xu to take your question.
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Xu Luode, Bank of China - EVP [30]
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(interpreted) I understand that analysts are concerned about internet financing but you're also concerned about how we grow the internet financing in BOC. I think this is quite natural. First of all, internet financing is a hot topic. For a commercial bank, internet financing is also becoming one of the core competitiveness for all commercial banks. It relates a lot with our current business as well as the future growth. Just now you said that the central government -- the central bank and CBRC issued policies on internet financing, regulations and policies.
Basically there are two of them. The first one is about the guideline. The second one is about the online payment. So actually it is still under advising. So the core concepts of these two policies are three, actually number one, it gives a definition what is the internet financing. So what business types there are. So this is the first message. The second message is that for this business -- internet financing business, who will monitor them? Who is the monitoring entity and number three, what is the bottom line, the official supervision? So what you can do, what you cannot.
So basically these are the core messages, the second key message. The third key message is that what commercial banks can do with internet financing, for those non-banking internet financing -- what is the relationship between these two? I think this guideline and the policy gives out messages in these three aspects. Actually it is in our favor. It promotes healthy growth and it helps to prevent risks as well as protect the consumers' rights and interests. As for the internet financing, from BOC's point of view, I can answer you from three perspectives.
Number one, BOC -- we take it very seriously. Just as you said before, you may not know enough about what we think about the internet financing because we haven't spoken much, but that does not necessarily mean that we have not done much or we have done it poorly. As a matter of fact, in 2014 in March, we set up a dedicated department that takes care of the planning and the management including the top tier planning and the designing for internet financing. Last year, we also worked out our own guidelines for internet financing in the bank. Internet financing will be an important strategy for us which is also being implemented right now. So actually you can see we take it very seriously.
The second perspective is that for BOC, internet financing is moving forward very steadily and we have made progress already. Specifically, number one, the online banking, the mobile phone banking as well as the self-service banking, our business model grow steadily and rapidly. So we have e-channels as well, the replacements of [such a] channel is it is 86.34% already. So we talk about the internet financing without the support of all those channels, there's no way to talk about internet financing at all, right? So you know to grow the new business for internet financing, we also build up a very typical internet (inaudible) based open platform.
For -- there are two functions of this platform. Number one, it helps to realize that the integration and consolidation without (inaudible) and internally, it has to be the [intergens] and the integration. So for the outside, it is the collaboration with partners such as ecommerce players, third party organizations, cross border organizations, cross bank business providers. So this platform provides with such a link between BOC and other parties.
Internally, it encourages [convergence]. Internally, our businesses such as the finance markets and retailing and so forth can be integrated and will converge onto these platforms so that we can launch new products and develop new products.
Currently, we have already been able to provide 1700 standard connects with -- to satisfy [a person's] needs with over 160 products. This platform is open and it has been awarded as the most innovative financing industry in China in 2015. This is a very important infrastructure, very important platform. Based on such a platform, we launched the six categories of our products. All are based on internet financing including payment, wealth management financing, trading, industrial [trade] as well as O2O. Six product categories or six product lines. Currently we have over 30 products available already. For example, (inaudible). It is -- it provides credit services online and currently it can provide 57 billion in volume already.
For the cross border ecommerce, our market share and the transaction volume already exceeded 210 billion, still taking a leading position in the market, but the e-community -- we'll call it BOC e-community -- in China, we have over 10,000 communities that already participated on this platform. Through the internet financing, they are able to embed the financing services onto the daily life of each community through mobile internet. Actually it is a very big improvement so far and all the [effectiveness] are being shown gradually, which is to follow the trend and we are not the first to start. However, we are doing better and in future, we will be [further] to improve the platform and working with more parties.
So meanwhile in terms of our product line, we are going to further enhance it and in the future, we will further enhance our own features of our platform. For example, the cross border business, the transaction business, particularly the foreign currency -- ForEx business. So we will make better use of this platform, just as Mr Chen said. So the futures and the options and all these innovative derivatives and certainly for the ecommerce -- e-community, we are the first to do it and we want to grow it bigger and stronger.
Next time when you sit here to analyze our internet financing, definitely we will see more products and new highlights and new contents. Thank you.
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Operator [31]
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Thank you very much Mr Xu. Now let's come back to the China venue, Beijing venue again and the last question goes to the gentleman.
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John Yao Gang, BOC International - Analyst [32]
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(interpreted) Dear management, I am from BOC International. I'm Mr. [John Yao Gang]. So I would like to ask two macro level questions. I see that the second quarter, I can see that the fee and commission income has been improved compared with last quarter, which is a good performance compared with other commercial banks in China. I would like to know that the reasons or the sources of such income increase are what and also the DRC recently has indicated that there will be a (inaudible) for banks to reduce their fees and charges.
So are we going to fulfill our social responsibility in this regard while at the same time to maintain our income, so how do you do the balance and what is your take on the fees and charges income on second half?
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Operator [33]
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Thank you very much. This question is to be answered by Mr. Zhang.
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Zhang Jinliang, Bank of China - EVP [34]
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(interpreted) Thank you very much on the first quarter. We see a huge pressure in terms of the fees and charges income. Well the reasons are that in the past, we have a very good foundation so that the base is quite high and the second is that the import and export has been quite weak on the beginning of the year. That is why we see the charges income from settlement clearing have been decreased and also a third reason is that they -- the exemption of some fees and services, fees since last August has been affecting us.
So actually they are three highlights I would like to make that our services fee from -- our fees from agency services, agency insurance as well as financial products has been quite good.
The second highlight is the revenue from bank [card] business which went up by 19%.
And also our multi -- our diversified platform has also been playing quite good and making great contribution to non-interest income. Actually for the first half of the year, our non-interest income accounted for 32% which is higher than our peers. Well along with the internationalization of RMB as well as maximization of the interest rate, we are actually facing with a lot of positive factors.
Well first of all I should say that we need to consolidate our strong performance in terms of RMB settlement as well as foreign exchange services that is our advantages along the history. We have very good team of professionals in this regard and we have to feel confident in order to do that, especially to seize the opportunity of the RMB exchange rate reform and to extend our finance market business as well as offshore RMB business.
The second is to improve our asset management services, for instance to develop our asset investment bonds as well as some financial product services in order to make contribution to the income and the third is to improve our credit card services charge and to increase our income from such aspects so as to offset the damages bringing along by the [internationalization] of the interest rates.
So thank you very much for answering and your questions. As time is limited, we have to stop here. If you didn't have a chance to ask questions, please feel free to contact the secretary team of BOC. We'll be very happy to provide you with more details and information. Now that will be the end of the 2015 interim result. Thank you very much for your long term support for BOC and thank you very much. We will keep in close contact. Thank you.
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