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Chairman's Statement

 Mr. LI Jianhong
Chairman of the Board

The deepening of economic transformation and financial reform brought about profound changes to the operation environment of the PRC banking industry in the past year. The increasing pace of reform in interest rates and exchange rates, the further development of financial disintermediation, the drastic volatility in the capital market, and the persistence of the overcapacity problem, all put commercial banks’ profit growth under pressure and led to a higher risk of deterioration in asset quality. The Bank proactively adapted to the “new normal”, vigorously grasped emerging opportunities, overcame challenges, and demonstrated its sound and stable operating style.
In 2015, the Bank realised a net profit attributable to shareholders of the Bank of RMB57.696 billion, representing a year-on-year increase of 3.19%. Return on average equity (ROAE) and return on average asset (ROAA) attributable to shareholders of the Bank were 17.09% and 1.13%, respectively. After complete relaxation of the ceiling for deposit interest rates, the Bank’s net interest margin recorded an increase rather than a decrease as compared with that of the previous year, demonstrating its strong profitability. Meanwhile, the proportion of net non-interest income continued to increase, thanks to the Bank’s initial achievements in business transformation. The cost-to-income ratio decreased continually, and operating efficiency further improved.
A successful bank should have the capability to survive periodic economic fluctuations. From 2015 onwards, China’s real economy has gradually entered into an adjustment period characterised by “reducing overcapacity, destocking, deleveraging, cutting down costs and improving weaknesses”, domestic banks were then exposed to great challenges in their risk management capability. In response to this challenge, the Board persistently improved the risk preference indicator system, further enhanced the monitoring and control of risk management, and fully implemented the dynamic and well-balanced operation concept of “keeping balance between efficiency, quality and scale”. All members of the Board diligently fulfilled their duties to thoroughly study the Bank’s important resolutions and actively offer advice for further development of the Bank. Moreover, they also conducted special studies on the risk management status of certain branches based on actual conditions, traced and analysed the changes in conditions, thoroughly studied the risk management and operation status and effectively put forward risk management and control proposals. In addition, they further improved the vertical audit management system and focused on the rectification of problems identified during the process of audits and the enforcement of accountability for such problems, thereby further enhancing the rectification of problems and the effectiveness of the management systems.
To overcome periodic economic fluctuations successfully requires a bank to keep its strategic determination, regardless of difficulties and temptations. A successful experience of the Bank drawn from previous practices is to make retail banking business as its strategic direction and stick to it persistently. In 2015, the Bank’s retail loan balances and profit before tax both accounted for half of its results under each sector, further consolidating its competitive advantage in retail finance. In addition, corporate finance and financial institutions finance had made breakthroughs in their key business areas with ever-increasing customer bases. And the Bank had further developed a more clearly defined “One Body with Two Wings” strategy and “Asset-light Banking” direction.
A forward-looking strategic deployment is essential for overcoming tough economic cycles. In 2015, the Bank ranked 28th among the global top 1,000 banks by The Banker magazine, demonstrating that it has grown into a bank with strong market reputation and influence. Therefore, it is vital for the Bank to identify its core strengths and major challenges, work out its way into the future and make beforehand deployments. Since 2015, the Bank has formulated its new five-year plan according to the requirements of the Board of Directors as its overall deployments in line with the state’s ”13th Five-year Plan”. With a goal to become the “Best Commercial Bank in China”, the Bank has made “Retail Banking, Keeping Ahead” a core essence of its strategic objectives and “Innovation-driven Development” a tool to realise the new five-year plan. Shared by the Board of Directors, the management and employees throughout the Bank, the above plan has stemmed from the Bank’s long historical experience and will spearhead the Bank’s future development.
As for innovation-driven development, it first comes to the innovation of our business models and service modes. In 2015, the Bank, adhering to the customer-centric service concept of “We are here, just for you”, vigorously promoted the deployment and innovation of Internet finance by utilising mobile Internet concept and focusing on diverse cross-industry cooperation, and diligently studied and explored new business models in payment and settlement, consumer finance, mobile banking, direct banking and credit verification service. As for improving customer experience, the Bank proactively made innovations based on the perspectives of Internet, mobile handsets and scenarios and launched various new functions including “visual counters” and “cash withdrawal via face-scanning (刷臉取款)”, thus offering more convenient and efficient services to its customers.
Our innovation-driven development is also reflected in the market-oriented mechanism innovation. During the year, the Board advocated and promoted the Employee Stock Ownership Scheme of the Bank to bring together the long-term interests of its management, employees and shareholders, and continuously improved the incentive and constraint mechanism, demonstrating its corporate culture of respect, caring and sharing.
In the past year, changes occurred in the shareholdings of major shareholders of the Bank. Looking back at its history, despite previous changes in the structure and shareholdings of its shareholders, the Bank has always adhered to the market-driven operation mechanism and the regulated corporate governance model. These formed the essence and foundation for our growth and success. In future, the market-driven operation mechanism and the management model of the Bank will not be weakened, but rather, they will be enhanced and innovated from time to time, making the market-driven operation mechanism a competitive advantage of the Bank.
In 2015, the Bank actively fulfilled its social responsibilities by firmly committing to social welfare activities. The Bank enhanced financial support to various sectors related to people’s livelihood with focus on developing green financial products, promoting green operations and contributing to economic restructuring, transformation and upgrading for the purpose of realising sustainable value creation and value sharing. During the year, the Bank established an online public welfare platform, through which a number of sustainable public welfare programs were initiated in collaborations with One Foundation and China Children and Teenagers’ Fund to advocate the idea of “Everybody Goes for Charity”(人人皆可慈善). “More Pleasure from Monthly Donations (月捐悅多)”, a small-amount monthly donation program initiated by the Bank that brings many public welfare institutions and clients together, has seen continuous rollout and a stable increase in the number of sign-up clients committed to monthly donations.
The banking industry is expected to confront with severe challenges and tough tests, as China is now gearing up its reform of the supply front, with structural adjustments as the development trend and logics for a period of time in the future. A series of adverse and unfavorable factors, such as decline in the asset demand, narrowing of interest spread, increase in non-performing assets and competition from new financing media, will continue to pose threat to the Bank. As the Bank has been recognised for its high-quality client portfolio and sound risk preference, investors thus have an expectation that it could deliver good performance even when risks are on the rise.
Shouldering the strong expectations from its investors, and exposed to the complicated economic situation and tough business environment, the Bank will continue to accelerate its transformation and seize opportunities in 2016 to capture more market shares through business innovation and increase efficiency through risk management so as to lay a sound foundation for achieving the goal of becoming the best commercial bank in China and continuing to create values for its investors and the society.
China Merchants Bank Co., Ltd. Chairman: