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President's Statement
 

Mr. TIAN Huiyu
Executive Director of the Board and President of the Bank


In 2018, despite the tough market conditions, CMB overcame the effects of cyclical factors and achieved remarkable results. During the year, the Bank realised net operating income and net profit attributable to shareholders of the Bank of RMB248.444 billion and RMB80.560 billion, a year-on-year increase of 12.40% and 14.84%, respectively. Our asset quality was stable and continued to improve, while the balance of non-performing loans and the non-performing loan ratio, as well as the amount and ratio of non-performing loan formation all declined.

 

The driving forces behind the business performance are our continuous dedication to customer service, our belief in the Fintech

transformation, and our commitment to fulfilling our social responsibilities.

 

In 2018, the retail business broke the three “100 million” marks, i.e. the total number of depositors and retail customers reached 100 million and 125 million, up by 17% and 18% respectively as compared with the previous year, and the total number of CMB APP and CMB Life APP users reached 148 million, representing an increase of 43%, of which monthly active users (MAU) exceeded 81 million, representing an increase of 47%1. The number of corporate customers exceeded 1.80 million, representing an increase of 18%. The number of newly acquired corporate depositors exceeded 400,000. The accelerated expansion of customer base is our greatest source of confidence to keep abreast with time.

 

As many a little makes a mickle, in 2018, the digital banking transformation moved forward in a progressive manner, from products to systems, and from businesses to organisational culture. We firmly adhered to the strategy of “mobile priority”, and significantly improved the capabilities of platform empowerment, digital operation and providing digital services; we expedited the internal establishment and outward expansion of scenarios, and stepped up the construction of an ecological customer service system; we increased investment in technology infrastructure so as to promote business agility by means of technology agility. In addition, we accelerated the application of Fintech so that every part and parcel benefits from the power of technology; and we promoted the penetration of Internet culture so that the Internet mindset and values oriented by customer experience are tacitly cultivated across the whole Bank. Accelerating the digital transformation is our mighty stronghold in finding our True North.

 

The achievements of CMB are made possible by people from all walks of life. We are extremely grateful for this new era and remember the social responsibilities that we have committed to all the time. We sincerely developed inclusive finance, capitalised on the power of science and technology to serve the well-being of people, and benefitted more people with more affordable financial services. We carried out in-depth targeted poverty alleviation to support the development of two state-level poverty-stricken counties, namely Yongren County and Wuding County in Yunnan through education, industrial development and cultural development for the past two decades.

 

2018 was a year of tribute to the reform and opening up. Inheriting our innate “Shekou Gene”, we reviewed the original mindset of “creating a real commercial bank for China” proposed by Mr. Yuan Geng, the founding Chairman. To commemorate the past is for the commencement of a new history. As the first commercial bank in China to promote financial reform from outside the system, at the new starting point of the new era, it is our inevitable historical mission to continue to explore the paths for the transformation of Chinese banking industry, promote supply-side financial reform with our own high-quality development, and better serve the needs of the real economy and improve the well-being of people.

 

At present, the world is confronted with the “most significant changes of the century”. The global economic and trade patterns as

well as production specialisation of industry value chains are undergoing restructuring. The relations among major countries and the international competitive landscape are being reshuffled, bringing extensive and profound effects to the market environment. As a player in a pro-cyclical industry, commercial banks have to face the very real challenges and impacts in operation and development.

 

Nevertheless, we are not afraid, as we believe that no matter what challenges are brought by these great changes, remaining unchanged are the nature of the banking industry as a service industry, tenet that customer is the trigger point of business activities, and the primary purpose of financial services to serve the real economy and improve people’s well-being. Throughout the global history, it is not surprising that fallen or disappeared companies were often indulged in commercial opportunism, whereas those humble enterprises that stayed focused and embraced the customer-centric principle could become more competitive and stay ahead despite adversities.

 

Today, we are profoundly aware that the determinant of the changing industry comes from technology. With the rapid development of technologies such as mobile Internet and artificial intelligence, the new possibilities are opened up by cutting-edge technologies such as quantum communication and biotechnology. The Fourth Industrial Revolution has been commenced. Following the age of steam, the age of electricity and the age of information, mankind has entered into the age of intelligence.

 

Whether we like it or not, technological revolution will lead to exponential growth in productivity outright, and subsequently reshape production methods and business models. The banking industry is itself a heritage of a few hundred years and has experienced many times of changes, economic cycles, trade conflicts and regulatory policies, but its business model remained unchanged. The age of electricity and the age of information have only provided banks with more efficient channels and tools. However, the new round of technological revolution may fundamentally revamp the business model of banks.

 

Changes have tacitly occurred. In the past decade, traditional financial institutions have witnessed the whole process of how Fintech redefined retail business. From payment to deposit, loan and wealth management, the capital market intermediary and information intermediary functions of traditional banks were significantly impacted, and a bank’s role as credit intermediary is also under threat. As social development deepens from the consumer Internet to the industrial Internet, it also urged Fintech to redefine corporate finance and asset management.

 

In the era of significant changes, what is the future direction for the banking industry? Looking back at the history, we realized that the Chinese banking industry has experienced two stages of development. First, there was stage 1.0 of winning by size: in the golden age of rapid economic growth, deposits determined assets and size, and size in turn determined income and profit. Banks used to be highly dependent on the power of capital which led to the uncoordinated expansion of both balance sheet and sources of finance. Business models back then had low variety and were extensively managed, and the profitability and market competitions

were highly homogenised. After the economy entered the “new normal” phase, the Chinese banking industry has entered into development stage 2.0 of winning by structure and quality: the profitability and market values of banks have since no longer entirely depended on asset size, whereas asset quality and income structure played more important roles. Customer and asset structure determined the quality of bank assets, and further affected profits. Internal capital generation capacity was gradually formed. Development of banks was gradually driven by the professional competence in customer service, thereby embarking on a path of intensive development and internal quality building, and commencing differentiated competitions.

 

Fortunately, CMB has not forgotten its initial intention of reform and has always adhered to its forward-looking strategies, allowing it to stay ahead of its peers in the banking reform. We took the lead to initiate the transformation of retail banking more than a decade ago. Since 2014, we have vigorously implemented the strategies of “Light-operation Bank” and “One Body with Two Wings”. We have discarded the emphasis on asset scale, and unswervingly promoted structural adjustment.

 

The Company has basically built up a professional customer service system and decisively switched the focus of competition from scale to quality and structure, hence, allowing it to benefit from business transformation. The transformation of CMB was essentially a reform and service upgrade driven by the needs of customers and supply side.

 

The history will eventually become the past, and we must charge ahead fast towards the future. The trend of technological change is pushing the Chinese banking industry into development stage 3.0 of winning by a new business model. Since 2017,based on our previous exploration, we have further promoted the supply-side financial reform and duly formulated the goal of transformation to build the best customer experience bank with Fintech as the driving engine, and started the journey to explore the new business model.

 

As the exploration furthered, our understandings also became clearer. In the new era, science and technology is the fundamental driving force of the supply-side financial reform. In the foreseeable future, Fintech can carry out digital transformation, intelligent upgrade and modular splitting for all businesses, operations and management of traditional banks. The stage 3.0 of banks with features of digitalisation, intelligence and openness is coming. It will completely change the existing models in service, marketing, risk control, and operation of commercial banks, expand the service boundaries, and ultimately change the growth curves of banks.

 

The general trend of change is irreversible. We have to switch our track without hesitation, and move towards “the 3.0 mode” at full speed. Customers and technologies are our two core themes for the future. We are well aware that in the era of mobile Internet, technology dominates business models; big data determines customer service capabilities; business logic has changed from “small and beautiful” to “big and beautiful.” We can only bear the high cost of investment and high risk of technology and form a sufficient amount of valuable data with a large enough number of customers. Therefore, we will re-examine all aspects of the operation and management of the bank by focusing on customer experience and leveraging on Fintech, and fully commence the digital transformation.

 

Transforming from customers to users, we will redefine the objects of banking services and business mindset. We will expand our service boundaries, jump out of the customer base system with bank accounts as the core, extend our customer base system to class II and III accounts as well as APP users who do not bind their bank accounts, and make efforts to build the Internet funnel-shaped user system. Guided by user experience, we will continue to enhance the operating concept with MAU (monthly active users) as the North Star Metric, so as to drive the digital transformation of the whole Bank in all aspects, from business development to organisational system, management methods, service models, and further to mindsets, concepts, culture and values.

 

Transforming from bank cards to APPs, we will redefine the boundaries of banking services. With the shift of customer behaviors and habits, APPs have become the main platforms for banks to interact with customers. 24 years ago, in responding to the needs of customers, CMB innovatively launched “All-in-one Card”, and took the lead in eliminating bankbooks; in 2018, we once again led the trend, took the lead in realising comprehensive card-free operation in the outlets, and launched the eliminating bank cards” campaign. Under the macro environment of the era, only by changing with our users, can we keep abreast with time, even if it means painful reforms and self-revolution. We are fully aware that a bank card is just a product, but APP is a platform that integrates the whole ecological system. Currently, 27% and 44% of the traffic of CMB APP and CMB Life APP come from non-financial services respectively. Both internal and external scenarios have achieved initial results. Our two major APPs have 15 internal scenarios, each of which has more than 10 million MAUs, and we have initially set up a user ecosystem covering subways, buses, parking lots and other convenience travel scenarios. It’s just the beginning.

 

Transforming from trading mindset to customer journey, we will redefine banking service logic and customer experience. Trading mindset is from the business perception, whereas service journey is from the customer’s perception. To become a bank offering the best customer experience, we must think from the customer’s perspective, understanding and changing the product logics, service methods and interaction designs of the Bank in all processes. As such, we have attached great importance to user experience, established user experience monitoring system for both retail finance and corporate finance, perceived the customer experience in real time, given feedback and made improvement in a timely manner. We will build a powerful digital business center, and strive to empower the online customer service platform and front-line customer managers in an intelligent way to fundamentally enhance customer experience.

 

Transforming from centralisation to openness, we will redefine the technology base and corporate culture of the Bank. Technology provides the fundamental support for commercial banks. We are benchmarking Fintech companies to establish an open IT architecture and comprehensively enhance the research, development and application of technology-based capabilities.

 

The foundation of Fintech is culture. We will build a fault-tolerant mechanism, support creative innovation, encourage young people to take charge, tolerate non-mainstream ideas, and strive to change the traditional bureaucracy culture in banks, so that CMB will have a lighter and simpler organisational structure.

 

No product is appropriate for both bullish and bearish markets, but services can. We are here just for you, and we will provide uninterrupted customised services for you at all time. 32 years ago, CMB was established because of China’s reform and opening up. Today, the best way to pay tribute to the great cause of reform and opening up is to promote the supply-side financial reform and initiate the business model transformation with the self-revolution spirit and a more open attitude. Let us take the lead in exploring the stage 3.0 of the banking industry and continue the legend of CMB.

China Merchants Bank Co., Ltd. President: