LETTER TO SHAREHOLDERS
PRESIDENT’S LETTER TO SHAREHOLDERS
The year 2020 was an extraordinary year full of challenges. A complicated international situation, coupled with the globally sweeping COVID-19, presented banks’ operation and development with numerous uncertainties. However, it is our firm belief that the constant in the world is nothing but change itself. Under the strategic leadership of the Board of Directors, the management strove to identify changes wittily, respond resourcefully and deal with risks and challenges calmly. Spotting early opportunities from crisis and setting the stage amid changes, we attained sound results.
Throughout the year, we realized RMB195.399 billion operating income, a year-on-year increase of 4.00%, with profit before provisioning recording RMB140.846 billion, a year-on-year increase of 5.27% and net profit attributable to shareholders reaching RMB48.98 billion, a year-on-year increase of 2.01%. The Board of Directors suggested the dividend distribution of RMB12.429 billion in 2020, namely RMB2.54 per 10 shares, an increase of 6.28% compared with the previous year and the 3rd consecutive year of rise in dividends, so as to give back to the vast shareholders for the lasting care and support.
As at the end of 2020, our total assets amounted to RMB7.51 trillion, up by 11.27% over the end of last year; deposits hit RMB4.53 trillion, up by 12.12% over the end of last year; and loans totaled RMB4.47 trillion, up by 11.89% over the end of last year. All stayed at the forefront of China’s joint-stock banks.
To our great delight, the NPL ratio dropped to 1.64% as at the end of the year, a new low in the past five years, indicating a clear trend of asset quality changes. This achievement was especially tremendous, given the fact that all credit card loans and personal loans overdue for more than 60 days were downgraded as NPLs in the year. As at the end of the year, both the ratio of loans overdue for more than 60 days to NPLs and the ratio of loans overdue for more than 90 days to NPLs hit the lowest level of recent years. At the same time, we set aside more provisions, which throughout the year totaled RMB82.99 billion, increasing 7.4% year on year. The allowance coverage ratio and the ratio of allowance for impairment of loans to total loans stood at 171.68% and 2.82%, both staying at a sound level.
In 2020, placing equal stress on quality, speed and long-term goals, we cemented our business foundation, optimized our structure, advanced transformation and enhanced management. We evolved with time while inheriting and overcame difficulties along the way ahead. Every effort we had made was converted into China CITIC Bank’s value and growth.
In 2020, we fulfilled our missions and responsibilities, and shared weal and woe with real economy enterprises.
In 2020, the outbreak of COVID-19 battered at the real economy. Sharing the fate with all the Chinese people, we gave full play to the role of banking in supporting the real economy and pandemic control, and provided more supports to the manufacturing as well as small and micro enterprises and private business that bore the brunt of the pandemic. As at the end of 2020, the Bank’s outstanding loans granted to the manufacturing sector stood at RMB326.8 billion, an increase of 27% from the beginning of the year; outstanding inclusive finance loans surged by 44% from the beginning of the year reaching RMB325.1 billion; and loans granted to private enterprises went up by nearly RMB20 billion, accounting for 39% of the total. By opening up green channels for loan review and approval, we went all out to meet the corporate loan demands related to or directly for pandemic control. Throughout the year, we issued anti-epidemic loans totaling RMB195.9 billion and underwrote 38 anti-epidemic bonds, raising funds of RMB26.8 billion. Through these efforts, we contributed CITIC power to this the critical battle against the virus.
Closely following up with major policies and guidelines of the CPC Central Committee and the State Council as well as new trends in economic development, we made overall planning and highly targeted efforts, and channeled credit resources to new infrastructure and new urbanization initiatives as well as major projects and to benefit high-tech and high-growth corporations. Throughout the year, our new loans granted to the industries falling within categories of active support and support accounted for 73% of the total. Specifically, the increase in loans to water conservancy, environment and public utilities management, with a growth rate of near 28%, led other segments; integrated circuit design & manufacturing and communication equipment manufacturing, two typical cases of high-end manufacturing industries saw their on- and off-balance sheet credit extension balance soaring from the beginning of the year by 138% and 86%, respectively. At the same time, we planned in advance to build industry research teams, focusing on key areas such as non-contact economy, 5G and biomedicine and making arrangements for pension finance so as to foster more new drivers for future sustainable development.
By insisting on the key regional development strategies of the state, we accurately implemented differentiated development strategies for different regions. To be specific, we increased credit support for the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Guangdong-Hong Kong-Macao Greater Bay Area. The outstanding loans granted to the above three regions totaled RMB1.1 trillion, and new corporate loans granted to those regions accounted for nearly 60% of the total. Making full use of the radiating role of branches’ in core regions we guided the surrounding branches for collaborative and synergistic development. In doing so, we formed a regional development pattern which featured a reasonable structure, prominent priorities and distinctive characteristics, under which, we contributed new energy for the development of national key regions and the financial supply-side structural reform with our strength.
Dedicated to the belief of originating from and giving back to the society, we fully leveraged our financial strength to engage in precision poverty alleviation. As to the distinctive industries of poor areas with market prospects, we actively promoted supply chain finance, so that the featured planting and breeding industries and the agricultural product processing industries could be developed to lift the poverty-stricken households along the upstream and downstream of these industrial chains out of poverty and propel people in poor regions towards self-sufficiency. We vigorously supported the development of the leading enterprises that did well in raising people out of poverty. Our outstanding loans for precision poverty alleviation with financial services stood at RMB29.2 billion, an increase about RMB7 billion over the end of the previous year, which effectively promoted local enterprises towards rapid development. As at the end of 2020, we managed to help 124 poverty-stricken villages nationwide and Xietongmen County in Tibet shake off poverty and pass the official poverty reduction inspection and lifted 35,500 persons from 11,900 households out of poverty completely.
These challenges in 2020 have further convinced us that if we want to go farther steadily, we must return to our founding aspiration and give full play to our due role in empowering the real economy, supporting the formation of innovative systems, and serving virtuous market circulation. We set eyes on meeting needs of the Chinese society. While channeling financial resources to the places where they were in dire need, we continued to improve the adaptability and flexibility of the financial supply centered on credit, and thus got more out of resources and production factors through optimal allocation.
In 2020, we promoted business transformation with intensified efforts, further highlighting our business characteristics and market competitiveness.
We are clearly aware that a modern commercial bank must take a pathway featuring capital light, asset light and cost light development. In recent years, we have continued to promote the transformation of our business structure from “One Body, Two Wings” to “Troika”. With retail and financial market sectors as two key points from which light development was promoted, corporate, retail and financial markets, as three major business sectors, saw their proportion in the Bank’s net operating income changing from 55.4%, 34.6%, and 7.0% three years ago to 45.8%, 40.8%, and 11.6% in 2020. A more balanced business structure would enable us to better withstand changes in the economic cycle and enhance our ability to attain sustainable development. At the same time, we worked harder to adjust the balance sheet. On the asset side, we stepped up efforts to clean up inefficient and ineffective assets, promoted assets towards active circulation, and moderately increased the proportion of low- risk interbank and investment businesses. As a result, the comprehensive risk weight decreased by
3.95 percentage points compared with the previous year. We strove to build up revenue generation capabilities, and expanded sources of capital-light income from such dimensions as customer, market, synergy and innovation. Throughout the year, our net non-interest income hit RMB44.9 billion, up by RMB3.93 billion compared with the previous year. We attached high importance to cost control and launched “income increase and cost cut” campaign, through which a host of measures such as intensified liability restructuring, enhanced control over operating cost, and higher efficiency of capital utilization were adopted to cut down on liability costs, operating costs, capital costs and other types of costs totaling RMB6.72 billion. As a result, the cost-to-income ratio stood at 26.73%, down by 1.11 percentage points year on year.
Synergy is one of our unique business cards. As the largest financial subsidiary of CITIC Group, we deem synergy as an important way for us to amplify CITIC Group’s comprehensive advantages, and a necessary force that underpins our strategic development. The unique advantages CITIC Group have long formed in “Finance + Industry” and the emphasis for international development in its DNA have set the stage for us to provide customers with one-stop integrated financial services at home and abroad. In 2020, we worked together with CITIC Securities, China Securities, CITIC Trust, CITIC Prudential Life and other financial subsidiaries of CITIC Group to furnish customers with joint financing of RMB1,078.2 billion, a year-on-year increase of 68%. This was also the first time for the indicator to cross the RMB1 trillion mark. The products under custody from CITIC Group’s subsidiaries reached RMB845.8 billion, a year-on-year increase of 20%, and generated a revenue beyond RMB300 million. The cross-selling of products under the retail business line hit RMB45.1 billion, 2.4 times that of the previous year.
Distinctive development is crucial to our current and future efforts to construct a “technology moat”. In recent years, we have continued to consolidate our advantages in developing distinctive businesses, actively cultivated various forms of emerging businesses, and strove to create a batch of “single big products” with CITIC characteristics. We made every effort to develop transaction banking business by launching multiple transaction financing, payment and settlement products. The number of transaction banking customers went beyond 700,000, and the transaction financing volume reached RMB337.7 billion, 3.4 times that of the previous year. In the meantime, we kept sharpening our competitive edges in investment banking, financial markets and international business. In 2020, we underwrote debt financing instruments of more than RMB630 billion, completed forex market making transactions totaling USD1.69 trillion, and conducted cross-border Renminbi receipts and payments amounting to RMB325.2 billion, maintaining the leading position in the market. We continued to strengthen government financial services, thus having formed a full ecological chain that covered “governments + corporate and public institutions + the public”. We had 43,100 institutional customers of all sorts, with daily average deposits of nearly RMB1,180 billion. As our retail banking kept releasing its momentum in the transformation process, the number of individual customers and the number of users of the “CITIC U Enjoy+” platform both exceeded 100 million, and the number of credit cards issued went beyond 92 million. Going abroad financial services have long been one of our featured businesses, and visa services are even one of our defining labels. In 2020, we recorded more than 7.63 million accounts of customers using our going abroad financial services, with the assets under management approaching RMB1 trillion. Our private banking saw its brand value becoming increasingly prominent. It had more than 50,000 customers and managed assets worth RMB680.3 billion. The two flagship products, family trust and carte blanche of private banking, surged by 54% and 71% year on year, respectively.
In 2020, we reinforced IT empowerment, and achieved fruitful results in innovation-driven development and digital finance.
Technological innovation is the primary productivity that drives development. Since recent years, we have unswervingly implemented the new development philosophy, continued to seek reform and innovation, increased investment in science and technology, and moved towards the goal of becoming a top technology-driven bank. In 2020, our investment in science and technology was close to RMB7 billion, an increase of 24% over the previous year. The number of scientific and technical personnel quadrupled in two years, accounting for 7.6% of total. Thanks to continuous investment over the long term, we have established a market image of “being brave to innovate and leading in technology”, and made important progress in digital transformation, which becomes another shining business card for us in the market.
We are well aware that if product innovation is “water”, then institutional innovation will be the “wellspring”. Only by setting up sound innovation institutions, can we “have inspirations needed by product innovation from the inexhaustible source”. From the establishment of an innovation management committee to the incorporation of a financial product IT innovation laboratory and to the creation of the industry’s first R&D section dedicated to empowering the development of branches last year, we have put in place an integrated IT empowerment system that could cover product R&D, marketing support, technology output, one-stop services, sharing center and other fields. Under the system, IT teams could directly serve business departments and branches, and send a steady flow of technical support to the front-line business personnel. Over the year since the establishment of the branch-targeted R&D section, 100% of front-line requests were responded properly, the average time required by end-to-end delivery was halved to 15 working days, a 50% further improvement compared with the previous year.
Underpinned and driven by the scientific and technological forces, we in 2020 put in place 63 innovative projects under category I, and launched a number of projects enjoying sufficient support, high reputation and good profitability. We led China’s medium and large-sized banks to put into operation the first independently-developed distributed core system (“Lingyun Project”). By doing so, we contributed a “CITIC solution” to the realization of independent control over critical financial infrastructure of China, and upgraded our FinTech empowerment capabilities on all fronts. Meanwhile, we accelerated the R&D and application of new technologies such as AI and blockchain. The AI platform, called “CITIC Brain” generated over 300 “AI + data” precision models, thus providing real-time intelligent services to over 10 million customers. Additionally, we led peer banks in terms of blockchain technology R&D and application and the blockchain forfaiting transaction platform was recognized by the regulatory authorities and upgraded to a national industrial platform.
With business development boosted by technology, our digital finance strategy is advancing at full speed, to empower operation and management in every respect. With digital marketing efforts intensified, we attracted another 12,800 customers and deposits of RMB53.9 billion with the help of chain-based and product-based customer acquisition models. We developed a retail operation system that contributed to an increase in assets by nearly RMB200 billion, and intelligent recommendations of wealth management AI led to online sales of over RMB230 billion. We intensified efforts in delivering digital services. Through online processing, mobile approval and intelligent customer identification, we reduced time required for corporate account opening by about 30%. We accelerated the formation of ecological scenarios. More than 5,500 business scenarios were created along with hundreds of partners such as UnionPay, DiDi, and JD.com to serve 5.2 million users and 390 million fund transactions were carried out in total.
In 2020, we strengthened risk management, making business development and risk control even more coordinated and unified.
Development can only be attained on the base of sound risk control. Aiming at building a risk management system in which risks could be put under control and development could be boosted, we took development as the most important task and tried to solve problems with a development- oriented approach. At the same time, we made sure that development must be achieved with risk factors filtered, risk control coordinated, and efficient compliance risk management, thus laying a solid foundation for sustainable development.
We continued to improve comprehensive risk management standards, put in place a responsibility management mechanism where duties, powers and interests could match and customer operation and risk management are integrated, and established the principal responsible person mechanism for operation and the full-time approver mechanism. We kept strengthening the transmission and implementation of credit policies. To be specific, we integrated credit policies with marketing guides, inspection and approval standards, performance appraisal norms, and policies on resources allocation. And we established an authorization system with upper limits, standards, responsibilities and supervision measures. Following the four principles of “taking into account quality, customer, location and person”, we delegated authority to branches on a more differentiated basis. While stimulating the vitality of operation at the primary level, we also strengthen authorization review to form a closed management loop, upholding the bottom line for risk control.
We continued to optimize the allocation of general-category assets, by concentrating credit resources on the fields that were great in asset quality and strongly countercyclical. In doing so, we were intended to thicken the “safe cushion” for development. As at the end of 2020, our outstanding credit lines granted to such key industries as water, environment, rental and business services, production and supply of electric power, gas and water, and transportation accounted for nearly 45% of the total. Of which, those going to corporate customers rated at “A” or above took a share close to 70%. The proportion of retail loans to total credit went up to nearly 43%. All of these figures justified further improved asset quality.
We moved faster in digital transformation of risk management, intensified efforts to build the digital risk control system, and facilitated the application of intelligent risk control fruits in the whole credit process and online business. In 2020, we supported the development of 10-plus online products and established over 20 multi-dimensional risk portraying models for corporate, inclusive finance and individual customers. We integrated big data to set up a proactive risk forewarning system, which could carry out risk prediction and screening on customers in key areas based on forewarning signals to conduct risk prevention and control in a much more forward-looking and accurate way. To boost our digital risk control capabilities, we independently developed real-time, intelligent anti-fraud and anti-money laundering (AML) systems, through which the accuracy of real-time transaction monitoring and interception operations was as high as 90%, and the offline risk control and screening function managed to intercept over 17,000 risk events.
The year 2021 marks the launch of China’s 14th Five-Year Plan as well as the starting year for China CITIC Bank to implement its 2021-2023 plan. Standing at a new starting point, we will feel the beat of China’s initiative to promote high-quality development, get well adapted to the new stage of development, implement the new development philosophy, and fit well into the new development pattern. Taking high-tech development as the engine, high-quality growth as the goal, and high-value creation as the main task, we will, through the leading role of Party building, coordinate efforts to attain integrated, light, intensive development, and strive to become a responsible, unique and valuable provider of the best comprehensive financial services with a human touch.
In the next three years, we will work harder to develop core businesses, and endow our businesses with more distinctive characteristics. We will continue to promote capital-light development, and form a business pattern with a more coordinated structure and more characteristic competitive edges. Laser-focused on the established strategies, we will increase resource input in core customers, core products and core regions, so as to expand competitive advantages and amplify value contribution constantly. Leveraging the advantage of full financial licenses of CITIC Group, we will make wealth management business grow stronger, and strive to become customers’ first choice of wealth management bank.
In the next three years, we will give full play to the driving role of innovation, and allow our superior digital technologies to shine through. We will shore up the building of an innovative development system, strengthen the technology-driven development, forge a full-process, commercial- grade agile operation system, and build the China CITIC Bank cloud platform, in a bid to enhance the driving force of technological innovation on all fronts. With the continuously intensified input in scientific and technological development and accelerated digital transformation, we will build ourselves into a top technology-driven bank that can drive more innovations and bring about greater changes through the joint efforts made in both technology and business development.
In the next three years, we will firmly hold the bottom line for risk management, and put in place a more robust compliance and internal control system. Adhering to the concept that “risk control creates value”, we will do better in risk prediction and forewarning. Through “precise credit supply”, we will make overall planning for “promoting the real economy” and “guarding against various risks”, optimize the credit structure, resolutely maintain our comparative advantage in traditional fields, and vigorously march into emerging sectors. With respect to “efficient risk prevention”, we will strengthen the application of digital risk control technologies, move faster to build intelligent forewarning and a full risk view, and enhance the pertinence and effectiveness of risk management. As to “impactful management means”, we will exercise a more rigid control over key areas and enhance the initiative of risk management, so as to support high-quality, sustainable development.
In the next three years, we will go further in synergistic integration, and make overall collaboration more effective. Following the principle of “One CITIC, One Customer” and relying on the unique competitive advantages of CITIC Group in putting equal importance on both financial and non-financial businesses, we will reinforce all-around comprehensive collaboration and fully unlock the potential of synergistic development. We will roll out innovative collaborative models and improve collaborative mechanisms to form an sharing ecosystem that provides strong support for our ambition to become a comprehensive financial service provider and further establish “CITIC Synergy+” as a top-notch brand.
As all shareholders know, Chairman of CITIC Group Mr. Zhu Hexian has recently been nominated and elected as Chairman of China CITIC Bank by our Board of Directors. Mr. Zhu has worked in the financial sector for more than 20 years, and accumulated abundant theoretical knowledge and practical experience. As we firmly believe, China CITIC Bank, under the leadership of Chairman Zhu and with the all-round support of CITIC Group, will forge ahead towards a glorious future. Delivering an even better performance is the best way for us to serve our country, replay our shareholders, and answer the call of the times! The future of China CITIC Bank is worth looking forward to!
Executive Director, President
25 March 2021