Building a New Retail Bank Through Reform and Innovation

Building a New retail Bank Through Reform and Innovation

Mr. Chairman, Distinguished guests, ladies and Gentlemen

Good afternoon.

It’s my great honor to be here today participating the 21st WSBI World Congress. First of all, I would like to thank the WSBI for inviting me and giving me a chance. My topic today is “Building a New Retail Bank through Reform and Innovation”. In the past few years, Chinese economy has been growing at a high speed. It technology has been widely applied in China and the Chinese residents need for financial service is constantly increasing. The Chinese banking industry is undergoing a reform, which now is in a critical phase, and indicating a number of new features of future development. Today I would like to share with you my thoughts on the trend of retail banking industry and the experience ofICBC in this area.

First, Chinese banking industry is facing unprecedented opportunities

The four major state-owned commercial banks consist the pillar of China’s financial industry. The fast economic growth and wide application of IT technology in recent years have created new opportunities for the Chinese banks and therefore, the banks have demonstrated huge potential and bright prospect. Since china adopted the reform and opening-up policy, the economy has achieved high-speed growth for more than 20 years, and China has become an engine of world economy, which, to some extent, helped to change the global economic structure. From 1978 to 2005, China’s annual real GDP growth tare was more than 9.6 percent and average annual foreign trade growth rate was 24 percent. Meantime, average annual income for Chinese urban residents increased from RMB 343 RMB to 9421.6 RMB, showing an annual growth rate of 13.6 percent. Benefiting from the stable economic growth and personal income increase, Chinese banks have achieved continuous healthy development. From 1978 to 2005, the outstanding savings deposits of Chinese residents increased from 21.6 billion RMB to 11.9 trillion RMB, growing by 27.6 percent annually. As of end 2005, total assets held by Chinese financial institutions reached 37.47 trillion RMB, 142 times that of 1980, with an average annual growth rate of 22 percent. Looking to the future, we believe the Chinese banking industry will have a bright prospect, due to the positive economic outlook and sound financial reform policy. The banks themselves also demonstrate attractive investment value.

At the same time, as personal wealth keeps growing, Chinese residents are raising more and more demand for wealth management, consumer finance, personal transaction and settlement services. These have provided continuous impetus for business diversification of Chinese banking industry. From 2001 to 2005 the outstanding consumer lean to Chinese residents has increased from 699 billion RMB to 2.2 trillion RMB, showing an average annual growth rate of 33.19 percent. The proportion of credit card spending to the general consumer spending has increased from 2.97 percent to 14.29 percent. The market of insurance, mutual fund, bonds, equity and other wealth management products have reached 3.55 trillion RMB. Obviously China has already become the world’s fastest growing and most attractive market for consumer finance, personal transactions and settlement and wealth management.

Moreover, recently, Chinese commercial banks have undertaken financial restructuring and share-holding reform, which cleaned the bank’s balance sheet, improved their corporate governance, and enhanced business performance. These initiatives are the key drivers of reform and innovation of Chinese banking industry. Now the banks have put in place sound corporate governance and information disclosure framework established with stakeholders cooperative relationship that aims at creating wealth and value, and are showing a strong balance sheet. All these contribute to significantly changing the operation mode and management model of Chinese banking industry. To enhance competitive edge through reform, create value for shareholders, improve service capability have become the keynote of Chinese banking industry development today.

Second, the retail banking market in China is in a critical phase of transformation

Although the opportunities are good for us, we also face significant challenges, mainly from market opening to competitors, costumer requirements for satisfactory financial consumption and wealth management service, and the diversification of service channels. Now every bank finds itself in a very different, more challenging competition landscape and one has to change in order to stay in the game. The retail banking market is growing very quickly and requires every participant to undertake overall transformation in order to survive and prosper. This transformation process shows 4 features.

No. 1 the fast accumulation of personal wealth, diversified need for financial services make the Chinese retail banks to change from traditional savings institutions providing deposits and settlement services to modern retail banks offering comprehensive personal financial services. Now the Chinese residents are becoming more sophisticated. They are no longer satisfied with savings and settlement and are going to banks for comprehensive services. As the banker, we must respect this change in customer requirement and build a financial supermarket to satisfy their requirement for deposits, settlement, consumer finance, credit card, wealth management, and electronic-banking.

No. 2, technology breakthroughs in IT and quick emerging of electronic banking business are changing retail banking service model in China to the very fundamentals, a process featured by physical network’s extensive to multi-channel service system. China is the world’s largest growing market for Internet and mobile telecommunication. The application of new network technology and the Internet market are quietly changing the personal banking behavior and the services company. From 2003 to 2005, Internet banking users in China increased from 8 millions to 34-6 million, with an average annual growth rate of 108 percent. In 2005, Internet banking transaction volume reached 70 million RMB, 72 percent more than that of the previous year. Retail banking services are extended quickly from traditional physical network to electronic banking and self-service channels like Internet banking, telephone banking, mobile phone banking and ATM.

No. 3, the opening of the financial market and growing competition have driven the change of Chinese banks from product-oriented to customer oriented, from providing unified products and services despite difference in customer demands to offering tailor-made solutions to and creating value for the costumers, rather than merely realizing the banks own interest. With this change of concept, Chinese banks are quickly undergoing transformation in service model and reorganizing business units previously dedicated to different products into a customer-oriented structure. To create value for the customers is the most important principal for the banks to follow in designing product and participating in competition.

No. 4, with the economic opening-up, Chinese retail banks are going international. While serving customers in the domestic market, they also provide global financial services to customers outside China, processing their overseas spending transactions, remittance, offshore investments and global RMB wealth management. Because of this ever-increasing participation in the global market, the banks are becoming an important force driving China’s economic globalization.

Third, ICBC’s Initiative to Build the “No 1 retail Bank in China”

As the largest commercial bank in china with dominant market share, ICBC closely follows the trend of world savings banking industry. Aiming at growing through reform and creation, we are seeking constant innovation so as to maintain competitiveness and create value. As of end June 2005, ICBC’s core capital reached 310.5 billion RMB and total assets reached 7055.4 billion RMB. Our market shares in personal deposits, personal loans, bank card, e-banking all ranked No. 1 in China. We are also the largest distributor of Treasury bond, mutual funds, and other personal banking products. Starting from a higher level, ICBC will accelerate innovation, transform us from a traditional savings bank into a diversified modern retail bank, which provides all-round, comprehensive, high-tech financial services to customers and thus make ourselves the “No 1 retail bank in China”. To achieves this goal, we will,

First of all, focus on product innovation in order to provide one-stop, comprehensive retail services to our customers. As of end 2005, TCBS had 150 million personal customers and 430 million personal accounts. The outstanding savings deposits reached 3116.6 billion RMB taking up 21 percent of the domestic market share. Relying on our stung customer base and the most powerful distribution network, ICBC will consistently make product innovation and actively seek interaction between savings business, wealth management and financing activities. We will design tailor-made wealth management solutions and investment packages to customer with different needs, providing them a fully array of products including deposits, consumer financing, credit and risk assessment, wealth management, transaction and settlement services, electronic banking, etc. We will combine our strength in capital, technology, network and expertise into comprehensive financial services solutions and spare no effort to build a retail bank with diversified businesses.

Secondly, ICBC will focus on technology innovation and improve customer relation management in order to build a high-tech retail bank. ICBC is the most advanced bank in IT in China, and we also have the best payment network in China. Relying on our technology strength, ICBC will make full effort to build a first-class high-tech financial services company. Based on a clearly-defined customer strategy, ICBC will established a comprehensive CRM system and a unified personal client interface, which will helps us to adjust and optimize customer composition and conduct customer segmentation. With an accurate profile of the customers, we will be able to properly determine their preference for financial services regarding brand, product type, service channel, etc. Then through a unified sales platform we can carry out cross selling and provide differentiated services. From the above we can see high-tech driven financial services will constantly change ICBC’s service model and enhance our service level.

Thirdly, ICBC will focus on creating new financial service model and setting up a tiered multi-channel service system in order to increase our competitiveness. Today, our Internet banking has nearly 20 million users and takes up 60 percent of China’s Internet banking transactions. We want to establish a multi-channel service system. Under this goal, we will enrich the wealth management functions of our Internet banking and make ICBC the largest Internet financial service company in China. Meantime, we are also reorganizing our branch resources to set up a tiered physical service network consisting of, from top to end, “Wealth management Centers”, “FinancialPlanningCenters”, “Personal Banking Offices” and “Financial Convenient Stores”. Our specialized customers with different financial needs and concerns, offering our top-brand products like Wealth Management For Elite Club, Sweet Loan, Peony Card, and Banking @ Home.

Lastly, ICBC will be always thinking innovatively to realize the bank’s concerted and sustainable development. Under the guidance of scientific view of development, ICBC will proactively promote concerted growth of retail business denominated in RMN and foreign exchange, trying to ensure the main business activities, such as savings and lending, wealth management and other new products, service techniques and brand building are going forward side by side. We will also take measures to achieve balance between scale and structure, expensive and risk. At the same time, we attach great importance to our social responsibility and keep contributing to the government’s initiative to build an innovative country and a harmonized society.

Ladies and Gentlemen:

Retail banking in China is facing substantial development opportunities and showing huge potential and bright prospect. ICBC as transforming toward a first-class financial services company in the world, would be very willing to carry out a broad range of cooperation with you. We would like to exchange views and thoughts with you on retail banking reform and innovation, and work together to deliver comprehensive quality service and create value for customers.

Thank you.