Editor’s note: 10 years ago, an internal report of the China Merchants Bank Co.Ltd(600036) Strategy Department “competitors who are struggling to catch up with us” came out of the banking circle. At that time, these competitors made China Merchants Bank, which had just started the “secondary transformation”, feel anxious. Three years after the report was issued, China Merchants Bank not only did not let the pursuers get closer and closer, but became the pursuers, but the goal of catching up was state-owned banks; Seven years after the report was issued, China Merchants Bank comprehensively surpassed the state-owned banks in revenue and net profit Bank Of Communications Co.Ltd(601328) ; Ten years after the report was issued, where are these competitors?
here, we compiled and distributed the latest observations of vice president and senior financial personage of a well-known financial technology company, and borrowed the author’s thoughts at the end of the article for readers and bank operators: in the final analysis, banks still need bankers to manage. Running a bank is like running a life. It’s a long-distance race. Only by enduring loneliness and prosperity can we finally stand out and become the real “King”.
Twelve joint-stock banks, born in the 1980s and 1990s, have cut through difficulties and thorns in the wave of China’s financial reform and become an indispensable force in the development history of Bank Of China Limited(601988) industry.
Twelve joint-stock banks have their own characteristics because of their different resource endowments. Among them, CMB, the “king of retail”, Xingye, the “king of peers”, Shanghai Pudong development, the “king of corporate”, CITIC, the “king of international business” and Minsheng, the “king of small and micro enterprises”, were once known as the “five heavenly kings” of the joint-stock bank and typical representatives of the joint-stock bank.
However, the world is unpredictable. After nearly two decades of development, the five heavenly kings have great differences in operation. CMB has achieved great success, and Xingye has basically successfully transformed. Shanghai Pudong Development Bank has made great efforts to catch up, while CITIC and Minsheng look forward to nirvana in their respective difficulties.
——1——
let’s look at a more intuitive indicator – market value
In 2007, Societe Generale and CITIC were listed successively, which is the latest batch of banks listed among the five joint-stock banks. In 2007, the market values of the five banks were RMB 556.6 billion of China Merchants Bank, RMB 327.1 billion of CITIC, RMB 259.3 billion of Societe Generale, RMB 229.9 billion of Shanghai Pudong Development Bank and RMB 214.6 billion of Minsheng. The market value of China Merchants Bank is the highest, and the market values of the other four are basically the same.
Compared with the latest market value data, as of December 24, 2021, the market value of China Merchants Bank was 1.26 trillion yuan, industrial development 396.2 billion yuan, Shanghai Pudong Development 250.7 billion yuan, CITIC 19.2 billion yuan and Minsheng 158.4 billion yuan. The market value of China Merchants Bank was about three times that of industrial development, five times that of Shanghai Pudong development, six times that of CITIC and eight times that of Minsheng. It can be said that it rode the dust and left far behind the other four joint-stock banks.
The market value jump of China Merchants Bank is divided into two stages. The first stage is from 2005 to 2007, exceeding 200 billion. This jump is mainly due to the retail strategy started in 2004. Later, this was called “a transformation” of China Merchants Bank, which was one of the most important strategic transformations in its history. It was also the first time that a bank in China took retail finance as its main strategy. The second stage is from 2016 to 2020, exceeding trillion. This is due to CMB’s focus on retail business, vigorously developed corporate and interbank business, strengthened financial technology, created a circular value chain of “wealth management asset management investment banking”, and created a new business model of big wealth management.
The reason why there is such a big gap between the market value of Societe Generale and China Merchants Bank is that first, the regulatory policy on interbank business has been tightened, and its core business has been hit hard; Second, when Chairman Gao Jianping and President Li Renjie retired, they were hesitant about the choice of successors, and there was no final conclusion. There was internal disunity, which had a negative impact on performance. Fortunately, however, after adjustment in recent years, the financial indicators have improved. At present, the market value has gradually distanced itself from Shanghai Pudong Development Bank and people’s livelihood, ranking second among the five joint-stock banks with a market value of 396.2 billion.
Shanghai Pudong development was listed in 1999, with a total value of 59.6 billion yuan in the first year of listing, becoming the highest market value of A-Shares at that time. Twenty years later, the operation of Shanghai Pudong development has been wandering for several years, and the market value is depressed. At present, the market value is 250.7 billion, ranking third among the five joint-stock banks.
China Citic Bank Corporation Limited(601998) , Mr. Rong Yiren, the former chairman of CITIC Group, sent a special letter to the central government requesting that it be established under the system of CITIC Corporation, with the intention of fully operating the foreign exchange banking business. Therefore, China Citic Bank Corporation Limited(601998) was clearly positioned at the beginning of its establishment. Relying on the resources of CITIC Group, the foreign exchange business soon became popular. In the first year of listing in 2007, China Citic Bank Corporation Limited(601998) ranked second in market value, which was a bit higher than the other three banks, and this advantage was maintained until 2011. Since then, China Citic Bank Corporation Limited(601998) management has changed frequently, the strategic positioning is not clear, and the market value has been shrinking. At present, the ranking has fallen to the fourth place, only higher than the people’s livelihood.
As the first private joint-stock bank, Minsheng focuses on the financing of small, medium-sized and micro enterprises. No matter at what stage of the economic cycle, we always adhere to the high-risk preference strategy. During the economic downturn, the risk exposure fell all the way after the market value reached 350 billion in 2014. Today, the market value is only 158.4 billion, ranking the bottom among the five joint-stock banks.
(data source: wind, date: December 24, 2021)
core indicator to measure asset quality – non performing loan provision coverage
As an indicator for banks to deal with loan loss reserves, the higher the coverage of non-performing loan provisions, the stronger the ability of banks to resist risks. Before 2016, except CITIC, the asset quality of each joint-stock bank performed well. At the end of 2016, the provision coverage rates of the five banks were respectively 180.02% of China Merchants Bank, 210.08% of Societe Generale, 169.13% of Shanghai Pudong Development Bank, 155.50% of CITIC and 155.41% of Minsheng.
After 2016, China Merchants Bank made a clean break with a provision coverage rate of more than 400%. The provision coverage of CITIC is still relatively stable, with the latest data of 184.60%. Due to the outbreak of the Chengdu Branch incident, the provision coverage fell sharply. Minsheng’s provision coverage has declined all the way due to the economic downturn, the risk exposure of heavy positions of small and micro loans. As of September 30, 2021, the provision coverage of Shanghai Pudong development is only 148.62%, while that of Minsheng is 146.43%.
If the regulatory indicators had not been lowered once in 2018 (from 150% to no less than 120%), Shanghai Pudong Development and people’s livelihood would be outside the qualified threshold.
(data source: wind, date: quarterly / annual report)
another indicator worth observing – defect rate
Banks earn income through operating risks, and the non-performing loan ratio directly reflects the asset quality and risk management ability of banks. On the whole, the non-performing level of several banks has been relatively close. By the end of 2007, the non-performing rate of China Merchants Bank was 1.54%, that of Shanghai Pudong Development Bank was 1.46%, that of Societe Generale was 1.15%, that of CITIC was 1.48% and that of Minsheng was 1.22%.
In 2016, there was a watershed. The NPL rates of China Merchants Bank and Societe Generale continued to decline, while the NPL rates of Minsheng, Shanghai Pudong Development and CITIC continued to rise. For Shanghai Pudong development, there are both the impact of the Chengdu Branch incident and some factors of excessive business development. For people’s livelihood, the long-standing high-risk preference erupts in the economic downturn cycle. For CITIC, risk events occur frequently, such as “CITIC is Jia Yueting’s third largest creditor” and other thunder stepping news, which are often seen in the newspapers. As of September 30, 2021, Shanghai Pudong Development Bank Co.Ltd(600000) NPL ratio was 1.62% and Minsheng was 1.79%. The non-performing rate of China Merchants Bank was only 0.93%, Societe Generale was 1.12% and CITIC was 1.48%.
(data source: wind, date: quarterly / annual report)
debt cost is also a noteworthy indicator, which is related to the long-term competitiveness of a bank
Banks earn interest margin by absorbing deposits and issuing loans. The cost of liabilities not only affects a bank’s profitability, but also determines the bank’s asset quality to a great extent. Because the cost of deposits is low, assets with low risk can be allocated, and there is more space at the asset end.
In recent five years, it has become a common phenomenon that the debt cost of banks has increased. However, due to the continuous retail financial strategy, China Merchants Bank has made its debt cost advantage far ahead, about 0.6 percentage points lower than the other four joint-stock banks. By the end of 2020, the debt cost of China Merchants Bank was 1.73%, and the debt costs of Shanghai Pudong Development Bank, Societe Generale, Minsheng and CITIC were 2.33%, 2.36%, 2.41% and 2.29% respectively.
Don’t underestimate this 0.6 percentage point gap. Corresponding to the interest bearing liabilities of CMB of about 7 trillion, the cost can be reduced by nearly 40 billion yuan.
(data source: wind, date: Annual Report)
let’s take a look at the core indicator of bank profitability – roe
Relying on its deep foundation in corporate business, at the beginning of listing, its roe was superior to its peers and was once higher than that of China Merchants Bank. In 2008, the roe of Shanghai Pudong development reached a historical high of 35.77%, that of China Merchants Bank was only 28.58%, that of Societe Generale was 25.90%, and that of Minsheng and CITIC was lower, 15.15% and 14.84% respectively.
This achievement of Shanghai Pudong development had something to do with the “four trillion plan” at that time. The investment in infrastructure and central enterprises increased, which was more conducive to the public and strong Shanghai Pudong development.
In the next decade, personal financial demand began to explode, and the king of retail also ushered in its best era. By the end of 2020, the roe of China Merchants Bank was 14.58%, and that of Shanghai Pudong Development Bank was only 9.79%.
Societe Generale’s roe has continued to decline from 20.60% in 2014 due to strong supervision of interbank business. After nearly five years of transformation, roe has the potential to bottom out and rise to 11.52%.
People’s livelihood is deeply rooted in small and micro enterprises. The then president once said that “I’m sorry to make money”. In 2012, roe reached a maximum of 25.67%. Finally, he had to pay for high-risk preference. By the end of 2020, roe was only 6.55%.
CITIC’s roe has been at the bottom of the five banks until Minsheng’s roe “surpassed” after a sharp decline, ranking fourth at 9.23%.
(data source: wind, date: Annual Report)
——2——
A simple comparison of some core data of the five joint-stock banks shows that the five banks are in the same era and environment, but in less than 20 years, they have moved towards a different middle game. Financial data is the result. What really determines their different situations?
CMB chapter
Adhere to the strategy of retail banking.
As the Lighthouse of enterprise development, strategy determines the development direction of the enterprise. If an enterprise’s strategic positioning drifts, it is like a ship losing its direction at sea. No matter how hard it tries, it can only sail to the wrong destination.
When the banks were still generally engaged in corporate business and the homogenization competition was serious, China Merchants Bank Co.Ltd(600036) made a forward-looking prediction, made a self revolution, and transformed into a retail bank that was generally believed to be “large investment and slow to achieve results”. It has established the strategic positioning of retail banks and has never wavered. It has focused on doing one thing for decades and finally won the king of retail. Moreover, after accelerating the secondary transformation, CMB ranked the second in corporate business and interbank business, and its performance is also very outstanding. Based on the big wealth management model, the investment banking business and asset management business vigorously developed are also among the best in the industry.
Stable management.
Whether the management is stable directly affects the implementation of strategic objectives and business strategies. Especially for banks with trillions of assets, “it is difficult to turn around”. Moreover, the investment of bank assets is closely related to the macro-economy, and various business indicators need to be tested in a long cycle.
CMB has been established for 34 years and has only three successive presidents (Wang Shizhen, Ma Weihua and current Tian Huiyu).
In contrast, the successive presidents of CMB have more time to implement their own business philosophy, and the excellent performance of CMB has fully benefited from this. It is worth mentioning that the major shareholder of China Merchants Bank has always been China Merchants Group. Not only the shareholders are stable, but also the management is fully authorized by the shareholders.
Strong market acumen and execution.
The success of China Merchants Bank is inseparable from two business transformations. In 2004, China Merchants Bank defined its retail financial strategy, which was later called “a transformation”, which established the market position of China Merchants Bank’s retail business. In 2009, China Merchants Bank proposed to implement the “secondary transformation”, established the light banking strategy, accelerated the secondary transformation in 2014, and established the strategic goal of one body and two wings (retail business as the main body and public and interbank business as the two wings). Through the secondary transformation, CMB not only expanded and strengthened its corporate business, but also seized the opportunity of Internet financial development. Both transformations are keen perception and judgment of the market, and both reflect its strong innovation ability and execution.
CMB seems to be the most dazzling star in the joint-stock bank, and recently “flying man” Su Bingtian joined in as its spokesman, which is more shining. When the water is full, it overflows, and when the moon is full, it loses. Faced with so many praise words and higher and higher market expectations, the pressure of sustained performance growth is increasing. Can we keep calm and guard against arrogance and impatience? There are also undercurrent surging inside CMB, and there are some uncertain factors. For example, there are signs of decline in employee satisfaction of CMB, and more and more old CMB leave. Not only executives leave frequently, but the flow of middle-level and business backbone also increases significantly. There are more resumes of CMB employees in the market, unlike those who couldn’t dig CMB employees before. It remains to be seen whether these phenomena indicate changes in the culture and internal management of CMB and whether they will become hidden dangers for future development.
Xingye chapter
Adhere to the strategy of interbank business.
In 2002, the newly appointed president Li Renjie fully studied and judged the current situation of Industrial Bank Co.Ltd(601166) . Due to the lack of capital and located in Fuzhou, the regional environment is the worst among the joint-stock banks, which can not be compared with the large state-owned banks. After in-depth analysis of the Chinese market and investigation of excellent international peers, Societe Generale found that the financial market business not only occupied less capital, but also was still a blank in the Chinese market at that time, which was an excellent breakthrough in seeking differentiated development strategy. Finally, it established the strategy of establishing peers and carried out a series of drastic reforms in the organizational structure. The use of interbank business has led to the multiplication of volume and benefits in scale. After more than ten years of persistence, it finally achieved the title of “king of peers”.
Stable management.
From a local bank in the southeast corner, Societe Generale has rapidly grown into a large bank with interbank business as its leader and ranking among the top joint-stock banks in various business indicators. It is also related to its long-term stable management. There are four presidents in Societe Generale’s history, Chen Yun, Gao Jianping, Li Renjie and Tao Yiping. As the founding president, Chen Yun has been in office for 12 years, Gao Jianping, the second president, has been in office for 2 years, Li Renjie has been in office for 14 years, and led Industrial Bank Co.Ltd(601166) to become the “king of the industry”. President Tao Yiping has been in office for 5 years.
Forced to transform and face a test.
In 2014, Industrial Bank Co.Ltd(601166) affected by Document No. 127, the “king of the industry” put on a tight hoop curse, and the pressure drop scale and non-standard conversion are imminent. However, Industrial Bank Co.Ltd(601166) completed the rectification in just two years, the scale of resale decreased from 71.3 billion to 2.8 billion, and the bill assets and trust beneficiary assets almost returned to zero.
In 2016, Industrial Bank Co.Ltd(601166) redefined new development ideas after completing the rectification of peers. With the help of his accumulation in financial market business and his long-term experience as a financial platform, he has established the “three types of banks” strategy of investment, settlement and transaction, which is similar to the idea of light banks of China Merchants Bank, that is, expand off balance sheet, get rid of the constraints of capital and leave the old road of scale growth.
Five years later, in 2020, when the epidemic hit, Industrial Bank Co.Ltd(601166) realized a net profit of 66.6 billion yuan, the scale of revenue exceeded 200 billion yuan for the first time, and the balance of non-performing loans and non-performing loan ratio “decreased” for the first time in five years.
From the financial data, the transformation of Industrial Bank Co.Ltd(601166) has achieved results, but as a special institution with operational risk, whether the bank’s strategy and business are correct needs to be tested for at least one economic cycle. It may be too early to say that the transformation is successful.
Shanghai Pudong Development
Strategic positioning drift.
Shanghai Pudong development has been listed for more than 20 years. From the disclosed annual report, its strategic positioning has been changed frequently, which seems to lack concentration.
First, from 2000 to 2005, Citibank introduced strategic investment to develop retail business and adjust business structure.
Then from 2006 to 2012, after breaking away from Citibank, he turned to capital market business and investment banking business, and failed to follow Industrial Bank Co.Ltd(601166) .
From 2013 to 2015, with the rise of the wave of mobile Internet, Shanghai Pudong Development Bank put forward the strategic goal of large retail integration.
From 2016 to 2020, Shanghai Pudong development will launch three strategic objectives in five years:
In 2016, “comprehensively improve the ability of comprehensive financial services and build a high-performance all-round banking group”
From 2017 to 2018, “take customers as the center, lead by science and technology, and build a first-class digital ecological bank”
From 2019 to 2020, “build a first-class joint-stock commercial bank with international competitiveness and promote the whole bank to become a leader and pioneer in the high-quality development of the financial industry in the new era”.
These constantly changing words are obviously not focused enough, and it is difficult to settle down and implement them.
Behind the strategic change usually comes from the change of management.
Shanghai Pudong Development Bank Co.Ltd(600000) has been established for 29 years, and there are six successive presidents (PEI Jingzhi, Jin Yun, Fu Jianhua, Zhu Yuchen, Liu Xinyi and pan Weidong). The term of office of each president is not long, and many good business ideas are difficult to fully promote.
Risk events occur frequently.
In 2018, the Shanghai Pudong Development Bank Chengdu Branch was fined 462 million yuan for a major case of 77.5 billion yuan of false credit, setting a record of the bank’s most expensive fine, eclipsing the former “king of the public”. This is also the result of the radical expansion of Shanghai Pudong Development Bank and the implementation of the “franchise system” by the branch, resulting in the loss of the head office’s control over the branch. When Expressway opened branches all over the country, it relied too much on local management and employees, resulting in lax control of branches by the head office.
Recently, the 40 million deposits of listed companies Nanjing Sciyon Wisdom Technology Group Co.Ltd(002380) in Shanghai Pudong Development Bank can not be withdrawn when they are due, and whether the deposits of a total of 295 million yuan are “pledged”, Nanjing Sciyon Wisdom Technology Group Co.Ltd(002380) and Shanghai Pudong Development Bank hold their own opinions. These events make the market and regulators worried about the internal control system of Shanghai Pudong Development Bank Co.Ltd(600000) .
Although the performance of Shanghai Pudong development fails to meet everyone’s expectations of the “king of corporate business”, the corporate business foundation of Shanghai Pudong Development Bank Co.Ltd(600000) located in Shanghai, China’s financial center, is still very solid. In 2020, the balance of corporate deposits and the total amount of loans are still among the best in the stock bank. If Shanghai Pudong Development Bank makes timely adjustments in strategy and management, it can still be expected in the future.
letter
Strategic positioning is extensive but not precise.
China Citic Bank Corporation Limited(601998) was established to solve the problem of foreign exchange settlement in CITIC Group and China’s financial market at that time, so China Citic Bank Corporation Limited(601998) does not need to “look for” strategic positioning compared with several other banks. Unfortunately, after nearly two decades of development, the “king of international business” has already slipped quietly and has not been heard from. When it was listed in 2007, the market gave an evaluation of China Citic Bank Corporation Limited(601998) “lack of characteristics”. There may be two reasons for CITIC’s decline. One is that it fails to make full use of the resources of CITIC Group to better coordinate with other brother units in the group. Second, most of the management comes from state-owned banks, which is inevitably branded with big banks. The thinking inertia of big banks fails to integrate better with the characteristics of CITIC, resulting in the lack of flexibility and innovative spirit of joint-stock banks in CITIC’s management culture.
Management changes frequently.
China Citic Bank Corporation Limited(601998) the management has changed frequently. It has been established for 34 years and has served as president for six times. Although the previous two presidents have served for a long time, Dou Jianzhong has served for 10 years and Chen Xiaoxian has served for 8 years. However, since the resignation of the two old presidents, each president has not served for more than three years: Zhu Xiaohuang for two years, Li Qingping for two years and sun Deshun for two years. The current Xinglong harmony has not served for three years since he took office in 2019.
As the earliest established joint-stock bank, China Citic Bank Corporation Limited(601998) fell behind earlier than several other banks. But in fact, China Citic Bank Corporation Limited(601998) relying on CITIC Group, the resource endowment is actually slightly better. In addition, CITIC Group has become more and more prominent among central enterprises in recent years. If China Citic Bank Corporation Limited(601998) can seize the group’s resources in the future, it may be the old wood.
people’s livelihood chapter
Consistent high-risk preference strategy.
China Minsheng Banking Corp.Ltd(600016) is the first private bank in China, focusing on loans to small, medium and micro enterprises. Relying on its huge network of relationships, it adopts the relationship type and high incentive playing method, and can fight and grab. It is worth noting that the asset risk of small, medium-sized and micro enterprises fluctuates greatly. When the year is good, the economy is upward, the loan interest rate is high and the interest margin is rich. However, during the economic downturn, coupled with the previous relatively short-term and excessive incentive policies, the risk of loan assets was intensively exposed, and the non-performing rate soared.
Since the release of $4 trillion in 2009, China Minsheng Banking Corp.Ltd(600016) has made rapid progress, with high net interest margin and net profit, and declining non-performing rate and overdue rate. At the end of 2011, China Minsheng Banking Corp.Ltd(600016) president Hong Qi’s speech of “I’m sorry to make money” pushed China Minsheng Banking Corp.Ltd(600016) to the forefront of the storm for a time, triggering the whole society’s condemnation of banks’ making money too easily.
However, after 2011, the economy went down, China Minsheng Banking Corp.Ltd(600016) risks were gradually exposed, the asset quality decreased, the non-performing rate increased year by year, and the profit fell sharply. In 2020, China Minsheng Banking Corp.Ltd(600016) main financial indicators ranked the bottom among listed joint-stock banks, and it was the only listed bank with negative net profit growth. Its performance was so poor that it attracted regulatory attention, and received the regulatory inquiry letter from Shanghai Stock Exchange.
Equity disputes continue.
China Minsheng Banking Corp.Ltd(600016) was founded by 59 shareholders, of which 48 are private background, including many big shareholders. At the end of 2000, China Minsheng Banking Corp.Ltd(600016) the board of directors basically formed a tripartite situation of hope system, oceanwide system and Oriental system. In the following years, giant system, tomorrow system, Fosun system and Anbang system entered the game and participated in the game of wrestling China Minsheng Banking Corp.Ltd(600016) . Famous actors gather, palaces fight constantly and factions stand everywhere. It is jokingly called “the Bank of people’s livelihood” by the industry.
Equity dispersion does not allow shareholders to check and balance each other, but increases agency costs and forms insider control under the undercurrent, resulting in different shareholders falling into corporate governance deadlock due to different ideas and interest demands. This is particularly prominent after Dong Wenbiao’s withdrawal. The managers from large state-owned banks have a great cultural conflict with the radical people’s livelihood. They can’t share the same desire, and the operation naturally has problems.
This also led to China Minsheng Banking Corp.Ltd(600016) being abandoned by the capital market and the valuation falling again and again. In April this year, it was also rumored to be taken over. Although the rumor has been refuted, it can also be seen that the market has poor expectations for people’s livelihood. However, after the new management took office, China Minsheng Banking Corp.Ltd(600016) retail business and wealth management business improved slightly, which may be an opportunity for China Minsheng Banking Corp.Ltd(600016) nirvana.
——3——
write at the end
After 20 years of development, the five joint-stock banks have gone through ups and downs and walked out of a completely different middle situation.
In the final analysis, banks are still managed by bankers. A successful bank is inseparable from excellent and stable management, and can grasp the trend of the times, keep up with the macro situation, and have a clear judgment on its own advantages and disadvantages according to its environment. We are farsighted in strategic choice and unswerving in tactical implementation.
In fact, running a bank is like running a life. It’s a long-distance race. Only by enduring loneliness and prosperity can we finally stand out and become the real “King”.
(Xinhua Finance)
