On August 27, Postal Savings Bank of China (hereinafter referred to as “PSBC”, Stock Code: 601658.SH, 1658.HK) released its 2021 Interim Report. In the first half of 2021, under the background of China’s sustained and stable economic recovery, PSBC grounded its efforts in the new development stage, applied the new development philosophy, and devoted itself to the new pattern of development. Focusing on serving the real economy, the Bank actively and steadily carried out various businesses, and thereby registered steady improvement in scale, quality and efficiency, as well as a sound growth momentum for its operating performance.

The net profit of the Bank recorded a year-on-year increase of 22.48% (IFRSs, same below), showing a continuous improvement of profitability. Both the total assets and assets under management (AUM) exceeded RMB12 trillion, hitting a record high in terms of business scale and consolidating the Bank’s market status as a major retail bank. Four “New Generation” systems were established and the application scenarios of e-CNY were enriched, in an effort to continuously develop the “finance plus service” ecosystem and accelerate the digital transformation of the Bank. The NPL ratio dropped 0.05 percentage point to 0.83% and the ratio of allowance for loan impairment losses to NPLs increased 13.27 percentage points to 421.33% compared with the prior year-end, indicating an industry-leading position in terms of assets quality. As a major retail bank with unique resources endowment, PSBC kept pace with the time and seized the momentum to make breakthroughs, delivering great achievements in its business performance while striding forward on the road of high-quality development.

Highlight One: Profitability continued to improve with net profit increasing by 22.48% year on year

As was shown in the 2021 Interim Report, in the first half of 2021, PSBC recorded an operating income of RMB157,778 million, up by 7.71% year on year; the net profit reached RMB41,244 million, up by 22.48% year on year, representing continuously improved profitability; the annualized return on average total assets(ROA) and annualized return on weighted average equity(ROE) were 0.71% and 13.30% respectively, up by 0.07 percentage point and 0.65 percentage point year on year, maintaining a sound momentum; the cost to income ratio was 51.53%, representing a decrease of 0.04 percentage point year on year; and the net interest margin was 2.37%, continuing to take the lead in the banking industry.

Professionals see that the growth momentum of PSBC is determined by its own resource endowment, development stage and strategic positioning. With nearly 40,000 outlets and over 600 million individual customers, PSBC is resilient in responding to market changes. As a young major state-owned bank, PSBC is still at the growing stage, with great potential to be tapped. It has differentiated itself from other banks with its distinctive strategic positioning. The Bank is also making sustained efforts to prioritize the development of technology and accelerate the transformation, recording a sound growth momentum.

As intermediary business boasts low capital consumption, low risk, high customer stickiness and strong income stability, it is considered an effective way for banks to optimize income structure and enhance operating capacity. What is noteworthy is that although the intermediary business of PSBC starts late, it enjoys fast development and huge potential, and the market is looking forward to its future performance. According to the 2021 Interim Report, the intermediary business income of PSBC reached RMB11,429 million, representing a significant increase of 37.86% year on year. It can be seen that PSBC has achieved remarkable results in promoting its intermediary business, which will become an important growth point for the Bank.

Highlight Two: The total assets surpassed RMB12 trillion and the development quality and efficiency continued to improve

Effective asset and liability management is the cornerstone for commercial banks to enhance their value creation capability and maintain sustainable development. The 2021 Interim Report showed that as of the end of June 2021, the total assets of PSBC exceeded RMB12 trillion to RMB12.22 trillion, representing an increase of 7.61% compared with the prior year-end; total liabilities reached RMB11.47 trillion, representing an increase of 7.36% compared with the prior year-end; total customer deposits amounted to RMB10.91 trillion, representing an increase of 5.36% compared with the prior year-end; and total loans to customers exceeded RMB6 trillion to RMB6.19 trillion, representing an increase of 8.33% compared with the prior year-end.

While maintaining the stable growth of assets and liabilities scale, PSBC continued to optimize the asset and liability structure, achieving sustained enhancement in its development quality and efficiency. Statistics showed that as of the end of June 2021, the Bank’s loan-to-deposit ratio, the percentage of credit assets, the percentage of personal loans, and the percentage of medium and long-term loans continued to increase, up by 1.55 percentage points, 0.34 percentage point, 0.54 percentage point and 0.33 percentage point respectively over the prior year-end. The Bank endeavored to improve its liability structure by actively controlling long-term and high-cost deposits, with the majority of new time deposits lasting for one year or below.

Highlight Three: AUM surpassed RMB12 trillion and the proportion of operating income of personal banking business reached 70%

Now, the significance of retail banking business has become more and more prominent. It is an important driver for commercial banks to climb the ladder of growth and achieve high-quality development under the new development situation. PSBC boasts a natural retail gene and resource endowment in retail banking. Its nearly 40,000 business outlets, which are deep in penetration, extensive in coverage and balanced in layout, cover 99% of China’s counties (cities) and currently serve 630 million individual customers, providing constant impetus for the development of the Bank’s retail banking business and serving as its future growth potential.

The Bank remained committed to a business strategy with retail banking as the mainstay and synergy between ratail and wholesale banking, and firmly pushed forward the transformation and development of “new retail”. The Interim Report also revealed the Bank’s remarkable achievements in building a retail bank: The AUM surpassed RMB12 trillion to RMB12.03 trillion, representing an increase of RMB800 billion compared with the prior year-end; the operating income of personal banking business stood at RMB110,199 million, representing a year-on-year increase of 14.11%, and accounted for 69.84% of the Bank’s operating income, a year-on-year increase of 3.91 percentage points; the personal deposits amounted to RMB9.56 trillion, representing an increase of RMB460,023 million compared with the prior year-end; and the personal loans reached RMB3.56 trillion, representing an increase of RMB304,053 million compared with the prior year-end.

At the same time, PSBC deepened its efforts in delivering financial services to personal customers, seized the strategic opportunities arising from residents’ wealth growth and consumption upgrading, and continuously promoted the upgrading of its wealth management business, with an aim to meet the wealth management needs of a wider range of customers. Statistics showed that as of the end of June 2021, the number of VIP customers exceeded the 40 million mark to around 41,828,400, representing an increase of 14.87% compared with the prior year-end; the balance of wealth management products for personal customers was RMB894,770 million, representing an increase of 7.51% from the prior year-end.

Highlight Four: PSBC actively implemented inclusive finance and the percentage of the balance of agro-related loans reached 25%

The comprehensive implementation of the rural revitalization strategy and the promotion of common prosperity for all have brought new development opportunities to the banking industry. By adhering to its positioning of serving Sannong, urban and rural residents and SMEs and upholding the philosophy of “delivering accessible financial services in both urban and rural areas”, the Bank was able to identify the sustainable development path for the inclusive financial business of commercial banks, and emerged as a leader and active practitioner of inclusive finance, with broad development space in the future.

For PSBC, its positioning of serving Sannong, urban and rural residents and SMEs is highly aligned with the coutry’s goal of comprehensively promoting the rural revitalization strategy and realizing common prosperity for all. The Bank seized relevant opportunities, leveraged its resource endowments and formulated the strategic plan for serving rural revitalization in 2021 and during the 14th Five-Year Plan period. Taking the digital transformation of Sannong finance as the main task, the Bank kept optimizing the professional agro-related service system and the integrated online-offline service model, built digital financial bank which served rural revitalization, and continued to transform the Sannong financial business from the one serving “small farmers” to the full-industry-chain finance which serves the “Comprehensive Sannong”. As of the end of June 2021, the balance of agro-related loans reached RMB1.52 trillion, up RMB104,984 million compared with the prior year-end, accounting for about 25% of the total loans of the Bank.

As a large and dynamic group, micro and small enterprises (MSEs) serve as the cornerstone of China’s economic development. In 2021, the number of MSEs exceeded 44 million, boasting a broad market prospect. Since the beginning of this year, by enriching the digital product system, expanding customer service channels, promoting the standardization and intensification of the operation systems, upgrading the intelligent risk control system and other measures, the Bank was able to solve the financing problems of MSEs and facilitate the mutual promotion of the high-quality development of both the microfinance business and the Bank itself. Statistics showed that as of the end of June 2021, the Bank’s balance of inclusive loans to MSEs amounted to RMB890,503 million, and the proportion of which to total loans was more than 14%, which was one of the highest among major state-owned banks in China.

At the same time, focusing on the corporate banking business, the Bank intensified its efforts to support key areas such as manufacturing, new infrastructure and new urbanization initiatives, major projects, green credit, and private enterprises to fully serve the national strategies. Statistics showed that as of the end of June 2021, corporate loans amounted to RMB2.16 trillion, representing an increase of RMB181,811 million, or 9.19% compared with the prior year-end.

Highlight Five: PSBC strived to build a green, inclusive bank and climate-friendly bank and the balance of green loans increased by nearly 13%

Achieving peak carbon dioxide emissions and carbon neutrality are major strategic decisions made by the CPC Central Committee with Comrade Xi Jinping as the core, which is closely related to the sustainable development of the Chinese nation and the building of a community with a shared future for mankind. It is the only way for China to promote high-quality development in the new development stage and is also the beacon for the future development of the banking industry.

As a green bank, PSBC clearly stated in its 2021 Interim Report that it “strived to build itself into a world-class green inclusive bank and climate-friendly bank”. Since this year, the Bank has initiated a lot of “big moves” in the green sector: It announced the adoption of the Principles for Responsible Banking (PRB), and was approved as a supporting institution of the Task Force on Climate-related Financial Disclosures (TCFD), in a bid to continuously improving the quality of environmental and climate-related information disclosure in accordance with international standards; it issued a comprehensive financial services program to foster the achievement of peak carbon dioxide emissions and carbon neutrality, as part of its efforts to comprehensively promote the construction of green bank; the Bank innovated climate-friendly green finance products, underwrote the first debt financing plan linked to sustainable development and the first ultra-short-term carbon neutrality bond, issued the country’s first loan pledged by the right over incomes from carbon sink, and invested in the country’s first green mortgage-backed securities based on personal auto loans.

According to the Interim Report, as of the end of June 2021, the balance of green loans of PSBC amounted to RMB317,104 million, representing an increase of 12.87% over the prior year-end. The balance of green financing amounted to RMB364,137 million, representing an increase of 13.88% over the prior year-end, among which the balance of climate financing amounted to RMB348,908 million, up by 13.67% over the prior year-end. The balance of green bonds investments amounted to RMB29,121 million.

Highlight Six: The Bank took the lead in the banking industry in terms of asset quality and the NPL ratio dropped to 0.83%

The banking industry is an industry of risk management, and the asset quality of the industry is of great concern in the face of the COVID-19 pandemic. The Interim Report showed that the NPL ratio of the Bank decreased 0.05 percentage point to 0.83% compared with the prior year-end, less than half of the industry average; the ratio of NPLs to loans overdue for more than 90 days was 1.55, and all loans overdue for more than 60 days as well as 94.56% of loans overdue for more than 30 days were recognized as NPLs. The Bank was in a stronger position to withstand risks with an allowance to NPLs ratio of 421.33%, representing an increase of 13.27 percentage points compared with the prior year-end. It can be seen that PSBC continues to lead the industry in terms of asset quality by all measures, be it NPL ratio, percentage of overdue loans, or allowance to NPLs ratio.

It is learned that PSBC remained committed to a prudent risk appetite, and endeavored to prevent and mitigate financial risks while serving the real economy, with an aim to safeguard the business development of the Bank. Since the beginning of 2021, the Bank accelerated the optimization and upgrading of the comprehensive risk management system, achieving good results with high efficiency in applying the advanced approaches for capital management. Furthermore, the Bank employed financial technology to create intelligent risk control tools covering the whole business process and deepened the application of the “Jinjing” (Golden Eye) and “Jindun” (Golden Shield) systems. It built a “firewall” against risks and strengthened the strict enforcement of risk limits. The Bank enhanced internal control and compliance in an in-depth manner to embed the compliance culture into the Bank’s operation.

A clean balance sheet and superior asset quality have always been the investment value of PSBC, as well as a shining “business card” of the Bank. Professionals pointed out that the Bank’s excellent performance in each quarter since its listing has not only proved the effectiveness of the Bank’s credit strategy, but also verified the Bank’s forward-looking assessment and prudent classification in terms of asset quality, enabling the Bank to withstand the pressure posed by the pandemic.

Highlight Seven: The transformation of new retail banking was empowered by financial technology and 119 projects were launched in the first half of 2021

Information technology has changed the service model, broadened the development space, and accelerated the transformation of the banking industry, thus making digital transformation a strategic option for the banking industry to build up new momentum. As a result, all banks lifted the development of financial technology to a strategic level one after another and scaled up their investment in technology.

In recent years, the Bank has initiated a series of major reforms, including strengthening its efforts in increasing investment in financial technology and introducing more technological talents. About 3% of the Bank’s annual operating income was channeled to the field of technology. Statistics showed that in the first half of 2021, the Bank sped up IT application and increased resource input, with the total investment in R&D reaching nearly RMB5,200 million, accounting for 3.30% of its operating income.

Upholding the philosophy of invigorating the Bank through technology, the Bank continued to strengthen the use of financial technologies. The Bank developed systems and mechanisms that are commensurate with digital transformation, pursued in-depth integration of business and technology, endeavored to boost the core competitiveness of information technology, and strengthened the role of technology as an enabler for high-quality development. In terms of core business systems, PSBC simultaneously developed and built several new generation systems, which cover all kinds of products and services of the Bank. Among them, the four core new generation systems were the new generation distributed core system, the new generation credit business platform, the new generation treasury business platform, and the new generation intermediary business platform.

In the first half of 2021, the Bank took the initiative to promote institutional reform. For example, it successfully established YOU+ BANK and set up the Digital Currency Department as a tier-1 department of the Head Office. The online ecological layout of “PSBC Canteen + postal service + life scenario” became increasingly sophisticated, and steady progress was made in building an offline ecosystem of “outlets plus business circles”. The technological platform for the new generation distributed core system and the function module on AI application service management based on PSBC Brain, the machine learning platform, were successfully rolled out, and a total of 119 projects including the credit business platform (corporate) were also successfully launched, injecting new momentum into the digital transformation of the Bank.

The Bank has vigorously promoted digital transformation to provide customers with more efficient and convenient financial services, enhancing their sense of gain and happiness. With the help of the Customer Manager Cloud Studio, customers are able to obtain the contact number and WeChat of the customer manager and enjoy one-on-one consultation service. With the launch of online loan products such as Speedy Micro Loans and Easy Small and Micro Loans, eligible customers are able to obtain loans in just a few minutes. With the help of mobile business terminals, customer managers are able to handle business, sign contracts, and disburse loans on site in the farmlands, changing from “counter service” to “doorstep service”. Through mobile banking, rural customers in county areas are able to enjoy extensive financial services of PSBC within the palm of their hands.

Statistics show that as of the end of June 2021, the Bank recorded 314 million mobile banking customers and transactions through mobile banking amounted to RMB6.75 trillion, representing a year-on-year increase of 24.71%. The number of monthly active users (MAUs) on mobile banking exceeded 43 million. The percentage of micro loans disbursed online in its total micro loans in 2021 was 94.53%. The balance of online loans to MSEs exceeded RMB600 billion, representing an increase of 33.12% compared with the prior year-end.

Highlight Eight: Corporate culture creates cohesion and motivation to forge ahead with comprehensive strength further enhanced

Since its establishment 14 years ago, PSBC has always kept pace with national development and social progress and shared the same goal with the people. Starting as a traditional savings and remittance institution, the Bank has completed the joint stock reform, introduction of strategic investors, initial public offerings of A share and H share, and establishment of subsidiaries including PSBC Consumer Finance, PSBC Wealth Management, and the direct bank YOU+ BANK, accomplishing the transition from a simple savings and remittance institution to a banking group, setting up its market position as a major retail bank.

First-class companies build and lead by corporate culture. An outstanding corporate culture is key to a company’s sustainable development. As seen in the 2021 Interim Report, PSBC disclosed its corporate culture system in a prominent position, revealing the cultural root on which its sustained and steady development is based. The Bank adheres to the mission of delivering accessible financial services in both urban and rural areas and the strategic vision of building a first-tier large retail bank which is trustworthy, distinctive, prudent, safe, innovative, and with remarkable value and the corporate spirit of being responsible, resilient and caring. Keywords are highlighted such as customers, integrity, prudence, employees, professionalism and innovation in its values. Such corporate culture and values carry on the Bank’s tradition of providing inclusive financial services to serve the people and the country and its unique cultural heritage of diligence, modesty, and a pioneering spirit. They also reflect the Bank’s entrepreneurial spirit of advancing with the times and pursuing innovation and changes.

The Consensus of PSBCers are eye-catching and strike a chord among the people in the industry. For example, “release concise documents, have meaningful meetings, and make straightforward communication.” “One is respected for his capacity to create value, not for his authority to dictate.” “Dive into the market and get close to customers. It is all empty talk without field study.” “An action is better than a dozen of plans. Do it right away and get the job done well”, and “Lessen ineffective orders and streamline front-line business.” They demonstrate the Bank’s determination to encourage a working style of simplicity, efficiency, pragmatism and collaboration. They also highlight the idea of building consensus and creating sustainable business value.

Avoiding the distractions of unsubstantial ideas and superficial fame and taking one step at a time, the young state-owned Bank has continuously improved its comprehensive strength with even steadier steps moving forward. Recently, Fitch, Moody’s and S&P, the three international rating agencies, released their ratings for PSBC in 2021 as “A+”, “A1” and “A” respectively, all with a stable outlook, which kept PSBC as the bank with the highest ratings in China’s banking industry. The Bank also entered the top 20 on The Banker’s Top 1000 World Banks ranking for the first time in terms of tier-1 capital, jumping up seven places to the 15th position.

Highlight Nine: The 14th Five-year Plan Outline has been released, initiating a new journey of high-quality development

The year 2021 marks the first year of the 14th Five-Year Plan period and is also the starting year of a new journey to build a modern socialist country on all fronts. Standing at this new starting point, how does PSBC see itself in the future? The answer lies in the 14th Five-year Plan Outline (hereinafter referred to as “the Outline”) annouced in the Bank’s 2021 Interim Report.

It is clearly stated in the Outline that PSBC will remain committed to the strategic vision of building a first-tier large retail bank which is trustworthy, distinctive, prudent, safe, innovative, and with remarkable value. The Bank will ground its efforts in the new development stage, apply the new development philosophy, and serve the new development pattern. Focusing on serving the real economy and people’s wellbeing, it will take reform and innovation as the fundamental driving force, center around customers, and work toward value creation so as to embark on a new journey of high-quality development in the 14th Five-Year Plan period. The consistent strategic vision conveys the Bank’s determination and perseverance to maintain its strategic focus of retail banking.

The Outline also specifies that the strategic target of PSBC in the 14th Five-Year Plan period is to empower high-quality development with financial technologies, accelerate the transformation of its business model, build a smart risk control system, and enhance value creation to establish a leading digital bank based on ecologies and serving rural revitalization and new urbanization.

Focusing on this strategic target, PSBC will advance the strategic guidelines summarized as “one theme, two drivers, three-sphere positioning, four fields, five-pronged transformation, and six strategies”. It highlights the promotion of high-quality development as the main theme. It will work to serve rural revitalization and new urbanization and deliver services in lower-tier markets to consolidate its advantages in county areas. It will also make a breakthrough in enhancing its competitiveness in cities so as to build up a “two-wheel drive” strategic pattern with urban and rural areas as the two driving forces. It will adhere to the positioning of serving Sannong, urban and rural residents, and SMEs, strengthen its efforts in the areas of inclusive finance, wealth finance, industrial finance and green finance, promote the five-pronged transformation featuring uniqueness, comprehensiveness, lightness, digitization and intensiveness, and enhance the six strategies including technology empowerment, deepening customer relationship, boosting the leapfrog growth of fee and commission income, building a strong bank with talents, keeping risks under control, and achieving coordinated development.

It can be seen that serving the real economy and meeting customer needs  are the bedrock of PSBC’s strategic guidelines. Highlighting the government’s priority of achieving high-quality development in the 14th Five-Year Plan period, these strategies are in sync with national strategies such as advancing rural revitalization across the board, pursuing Digital China initiative and green development, which fully reflects the responsibility and the special focus of PSBC as a major state-owned bank. To plan and develop wealth finance, industrial finance, and green finance while continuing its efforts in inclusive finance are the new measures taken by the Bank to adapt to the new pattern of economic development and meet the diversified financial needs of customers while sticking to its strategic focus. It is expected that in the 14th Five-Year Plan period, by serving the country’s economic and social development, PSBC will achieve high-quality development of its own.