On March 28, Postal Savings Bank of China Co., Ltd. (stock code: 601658.SH, 1658.HK) released its 2023 Annual Report (hereinafter referred to as the Report). In 2023, the Bank took Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as its guide, resolutely implemented the decisions and plans of the CPC Central Committee, and stayed true to the fundamental purposes of serving the real economy with financial services, supporting the development of a modern industrial system, and providing its customers with reliable financial supports. It focused on the development of five differentiated growth poles, i.e., Sannong finance, microfinance, proactive credit extension, wealth management and financial market business, accelerated capacity building, innovation, and transformation, and made fruitful results in both CSR fulfilment and value creation.

As at the end of the reporting period, PSBC’s total assets reached RMB15.73 trillion, up by 11.80% over the prior year-end; its total liabilities reached RMB14.77 trillion, an increase of 11.54% from the end of the prior year; its operating income reached RMB342,912 million (under IFRS, the same below), up by 2.24% year on year; its net profit was RMB86,424 million, up by 1.25% year on year. The Board of Directors of the Bank proposed to distribute RMB2.610 (before tax) per ten ordinary shares, totaling approximately RMB25,881 million, to all ordinary shareholders. Its asset structure was further optimized, and its loan-to-deposit ratio continued to improve. Its net interest margin was 2.01%, which continuously maintained a leading position among peers. The Bank’s NPL ratio was 0.83%, the allowance to NPLs ratio was 347.57%, and all of its risk indicators were maintained at an excellent level in the industry.

Ensuring Vital Connection Between Finance and the Real Economy, with Incremental Loans to the Real Economy Exceeding the Increment of the Bank’s Total Loans to Customers

The Bank stayed true to the fundamental purpose of serving the real economy with financial services and channeled more financial resources into the real economy. As at the end of the reporting period, the Bank continuously increased credit supply to key areas and weak links, leading to a steady increase in the loan-to-deposit ratio and the percentage of credit assets in total assets. The Bank strengthened prediction of market trends, highlighted investment analysis as guidance, optimized non-credit business layout and improved the efficiency of fund use.

In 2023, the Bank actively responded to national policies, and its incremental loans to the real economy exceeded the increment of the Bank’s total loans to customers. It supported the development of a modern industrial system, and the medium and long-term loans to the manufacturing sector rose by 37.52% over the prior year-end; the Bank advanced the work related to carbon peaking and carbon neutrality, with the balance of its green loans amounting to RMB637,878 million and up by 28.46% over the prior year-end, and was awarded “A” in MSCI’s ESG ratings for three years in a row. The Bank continued to deepen its support for Sannong finance, micro and small-sized enterprises (MSEs), and the private economy. The increment of agro-related loans reached a new record high. The annual net increase of inclusive loans to MSEs accounted for nearly 30% of the net increase of total loans to customers. The number of private enterprises with loans from the Bank increased by over 90 thousand. The Bank contributed to the recovery and expansion of consumption, with its newly gained market share of consumer credit ranking first among peers.

Achieving Continuous Optimization of the Asset Structure and Maintaining a Sound Development Momentum

The Bank channeled financial resources into the real economy, provided reliable financial support to its retail and corporate customers, and achieved its high-quality development. As at the end of the reporting period, the Bank’s operating income amounted to RMB342,912 million, up by 2.24% year on year; its net profit was RMB86,424 million, up by 1.25% year on year. The Bank focused on key products and continued to advance the diversified development of intermediary business. Excluding the one-off factor of the transformation to net-value wealth management products in the prior year, the net fee and commission income increased by 12.05% year on year, which continued to maintain a double-digit growth. The Bank plans to distribute cash dividends of RMB25,881 million (before tax), up by 1.20% over the prior year.

The asset structure is an important support for value creation. The Bank strengthened the synergy between assets and liabilities as well as scale and profitability, used risk-adjusted return on capital (RAROC) as the yardstick, further optimized its asset structure and improved its value creation capability. As at the end of the reporting period, the Bank’s total assets amounted to RMB15.73 trillion, up by 11.80% compared with the prior year-end, of which total loans to customers amounted to RMB8.15 trillion, an increase of 13.02% over the prior year-end. Total liabilities reached RMB14.77 trillion, an increase of 11.54% over the prior year-end, of which customer deposits reached RMB13.96 trillion, an increase of 9.76% from the end of the prior year. Loan-to-deposit ratio was 58.39%, representing an increase of 1.68 percentage points compared with the prior year-end. The asset structure was further optimized.

It is impossible to achieve high-quality development without risk control. The Bank adhered to a prudent risk appetite, continuously improved its comprehensive risk management framework, carried out process management and closed-loop management by applying digital risk control technologies, and actively empowered high-quality development of its businesses. As at the end of 2023, the Bank’s non-performing loan ratio was 0.83%, a decrease of 0.01 percentage point compared with the prior year-end, which remained at the leading level in the industry; allowance to NPLs ratio was 347.57%, indicating adequate risk offset capabilities.

Continuously Developing the Five Major Differentiated Growth Poles, with the Net Interest Margin Maintaining a Leading Position Among Peers

In 2023, by continuously developing the five differentiated growth poles in Sannong finance, microfinance, proactive credit extension, wealth management, and financial market business, the Bank offered characteristic services to make new breakthroughs in all business segments, and created a “new engine” of value creation, with the net interest margin continuously maintaining a leading position among peers.

Centering on the digital, intensive and scenario-based transformation of Sannong finance, the Bank worked actively to build itself as the main force for rural revitalization by building the system supporting rural revitalization based on the collaboration between China Post Group and the Bank, between the Head Office and branches, and between the parent Bank and subsidiaries. As at the end of 2023, the balance of agro-related loans amounted to RMB2.15 trillion, an increase of RMB346,498 million over the prior year-end, and the increment hit a historical high again.

In terms of microfinance, the Bank stepped up product and service innovation, and solved the problems facing microfinance in terms of marketing, products, risk control, operation and services by digital means. As at the end of 2023, the balance of inclusive loans to MSEs stood at RMB1.46 trillion, accounting for nearly 18% of the total loans to customers.

By relying on its large customer base, the Bank has been actively exploring a new model of retail credit development that could achieve low-cost customer acquisition and risk control through proactive credit extension. Under the proactive credit extension model, the Bank used precise customer portraits to identify potential high-quality customers, and implemented end-to-end online acceptance, approval and disbursement to deliver a minimalist customer experience of “instant approval and instant disbursement”. Over the 15 months since its implementation, the loan balance of proactive credit extension exceeded RMB150 billion, with a NPL ratio below 0.5%.

In terms of wealth management, the Bank enriched product choices, worked faster to improve the core professional capabilities of the workforce, provided its customers with long-term companionship, and highlighted the people-oriented nature of wealth management services. As at the end of 2023, the Bank served 51,480.4 thousand VIP customers, an increase of 8.72% over the prior year-end.

The Bank facilitated digital transformation and focused on building the differentiated growth pole in the financial market business. A total of 2,407 institutions registered with its “Together We Thrive” interbank ecosystem platform, with the cumulative trading volume exceeding RMB2 trillion. The Bank continued to promote trading transformation and enriched the value contribution of businesses. Its volume of bond transactions increased by 75.40% year on year, and the volume of bill rediscounting transactions increased by 46.87% year on year.

It’s worth noting that, thanks to its adherence to the differentiated development strategy, the Bank improved the allocation efficiency of assets and liabilities, and realized a net interest income of RMB281,803 million for the year, representing an increase of RMB8,210 million, or 3.00% compared with the same period of the prior year. Its net interest margin was 2.01%, which stood at a relatively good level in the industry.

Focusing on Innovation and Change and Building a Trustworthy Bank

For commercial banks, there are no shortcuts on the path of practicing long-termism. In light of this, the Bank persisted in doing the “difficult but right things”. In 2023, the Bank focused on innovation and change, fostered new differentiated competitive advantages through optimizing service models, leading business transformation and unleashing development momentum, and made consistent efforts to enhance its brand as a trustworthy bank.

The Bank put risk management first at all times, built and applied the “future-oriented” model, gained a comprehensive understanding of customers from multiple dimensions such as industry trends, enterprises’ growth potential and enterprises’ financial performance, and enhanced customer risk identification capability. During the year, the Bank approved business for nearly 10,000 customers by using the “future-oriented” model, with the total approved amount exceeding RMB1.3 trillion. The Bank advanced financial digitalization, integrated PSBC Brain with large model technology, built new generative AI capability, and accelerated the reshaping of service models for digital finance. The Bank launched Mobile Banking App 9.0 which focused on “professional wealth consultant, exclusive experience, dedicated companion, and attentive protection” to enhance the customers’ interaction, scenario interaction, and product interaction through a new “three-dimensional interaction” experience and enhance the quality and efficiency of financial services.

Meanwhile, the Bank focused on innovation and change, streamlined organizational processes and unleashed the potential of resources. Positive results were achieved in advancing the pilot reform of transformation to a dumbbell-shaped organizational structure. The intensive operations helped improve the efficiency of consumer credit operations by 42%, and reduced manpower for review and approval of micro loans by 60%. Over 60% of debt collections for consumer credit were replaced by intelligent speech. PSBC made another big step towards becoming a more asset-light, more efficient, and modern first-class commercial bank.

Building a First-class Large Retail Bank with its AUM Reaching RMB15.23 Trillion

With the advancement of modernization, Chinese people’s demands for financial services are becoming diversified and personalized, putting forward higher requirements for retail financial services in the banking industry. The Bank unswervingly followed the strategy of building a first-class large retail bank, focused on improving major capabilities in six aspects, built differentiated competitive advantages with innovation, continued to create value for customers and worked hand in hand with customers to paint a picture of a better life with the power of finance.

As at the end of the reporting period, the income of personal banking business grew by 6.33% year on year, accounting for 72.83% of the operating income, which was up by 2.8 percentage points year on year. The Bank served 663 million personal customers, with its AUM reaching RMB15.23 trillion, an increase of RMB1.34 trillion over the prior year-end. Personal deposits totaled RMB12.49 trillion, up by RMB1.21 trillion from the prior year-end.

It’s worth noting that as at the end of 2023, the Bank’s total personal loans amounted to RMB4.47 trillion, representing an increase of RMB424,143 million, or 10.48% compared with the prior year-end. In particular, the Bank grasped the opportunities brought by the development of consumer credit market, and created an intelligent and digital online consumer loan product system, thus resulting in steady growth in personal consumer loans. As at the end of 2023, the Bank’s personal consumer loans amounted to RMB2.86 trillion, representing an increase of RMB130,096 million, or 4.77% compared with the prior year-end.

Meanwhile, the Bank steadily promoted the development of the rural credit system, conducted universal credit extension to rural households, strengthened customer segmentation and classification operation, and actively created differentiated competitive advantages in the rural market. As at the end of 2023, the Bank’s personal micro loans amounted to RMB1.39 trillion, up by 22.64% compared with the prior year-end, RMB37,193 million more than the increment in the same period of the prior year, with the incremental amount hitting a new historical high. The growth rate of micro loans exceeded 20% for four consecutive years.

Comprehensively Promoting a New “1 plus N” Operation and Service System for Corporate Finance, with the Number of Lead Bank Customers Increasing by 91.55% Over the Prior Year-end

Guided by a systematic approach to deepening institutional and mechanism reforms, the Bank optimized product and service elements with a customer-centric approach, and aligned development strategies with market orientation. In 2023, the Bank’s corporate banking business maintained high-quality development, provided integrated financial services that met the needs of industrial transformation and upgrade and the diversified development of enterprises, effectively implemented the work requirements of providing financial support to key areas of the real economy and preventing and mitigating risks, and strove to enhance the sustainability of financial support to the real economy.

As at the end of the reporting period, the Bank’s aggregate number of corporate customers increased by 15.58% over the prior year-end, maintaining a double-digit growth for four consecutive years. The Bank continued to improve the professional service system for technology finance, and provided whole-lifecycle services for sci-tech enterprises, with the number of served customers growing by 28.38% compared with the prior year-end. The balance of loans granted to sci-tech enterprises totaled RMB326,772 million, an increase of 37.65% over the prior year-end. The number of customers with the Bank acting as the lead bank increased by 91.55% over the prior year-end. The FPA totaled RMB4.68 trillion, up by 26.83% over the prior year-end.

What behind the impressive achievements is the Bank’s full promotion of its new “1 plus N” operation and service system for corporate banking. Based on corporate clients’ needs for tailor-made and integrated financial services, the Bank carried out reform and in-depth application of the operation mechanism, and developed a marketing support service system that integrates the front, middle and back offices by focusing on the six dimensions of customer, product, collaboration, service, risk and technology. In just over a year, the number of corporate clients signing up for the lead-bank service doubled; the finance product aggregate (FPA) increased by one-fourth; and more efficient, long-lasting win-win cooperation with more customers was established.

Meanwhile, the Bank upheld the philosophy of serving customers as a lead bank, targeted the needs of sci-tech enterprises throughout the growth and development stages and in all aspects of operation and production, made innovations in its exclusive product system, and worked to provide customers with integrated financial services, including fund financing, capital operation, payment and settlement, wealth management, and think tank advisory services through five major categories of products, namely “U Finance”, “U Investment”, “U Connect”, “U Wealth”, and “U Intelligence”. In total, the Bank has carried out a total of more than 50 offline service activities dedicated to “U Prosper” customers, comprehensively expanding the ecosystem of technology finance and advancing the high-quality development of technology finance.

Deepening the Innovative Application of FinTech, with IT Investment Accounting for 3.29% of the Operating Income

As the new round of technological and industrial revolution gathers momentum, technological innovation has become a “key variable” for accelerating economic and social development. The development of digital finance is a sure way for financial institutions to integrate into the era of great changes, build core competitiveness and achieve high-quality development.

In 2023, the Bank followed the “5 plus 1” strategic path, worked to build digital and intelligent advantage in all aspects to secure its future, continued to deepen the innovative application of FinTech, strengthened new technology-driven capabilities, actively explored the application of cutting-edge technologies and went all out to accelerate the development of a digital ecosystem bank. As at the end of the reporting period, the Bank’s IT investment amounted to RMB11,278 million, representing a year-on-year increase of 5.88% and accounting for 3.29% of its operating income.

Noticeable results have been made in business development through technology empowerment. In terms of personal banking, the Bank launched the Mobile Banking App 9.0, offering immersive companion service featuring “AI space + digital employees + video customer service”. Based on rural credit information and data system, the Bank actively explored and innovated rural financial service models, allowing farmers to easily apply for loans, use funds, and make repayments at any time via mobile banking. As at the end of 2023, the number of mobile banking users totaled 361 million.

In terms of corporate finance, the Bank released Corporate Online Banking 4.0 and Corporate Mobile Banking 2.0. The new version of corporate electronic banking was connected to “PSBC Easy Business” platform, creating a six-scenario-based ecosystem, which enhanced the Bank’s comprehensive financial service capabilities in the “finance plus scenario” approach. In 2023, the Bank’s fund supervision system was applied to infrastructure projects including Jinan-Zhengzhou High-speed Railway and Xi’an-Chengdu High-Speed Railway as well as high-standard farmland projects. The funds under supervision totaled nearly RMB100 billion.

Pressing Ahead with “Five Priorities” of Technology Finance, Green Finance, Inclusive Finance, Pension Finance and Digital Finance, and Pursuing High-quality Development with Refined Management

The Central Financial Work Conference emphasized the need to build China into a financial powerhouse, press ahead with “five priorities” of technology finance, green finance, inclusive finance, pension finance and digital finance, and pointed to the direction of the development of the banking sector. The Bank will closely follow the national strategy, find its own fit in the high-quality development of the “five priorities”, deepen refined management, open up broader development space, serve the country’s needs and the people’s expectations with its own strengths, and write a new chapter in the development of the Bank.

The Bank will strive to promote refined management and integrate it into the whole process of PSBC’s operation and management. In terms of the costs of refined management, the Bank will formulate scientific and quantitative yardsticks for resource allocation, with resources precisely allocated to all aspects. The Bank will vigorously promote organizational adjustments and intensive operations to maximize the utilization of resources already invested. In terms of the process of refined management, the Bank will continuously refine business processes to make them simpler and more accessible with superior experience and strong competitiveness, so as to dig deeper into comprehensive value and improve customer experience. In terms of refined management of risks, the Bank will implement the comprehensive risk management requirements of “all aspects, whole process, and entire staff” in all stages of monitoring, guidance, constraints, accountability, and retrospective review, so as to not only “prevent problems before they arise” but also “resolve problems before they escalate”.

In 2024, the Bank will earnestly implement the guiding principles of the Central Financial Work Conference and the Central Economic Work Conference, uphold the principle of seeking progress while maintaining stability and promoting stability through progress. Led by high-quality Party building, based on capability building, driven by innovation and reform, and supported by refined management, the Bank will speed up its development as a first-class large retail bank and contribute to the building of a financial powerhouse.