Agricultural Bank of China has an impressive record when it comes to serving the country's rural areas. Newly appointed chairman Zhou Mubing tells Stefania Palma why the bank is committed to building its reach within the 'sannong' areas.

Zhou Mubing

Q: Why is Agricultural Bank of China [ABC] increasing its focus on the county level?

A: Serving China's agriculture, rural areas and farmers area – known as ‘sannong’ – is one of ABC’s fundamental aims, and we are committed to becoming a premier bank focusing on both the sannong as well as [what is known as] the county areas. There are two banking philosophies we have adhered to regarding the county areas. First, the objective is to serve the real economy. Second, our business operation has to be strictly in line with commercial principles. In other words, we are blazing a new trail now by supporting sannong with an innovative and sustainable banking model.

Years of painstaking banking practice have paid off, and ABC has reinforced its comparative advantages in the county area banking markets. By June 2016, our total assets in county areas were Rmb6827bn [$1022bn], up by 7% over the previous year. Loans to customers reached Rmb3014bn, up by 5.4%, and the balance of deposits was Rmb6228bn, up by 7.4%.

Q: Many Chinese banks are now concentrating more on the retail side and less on corporates because they are worried about local companies’ debt servicing capacity. Does ABC share their view and strategy? 

A: In urban area banking, we have clear market segmentation and are highly selective in assessing our clients by allocating scarce resources to the most efficient projects that produce the highest value. Our strategy could be summarised as ‘three focuses and one withdrawal’.

The first focus is to make ourselves stronger by focusing on large clients, meaning big corporates and government-led projects. The second focus is on retail, mainly personal mortgage loan clients. ABC boasts the largest branch network, which translates into our strength in the retail business. Our strategy is ‘mortgage-plus’, meaning cross-selling additional financial portfolios to mortgage takers in order to enhance product penetration and create added value.

Our third focus is on the ‘new economy’, meaning to proactively serve emerging sectors. And by ‘one withdrawal’, we mean to follow the government's restructuring initiatives by selectively withdrawing from industries, sectors and enterprises that are plagued by excess productivity.

Q: In ABC's 2016 interim results, the non-performing loan [NPL] ratio was 2.4%, about double that of 2013. Why is this, and do you think the ratio will increase?

A: We are confronted with a tough environment where the economic cycle has reached a crucial turning point. The time when banks could reap easy money is long past: liability costs are on the rise, the interest spread is narrowing, and pressure on risk control is getting heavier, with sliding yields and fiercer competition. This is going to be the ‘new normal’ landscape in banking.

If we take a global perspective, the NPL ratio of the Chinese banking sector is still low compared with our international peers. The slight pick up in NPLs is a natural and normal reflection of economic volatility, which is in line with the general rules of banking operations. ABC will stick to its philosophy of stable and prudent operations, addressing both the symptoms and root causes of NPLs. Asset quality management will be our fundamental task, and risk control will become more forward looking, proactive and effective. 

Q: What are ABC's key objectives for 2017?

A: Given the complicated domestic and external environment, tougher reform and restructuring mandates, and higher expectations from the government and clients, ABC has mapped out its development strategy during the 13th five-year plan. Our road map is set as follows. By adhering to our growth philosophy of innovation, coordination, green development and openness, we are committed to putting customers first, to being market oriented and to aiming to improve business efficiency.

We will strive to meet the demands of the real economy, to hold the risk bottom line tightly and to ensure commercial sustainability by serving the sannong; by strengthening county area banking; by reinforcing urban business; by achieving group-wide synergies; and by enhancing economic returns. Efforts will be made to build ABC into an internationally leading commercial conglomerate with unique market segmentation, convenient service, effective coordination and the capability to create deep value.

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