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In recent years, in the face of the complex and volatile macro environment and internal and external situations, China's commercial banks have adhered to the path of high-quality development, maintained stable operation on the whole, continued to increase their capital strength, accelerated the expansion of their asset scale, steadily increased their profitability, and provided sufficient risk compensation and controllable risks in key areas. However, at the same time, China's commercial banks have also carried more uncertainties in their operations, and difficulties and challenges have increased, among which interest margin pressure has become an important issue faced by commercial banks at present, and there is still a lot of room for development in the retail business of commercial banks in product management and wealth management in the future, and the overall contribution to profits will continue to increase.
In this context, Tsinghua Financial Review bankers have launched a series of interviews to discuss the new growth path of mainland commercial banks, help the high-quality development of banking financial institutions, and continue to take into account the goal of serving the real economy while maintaining reasonable profits. In this issue, Shan Xiaojun, General Manager of the Retail Finance Department and Retail Credit Department of Zheshang Bank, is invited to share how to lay out the retail business in the context of digitalization.
Q
At present, what are the challenges and opportunities for the development of retail business of commercial banks?
A
The banking industry has a long history, although it is now facing great changes unseen in a century, and there are many factors affecting the operation of the banking industry, but the most basic influencing factor is the economy, and the total amount of the economy and the financing mode of the economy determine how far the banking industry can go, how big it can be, and how much profit it can make. Judging from the mainland's current economic aggregate and economic situation, the next 10 years will remain a period of strategic opportunities for China's economic development. In 2023, the per capita GDP will reach 12,700 US dollars, officially entering the threshold line of high-income countries set by the World Bank. The 14th Five-Year Plan proposes that China's per capita GDP should reach the level of a moderately developed country by 2035.
For commercial banks, they are at the "starting point of China's new economic cycle", with a wide track and many opportunities, and the key to this lies in the change of business model, mainly to empower business development through digitalization. In particular, in the retail business, the era of relying on the traditional "crowd tactics" has completely passed, and commercial banks need to learn from the Internet thinking and adopt a new business model, which also faces many challenges.
First, we need to say goodbye to the era of relying on traditional interest rate spreads. In recent years, the price of assets has fallen rapidly, and now the 1-year LPR and 5-year LPR are 3.45% and 3.95% respectively, resulting in limited profit margins for banks. From the perspective of banks' cost of funds, state-owned banks are about 1.6%, and joint-stock banks are mostly around 2.5%, plus various other costs, it has become more and more difficult for banks to make profits solely on deposit and loan spreads.
Second, it is more difficult to grow low-cost settlement deposits. The difficulty of deposit growth is a false proposition, as M2 is growing by 10% every year. However, some commercial banks are still feeling the sluggishness of the growth of low-cost settlement deposits. This is mainly due to the fact that with the development of financial technology, the flow of funds is increasingly concentrated in the head banks. Most of the funds collected by central enterprises, subsidiaries of state-owned enterprises, counties and cities after the collection of financial funds, pensions and social security funds are deposited in large state-owned banks and leading joint-stock banks.
Third, it is more difficult for commercial banks to acquire customers. More and more customers spend their time on their mobile phones and rarely go to bank branches to handle business. Wealth customers can purchase funds directly on various investment and wealth management apps, which is faster and has a better experience, and credit cards are not used as often as before. The impact of emerging financial technology on the traditional business of banks has made it more difficult for commercial banks to acquire customers.
Fourth, it is more difficult to invest in high-quality assets. With the adjustment of the real estate market, the investment of bank assets has been affected, and many banks' mortgage loans have experienced negative growth, and the increment cannot make up for the gap in repayment, and the growth of banks' mortgage loan business is still weak.
Q
2. Under the current narrowing of interest margins of commercial banks, what kind of operating role can the retail business play?
A
In order to effectively serve the real economy, the interest rate pivot in the domestic market continued to decline, and at the same time, banks took the initiative to reduce social financing costs, and the net interest margin continued to narrow. According to the latest data, the net interest margin of commercial banks will be 1.69% in 2023, lower than 1.70% for the first time, which has compressed the profit margins of the banking industry to a certain extent. How to seek new profit growth points has become an urgent problem for commercial banks. As an important business segment of commercial banks, retail business has unique advantages in alleviating the pressure of narrowing interest margins.
First, the retail business has a wide customer base and a large market space. Commercial banks can attract more new customers, improve service experience, and enhance customer loyalty through innovative products and services. By providing services such as wealth management, insurance agency, and fund sales, we will increase intermediary business income, thereby making up for the impact of narrowing interest margins to a certain extent.
Second, the retail business, especially the retail credit business, has the characteristics of small dispersion and large customer base, and is a weakly sensitive asset to the economic cycle. The credit risk is relatively low, and it can survive the economic cycle and effectively resist the operating pressure caused by credit risk fluctuations.
Third, the economic capital occupation of retail credit is low. According to the Basel Capital Accord, the risk weight of retail credit is lower than that of corporate credit, and the development of retail credit business can effectively save economic capital, give full play to the scale effect, and realize the price supplement by volume, thereby alleviating the pressure of narrowing interest margins.
Q
3. What are the new trends in personal asset allocation under low interest rates?
A
With the changes in the economic situation and market volatility, low interest rates have become the norm, and diversified investments, long-term investments, technology-driven investments, alternative investments and professional financial services will lead investors to a more stable and sustainable path of asset appreciation.
First, diversification will become mainstream. In a low-interest rate environment, the returns of traditional fixed-income investments such as deposits and bonds are gradually decreasing. In order to diversify risk and improve investment returns, investors may diversify more broadly across different types of assets. This includes rational allocations across different regions, sectors, currencies and asset classes to reduce the impact of volatility in a single market or asset class.
Second, the long-term investment philosophy will be strengthened. In a low interest rate environment, short-term market fluctuations have a greater impact on investment returns, while long-term investments can reduce the impact of market fluctuations and may benefit from asset appreciation. Therefore, the long-term investment concept of achieving stable asset growth will be accepted by more investors.
Third, technology-driven investment will rise. The promotion and application of big data, artificial intelligence and other technologies have provided investors with more convenient and efficient investment services, and robo-advisors have also made personal asset allocation more intelligent, personalized and professional. Technology-driven investment is expected to become a new trend in personal asset allocation in a low-interest rate environment.
Fourth, focus on alternative investments. In the context of limited returns from traditional investment channels, investors may look at alternative investments such as art, collectibles, etc., which often carry a higher risk but also offer potentially high return opportunities.
Fifth, attach importance to professional financial services. Due to the increased complexity of asset allocation, investors may seek professional financial advisory services to help them develop and execute asset allocation strategies to achieve their financial goals.
Q
4. What are the key points and difficulties in the transformation of commercial banks' retail business?
A
Through the transformation of retail business, commercial banks can better serve the upgrading of consumption and the expansion of domestic demand, which is an inevitable choice to respond to the development of the times and adapt to market demand. Digital transformation is the key to the high-quality development of commercial banks' retail business. Externally, through technology-driven service innovation, we will promote the digital development of retail business, improve user experience, and meet diversified retail financial needs, and internally, use data-driven decision-making to achieve automation, intelligence and efficiency of business processes, reduce operating costs, improve decision-making efficiency, improve capital utilization and risk control level, which is the top priority of retail business transformation.
The digital transformation of commercial banks' retail business is a complex and arduous task. First of all, the digital transformation of retail business needs to maintain concentration and long-term success. It is a huge challenge for many banks to carry out comprehensive reform from the top-level design, system process, organizational culture, and institutional mechanism, and invest a lot of human, material and financial resources for a long time.
Second, the digital transformation of retail business needs to be based on itself and further develop technology and finance. The key lies in the mining and analysis of massive data, and the use of artificial intelligence, blockchain, cloud computing, mobile Internet and other technologies to innovate and transform traditional finance, so as to be more in line with the user experience, improve data-driven decision-making, and enhance risk management capabilities, which is the core competitiveness. It must be based on itself and conduct in-depth research, and cannot adopt methods such as formal imitation or outsourcing of systems (services) like traditional transformation.
Finally, the digital transformation of retail business must adhere to legal compliance, integrity and innovation. In particular, in terms of customer information and external data, it is necessary to strictly follow regulatory policies, take into account customer privacy and business interests, and achieve sustainable development, and at the same time strengthen the construction of partnerships, balance competition and cooperation, and avoid cooperation risks.
Q
5. What is the impact of digital transformation of commercial banks on retail business?
A
The impact of digital transformation of commercial banks on retail business is extensive and profound, even revolutionary, mainly reflected in the following aspects:
First, the accessibility, convenience and experience of financial services for customers have been greatly improved. Digital transformation has enabled banks to provide more convenient and faster services through mobile apps, online platforms, and other channels, improving the customer experience. The continuous construction of mobile payment technologies such as QR code scanning and HCE has greatly improved the security and convenience of financial consumption, and gradually realized full online processing. Consumer borrowing is no longer difficult, residents' willingness to manage money and borrow for consumption has also increased, and the financial needs of customers who were originally difficult to cover offline have also been satisfied.
Second, it provides strong support for banks' retail product innovation. The digital transformation of commercial banks can more accurately identify users, accelerate product innovation, and meet diversified customer needs. Fintech can facilitate cross-border cooperation, relying on diversified consumption scenarios and a large number of customer portraits to accurately identify customers' consumer loans and financing needs, and through cloud computing technology, banks can provide more flexible wealth management products and services, realize online precision marketing of financial products, and meet customers' investment needs. Digital transformation has also increased the bank's ability to respond to market changes, quickly launching new services or adapting existing services to market demands.
Third, it will help banks improve their risk management capabilities and operational efficiency. Using technologies such as big data and artificial intelligence, banks can more accurately assess customer credit risks, achieve precision marketing and risk control, and improve risk management efficiency. Digital transformation helps banks optimize business processes, reduce the dependence on physical branches, and reduce the need for human resources with automated and intelligent tools, which plays an important role in improving the efficiency of internal management, improving the level of capital utilization, and reducing operational, administrative and risk costs.
Fourth, the banking retail industry has ushered in a pattern of coexistence of competition and cooperation. Digital transformation has brought about significant changes in the competitive landscape of the retail industry for commercial banks. Internet finance companies have quickly seized market share by virtue of their technological innovation capabilities, posing a challenge to traditional banking business. Digital transformation can help banks better respond to competition from fintech companies and attract and retain customers through differentiated services and products. In the process of digital transformation, commercial banks will maintain moderate competition among themselves, and may also form certain cooperative relationships to share resources, jointly respond to challenges, and promote the healthy development of the industry by sharing data and jointly building platforms.
Q
6. What are the relevant suggestions for commercial banks to do a good job in retail business in the future?
A
The banking sector will become more fragmented in the next three to five years. The revenue generated by the traditional deposit and loan business will become less and less, and banks must find better business models and more efficient customer management methods to avoid being eliminated by the industry. The retail business is a complete ecosystem under the big wealth system, and only when the retail business is done well can banks achieve sustainable development and form their own comparative advantages.
First, the capital port of the retail business is to pay wages on behalf of others. The operating logic of the retail business is, first of all, that funds can come in continuously. The port of the source of retail funds is the payment of wages, which bank has mastered the payment of wages, it will master the most basic source of retail business, otherwise it will be difficult to expand other businesses.
Second, prioritizing the development of asset business is an inevitable choice for retail transformation. The input-output cycle of retail transformation is long, and banks need to bear a lot of pressure on profitability. Because of this, many small and medium-sized banks cannot make up their minds to carry out retail transformation. The solution is to prioritize the development of asset operations. On the one hand, the asset business can really support the profitability of the retail business: the asset business can quickly obtain interest income to reduce the profit pressure brought about by the retail transformation, and it can quickly acquire customers, which is also an important source of customers for cross-selling in the future. On the other hand, in the banking business, the asset business is relatively traditional and mature, and it is a "Party A" business of the bank's initiative, which is relatively easy to do.
Third, create value with wealth management business. Wealth management is an important part of the retail business. To do wealth management, you can't just become a product sales agency, charge some fees, and be a middleman who earns the difference. A really good bank can provide different product portfolios for different types of customers, and help customers grasp the timing of product allocation. Wealth management must be done, and it must be done well. In mature markets, wealth business generally accounts for about 15% of the profit, which is an important source of profit in the personal business, and at the same time, the wealth business is still capital-light and can bind the flow of funds; without a strong wealth business, even if there is a payroll, customer funds will not remain in the bank.
The business logic of the retail business is interlocking and indispensable. We must string together the business logic of the retail business, take the payment of wages as the port, and then focus on the entire business logic to serve customers well and operate well.
Tsinghua Financial Review adheres to the original intention and mission of "advising financial policies and leading financial practice", and strives to develop towards the goal of a think-tank-type all-media platform focusing on the interpretation and advice of economic and financial policies. Banks are the backbone of finance in the mainland to support the real economy, and the high-quality development of the banking industry is inseparable from the continuous contribution of bankers, especially bankers. Since 2017, Tsinghua Financial Review has set up a special column called "Bankers' Discussions", aiming to build a platform for Chinese bankers to disseminate ideas, take the pulse of China's economy and finance, and provide suggestions and suggestions for the development of the industry. At the same time, Tsinghua Financial Review has held several forums on the high-quality development of China's banking industry and continuously released the research report of "Top 200 Chinese Banking Ranking" to provide theoretical data support and useful practical reference for the development of the entire banking industry.
Editor丨 Qin Ting, Lan Yinfan
Preliminary trial丨Xu Lanying
Final Review丨Zhang Wei
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