Nikkei:

When speaking with the media last August, Mr. Guo, you said there would be intensified efforts to dispose of non-performing loans (NPLs) in 2021. How do you see the current situation of NPLs in the banking sector? Have you made any specific plans to dispose of those loans? Thank you.

Guo Shuqing:

We will continue with our efforts to dispose of NPLs. Every year, we see approximately 12% net growth in loans. Last year was special as we saw a faster growth rate in loans. But the growth rate was still under 13%. From this, you can see that we hadn't adopted an overly relaxed monetary policy. After the COVID-19 outbreak, the productions and operations of some companies were abnormal and they faced difficulty in repaying their loans. A considerable number of enterprises may even face bankruptcy restructuring or bankruptcy liquidation, and even less ability to repay the loans. This is why the rise in NLPs is an inevitable trend. In 2020, we already started to increase our efforts to dispose of non-performing loans, with 3.02 trillion yuan in non-performing assets disposed of for the year. We have yet to set any definite goals for this year, and are communicating with banks to see their respective conditions. We might need to dispose of more NPLs this year and some may extend to next year as some are long-term loans. However, we have confidence and the capacity to dispose of those loans. While intensifying our efforts, we should seek steady progress to ensure that the impact of NPLs disposal is within the capacity of the economy and the banking system. For this question, I think bank chairmen can give you an authoritative response. Mr. Gu Shu, would you like to answer this question? Mr. Gu is now the chairman of Agricultural Bank of China (ABC) and used to be the president of the Industrial and Commercial Bank of China (ICBC). So, he is quite familiar with the situations of both banks.

Gu Shu:

I'd like to give you some figures to support Mr. Guo's words. Reducing credit risk has long been a major part of our risk prevention and control efforts. Currently, we have credit assets of 15 trillion yuan. In recent years, under the direction of CBIRC, the Agricultural Bank of China has continued to increase its effort to dispose of NPLs. Despite the COVID-19 pandemic in 2020, we disposed of a relatively high number of NPLs and maintained stability in our credit assets. As Mr. Guo just said, the banking system disposed of over 3 trillion yuan in NPLs last year. Our bank is a public company, so I'm not in a position to tell the exact number here today, but the scale of our NPLs disposals matches our position in the banking system. So, my first point is that we have intensified our efforts in disposing of NPLs and maintained stability in regards to our credit assets.

Second, despite the COVID-19 pandemic and the impact of economic fluctuations, the asset management capacity of Chinese commercial banks is improving. Take the Agricultural Bank of China as an example. We have adopted very strict definitions regarding NPLs. According to the regulation, loans are considered non-performing if the borrower is 90 days past due. But in our definition, corporate loans are considered non-performing if the borrower is 20 days past due, in order to increase our foresightedness in asset management. Our bank's NPLs ratio was relatively high for some time, but it has already dropped to the average level of our counterparts. The end of this month is a critical point as the Central Bank, last year, extended the repayment of principal and interest of small business loans to March 31, 2021. We have been recently following the asset quality of those loans. As far as we know, those loans have a higher NPL ratio than other loans but are still under our control. According to our statistics, there is a risk that the NPL ratio may rebound. However, we believe that the risk is controllable under the direction of CBIRC and the concerted efforts of our staff.

That's all. Thank you.

Guo Shuqing:

I'd like to make an explanation here. He said he is not in a position to tell you the exact number of NPLs. However, that number will be announced in accordance with the banks' rules as a public company. Some other information will also be disclosed, such as the level of remuneration of senior executives. So please feel free to ask him any questions. The socialist economic system and market economy system with Chinese characteristics have many similarities with the market economy system and financial system in Western countries. We disclose information about our capital funds, competition, labor productivity, and cost-to-income ratio. Our cost-to-income ratio is less than half of the banks in Europe and the United States. The main reason is that our salaries are relatively low. China is still a developing country. We need to take taxes, dividends paid to our shareholders, and other contributions such as poverty alleviation as well as our social responsibilities into account. Large banks in China need to assume many responsibilities, but our counterparts in other countries don't. We follow the same business and sustainability principles but our national condition is different from Western countries. Thank you.