Dear analysts, good afternoon. I am very happy to see you all again. I welcome you all to the 2018 interim results announcement for China Construction Bank. Today, I am hosting this announcement together with Mr. Xu Yiming, Chief Financial Officer. My name is Liao Lin. I am the Chief Risk Officer. Today, we also have some management from Beijing. Mr. Cai Qiuyue, Credit Department, Mr. Jun Yanming, Financial Regulation, Mr. Da Yongbing, Mr. Sheng Liurong, and Mr. Li Hongbing from our main office. We also have Mr. Zhang Jun from our Hong Kong branch. Why am I introducing them to you? Because today we have a lot of analysts here. You are our old friends. You pay a lot of attention to our company. We hope that in today's session, not only it is result announcement, but also more like a roadshow.
We can answer all sorts of questions, and this is an open form of result announcement. First of all, we invite Mr. Xu Yiming to give us a brief presentation of our results.
Dear analysts and friends, good afternoon. Mr. Liao is already our vice president. Yesterday afternoon, the board has approved his new position. Mr. Liao has taken his time to meet everyone this afternoon, and he wants all the analysts who are very hardworking, he hopes that you can liven up. In the PowerPoint, actually, it is a very strict document, and how do I liven up the room? I believe that you all have seen the results. I am not going to talk about the specific figures. I am going to talk to you about my understanding of this figure. On page one, we talked about financial performance, and why is it overall great momentum?
This is something that we talked about last year and the year before last year. For all these figures, those which need to go up have gone up, and those need to come down, they have come down. For example, NPL has decreased by 1 basis points. In terms of our financial indicators, for example, net profit. In the beginning of this year, we did not expect it to be this high, and last year was less than 5%. For first half of this year, it is actually 6.1%. Page two. If we look at this figure, this is the situation inside this shape. It is the situation of 2017, and the external figure shape is for 2018. So we have nine indicators for comparison, and we have this chart as stable core indicators. Again, great momentum in stability. What does this mean?
You can see, actually, some of the figures, they are limiting each other. For example, when your ROE is too high, that means your CAR ratio may be very low. However, for us, we haven't seen any very obvious weakness. We have great synergy. In addition, the figures inside and outside, we can also see those which need to go up has gone up, and those which need to come down have come down. Third PowerPoint. This further illustrates the previous page. Overall speaking, asset liability, it is very stable. For example, asset growth 3.1%, liability growth 3%. Page four, net profit. Left-hand side, net profit grew 6.1% year-on-year. We have realized net profit of CNY 147.5 billion. Where does this come from? It mainly comes from our interest income. On the right-hand side, this is our NIM. It has improved year-on-year by 20 basis points.
Last year, same period, it was 2.14%, and this year, 2.34%. The figures in the next page has further illustrated our operating income is very stable and enjoys a steady growth. Net interest income has increased by almost 10% to CNY 239.5 billion. On the right-hand side, for fee and commission income, it grew steadily. It has grown by CNY 1 billion. The speed is not very high, about 1% something for the growth. In terms of cost control, besides income, if you can control your cost well, your profit will go up. If we look at it in terms of cost-income ratio, it continues to be stable. For last year first half, 22.3%, and at the moment, 22.15%. Again, another slight decrease compared to last year for the same period, a decrease of almost 15 basis points. Credit cost. Credit cost actually cannot really illustrate the cost management.
When the market is going well, you would be able to put up the credit cost. This year, you can see our credit cost has fallen. However, the fallen percentage is not very big. Last year is 0.96%. This year, 0.94%. Whatever methodology that you adopt to calculate this figure, it is 2 basis points lower compared to last year for the same period. This is because of the implementation of IFRS 9, which means that we need to improve our provision coverage. To have realized these results, this is thanks to the support of technology. For this next chapter, I will talk to you about our strategies. We have put forward three strategies from second half of last year and first half of this year. This is something that we have focused on. In what areas? First of all, we call it the blue ocean strategy.
Perhaps in the future, when the analysts look at CCB, you may ask the question of why is our profit still going up despite a bad market? The blue ocean strategy, this is a market for the rental market. We have made our stride from the real estate sector into the leasing sector. In the past, we have said that if you want to buy apartment, go to CCB . Now we say, to lease a home, go to CCB. This is a market that is under nurture at the moment. In mainland China, in this rental market at the moment, it is not as developed as the housing purchasing market. We believe that it has great potential. On one hand, we serve society. On the other hand, we also hope we could nurture this market and to nurture more clients for our business.
For example, we have CCB [Non-English content] , this brand. We are working with others to develop rental housing. In addition, we also have rental housing comprehensive service platform, in which there are five sectors. For example, the monitoring of the government, the housing resources, and transactions, et cetera. We are utilizing the internet to do this. In addition, we also have some products. For example, in PPT, it has mentioned about the house leasing loans, asset management, investment banking, insurance, pension, trust, et cetera, and these products are all moving in tandem. Second is technology, fintech. Fintech, again, speaking from a strategic point, we have formed our five-year fintech strategic plan, 2018 to 2023. Once having this consensus, how do we promote this? First of all, for technology, at the moment, it is artificial intelligence, including blockchain, cloud computing, big data.
Data analysis going forward will become a very important application in the future, including the obtaining of data, the sharing of data, the mining of data, as well as sharing data with customers. The development trend, we hope that this will be driven by AI. Third part, inclusive finance. This is connected with fintech. This is being realized through digitalization. At the end of 2017, the reason why we were able to see fast growth in inclusive finance loans by 10%, and we were the only one to have benefited from the policies of PBoC. We were the only one. If you look at this, actually, there are many risks involved, and we have also learned our lessons in the past. How do we do this now? We basically rely on data analysis.
Once we have the data, we will use models to help us to separate the customers into different tiers to help us to decide how much loan to lend them and the interest rate, and this will help us with the matching of the loans of the customers. At the moment, NPL for inclusive finance loans is very low. Of course, this has only been a short term. We still need more time to prove this. Only with our current own data is not enough. We need to obtain external data from others. For example, from the customs, from tax bureaus, et cetera. If we are able to collect such data, that means we would be able to expand our coverage of clients on a much larger scale. Whilst promoting these three strategies, we continue to carry out our existing business and move towards retail business.
The speed that we are conducting our retail business is very steady. On this PowerPoint, you can see this is for our largest retail credit bank. If you look at the right-hand side, you can see for the balance of personal residence in the middle. The first one, we have the balance of personal Quick Loans, in the middle balance of credit card loans, and in the last part, it is the balance of personal residential mortgages, and it has already exceeded CNY 4 trillion.
Corporate business, the future is on transaction business. It is not only a deposit and loan business. This is your traditional business model. What we would like to do is to discover the transactional finance services that our customers need. On the right, as you can see in the bar chart, this is looking at the income, say, for asset custody business, and on the far left would be syndicated loans business income. In the middle, it would be asset custody business, and on the right is the corporate settlement business income. This represents we are now focusing more on the transactional business of our traditional customers and an enhancement of our capabilities. This is a very important direction, and we feel that we have not yet done enough and needs to do better. Now, with risk management.
This slide talks about the four main areas that we cover and the nine different types of risks and our proactive management of it. We have set up the first risk metrics center amongst commercial banks. I think our technique and our expertise is first class, and we can actually export this capability. This is a core capability of a bank. In the Chinese market, it is very important to be able to tell the different risks that comes with different customers and different types of business models. Our entire management can actually calculate this risk and also to apply this risk understanding to measure the ROE of our subsidiaries. Without these data, you probably cannot do a lot of detailed work around this. This is the work of Mr. Liao and his department.
Our risk management platform, the entire credit approval and compliance and audit and business mechanism, as well as the compliance management mechanism, has been built quite fully. That actually allows us to enhance the structure and the quality of our entire credit portfolio. Let's take a look at our loans and our credit. These bars actually goes from left to right. This means that we have a high percentage in personal mortgage, and we are also into green credit and strategic emerging industries. The thing that we need to manage is the overcapacity sectors. We need to avoid that. We have been keeping this up, and we are also into inclusive finance.
If you look at these two lines, the top one is our NPL ratio, and the red one, which is the provision coverage ratio, goes to the right, is increasing, and the NPL ratio is coming down. You can see that our asset quality on an ongoing basis would be stable. There won't be a lot of surprises. You can expect that there won't be any surprises. I would anticipate that we would remain at 1.3% or 1.2% as it relates to the NPL ratio. We have to keep our liquidity at a reasonable level in order to ensure that there's nothing that goes wrong. Then try to stringent your liquidity, then it's not the way to go because your business would be impacted.
The only bank in China that can manage liquidity on the same level and same platform with the PBoC would be our bank. We have 600 sales points, which are all managed under this liquidity platform. This is daily management, and of course, liquidity management, we can look into the short-term, medium-term, long-term, and strategic management. We have a lot of indexes, a lot of anticipation or forecast of cash flow. Quite complicated, which I cannot explain in detail here. Capital management. Just now when I talked about our KPI, I talked about the ROE, and the overall capital management has to rely on a balance between business development and risk management. We are trying to manage that finely. Our capital adequacy ratio is higher amongst our peer. It is at 15.64%, so that includes first-tier capital and our core capital.
Now, within mainland banks, we are at the top. When compared with European and U.S. banks, their CAR has been enhancing for the last several years. When compared to them, we may still need to improve. On the one hand, we cannot finance in a big way from the capital market in order to boost our capital. We need to ensure that our capital continues to grow while taking care that our liabilities do not grow in the same way. This is always a dilemma. We have to enhance the efficiency of our capital use. This is something that the bank would have to focus on, and the standardization of our capital management is a key. We have a three-year capital deployment plan. We have already submitted the capital plan from 2018 to 2020, and the board has already approved it.
Now, this is a strategic plan because your business and your needs, and your liabilities, has to be planned way ahead because if you were to issue a bond, you would need a lot of time, and if you were to finance from the market, it takes even longer time. A balance need to be kept here. Last but not least, I like to share with you our efforts apart from making a business and making profits, what is our contribution to the society, our social responsibilities as a corporate citizen. We are assisting the government to alleviate poverty, including some poverty-stricken areas in the hilly areas in the west, especially the health of the women, children, and the elderly. We have launched caring stations on a national basis in Guangdong Province. In five to six cities in the Guangdong Province, we have already launched this.
We will try our best to provide those services that the society needs. For example, the policemen, workers who work outside, especially during very hot weather. We will provide a drink and a place for them to rest. Relying on our internet access to provide them with a break, so-called. This is something that we have just started. I think our management and our performance has been quite well, and we have been externally recognized. This slide tells you about some of the comments that we have received. This is only a few of the examples, and I won't go into detail. In the future, we hope that we can both grasp the opportunity and tackle the challenges that is in front of us. We have listed some opportunities and some challenges here, which I will not repeat.
Which means that at any time, we have to consider both the pros and the cons, both the challenges and the opportunities, the difficulties and the efforts. One is the implementation of our street strategy and to keep a balance in our operation, such as the risk management, transactional business, and also finer management. Now, this is something that President Wang has always been focusing on, including the future risk management capabilities, asset quality, customer service level, and fine management. These are all factors that would ensure the further development of the bank. Thank you for your attention. This is my report. Thank you.
Thank you, Mr. Xu, for your introduction. Now we go directly to the Q&A session. Before you ask the question, please let us know who you are and where you come from. Due to time constraint, every analyst, please try your best to restrain your questions to just one. This handsome gentleman over here.
Thank you very much. Mr. Liao. I'm [Wang Yaoping] from Zhongjin, and my question is about interest spread. This year, we have IFRS implementation in Q1 is unaudited results, and for interim, that might be an impact. What is the difference between the quarters, and what's the impact going forward for second half of this year? How does CCB consider the general trend for interest spread going forward in the next 6 months - 12 months? What about any changes for your asset and liabilities?
For interest spread or NIM, this is a perpetual topic of analyst. Every time you all pay attention to this. If you look at the six months situation, interest rate compared with same as last year has gone up by a certain percentage, and for NIM has improved by 20 basis points. You ask about what is the composition of this, and what is the situation for the next six months, and why we're able to have the increase of 17 basis points and 20 basis points respectively. This is because of the changes for the asset pricing and the structure.
Do you know what is the increase of the pricing for CCB, whether it is credit or personal credit?
They have both gone up. This is very important. Second, structure. Asset structure. For example, as I said, we have obtained the inclusive finance policy.
The PBoC has said for inclusive finance for your loans. If it exceeds 10% of your new loans or exceeds 10% of your remaining loans, you would be able to obtain a 1.5% cut in your interest rate. We were the only one which has met this requirement, and we enjoyed the policy. In beginning of this year, they had given us a RRR cut of 1.5%, about CNY 230 billion, which means that our NIM would be able to improve by at least 3 basis points. If you put this in PBoC is 1.62%. For me, I would at least add another 2 percentage points on top. There are other factors, for example, credit cards.
Credit cards end of last year, had you attended our annual results for credit cards business, installment business, actually, it's credit card installment loans. When we calculate the NIM, it is at the denominator. However, the income comes in as the fee income, so it is not on the top. So it's not balanced. Therefore, we need to straighten out this calculation. Last year, we have taken away the credit card business from the denominator, which means that why the NIM has improved. This has given us another improvement of 3 basis points. I have seen this is what all the other banks are doing. We actually did this slightly later. So these are some specific calculations. There are also some factors for decrease, which is that for my first half of this year, my liabilities interest rate for deposit has also gone up.
I have - 5 basis points, which has dragged on the NIM, and which is why we have resulted in a total of 20 basis points increase. Second question about trend. Just now, before you attended this meeting, we had a meeting with the media. For second half of this year, our NIM will be able to remain at the present level. It will not go up by another 17 or 20 basis points. This is not something that will happen, but it will remain at the current level. It will not go down. What you are concerned about now is the liquidity in mainland China, and you are concerned that the price will come down. Does this mean that your NIM will take another turn? A lot of banks may suffer from this, but for CCB, my judgment is that it will not go down.
It will not go up either. It will just stay at this level. Thank you.
Lady on the fourth row. Well, we will take a question from the right and then from the left. Thank you.
Thank you for walking us through your performance. I would like to ask about asset quality. We have seen that overall NPL has come down. However, if we look at retail loans, credit cards, and consumption purposes, there has been a small increase in NPL and also credit loans below a year, you have actually seen an increased default or delayed payment. So what is your view about this NPL in this particular segment? Also, why is it that we sold the Shenzhen Bank?
Asset quality. I have already answered the media's question, and I think we have also talked about that in our PowerPoint. We have 1.49% this year, and for the first half, it is at 1.48%. I do not know about other banks, but for CCB, definitely we are keeping it stable and improving it. Now, this will not change. Why is it that we have this judgment? First of all, because you are an analyst, so we talk about numbers. We talk about the KPIs. We have a core index, and we have a result index. We have a procedural index. So for the procedural, you will look at the new loans and the older loans. This is about the procedure. If you look at also the core index, including the PCR and the loan to deposit ratio.
Now, if you look at all these indexes, you will see a pretty picture, a very stable picture. It is not only the H1 report and the annual report that is a good picture. Every quarter also shows a good picture. We are confident about this. Now, if you look at this from another perspective, look at the structure of our assets. Just now, Mr. Xu has talked about this. I think it is very easy for you to understand this. If you just perform on one result performance, you perform well, then you have to really look at it on a consistent basis. Now, with our infrastructure loans, the NPL ratio is very low, and in the future, that will not change a bit. That will not change in a big way. Our home mortgage loans also enjoys a very low NPL.
These are the two big segments, and they are all very stable. The third one, look at our third segment. With the large industry and large corporation, the asset allocation is also bigger. If you look into better details, the corporate loans
Our customers are graded in a grading of 7. They are actually graded very highly. Now, if you look at this structure, the CCB asset quality is a very good one and very stable one. We also have apartment leasing and inclusive financing. You may want to know about our small and micro smart financing. We are changing our strategy, and this is something that is very revolutionary as far as the industry is concerned. As far as our management is concerned, we have set up an entirely comprehensive risk management mechanism to manage it from not only a historical perspective but also manage the process and the results. I think CCB is amongst the best in its peers in this area. We have already studied in detail about our asset quality since when we became listed in 2005.
Would it come down?
Just now, Mr. Xu has said that this is not very possible. Given this, our management goal is to keep our asset quality at a stable and improving trajectory. You may ask, well, you are looking at NPLs. This is where you focus on. Our NPLs have gone up for a particular segment. Last year in our report, we have already said that for all the indexes to come down may not be a realistic anticipation. Our NPLs has a little bit of increase, and that is mainly because our non-performing loans would become fulfilled in the future. You have to look at our disposal. Compare year-on-year, that had been reduced by CNY 10 billion. I was talking about the default rate. Default rate would be improved. The volume of disposal is also smaller than last year.
This is an area that supports our asset quality. We would not be overly concerned that I am having a lot more non-performing loans, et cetera. Just now you have talked about an individual default area, and that is because that is a full cycle. We started to launch last June, the Quick Loan program, and this is a year. We are doing it as a pilot program, and we are reviewing it after a year. It is actually performing much better than expected. Everything is under control. You have another question about the rural banking. That is something that is being adjusted. Just now we were talking about inclusive finance, and the apartment leasing, these as well as small and medium services. These are our strategic moves. Previously, we were working on. Together, these would cover all of the villages.
It is entirely reliant on fintech, so it does not require a lot of people and manpower. It is not necessary for us to be physically present there for everyone, every village. Sometimes we do not own majority equities there. This is where we keep the balance. This is a choice, a matter of choice. This is how we do business. There is buying, there is selling, we have to consider how we deploy our capital. I do not know whether I have satisfactorily answered your question. Thank you.
This gentleman in the fourth row.
Thank you management. I am [Lin Jiaw ei] from HSBC. I would like to thank Mr. Xu, for the six-sided shape that you have shown us. In HSBC, we also like to use this shape quite a lot. I have a question, which is about mortgages. Because mortgage is a core development for CCB. In the current stage, the government wants to control the housing price. They also hope that the bank could support SMEs or put in more resources to buy some more local government debt. In terms of your strategy, what is your expectation for its growth? For the management team, do you think that the increase of mortgages will continue to slow down and, on the other hand, corporate loans will go up?
For mortgages, we have our colleague here. I will have him answer your question.
Real estate business is a traditional business for CCB. It is also our advantageous business. Regarding real estate, what stage it is in, overall speaking, it is in a development in a key change in terms of cycles and demands, et cetera. At the moment, we can see that the growth speed of mortgages is slowing down. At this point, we have seen some structural risks emerging. Therefore, our judgment is that going forward, we are moving from a high-speed growth stage into a long-term, healthy, sustainable growth period. With de-leveraging going on and de-risking, the whole of the real estate market, together with finance and with the virtuous cycle of the banks, we believe that it will become more virtuous. This is the trend. You may have also noticed our corporate business, the growth for corporate business has grown for first six months of this year.
You are very detailed. This is mainly because of the new rules for asset management. With the new regulations in place for real estate sector, the capital have been limited. Therefore, we are seeing some of the improvement in the corporate business. Overall speaking, we believe that it will remain stable. Whilst growing, CCB has selected the areas that we are very good at and clients that we know well. So we are very prudent. Regarding personal businesses, even if our personal business income is coming down. However, the incremental amount is still quite significant for personal mortgages. You can see the new incremental out of our total incremental is still more than half. Our traditional advantage, we will continue to consolidate. Thank you.
The lady on the third row, please.
Thank you for the opportunity. I am from UBS, [Ray Maiju]. I have a question, which you may have already covered. In the last three months, it seems that the government policy is to relax the policy and at least to slow down on the deleveraging speed. Therefore, we have seen a lot of different policies. Some would support the key projects. How do we allocate our capital? How much of the reserve would be aligned towards meeting the government's targets? July 1st, PBoC has evident relaxation on the items that are outside of the balance sheet. So how are we doing with this? Say, with asset management, the older products, have we been continuing doing that? How about the volume? By December 2020, can we expect the volume to continue to decline?
We have started again on some traditional products. Should we expect that all of these to come back? Meaning, those traditional items, should we expect it to come back, to be increased in the next several months?
Well, policy changes now is for making gradual changes in fiscal and monetary changes on a gradual and stable basis. As far as reserve projects of CCB, we would follow the basic direction, leaning on the traditional strength of our bank. Just now I was talking about loans to important infrastructures and projects, mortgage, the Quick Loan, and our leasing, our rental loans. We are also following market changes to adjust our corporate loans. We would be inclined more towards green credit, including green manufacturing. These would be the major adjustments. This is the direction that we are following. So your third question is about the changes caused by the new rules of asset management. We just have a new one, a new rule. You will discover that I think asset management is still based on trying to manage the asset well for people.
There is a transitional arrangement. In the past, non-balance sheet products and items should disappear when they expire. With deposit products, for those that are not yet due, then we can replace it with a new product, including. These are measures that we have already implemented. Our non-balance sheet part is about 30%. These transitional arrangements regarding asset management, I think would be good for our adjustments, especially looking into the medium term. The new rules in asset management definitely does not mean that we can no longer do this business in asset management. It is a matter of transition. Thank you.
Next question. On the right-hand side. I can see your hand.
Thank you. I am from Everbright.
I have a question which is related to the previous question for infrastructure. In the second half of the year with the changes of the policy and for the whole year in terms of your credit growth, what will that reach? Second, in terms of credit for the first half of this year, we have seen a tightening. For second half with the reviving and overall for the whole year compared to last year, what sort of growth will that be?
I would like to ask our CFO to answer this question.
You can see for our loans being granted, the speed for the first half of this year is very stable. In July, it has grown faster. What we are looking at is the figures from the first 6 months. For July, it has not been disclosed, but we have seen it ourselves.
It has increased by CNY 20 billion. Partly the financing is reducing and some of the companies, they are facing problems. In the society, we are also seeing measures being adjusted, for example, for the new rules for asset management, especially the currency policies from PBoC to ensure liquidity. In the meantime, we were also asked to support real economy and to increase our credit granting. In July, we have invested or increased our credit extended, and this is in line with the general trend. We still have a few months remaining for CCB. I believe that we will have some changes. We have always been very prudent in terms of loan approvals, and we might increase some of our loan approvals. As regards to where we are investing in, a few directions as follows.
For example, first, inclusive finance, second, mortgages and consumer loans, as well as infrastructure loans. SME, for example, some of the areas that we are very good at, SME Quick Loans. This is the volume and speed changes. Actually, for structures, it has not changed much. For volume, it has changed compared to the beginning of the year. I am not sure if I have answered your question. For the extension to the whole society, I believe that will increase. For second half of this year, we still have another four months remaining, but it will not be as fast as July. It will be faster compared to first half of 2018, but it will not increase as quickly as what we have seen in July. Thank you.
Good afternoon. Thank you for the opportunity. I am from Deutsche Bank. My name is Shu. I have a question regarding. We have seen a rebound in the interim revenue. I would like to understand, why is it that your revenue has gone up, and can that be sustained?
I would like to invite our General Manager, Liu Fanggen, to take your question.
It is like this. Our revenue for the first half is CNY 1.36 billion, not very fast. Now, there are two areas. One is our asset management. With the new rules launched, our asset management business is up for reform. Also, the regulatory policies also impacted us. As you can see, in the first half of the year, we have some good trends in here. Our bank cards revenue expanded quickly, and our trustee and our e-banking business also improved.
Now, does it mean that the second half of the year, we can grow as equally quickly as the first half? There are two areas. One is, normally, it should be fast. The other one would be a bookkeeping issue. In the second half, the growth rate would still be fast, but not as fast. Now with our reform, including in the three areas that we talked about in our consumer financing, our asset management, and financing. I think overall, in the second half of the year, we can keep a stable income growth.
I think we have exceeded our time, but we will take two more questions.
On the left-hand side, we have this lady.
Thank you, management team, for the opportunity. I am [Zhang Zhuojia] from Citibank. I would like to ask about debt to equity. I know that CCB is the leader in this regard, and with the RRR cut, we know that some of the capital will need to be used for debt to equity. Is the year marked? Going forward, with the loosening of debt to equity, what is your plan in the next few years? For example, the targeted asset for underlying asset for debt to equity is no longer the standard product. There is also the non-standard ones. Going forward, will you mainly focus on CCB's loans, or you will focus on some non-standard ones? Or you will also consider working with some of the debt to equity products from other banks?
Well, for debt to equity, we have always been the leader in the market. What you have asked about the future trends, I would like to ask our CFO to answer this question.
We have signed over CNY 600 billion, and we have about CNY 110 billion completed. For CCB, overall speaking, we still believe in market-driven. Where have we completed? For example, in some of our practical business, whether it is others or my loans, et cetera. Actually, this is not something that we select. We first look at the companies, look at their underlying asset. We look at the company itself, whether this company has any potential. If this company has good potential and the problems that they encounter, for example, higher cost, higher leverage ratio, we will help them if these are enterprises that we know well of.
Whether it is other banks' debt or it is my debt, I do not think this is the selection standard. We are helping them to reduce their leverage ratio and debt cost. This is my selection criteria. For example, if I help this company to grow better, I will exit in the future. How do you exit? You will utilize the market. This is not something that I want to exit, and I can exit now. You may have to help them list and if once they are listed, you can exit, or if they are not able to list, perhaps I will find PE fund. I cannot hold this company forever. The direction of this company must meet or be within the ability of CCB. It is not that we are selecting at random. This is my understanding.
If you look at this, we have signed contracts worth 600 billion, but only 110 billion materialized. Thirdly, what is most important, is the source of the capital. I always ask these people, if you have 100 billion, where did you get that from? I hope that they have obtained the funding from public offerings or private offerings. This is something that we are also exploring at the moment. For example, for the 600 billion that we have signed, mainly from our wealth management, and this is also within the allowance of the policy. Actually, we have not heard much from the PE funds or public offerings. At the moment, for debt to equity, PBoC is asking that all of the 600 billion be used for debt to equity. We have established a company.
This company have also attracted 700 million from the private market and will also have some social equity in this. At the moment, they have not used any of this as of yet, this company. Going forward, all of the PBoC's policies will be applied to that. Because they want to have rule of law, they want to have it be market-driven, they want to help companies with potential. This is difficult to do. If you want social capital to come in, you must make sure that it has investment potential. This is our nurture of the company's ability.
One last question, please.
Thank you the opportunity for question. I am Yang Shuo from Goldman Sachs. I have several questions. First of all, I like to ask about the non-interest income that forms part of the interim income, now deducting the adjustment, the administration fees. What is the trend for this income growth? I have a question about deposits. CCB has a larger deposit and at a lower price. I would like to understand your pricing for deposits going forward. Lately, there has been a regulatory measure to adjust weighted risk from 30% to zero. This has not been confirmed. It has only been reported by the media. I would like to understand what is your allocation strategy in this area. Well, this is three questions. One is the local debt.
Your questions are keen. Mr. Shang, can you take it, please?
Thank you for your question.
You have a very good grasp of the information. Media indeed did report about this, about the weighted average of the local debt to fall from 20% to 0%. The regulators are still deliberating. They have not decided yet. If this does come down, then it would release some pressure from local debts. Local debts has always been something important for the government. For the first half, we have adjusted the scale, and internally, we have adjusted our resources to increase in local debts. In the second half of the year, we would continue our follow policy requirements to accelerate or to add on our investment in local debts. The public debts typically comes with a 38 basis points increase versus other debts. In the future, it would be 58 basis points more, because it has a tax benefit.
All in all, after-tax yield is quite good, and it is a positive impact on our income. With the non-interest revenue, the overseas department head, please take that question. With this non-interest income, it is in accordance with the number 37 of the accounting standards of the MoF . This guideline stipulates that changes needs to be entered as a proper loss. In this area, we have transactional bonds about CNY 30 billion . The interest income is about CNY 5.5 billion, so it has become an income. Therefore, in quarter one, you have seen some increase. However, you have seen our net interest income actually is not as good as quarter one, and this is a hedging effect, I guess. All along, I have been thinking that NIM is an analytic index. Every bank has a different structure.
Say, if you look at the NIM, despite that we are not the highest, however, you will need to know that our sales cost actually is the lowest. Some of the sovereign and corporate loans that we have extended, it may impact our income. However, it has no impact on our profit. It is still a positive drive. Thank you.
Mr. Liu, please take your question.
You have asked several questions. One is that why is it our deposit is lower priced? CCB , we insisted on a balanced strategy between quantity and quality. We do not fight a price war. Secondly, as far as price is concerned, we try to differentiate ourselves so that overall, our deposit level can be enhanced. In the last couple of years, we have been pushing for systemic network-based deposits so that we can have a low-cost capital.
All in all, these kept us competitive and as far as cost-wise, in terms of deposits amongst our peers. You also asked about the pricing of deposits in the second half of the year and its trend. There are positive as well as negative factors to this. Several factors would push our cost up. First, the PBoC encourages, starting the second half of the year, the marketization of interest setting, meaning competition amongst banks would be more fierce. Then the internet financing would also add on the cost. The third would be the asset management. All in all, these are negative factors to our capital cost. However, there are also positive impacts. Based on our macroeconomic analysis, we have made some adjustments. All in all, we are stable and step by step growing. The policy is to keep healthy liquidity.
All of these would mean that the overall volume of capital would be more in the second half of the year. Also, the interest rate would be kept at a lower level, just like now. That would be beneficial for us to lower our capital cost, our loan cost. We have studied in detail about this, and therefore, we are able to keep our cost relatively stable.
We have exceeded our time. Thank you for your patience, and thank you for being here. We would end our result announcement here. If you have further questions, please contact us. Thank you.