Ladies and gentlemen, good afternoon. Welcome to the 2021 interim results briefing of Bank of China Hong Kong Holdings Limited. I'm Kenny Law, company secretary of BOC HK. In light of the current COVID-nineteen situation, our presentation will be conducted via webcast and teleconference. We apologize for any inconvenience caused.
Let's now kick off our results briefing. First of all, I would like to introduce our senior executives with us today: Mr. Sun Yu, Chief Executive Madam Jiang Xin, Chief Risk Officer Madam Wang Qi, Deputy Chief Executive Mr. Yuan Shu, Deputy Chief Executive Mr. Zhongxiangqun, Chief Operating Officer Mr.
Wang Bin, Deputy Chief Executive Madam Sui Yang, Chief Financial Officer Mrs. Ang Kong, Deputy Chief Executive. Today's meeting consists of 3 parts. Mr. Sun, our Chief Executive, will brief you on the implementation progress of our strategy in the first half of the year.
Then Madam Sui, our Chief Financial Officer, will present the financial and business results for the period. Finally, C. E. Sun will discuss the group's outlook and key priorities in the second half before we begin the Q and A session. Now I would like to hand over to CEE Sun.
Good afternoon, ladies and gentlemen. Now I would like to provide you with our strategic review for the first half of the year. During the period, the bank's operating environment remained challenging, owing to the volatile COVID-nineteen pandemic situation globally and near record low levels of market interest rate. Bank industry are still under tremendous earning pressure. On the bright side, the mainland economy witnessed a solid growth, while the Hong Kong economy also recovered from its trough.
We strengthened our strategic execution to seize new business opportunities, while adhering to stringent risk management. We outperformed the market in the core business areas such as customer loans and deposits and maintained our capital ratios as well as other financial indicators at solid levels, stripping out the high base effect of disposal gain from debt securities investments in the same period of last year. Our operating profit before impairment allowances dropped by 8.4% year on year, but rebounded by 13.7% half on half, which indicates early signs of stabilization and the solid core profitability. In face of a challenging external environment, we endeavor to provide a relatively stable return for our shareholders. The Board has proposed an interim dividend per share of $0.447 which is unchanged from the same period of last year.
Hong Kong is always of core market. We capture the market opportunities to consolidate our traditional advantages and create new growth drivers by optimizing our customer and the business mix. We refined our wealth management customer brand segmentation. In first half, the AUM and wealth management income from mid to high end customers increased 18% and 33% year on year. We stepped up efforts to develop home purchase business ecosystem and improved our home expert mobile app.
Our leading position in new residential mortgage loans was well maintained with online mortgage applications more than doubled. Our corporate banking business continued to lead the market. We sustained our competitive advantage as a mandated arranger in the Hong Kong and the Macau syndicated loan market as well as in the IPO receiving bank and the cash management businesses. At the same time, we were dedicated to expanding our fee income business with a 36% growth in bank underwriting volume and 6.2% growth in assets under custody. Our competitiveness in financial markets was further enhanced.
We grasped the market opportunities and achieved a 34% growth in RMB related client trading volume, we also upgraded our online trading platform to improve the service capabilities with online client trading income rising by 14% during the period. We made further progress improving our integrated service capabilities. BOC Life ranked 1st in bank insurance sales for the Q1. BOCI Prudential Trustee maintained its forefront position in Hong Kong's MPF market, while BOC HK Asset Management steadily grew its AUM. In our key market of the Great Bay Area, we enhanced collaboration with our parent bank, Bank of China, to solidify our cross border integrated service capabilities.
We further optimized the customer experience of our GBA account opening service and the total cross border remittance amount and the transactions volume under GBA account surged 1.4x and 1.2x in first half. We jointly launched the GBA used card, which aims to provide young people with integrated services. In our cross border mortgage service, we resolved customer pain points by continuously optimizing our service flow and launched a series of loan products. We have also made full preparation for the launch of cross border wealth management service to take advantage of favorable opportunities in the GBA market. Capturing policy and market opportunities, we provide our corporate customers with financial facilities to meet their cross border business needs.
This led to an 8% rise in our GBA loans. At the same time, we cooperated with universities and technology research institutes to support the technology and innovation driven firms, achieving an 11% increase in related customer numbers and 7% growth in loans. We see Southeast Asia as a potential growth market for us. During the period, we continue to pursue regional integration and the strength of unified management and the guidance to promote differentiated development and ensure solid business growth in this market. Following the opening of our Myanmar branch in the Q1, we opened a representative office in Hanoi, Vietnam in June, which further improved our regional footprint.
In addition, we fully leveraged our lowest BOC Group syndication loan center in Asia Pacific and increased our regional business collaboration. We successfully completed a number of syndicated loan deals with large Southeast Asia corporates, which elevated our position in the market. Meanwhile, we also enriched the financial products and services of our Southeast Asia entities by exporting more than 40 corporate financial products from the Hong Kong market. Furthermore, we promoted the local mobile banking and wealth management services and strengthened customer referrals to gain mutual recognition for wealth management brands across the region. As of the end of June, our Southeast Asia entities grew their deposits and loans by 9.4% and 2.6%, respectively, maintaining a solid and healthy growth.
Asset quality was stable with NPL ratio at 1.75%, standing at a better level compared with the local market average. Capturing the opportunities from the latest RMB policy developments, we expanded RMB usage scenarios to advance RMB business development. As at the end of June, our RMB customer deposits and loans grew by 14% and 24%, respectively. We further optimized the RMB Business Management mechanism. We appointed a Managing Director of RMB Business and established a flexible organization to steer RMB Business Development.
We consolidated our leading position in the offshore RMB clearing business and officially launched the RMB clearing bank business out of Manila branch. Total RMB clearing transaction volume handled by BOC Hong Kong grew 28% year on year to RMB178.4 trillion, accounting for 75% of the global total. In order to boost customer demand for RMB business, we increased the intergroup collaboration and expand RMB business in our financing, settlement, commodities trading and cash pulling business. We innovated the personal cross border RMB settlement business and launched RMB salary direct remittance service. Our Jakarta branch achieved 82% year on year growth in business volume.
At the same time, we built up a digital platform to provide fast, convenient quotation and transaction services between RMB and domestic currencies. With all of these efforts, we strive to embed RMB in full service and the business process to activate the offshore RMB market with incentives for major market participants. In line with our customer centric principle, we deepen our digital transformation strategy. Our business operations and risk management were further enhanced by strengthening our digital infrastructure. The transaction volume increased by 60% year on year on mobile banking platform.
We extended our intelligent global transaction banking platform to our Southeast Asia entities. Over 90% of local corporate clients have already moved online. By automating of middle and back office operations, the processing efficiency of relevant business was enhanced by 50%. Moreover, we further upgraded our smart risk management capabilities and introduced a cybersecurity surveillance service that helps to identify potential weakness. We also extend digital application, a series of online wealth management services were newly launched such as I'm chat, online investment and online insurance.
Additionally, we launched a one stop wealth planning service plan ahead to meet the needs of young, wealthy customers for quick and convenient investment services. In the first half, the online transaction volume of our investment products was doubled, while BOC Life continued to rank at the top in the e sales channel measured by standard new premiums. We continue to develop our ecosystem in charity, education and transportation sectors to deliver financial services to a wider spectrum of customers. Our BOC bill service now supports 12,000 public parking meters in Hong Kong. As of the end of June, the network coverage of BOC bill increased by 7.9%, while our FPS customer increased by 20%.
During the period, our DOC paid transaction volume increased by 69% year on year. Our promotion of green and sustainable development has been part of our ongoing efforts to put ESG into practice. In collaboration with the Hong Kong Quality Assurance Agency, we became the 1st partner bank on its brand new green loan e assessment platform and launched the SME green financing incentive scheme. In the first half, our green our sustainable loan expanded by 1.6 times from the end of last year. We also launched 3 green deposit schemes, which took up HKD1.9 billion in RMB share class in Hong Kong market.
In addition, we launched the 1st ERC multi asset retail fund with RMB share class in Hong Kong market and successfully issued a sustainable and smart living themed green bond at a total size of RMB 1,500,000,000 to provide financial support to customers for meeting their carbon reduction targets. In the near future, we will introduce the 1st green mortgage product in Hong Kong to support sustainable property and push forward the green and low carbon transition together with our customers. We also provided full support to various financial relief schemes and economic incentive measures of the Hong Kong SAR government. Our market share in the 100% personal loan guarantee scheme reached 30% in terms of number of approved applications. The subscription of both I bonds and Silver bonds through our network ranked 1st in terms of customer numbers.
In this May, we officially enrolled as a supporter of the TCFD. We will continue to improve our climate risk management and steadily enhance our relevant information disclosures. This concludes our strategy review for the first half of twenty twenty one. Next, our CFO, Madam Sui, will walk you through our financial and business performance.
Thank you, Sison. In the first half of this year, our profit of tax was HKD13.6 billion, down 15.9% year on year mainly because of the net interest income decreasing due to the lower market interest rate in face of challenging environment, we capitalized on the market opportunities to achieve favorable fee income growth and maintain the stable operating expense, partly offsetting the adverse impact from the lower interest rate environment. On a half on half basis, our profit after test rebounded by 10.4%. We continued to expand our mid to high end customer base and deepened business engagement with large corporates, governments and central banks on a diverse range of services, including e payment and collection, IPO receiving banking business, cash management, cash pulling and payroll service. We leverage the market trend of customer funding flowing into wealth, insurance, stock and structure products and further grow our CASA deposits to optimize our deposit mix.
At the end of June, excluding the impact of IPO activities, our customer deposit grew by 5.2 percent to HKD2.3 trillion dollars taking our local market share to 15.2percent, up 0.22 percentage point. Our CASA deposit grew by more than HKD120 1,000,000,000 or 8.3 percent with CASA ratio rising to 68.8%. We captured market opportunities in Hong Kong, Great Bay Area, Southeast Asia and overseas markets and strengthened the collaboration with our parent bank BOC to explore the new customers and the new industries. At the end of June, excluding the IPO impact, our customer loans increased 6.1% to HKD1.6 trillion with market share increasing by 0.23 percentage point to about 14%, solid growth we're seeing across different loan types. Since the start of this year, market interest rates stay at about 10 basis points level for a long period.
The average 1 month level and level fell by 129 and 78 basis points, respectively. In addition, competition for loans and deposit was intense. As a result, bank's loan to deposit surprise further narrowed, while the asset yield of debt security investment and interbank placements reduced significantly. In response to these challenges, we steadily increased our average interest growing assets which grew 12.3% year on year. We optimized our assets under liability management by expanding loan book, increasing debt security investment and improving deposit mix, therefore, striving to reduce margin pressure.
In the first half excluding the swap impact, our net interest margin was 1.1%, down 40 basis points year on year and down 6 basis points half on half. Capturing the opportunities from a strong capital market, mutual market access and cash management business, we realized a strong growth of 26.4 percent in our investment and insurance related fee income. Loan commission also increased by 29.1%. At the same time, with the recovery of cyclical industries such as retail and import and export trade, our income from traditional fee businesses broadly rebounded. During the first half, our net fee income reached HKD6.66 billion, up 22.5% year on year and 23.1% half on half which indicated a gradual pickup in the growth momentum.
While ensuring enough resources available for staff expense and key strategic projects of digital transformation, we adopted low carbon, refined and intensive business operations. Our total operating expense fell by 0.1% year on year and the cost to income ratio was 13.3 percent, which continued to outperform the local market. We were here to our prudent risk management principles and the continued strengthened risk management, our asset quality remains solid with sufficient provisions. Excluding the IPO impact, our NPL ratio was 0.32%, up 5 basis points from the end of last year. Our annualized credit cost was 0.1 6%, dropped 2 basis points year on year.
Overall profit remained adequate and NPL coverage ratio still at 2 0 1%, staying at a relatively high level in the market. Our capital and liquidity position remained sufficient. Our CET1 ratio was 15.95%. Our total cash ratio was 19.79%. Both suffered a temporary drop due to the impact of IPO financing.
Our average LCR and NSFR continue to stand at a solid level. This concludes our interim results review. Sei Sun will now share with you our outlook and the priorities for the second half of this year.
Thank you, CFO. In second half of twenty twenty one, the external operating environment will remain complicated. The global pandemic situation will continue to evolve and the economic recovery process will become more unbalanced. Major economies are contemplating a potential shift in their monetary policy, which might lead to a more volatile financial market. With ongoing low interest rate environment, the acceleration in digitization and the low carbon development, there is a need for banks to speed up their transformation.
On a more positive note, the mainland economy has recorded stable recovery and solid growth with new achievements made in high quality development. As Hong Kong's pandemic situation gradually comes under control and the labor market continues to improve, the local economy will sustain its recovery. Guided by the nation's 14th 5 year plan and the dual circulation economic development strategy, the interconnection between the mainland China and Hong Kong will continue to expand. This will add new impetus into Hong Kong's economy and create new opportunities for the banking industry. In the second half, we will remain committed to our strategic goal of building a 1st class regional banking group and develop our 3 key markets of Hong Kong, the Great Bay Area and Southeast Asia.
Sticking to our customer centric approach, we will deepen the transformation of our personal banking business and enhance our traditional advantages in the RMB business. We are strengthening our integrated services, regional management and the digital capabilities. We will also stick to our prudent risk management principles and the push forward of low carbon transformation, striving for sustainable, high quality development. Despite the challenging environment, we are confident to maintain our market outperformance in loan and deposit growth, while keeping the asset quality and ask risk in other risk indicators stable. We will endeavor to expand our income sources and improve our cost efficiency, thus to continuously create value for our stakeholders and make a positive contribution to the local economy and the social prosperity and stability.
This is the end of our presentation. Thank you. We will now open the floor for the Q and A session.
Thank you, Sei Sun. Dear analysts, if you have any questions, please press star 1 on your phone and stay online throughout the process. Kindly remind that each person can ask no more than 2 questions each time. Before asking questions, please inform us your name and institution. Now I'd like our operator to give us the first question.
This
is Yafei, Citibank, Jafei. I have two questions. First of all, for asset management of the company for this quarter, the CET1 ratio is significantly impacted partly because of the IPO financing and the DPS is the same as last year, which is the reverse for the industry. So in terms of DPS, when will you go back to pre COVID levels? That's the first question.
The second question concerning the quality of assets. The COVID, as we can see, that it had formed more NPL by sector and by region, perhaps Southeast Asia and Trade Finance, Property, these are the sectors impacted. Is that correct? Thirdly, when will be we be able to see collective provisions for COVID reversing so that the credit cost will be will not be impacted? Thank you.
First of all, Mr. Ms. Sei will answer the question and Jiang will answer the second question. Yafei, concerning the first question, at the end of June, because we had a major IPO that we handled. For IPO, it is about JPY 150,000,000,000 or so, and therefore, it has pushed up our assets significantly.
In this situation, there had been a short term lowering of CTE. Now taking this away, it is actually the capital drop had been 0.6% to 0.8%, which is really normal. So overall speaking, our capital situation, you can see, is quite strong and sufficient. As for dividend payment, the Board believes that for interim, it is $0.447 and this is in considering the overall situation, profitability, regulatory and also shareholders' expectations. And this is in line with last year's interim.
So as the profit had lowered or been under pressure, our dividend payout had been stable. As for future dividend payout, we have been maintaining our present payout principle. First of all, we will be considering and balancing the long term development of the bank and shareholders' expectations and interest. It is between 40% to 60% payout rate. As for 2021 whole year expectation for dividend, we will be looking at our CAR, which is very strong.
And also in the second half, we will be meeting with certain risks and regulations, regulatory expectations, macro operation environment. We will take these into account before we decide on the dividend payout and at the same time take care of shareholders' returns. Let me answer the second question you had just now. Concerning this question, I will be answering in 2 parts. First of all, the quality of our assets.
For the first half, the quality of our assets had been stable. Our NPL at the end of June had been 0.32%, which is slightly higher by 5 basis points from same period end of last year. And this is because of a few individual customers which had been impacted by COVID and they had been adversely affected and therefore they had been classified as NPL. But overall, our NPL is higher better than the 0.89 average of Hong Kong. It is much better and there had not been any industry systemic or regional risk in this regard.
Overall risk is controllable. And another situation is in terms of impairment and provisions. In the first half, it is HKD 1,190,000,000, drop of 8.7% or HKD 114,000,000. And this is partly because of the changes in certain parameters. And in the first half of this year compared to the second half of last year, the COVID situation is still continuous.
And overall speaking, our overall impairment balance compared to last year had been JPY 1,020,000,000 increase, which is an increase of 11.2%. And basically, the COVID situation continues and alleviation measures continue, and we have been helping or supporting some of the customers. And so these measures continue. So it is also affecting our NPL over the first half. There had been an increase because of certain impacted customers, and we continue to provide the support to them.
And secondly, as for COVID, with more vaccination rates increasing, Hong Kong and the other countries are returning in their economic development. And also, we will be changing our parameters in this regard. And according to our provisions, accounting measures, we will be adjusting the NPL overall as well. As for geopolitical situation and some countries suffering instability politically, some of the regions and some of the industries are unstable in their recovery. We highly we will put focus on these regions and industries.
We will put in strong risk management measures and also in provisions and in other measures and also alleviating COVID situation after the COVID situation had been improved, we will be lowering our pressure for provisions. But overall, the situation is better than the industry. Our provisions had always been sufficient and also prudent.
Mr. Wei and Madam Jiang. If you have any questions, please press 1 on your phone and stay online. Operator, next question please.
Thank you. Our next question is from Gary of HSBC. Please go ahead. Thank you, management. I'm Gary of HSBC.
I have two questions. First, about interest margin. So in the quarter, it may be because of the IPO. The market still declined. So in the last quarter or in Q3, is there an opportunity of NIM rising?
For example, if you deduct the IPO impact, then you will see a better performance in NIM. Another question is about recovery. So loan growth, loan increase, we understand these numbers. In the first half, there was pandemic affecting demand for loans. In the future period, are you going to get some loan demand from Mainland China or will there be growth in local demand for loan?
In the past, usually growth is faster in the first half and this year may be a bit more exceptional. So what is the loan growth target for the whole year? First question about NIM will be answered by Ms. Sohi. The second question should be taken by Mr.
Wang Bin. If you look at NIM, as you said, there was the IPO diluting the NIM performance. If you exclude the IPO impact, then NIM will improve slightly. Actually, the decline in NIM is caused by the overall market. We can refer to the figures.
Last year, in Q3 and Q4, HIBOR 1 month HIBOR was 0.34 and 0.26. But this year in Q1, it changed to 0.14 in Q2, 0.09. So it still continued to decline in July August right now. 1 month HIBOR was only 8 bp and 7 bp. So the same happened to LIBOR as well.
LIBOR in the first half this year, 12 bp and 10 bp, that's the monthly average. And then in Q3, 2 months before Q3, it came down to 9 bp. So interest rate decline was very fast as a result. There was a very unfavorable impact on our NIM. So currently, what we can do is in a few areas.
Your second question, you mentioned loan growth. This is also something that we are most concerned about. So in first half this year, we expand average interest earning assets to HKD3 1,000,000,000,000, and the growth is 12.3%. So given the overall scale or condition, we continued to increase the scale of loan I mean, the share of loan. On average, the loan growth increase is at 8.5%, bigger than the overall amount of loan increase.
So it increased the yield of asset. We also see opportunities from RMB. Right now, the market has demand for RMB. We made use of our service, product and network advantage. We increased our RMB business layout.
RMB NIM has seen a year on year increase. And also RMB assets accounted for bigger share of the total. Thirdly, we compressed the fixed interest deposit scale. CASA is rising in terms of share. Right now, it is at historical high, 68.8 percent.
For Hong Kong dollar overall funding cost, 0.16%, lower than the market average of 0.21%. So if you look at overall NIM, we think that while the interest rate is coming down, BOC Hong Kong is still able to make good layout in assets and also we did deposit control and also overall arrangement. We are able to offset the impact from the drop in interest rates. Then if you talk about the overall situation, interest rate is at a low level. It is still slowly declining.
The Federal Reserve had made some remarks, and you can have some anticipation whether or not interest rates can rebound sooner. But now the timing is something that people have mixed view. If interest rate goes up, it is beneficial to BOC Hong Kong's NIM and also net interest income improvement. Given this low interest environment, we will still do a good job with our own assets and liabilities. In the second half, especially if you look at yield for loan, we will continue to work hard.
If you look at cost of deposit, CASA accounts for a big share. And for interest expenses and fixed interest deposit, well, the room for decline is limited. So we will further control the pricing of fixed deposit and also other related indicators. Now our target is to look at changes in the overall interest rate. Our own goal is that we hope NIM can maintain stable on a half on half basis.
Thank you. Now let me supplement and talk about loan growth. Just now when CFO answered your question on NIM, she also mentioned that in first half this year, when global economy gradually improved and when the pandemic in Hong Kong was gradually under control, the business environment in Hong Kong improved. Overall market loan growth recovered at 4.4%. BOC Hong Kong achieved growth of 6.1%, 1.7 percentage points more than the average market.
And then market growth, 0.23%. Apart from this, our average outstanding balance increased faster than the total 8.5% growth. So loan growth rate is quite balanced. No matter whether you talk about Hong Kong or outside of Hong Kong, we exceeded the market. In Southeast Asia, various organizations overcome the pandemic impact and political impact.
And under stable implementation of strategy, they achieved loan growth of 2.6%. So when the scale increased, actually, the structure of loan growth, overall speaking, was also satisfactory. For new loan growth, basically, it is related to those organizations which we have long lasting relationship and those good customers in Hong Kong, China and Southeast Asia. And then for personal mortgage loan, we are also leading the market. Asset quality or overall loan quality is stable.
Looking at the present moment, even though there is the delta variant leading to impact globally with anti pandemic work in all over the world and also vaccination rate going up, global economy can further recover. IMF has also got more optimistic forecast. So global economic growth would reach 6% for China. China's steady recovery can be further reinforced. People are of the view that this year, China's GDP growth can exceed 8%.
For Hong Kong, our vaccination rate is also improving. For the labor market, we also saw some improvement. There are measures like consumption vouchers boosting the economy. Right now, the estimate is that for the whole year, Hong Kong economic growth can reach 5.5% to 6.5%. So we believe that in the second half, the external environment for banks can improve.
BOC HK has sound customer base. Our product and service capabilities are diversified. Our team's professionalism is well recognized by the market. So we will further seize the opportunities in Hong Kong, the Greater Base, Southeast Asia and Asia Pacific. We will balance asset quality, loan growth and customers' demand.
And on that foundation, we will continue our good performance in the first half of the year. We are confident that for the whole year, loan growth can still exceed that of the market, and we can achieve the target of mid- to high single digit growth. And in the remaining 4 months of this year, we will do a good job in the following four areas. First, we will further play our role as cross border business arranger, and we will step up interaction with our parent company so that we will be a leader in the industry, especially in the field of science and technology. Besides, we will follow closely China's 14th 5 year plan, and we will beef up our teams, analysts, establishment, and we will work more in the emerging businesses and new business models.
We will focus on new generation, health care, advanced manufacturing capabilities, new energy, greening and environmental protection industries. In the first half, these industries achieved satisfactory growth, and we are confident that in the second half of the year, more will be done in order to promote cross border loanscale increase. Besides, we will seize the opportunities from Asia Pacific Economic Development. On one hand, we are a regional headquarters, and we will play a leading role to achieve synergy among Southeast Asian Organizations. We will achieve growth amidst stability so that there will be stable loan growth in Asia in Southeast Asia.
At the same time, in Asia Pacific, we will reinforce our parent banks' synergy with Singapore, Sydney, Tokyo, Seoul Organizations and other organizations. In Asia Pacific, we will have all around collaboration. We will do M and A in terms of syndicated business so as to drive regional loan growth. The third area is about RMB. We'll continue to reinforce the advantages of RMB.
We will seize the opportunity of RMB internationalization opportunities, and we'll focus on trade related businesses. We will promote use of RMB offshore, and then we will do more in RMB product innovation, and we will expand the French circle to promote RMB long rapid growth. Number 4, we will seize the opportunities in Hong Kong and China under the dual carbon target and also the development of green finance. We'll focus on low carbon transformation. At the same time, we need to deepen cooperation with customers in the area of green and low carbon development, so that we can seize the opportunities from low carbon development.
Thank you.
And Mr. Wang, Wang. Operator, next question.
Thank you. The next question please. Thank you very much for giving me this opportunity. This is JP Morgan. First of all, on service fees, we see for loans related service fees, it is significantly increased for the same period last year.
This increase is higher than some of our loans increase overall. My question is for fees increase, does that include IPO effects? Or would you say it is because for the first half of the year syndicated loans had been much greater in size than last year. Is that the reason? A second question concerning the strategy for our loans.
If we look at 33 of our presentation, there are certain industries that are more impacted during this period. And for these more impacted industries, what is the our loan size is still increasing for the exposure to these industries. And the exposure seems to be relatively high. And has this been a result of the relief measures? Or is it because of certain strategic thinking on the part of the bank?
All right. Ms. Sui will answer the first question, and Mr. Wang will answer the second question. Your first question concerning commission fee for loans, the growth is relatively good because we have brass market opportunities and also because of certain reserves opportunities.
And therefore, this is the reason for the growth. Overall, Seapin for our loan increase, the numbers compared to the first half same period last year is more or less the same. But the overall effect is relatively positive, and there is no major IPO impact at all. Yes. As for your second question about the industry impacted by COVID and the loans exposure there, for our bank, concerning our loan customers, we basically focus on our major customers, even though some of the industries are impacted, but for the large customers in the industries, their credit situation, their finance situation are robust still.
So for increased loans are basically focused on mid- to larger customers who have been cooperating long term for us. As for the SMEs, they do not take up a big percent and whether it is a number of clients or the amount of balance, we have been monitoring very closely and we have a name list of red, yellow and green system. And for the COVID that are for entities that are
Operator, next question please.
Thank you. Our next question will be from Rupi Sahi with Goldman Sachs in Hong Kong. Thank you.
Thank you management for taking my question. I have two questions. First is on the credit charges. So in the second quarter, although asset quality was stable, credit charges went up more than double versus the first quarter. Can I understand which sector or geographical exposure required higher credit charges in the second quarter?
And then my second question is related to overall ROE of the group. It is around 8%. So of all the strategic initiatives that the management is focused on, can I ask what can be the path to earning more than 10% ROE? Like if interest rates remain at this very low level, how can ROE be raised to more than 10%? Thank you.
Okay. Thank you for your questions. I think the first one is credit charge, second one is ROE. Translate first, okay.
Mr. Jiang will take the first question and then Ms. Sohi will take the second question. Right. You are concerned about the impairment provision expenses in Q2.
So in Q2, in terms of asset quality, well, basically, it is stable as compared to Q1, and we increased the provision for two reasons. First, in Q2, the overall situation is related to the pandemic. There are implementation of anti pandemic or relief measures. So there are customers related to those with relief measures, and they still faced heavy financial pressure. Now in the future, when there is exit of these relief measures, then we want to guard against the default risk of these customers.
So that's why we increased provision. We targeted at customers with a long repayment tenure and also those which have gone through a number of refinancing. So we increased provision for these customers. This is a preventive measure. In Q2, there are some specific customers showing a decline in asset quality.
And in Q3, because of loan growth, there was also increase of provision. These factors added together led to the increase in provision expenses. So the expenses increased as a result. We think that the asset quality and also the provision is at a controllable level. And overall speaking, we are able to maintain a satisfactory control.
Thank you. Let me comment on ROE. At present, ROE is 8.42%. Year on year speaking, there is a decrease of 2 basis points in ROE. That's because we showed high after tax profit, JPY 13,264,000,000.
So in other words, we achieved an increase of 3.3%. But as such just now, in terms of decline in net interest income and also the negative impact of the low interest rate environment, these are some factors. So our overall profit had declined by a big amount. And then looking into the future, our goal is that we'd like to stabilize equity. And at the same time, we hope to increase our profit.
As said earlier, our own strategy and also our layout in the 3 main markets and also customer development strategies. With all these measures, we hope to improve our profitability. Thank you.
Adam Jiang and Adam Sui. There's still time for last question and we also have some analysts and investors online. I would like to invest our colleagues to read the questions from online investor.
There are 2 questions. First of all, IPO impact on the repayment of loan and also the IPO amount, the funds, can it be accounted into deposits of customers? Well, for IPO, its impact on our overall loan is JPY 150,000,000,000 or so. And it does go into our loans. And for deposits, it would also that is IPO deposits would increase our overall deposits as well.
At the end of June, for IPO deposits, it was about JPY 380,000,000,000 or so. So with this amount of and also JPY 150,000,000,000 of loans overall because of such impacts, we have actually taken out the effect of IPO in our calculations.
And all the senior management, today's interim result briefing has come to the end. Should you have any further questions, please contact our Investor Relations team. Thanks for your participation and see you next time.