Good afternoon, ladies and gentlemen. I am Zhang Bingxun, Secretary of Bank of China Limited. Thank you for coming to this interim result presentation by Bank of China. The venue for presentation is in Beijing, and the session will be video linked to our Hong Kong venue to ensure that Hong Kong analysts have equal access to our public disclosure. Let me draw your attention to our disclaimer. This presentation, together with our 2012 interim report, is now available on our website for downloading.
Now, I would like to introduce our senior management team to you. Mr. Li Lihui, President. Mr. Wang Yongli, Executive VP. Mr. Yue Yi, Executive VP. Unless otherwise specified, all financials in our presentation are prepared according to IFRS. There will be a Q&A session at the end of the presentation, during which we will allocate time between Beijing and Hong Kong. Now, I would like to turn the presentation over to President Li.
A very good afternoon to all of you. Thank you for coming to this presentation. Yesterday, the interim results report has already been given to you, and you must have run your analysis on it. So this is only to further add to it. Since the beginning of 2012, the banking industry has faced increased operational pressures, but our performance has remained satisfactory. In the first half of 2012, the bank after-tax profit reached RMB 75 billion, an increase of 6.8% year-on-year. After eliminating one-off impact of Lehman Brothers related write-back during the first half of 2011, the after-tax profit actually increased by 12.3%. Return on average equity and return on average total assets increased by 0.72 percentage point and 0.05 percentage point respectively compared with the prior year, reaching 18.99% and 1.22%.
Asset quality remains stable with further increase in provision coverage ratio. The bank's NPL ratio decreased by 0.04 percentage point to 0.96%. The NPL coverage ratio increased by 12 percentage points to 2.33%. Capital adequacy remains solid. Capital adequacy ratio was 7%, and well capital adequacy ratio was 15%, up by 0.02 and 0.07 percentage points, Respectively, compared with previous year. Our major tasks for first half of 2012 were, first, deepen business transformation with a focus on effective operations. Second, improve management capabilities with a focus on risk control. Finally, comprehensively strengthen infrastructure construction supported by advanced information technology. Last year, after the completion of our IT blueprint, we have further optimized our various processes, and this has achieved very good results for us. Now, our asset structure and asset yield. Proportion of new increased RMB-denominated personal loans increased by 6 percentage points to 40%.
This is a result of our proactive adjustment of our asset structure. Compared with previous year, newly granted RMB-denominated SME loans to total newly granted RMB-denominated corporate loans increased by 2 percentage points to 48%. The average interest rates for newly granted domestic RMB-denominated loans and USD-denominated loans increased by 47 and 49 basis points from the prior year and reached 7.06% and 4.49%, respectively. At the end of June 2012, the proportion of RMB-denominated debt securities accounted for 76.7% of total debt securities, up by 1.9 percentage points from the prior year. The average yield of debt securities was 3.13%, and the average yield of domestic RMB debt securities was 3.44%, up by 18 and 33 basis points respectively. Liability structure and funding cost control. In the first half, we further optimized liability structure.
At the end of June, proportion of domestic RMB-denominated personal deposits reached 46.7%, up by 1.5 percentage points. Loan-to-deposit ratio decreased by 0.18 percentage points to 68.59. The bank strictly controlled the volume and interest rate of high-cost liability. At the end of June, the balance of on-balance sheet wealth management products of domestic institutions reached RMB 670.6 billion, accounting for 7.07% of total group deposits, down by 1.73 percentage points compared with the end of the first quarter.
The average cost of on-balance sheet wealth management products during the second quarter of this year was 4.30%, down by 42 basis points compared with the first quarter. Net interest margin remains stable. Faced with challenges from a complex economic and financial environment, Bank of China expanded scale of interest- earning assets, proactively optimizes customer and business structure, and strengthened pricing management to increase net interest income and improve net interest margin.
In first half of 2012, the group net interest margin was 2.1%, a decrease of 0.01 percentage point compared with the first half of 2011, maintaining a stable trend. If you look at geographical breakdown, you know that the green line actually is overseas, and you can see that NIM drop is rather large. All the other lines actually show only a very slight drop. So this is non-interest income. You can see that there has been a slight drop. For non-interest income, it amounted to CNY 55.6 billion, mostly from business including bank card fee coming from less capital- intensive services. Settlement and clearing, and custodian, other fiduciary services, achieve fast growth, up by 39%, 9%, and 11% respectively year-on-year. The proportion of fee income from less capital- intensive fee-based business accounted for 77% of total fee income. Overseas business, that is our traditional advantage.
In the first half, under the guiding principle of specialized operations, intensive management, and integrated development of domestic and overseas businesses, the bank leveraged its overall advantages, coordinated business development in domestic and overseas operations, improved global service capabilities, and accelerated growth in overseas business. As at the end of June, total assets of the bank's overseas commercial banking operations increased by 19.8% from the prior year-end to USD 490.8 billion. Profit before tax was USD 2.6 billion, an increase of 22.7% year-on-year. Customer deposits and total loans increased by 11.6% and 12.4%, respectively from the prior year-end, to USD 243.4 billion and USD 200.4 billion. The bank accelerated the expansion of its overseas network by establishing outlets, representative offices, and China desks, et cetera, to extend the overseas networks and enhance its global service capability. Currently, the bank's overseas operations cover Hong Kong, Macau, Taiwan, and 35 other countries.
The bank actively expanded its cross-border RMB business and consolidated its advantageous position. In the first half, the bank has achieved a cross-border RMB settlement transaction volume of RMB 1.05 trillion, up by 19% year-on-year. Among the total, domestic operations completed total transaction volume of RMB 527.3 billion, up by 53% year-on-year, with a market share of over 30%. The bank ranked first in the market with cumulative cross-border RMB settlement transaction volume exceeding RMB 3 trillion during the recent three years. Its customers were located in more than 100 countries and regions. The bank also ranked first among its peers in terms of cross-border RMB clearing accounts, having established 758 cross-border RMB clearing accounts for overseas participating banks.
The bank made full use of its competitive advantage of international and diversified platforms, and developed a variety of cross-border RMB products, including deposit loans, international settlement, cash distribution, clearing services, treasury operations, credit card insurance, and funds, et cetera. Providing efficient cross-border RMB services to global customers. Looking forward, the bank will take full advantage of its function as main channel for RMB clearance, further expand cross-border RMB products, and leverage on the cross-border synergy to effectively boost the development of overseas RMB businesses. In the first half, the bank closely monitored the macroeconomic environment, enhanced its asset quality control and monitoring systems. We strengthened post-lending risk management and periodic risk investigation, and promoted the re-examination of risk classifications and proactively detected possible risks. Asset quality remains stable.
As at the end of June 2012, the bank's ratio of non-performing loans to total loans stood at 0.94%, a decrease of 0.06 percentage point from the prior year-end. Special mention loan ratio was 2.84%, a decrease of 0.19 percentage points from the prior year-end. We can say that our risk management work has achieved good results. The bank continued to implement a prudent provision policy and charged provision following a timely and sufficient principle, which helped to enhance the overall risk mitigation capability. As at the end of June 2012, the allowance for loan impairment losses to NPL was 233%, an increase of 12% from the prior year-end. Domestic institutions' ratio of allowance for loan impairment losses to total loans was 2.58%, meeting regulators' requirements. Our new NPL has decreased, and the bank's credit cost was 0.28%, down by 0.04% compared with the prior year.
The main reason is the reduction of new non-performing loans, with new NPL formation ratio for domestic operations stood at 0.41%, a decrease of 0.07% from prior year. In the first half, the bank continued to strengthen risk control for key business areas. Diligently implemented regulatory policies and tightened risk management practices for key industrial segments, such as local government financing vehicles, real estate, and over-capacity industries. These are about risk of key areas under control. Here you can see a chart. Loans to local government financing vehicles, RMB 422.5 billion, accounting for 4.31% of total provision to total loans, so it has come down. NPL coverage ratio 1,303%. NPL ratio is 0.33%. Loans to real estate sector, RMB 223 billion. Accounting for 3.3% of total loans. Among all major commercial banks, our ratio is the lowest. NPL ratio 0.49%, NPL coverage ratio 1,140.
Ratio of total provision to total loans, 5.6%. Loans to sectors with overcapacity, balance of loans, RMB 247.7 billion, accounting for 3.67% of total loans. NPL ratio 0.8%. We have selected those more outstanding enterprises and better projects to extend loans. NPL coverage ratio 331%. Ratio of total provision to total loans, 2.66%. Operational risk management. We have put in place a lot of measures, and we're able to maintain operational risk losses or loss cases at a low occurrence rate. Infrastructure construction. In the first half of the year, the bank used its advanced technologies and industry experience to upgrade physical outlets and speed up the construction of innovative e-banking channels, aiming to build safe and convenient service channels in order to provide diversified and customized financial services and excellent channel experience for the customers. Here you can see some figures.
Among large commercial banks, we are very effective in this regard. The bank continuously improved its e-banking service channel system. We have established or improved our online banking, personal online banking, and mobile banking customers. Concerning our e-banking services overseas, you may say that basically we are able to satisfy customer needs in this area. Cost control. The results have been quite satisfactory. Because we expect changes in the market environment, we took the initiative to enhance cost control. While increasing investment, the bank also proactively optimized its resources allocation mechanism, minimized costs, improved efficiency, and capped travel, meetings, and other administrative expense growth at a relatively low level. In the first half of the year, if you look at our administrative expenses, it is over CNY 50 billion, up by 9.6% year-on-year.
The bank's cost-to-income ratio was 29.23%, a decrease of 3.84 percentage points compared with the end of last year. In the first half of 2012, the bank celebrated its 100th anniversary. On the 3rd of February, we conducted our 100th anniversary ceremony, and leaders from the State Council of the People's Republic of China took part or attended that ceremony. This year we achieved awards in various areas with the market recognition further enhanced. Outlook for the second half of the year. I think analysts have already conducted in-depth studies. In relation to the macroeconomy and operating environment outlook, we have done an overall analysis. We have also looked into the operating environment of our bank. On the whole, the global economic and financial environment is expected to remain complex and challenging, and the European sovereign debt crisis will continue to be the largest risk affecting global economy.
We do not think this crisis can be resolved very soon. The Chinese government will continue to be guided by the principle of stable progress in its policies and initiatives, as it places even greater emphasis on stable growth. It will implement proactive fiscal policies and prudent monetary policies, and accelerate economic restructuring to achieve steady and robust economic development. We believe that GDP growth will be capped at around 8%. In the second half of the year, concerning investments in some key areas, there will be increases compared to the first half of the year. That is why we expect that GDP growth can be maintained at 8%. Looking forward, the banking industry is facing various challenges, including more pressure from market liberalization, more competition from globalization. In terms of globalization, there is not only competition among financial players in China.
We also have to compete with HSBC, Standard Chartered, and Citibank globally. There are challenges for more advanced intellectualization. There is a very smart, interactive internet era, which will change the business model and operating model of banks. So we have to be better prepared to face up to all these challenges. In the second half of the year, we will focus on the following four aspects. First, develop a truly smart bank led by information technology. Second, transform development model with a focus on effective operation. Third, accelerate the integrated development of global service capabilities. Finally, improve risk management with an emphasis on quality. So here you can see a number of points under these categories. That is all in my presentation. Thank you.
Thank you, Ms. Li. Now we ask Beijing analysts to put questions to the floor first.
Thank you. I am from Core Pacific-Yamaichi International . I have got two questions. First, concerning end of June, first half of the year. Concerning the balance of deposits, it seems that it has increased by quite a lot to 20%, and at the same time, the loans have come down. My question is: Is it because of your projection of the appreciation of RMB? Also, what is going to be your response to this development?
The second question is for long term. Even though your safety line is rather high, at the same time, your yield ratio is quite low, especially with the impact of financial crisis. Do you have any long-term plan concerning development of your business with regard to SMEs?
Your projection is correct. In the first half of the year, the market's anticipation of RMB appreciation has changed. In the past, the market anticipated that RMB would continue to increase in value or increase at a very fast rate. As it turned out, the RMB appreciation has slowed down and is stabilizing. The market is now of the feeling that RMB at least won't be rising quite as fast as expected. Loans in foreign currency denominated loans, demand would be less. Major countries such as U.S.A. and other major economies have all adopted quantitative easing and qualitative easing measures. As a result, foreign currency denominated loans have increased faster as a result. That is to meet customers' demand. Because of this, it has an impact on our NIM for the first half of the year.
In the first half of the year, our deposits have increased, and our loans have come down. Our deposits have been placed with central bank, and the net interest there is only 3.2%, and that is why our NIMs has been tracked down. Starting from May and June, we have already proactively made some adjustments. Today, we are following the footsteps of other major banks, and we act concurrently with them. For one year and two-year deposits, our interest rate is a little bit lower than other major banks. We hope that in so doing, we will be able to strike a better balance. We hope that our measures like this will have a positive impact on NIM movement from now on. The second question, indeed, our statistical paces may not be the same.
For small and medium enterprises, they seem sometimes to be subject to different yardsticks. Our proportion of loans for SMEs is not too small. Our medium-sized customers loans is around CNY 1,500 million. For small enterprises, it is around CNY 800 billion, and so together, it is around CNY 2 trillion. We have a very strict definition for SMEs. According to our in-house definition for SME, which is a more relaxed definition, our medium-size enterprise loaned is around CNY 600 billion, and for small- size enterprises, our loans for them is around CNY 200 billion. If you take that as a yardstick, actually, the proportion of our small and medium-sized loans is not really that large. Because of the changes in the market, we will continue to optimize our loan structure, targeting SMEs. We have been fine-tuning our strategy, and we have been reforming ourselves continuously.
In the first half of the year, the small and medium-sized loans for Bank of China has increased by 19%, so that far outperforms the average increase for other loans. We are going to fine-tune our loan structure in order to optimize our NIM income and also to offset negative impact from the market.
Thank you. I am an analyst, Law Chen. I have a question concerning your capital. In the interim period, your core CAR has gone up. On January 1 next year, if there will be the new capital agreements or Basel Accord, then concerning the CAR and core CAR, how big will the impact be? If you look at the medium term now, through the internal or intrinsic growth of capital, how are you going to maintain business development, and what kind of measures are you going to put in place?
We will invite Mr. Wang to take your question.
The CBRC had formally promulgated the Rules on Capital Management of Commercial Banks, which will be implemented on January 1 next year. In 2018, all the banks will have to reach the standards. For BOC, because we are an important bank globally, when it comes to internal control and management, we have to be able to reach the standards at an earlier stage. Under this method, concerning our CAR, there will be an impact. There will be impact of around 1%.
There will be new requirements concerning our future development. In fact, a few years ago, capital adequacy ratio became the most important indicator for commercial banks. So we have been doing a lot of studies on how to maintain a more reasonable CAR. If it is too high, then shareholders' return will be affected. But if it is too low, then we cannot meet the requirements of the regulator. So we have to maintain a reasonable level. Looking at the current conditions, first of all, we have to make more adjustments to our business structure, customer structure.
In other words, we have to move towards less capital-intensive development to explore more internal potentials. Different banks have different businesses, and their risk appetite will be different. The need for capital will be different, so we have to do a more comprehensive analysis, and we have to find out areas of funding that we need to develop more. Besides, we have been monitoring or keeping close attention to the requirements under the Basel Accord, so we have to look at the actual implementation method. We have asked the regulator to examine our internal control and management methods, and through building internal systems, there will be support for enhancing our own internal capital control or capital management. I talked about adjusting customer structure of small, medium, and large-sized customers, and market structure in terms of the domestic and overseas markets. We have to look into all these.
We have to try to find funding or capital internally. At the same time, we have to maintain a reasonable earnings level. Through after-tax profit, we can retain our surplus to keep or reserve our capital. This is the main way to maintain our capital. Apart from that, we have to pay attention to developments of the market as well as market liberalization. These are things that we have been paying attention to, but how should we do the work and how much should we do? It depends on our needs and also market circumstances. Thank you very much.
Thank you. I have two questions. First, about overdue loans. It seems that there has been an increase of 15%. However, the rate of increase hasn't been very large. I would like to know what is the distribution of overdue loans, and what kind of customers are we talking about, and what kind of geographical locations are we talking about? Looking on towards the second half of the year, what is going to be the proportion of overdue loans? Is there a possibility that overdue loans would worsen into NPLs?
In the first half of the year, it seems that your NIM performance has been outstanding. Also the balance of your deposits with financial institutions is such that your NIM's performance has been outstanding. I would like to know what exactly drove it.
Concerning the first question, you can communicate with Bank of China Hong Kong. I understand that Bank of China Hong Kong NIMs has performed very well. It is because of the cross-border RMB business, and income from it, and profit from it has increased a lot. Of course, there could be other factors, but you have to communicate with Bank of China Hong Kong. Concerning overdue loans, in the first half of the year, indeed, there has been an increase of CNY 11.8 billion of overdue loans. The ratio is 1.18, an increase of 0.01% compared to the same period of last year. However, if you look at the overall picture, the rate of overdue loans and the ratio of overdue loans is still within a healthy range.
The reason why there has been an increase of overdue loans is mainly because of the macroeconomic crisis, and also because of the economic slowdown within China. If you look at the structure, 41% is within 90 days. That is the proportion.
If the loan is over 90 days, then we would call it NPL. On a whole, it would not impact on our provisions too much. Of course, you want to know what kind of customers are involved. Concerning overdue loans within 90 days, mostly are domestic loans, and we are talking about corporate customers as well as individual customers. The structure of overdue loans is that corporate loans only account for a very small amount, around CNY 800 million. The majority is accounted for by individual borrowers. Of course, the downturn of economy also pushes up the number of overdue loans from individual customers. Also it is affected by the traveling patterns of people. If you look at the geographical distribution, if you look at product distribution, you come to the conclusion that there is no systemic crisis there.
In recent years, the development of bank cards has been going on very rapidly, and the income actually has reached a record high of CNY 6 billion. Also we have innovated with our products, and also we have introduced a payment by installment service. Because of such product innovations, this has resulted in a certain rise of overdue loans. But still, the overdue loans ratio is within healthy and manageable range. Looking on to second half of the year, even though there is a possibility of further economic downturn in China and also global economic crisis, but on a whole, we can see that the Chinese economy will continue to grow. As long as we can do a good job with managing our risk, we will be able to keep NPL and also overdue loans within control.
Now we ask Hong Kong analysts to ask questions.
Thank you for giving me the chance to ask question. I am from Deutsche Bank, Tracy. My question is about asset quality. Just now, President Li explained to us very clearly, in Q1, comparing with the last two years, asset quality is even lower. For the second half, what is your projection? When the downside risks are bigger, which industries will be more affected? What kind of strategies will be put in place to ensure the bad debt level, and then the bad debt will be maintained at a satisfactory level? Thank you.
About the second half of the year, concerning the trend, we think that it is possible that pace of economic development will be slower than past few years. But there will be a slight increase or improvement as compared to the first half of the year.
For the whole year, for economic growth, the rates may reach 8%. That is the first point. You are interested in the second half of the year, and risk may be concentrated in a few sectors. These are sectors that we are also concerned about. First, industries with overcapacity. They may face more difficult challenges with overcapacity than in some industries. Not only the mainland market is involved, the international market is also involved. There are factors related to trade barriers. So some enterprises or projects in these sectors may see higher risk. Secondly, for the real estate industry, some enterprises in this segment, in the future, will be even more divided. When it comes to good enterprises and good projects, there won't be much problem.
However, there may be companies with weaker capital strength, and there may be some companies that are not only involved in real estate business, they also operate in other areas or other businesses. When market environment changes, the group's cash flow may worsen, so risks for these enterprises may go up. Besides, for the local government financing platform, it is something that we have to be concerned about. If you look at the size of the enterprises, we believe that the medium-sized and small enterprises may face greater risks, especially those relying more on exports because of changes in the international market, and costs are going up on the mainland. Concerning the operations and management and cash flow, there will be impacts. For BOC, in relation to risk management, we have been doing well. Our credit policy is more prudent.
Over the past years, in relation to credit access, industry access, project access, enterprise access, we have done quite a stringent job. So now when there are quite a lot of risk in the market, we are still able to maintain a satisfactory NPL ratio. In the past few years concerning our risk management, we are more proactive and forward-looking. We try to put in place some forward-looking measures to take the initiative to guard against risk. So we have done quite a good job in this area. In the second half of the year regarding risk control and risk management, we will do a strict control work, and we will also actively identify the risk in relation to, for example, local government financing platform. We will try to control risk.
For big projects or for loans that are going to mature, we will work with the local government and the relevant authorities to make sure that there are sources of repayment to guard against risk. For the real estate industry, we will pay close attention to government policies. For cross-sector operation enterprises, and when they have more complicated operating environment, we will do more analysis, and we will put in place some detection measures. For those with high pollution and high emission enterprises, of course, we will limit their credit. For risk control, we will make sure that we are able to detect and identify risk earlier. We will try to help enterprises to ride out the difficulties if necessary. We will put in place measures to protect our assets.
In the second half of the year, concerning our asset quality, there won't be much change. We should be able to maintain a good level. Our NPL ratio is 0.9% something percent, which is quite low. For the next year, we are able to keep it at a good level. For credit cost, in the first half of the year, it's 0.08%, and for the second half it will go up, but it won't be higher than the overall level last year. Thank you.
Thank you for this opportunity. My question actually has two parts. First, we can see that because of the changes in regulatory environment, fee-charging services actually have slowed down in terms of growth. The reform ministry of the country is now studying the future development of fee-charging services of the bank. What kind of impact it will have on your fee-charging services, and what is going to be your future level of fees? In future, we can see that for Bank of China figures, domestic RMB and also overseas RMB, and then overseas foreign currency are the way you try to distribute your business and also your various service sectors. In future, is that also going to be the way you are going into?
You mentioned that the regulatory authority is now looking at fee-charging services by bank. Indeed, fee-based services by banks as a result of the development is being impacted. Bank of China is no exception. In April and May, the regulatory authority has already started its work, and Bank of China has also done its own internal review. There was a period of time where we really were at a loss as to what kind of fee-charging services would be in order and what would not be in order. But after the situation has been cleared up, the fee-charging services has resumed a growing path. But on a whole, the entire industry is being impacted on in terms of the fee-charging services department. Concerning fee-based services, Bank of China has always placed a lot of importance on it.
Because of this new regulatory situation, we are now studying ways in order to increase our intermediary service. Of course, we have to leverage traditional Bank of China advantage in international clearance and also our advantage in cross-boundary and cross-border RMB clearing services, and also our advantage from our diversified services. So these are our traditional advantages that we will continue to leverage and continue to enhance. At the same time, we have to expedite the buildup of smart banking services concerning diversifying our services into the e-platform, the internet platform, and also the phone platform. Mobile phones and also internet have already drastically changed human behavior. Once again, it poses a lot of challenges and opportunities to the banking sector.
Last year, we have already completed our China IT blueprint, and on the basis of that, we are going to initiate our plan to build up our smart banking platform so that through new channels and avenues, we'll be able to better serve our customers. Our system is going to be extended within 2-3 years to cover our entire global network. So our overseas systems will be brought online. From now on, one of the major tasks is really to revamp our services channels in order to better serve our customers. At the same time, we are also very mindful of the importance of the placement of our capital. We have to orient towards capital-less intensive services and projects. Because of global economic changes, we really want to move into the overseas arena.
In the first half of the year, our performance in the overseas sector has been very good, and we will continue to build on that. Especially since the market has changed its expectation of RMB appreciation in the sense that they are seeing that the RMB is slowing in its appreciation or maybe even coming down a little bit. There are opportunities for us to really move into that arena and also to adjust our fee charging services accordingly. You mentioned a fee-based service. We are going to be very serious about adhering to the government's requirements and regulations. Indeed, there will be new regulations being launched. The categories of fee-based services to be introduced by banks will be subject to limitation, and also certain services will not be allowed to be subject to a fee, and so on and so forth.
Because the policies and the regulations have not been officially promulgated, we still do not know what kind of impact it will be, but we believe that the impact will not be too significant. To offset the impact from such new policies, we can expand our services in other areas in order to better serve our customers. In the first half, our fee-based service income has come down. In Q1, our fee-based service income actually was quite good. But in April and May, our fee-based service income has come down quite drastically. In June, it has gone back up and it was already close to the March level. In the first half of the year, the capital market was not performing very good. As a result, fee-based services income has come down as a result.
Non-commercial banking service pre-tax profit was $300 odd million compared to $8 billion odd last year. So there was a drop of $5 billion, a drop of 59.7%. In the second half of the year, we probably will not see a full recovery, but probably next year, the capital market is going to resume its growing track, and non-commercial banking service platforms should be able to pick up in terms of growth and recovery. That would have a positive impact on our fee-based services income and also non-commercial banking services income. We hope that next year, our total income growth for non-commercial banking services and fee-based banking services would maintain a very slight growth.
Thank you. I am Lucy. I have a question for President Li about the macro situation. Recently, the local government promulgated some stimulus packages in Guizhou, Guangzhou, and Hunan. It seems that in every province, there is a few trillion worth of projects. So are you going to be like in 2009, that you will work with the local government on the 4 trillion package? Will there be big growth in loans? Are you going to go in accordance with China Banking Regulatory Commission that the scale of local government financing platform will not increase, you will be more prudent? You will not offer big loans to all these projects. In 2009, concerning the 4 trillion, there are lots of adverse impacts. So I want to understand more about your attitude concerning the local version of 4 trillion package.
Concerning the local governments, in accordance with the economy of different places, they have done some economic development plans. We have done some in-depth studies and analysis about these. Overall speaking, our view is this. The local governments have made their plans not only for the prevailing year, some of those plans are for short-term to medium-term. Secondly, the central government will do more to coordinate and control the local governments. We believe that in the second half of this year and next year, the central government on some important areas will invest more. However, it is not possible to see the large scale Investment as in 2009. So there won't be such an arrangement, according to our opinion. The central government will be selective. They will concentrate more on special regions, special districts, or special projects to increase investment so that the economy can maintain sustainable development.
For Bank of China, we will implement the macro-control measures or policies of the government. We will selectively support the more important and more commercially viable projects of the local government. For the whole year, loan increase or loan growth will be maintained or controlled at a more reasonable level. The growth won't necessarily exceed the level of last year because deposit growth was also rather slow, so we will be selective in our development. At the same time, we'll attach more importance to adjustments and optimization of credit structure. In relation to internationalization, we will capitalize on our strength to help the enterprises to get their own financing from the capital markets and financial markets. This will be beneficial to the enterprises and projects. The financing structure can be optimized, the cost can be controlled, and banks' credit resources can also be saved. This is our idea.
Just now, there was a suggestion saying that in the future, it is hoped that we can give details with a detailed breakdown by region. This is a good suggestion. We will try to examine this more closely so that information we provide will be more satisfactory to analysts.
So one last question. Let's take one from Beijing.
My question has to do with deposit growth. I noticed that starting from Q2, your deposit is gradually shrinking, and the main reason is because of the reduction of structured deposit by CNY 160 billion. At the same time, your PowerPoint says that you are trying to compress this intentionally in order to control the average cost. So I'd like to ask about second half of the year. Concerning competition for deposits among banks, it is going to intensify. So what is going to be your take on the prospect of growth for the on-balance sheet deposits growth under your portfolio?
For Bank of China, all along we've been analyzing very diligently our debt structure and also our deposit structure. For Q1, our high-cost debt actually has increased too fast, and that's why we have done certain conscious measures in order to compress that. We intentionally increase the proportion of low-cost debt, and also we intentionally control the proportion of high-cost debt. In the second half of the year, this policy will be further expanded. Because of the marketization of the interest market, fresh challenges and fresh pressure will be put onto us. But on the whole, we hope that through optimizing our debt structure, we can do a better job in the second half of the year. So this is point number one. Point number two, you probably are more concerned about quarter-end statistics, but we have changed our statistical methods.
We are now focusing more on the day-to-day deposit increase from our branches. Because if you only look at the quarter-end statistics, there may be a very short-term peak being achieved there at the quarter end, but it doesn't mean that the high level can be maintained for a very long period of time. We are now more concerned about the day-to-day deposit growth from our branches. Also, if we look more at the day-to-day branches deposit growth, it will give us a better picture as to what our revenue and what our profit situation and potential is going to be. We continue to fine-tune our debt structure and also optimize our debt structure, and it is going to take some time. I cannot guarantee that the task definitely will be completed within the second half of the year.
But with our efforts in first half and also our continued efforts in second half, we hope that our debt structure can be further optimized and can be further improved. We have more capital at our disposal available for our use. This definitely will contribute to the increase of our overall operational efficiency. Because of time factor, we have to wrap this up now. Thank you for coming to this presentation. Thank you.