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ABC: Empowering rural communities of China

@ Atif Mansoor Khan

Company Insights

twimbit Purpose Benchmark

ABC
Purpose score – * Poor ** Satisfactory ***Good **** Excellent *****Outstanding
Source: Refer to the methodology in Appendix A below

Agricultural Bank of China Financials – An overview as of 31st December 2020

Bank name Agricultural Bank of China (ABC)
Headquarters Beijing
Operating revenue USD 100.94 billion
Group net profit USD 33.13 billion
Total assets USD 3.96 trillion
Employees 459,000
Countries in operation 17
Number of branches 22,951
Fintech investments USD 2.8 billion
Number of customers 860 million
Market capitalisation USD 156.81 billion
Operating revenue CAGR growth (2016-2020) 29.25%
1. China’s accounting period follows a cycle from January- December. The above financials are as per accounting year 1st January 2020– 31st December 2020
2. Conversion rate to USD as of 31st December 2020 – 0.1531 USD

Shareholder value (31st December 2020)

Return on equity (as of 31st March 2021) 8.81%
Total shareholder return (1-Year) -13%
Net income ratio 32.82%
Common equity tier 1 Ratio 11.04%
Price earnings ratio3.61

Awards

2020 The Asset: ESG Golden Award, Rank No. 2 of Top Investment House in Asian Foreign Currency, Bonds for Commercial Banking institutions in the PRC/Hong Kong, Best Private Bank in China, Best Pension Trustee, Best Risk Management Project Award, Best Information Security Project Award
Asiamoney: Best Green Bond Bank, Best Retail Bank for Precious Metal
Southern Weekly: Outstanding Responsible Enterprise of the Year, Influential Enterprise of the Year, Annual Model Enterprise for Targeted Poverty Alleviation
Global Finance: Best Precious Metal Service Star, “Best Custodian Bank” in China
The Banker: Top 10 Investment Bank Innovation Award, Financial Services Innovation Award for Top 10 Small and Micro Enterprises, Top 10 Consumer Financial Innovation Award, Top 10 Intelligent Risk Control Innovation Award
The Economic Observer: Excellent Financial Enterprise — ESG Industry Model of Responsible Investment

ACB and its strategic focus areas:

  • Business strategy

2021 marks the first year for China’s 14th Five-Year Plan, which aims to build China as a modern socialist country. Agricultural Bank of China (ABC) intends to move in line with this particular plan and help China succeed through the following ways:

  1. Refining its operation philosophies:
    1. Following the operational policies commercial banks have for value creation, risk control, cost constraint, and capital constraint
    2. Promote transformation from a “self-oriented operation” to a “customer-oriented operation” strategy, with a focus on improving customer experience by:
      1. Enhancing its account opening services
      2. Developing new online products like Fund Supervision, Gongxin Bao and E-guarantee
      3. Creating easy-to-use digital platforms and access to financial services
      4. Promoting e-loans and reducing fees and interest concessions
    3. Transforming itself from a mere credit intermediary to a comprehensive financial service provider.
  2. Reinforcing strategies and positions:
    1. ABC aims to achieve this goal by serving San Nong or the “Three Rural Issues.” These issues relate to development in agriculture, rural areas, and farmers in mainland China:
      1. ABC will extend new loans amounting to USD 15.3 billion to 832 counties in poverty and extend service networks in underdeveloped areas.
    2. Delivering better performance in urban areas
    3. Expanding its operations in rural areas continually
    4. Allocating its resources to businesses with higher values and more benefits
  3. Accelerating business transformation:
    1. ABC intends to achieve business transformation through risk control, sustainable development, and strengthening its financial services to serve San Nong.
    2. The bank will promote the transformation from a large to a robust retail bank, achieved through an enhanced customer base and by expanding its market reach.
    3. ABC will participate in emerging industries and service industries actively
  • Customer experience

ABC aims to make a major transformation in its organisational strategy with more emphasis on providing a better customer experience (CX). It will focus on key areas in which it can improve the overall customer experience. Focus areas are corporate banking and retail banking, with an emphasis on treasury operations and asset management. ABC plans to achieve this by:

  1. Optimising its business procedures and operations to improve CX constantly
  2. Enhancing the accessibility of the financial services offered by upgrading foundation-level branch outlets
  3. Refining the outlet layout in urban areas, new communities, and major counties
  4. Responding to customer queries, concerns, and complaints on time

ABC is enhancing its digital, intelligent, and online service capabilities to provide its customers with a seamless experience while banking with them by:

  1. Accelerating online credit innovation, making online financing convenient for customers:
    1. Launched innovative online financing products like Yihu E-loan, Huinong E-loan, Fugong Loan and Xuije E-loan
  2. Promoting the integration of both online and offline channels:
    1. Accelerated the construction of cloud service centres for remote banking
    2. Promoting the construction of open banking actively
  3. Created a “Smart Payment+” platform to improve the transaction banking system for accounts and payment settlements:
    1. Advanced the integration of smart payment and financing to satisfy the government, migrant rural workers, and enterprises
  4. Accelerated product innovation and procedure optimisation:
    1. Launched services like Yihu E-loan, Education E-loan, and ABC QuickTransfer
    2. Applied a new code-scanning verification model instead of card-swiping
    3. Opened more online customer acquisition channels with the ability to pay utility bills, fund management, and wealth management
  5. Money Market Activities:
    1. Actively participated in Open Market Operations and offered more liquidity to small and medium-sized financial institutions
    2. Reinforced research on monetary policies and forecasts of market liquidity
  • Employee experience

ABC intends to equip its employees with enhanced skills and capabilities. The company wants to encourage them to be highly efficient and capable in doing what they do. To help its employees achieve their goals and ambitions, ABC took the following initiatives in certain vital areas:

  1. Conducted hierarchical and classified training through online and offline means
  2. Employed a total of 896,000 participants, 1,604 certified internal trainers at the head-office level, and 3,270 certified internal trainers at the branch level for the training program
  3. Helped 163,000 employees take up position qualification examinations
  4. Organised an employee vaccination drive against COVID-19
  5. Organised meetings with employee representatives to review systems and implement measures concerning employee interest
  6. Implemented the young talent development program v3.0 in county areas to strengthen the training of young employees
  7. Provided an extensive health insurance system, offering basic medical insurance, supplementary medical insurance, major medical assistance, and critical illness insurance, including a comprehensive health insurance system that is likely to cover all the potential illnesses an employee might face
  8. Supplemented a health examination policy for female employees and employees above the age of 50
  • Society and planet impact

The bank’s objective is to instill green concepts in its core values. To do so, ABC incorporated a Green Finance Development Plan and a Green Bank Construction Plan. ABC put these initiatives in place to reduce its carbon footprint while driving its commitment towards building itself as an energy-saving and environment-friendly green bank. ABC plans to achieve these objectives by:

  1. Green Credit – The term refers to all rights, interests, credits, benefits or allowances to emit from or in connection with reducing greenhouse gases:
    1. The bank identified five categories of green credit indictors, comprising efficiency, benefit, environmental protection, resource consumption and social management; based on these categories, ABC navigated funds into green industries such as energy conservation and environmental protection.
    2. ABC also supported the green development by corporates.
    3. The bank has conducted employee training on the green credit business.
  2. Green Investment Banking – ABC aims to become a leading bank in green investment banking:
    1. In 2020, it helped enterprises raise nearly USD 18.4 billion through green loans and bonds and invested these funds into environmental governance and clean energy.
    2. ABC also Invested USD 1.23 billion into the National Green Development Fund to facilitate the transformation of the green industry.
  3. Green Investment and Financing:
    1. The bank invested USD 10 billion worth in green bonds related to sewage treatment, energy, and transportation infrastructure.
    2. It supported the construction of the Huzhou Green Finance Reform and Innovation Pilot Zone.
    3. ABC Financial Leasing Co. Ltd. created green leasing and is the industry leader in green leasing.

Environmental responsibility:

  1. ABC advocated eco-friendly practices — 99% of its total transactions in 2020 were electronic.
  2. ABC launched a smart working space that is mobile, paperless, and shared.
  3. The formulation of an energy consumption schedule resulted in a decrease in power consumption by 1.7 million kWh in the bank’s head office in 2020.
  4. The bank practised green procurement and products for procurement that fit with energy conservation and environmental protection purposes.

Social responsibility:

Social responsibilities that ABC has done include:

  1. Carried out consumer education and publicity activities, such as “Sending Financial Knowledge to Your Home”
  2. Carried out more than 35,000 publicity activities in 2020
  3. Conducted pandemic prevention and control work
  4. Supported people with the resumption of work
  5. Helped companies in resuming their businesses

Digital strategy

The prime objective of promoting digital transformation drives ABC to create a digitalised version of itself. This follows the bank’s principles to become an “internet-based and data-based intelligent, open architecture”.

To accomplish this objective, the bank has initiated a digital transformation strategy that focuses on platform construction, online marketing, and operations security. ABC also wants to implement the decisions finalised at the Fifth Plenary session of the 19th Central Committee done by the Communist Party of China. These arrangements run parallel in building a digital China and promotes digital financial services focusing on customers and value creation. The digital strategy will be done by:

  1. Promoting the construction of marketing channels and integrating all online and offline channels to improve customer stickiness
  2. Deepening the application of Big Data and AI in the innovation of new products, smart marketing, and risk control
  3. Strengthening the bank’s business foundation by enhancing technology support in implementing a natural voice recognition system in foundation level branches

ABC has implemented technology empowerment in its operations to get digital transformation, and this has greatly benefitted the bank, as it:

  1. Developed digital financial inclusion of financial services in rural areas by constructing an agriculture-related database and upgraded the establishment of the foundation-level branch outlets.
  2. Improved the online mobile banking platform and saw an increase in active users by 38.8%
  3. Launched the intelligent anti-fraud platform to improve operational security
  4. Launched “Digital Human”, an automated smart service system designed to operate in all marketing channels
  5. Launched a risk prevention and control system using FinTech tools
  6. Established a closed-loop online operation for customer needs and automated the process through electronic systems without human interaction

Cyber security

ABC aims to improve the technology protection system for cybersecurity and enhance its protection capability. The bank strengthened its cyber security protection by:

  1. Improving the capability to handle risks related to information security by establishing a 24×7 monitored work schedule to ensure safe operations
  2. Establishing information security baselines and identifying 1,166 baselines for 72 types of data processing and communication resources, thus enhancing the level of standardisation

IT strategy

ABC formulated an ongoing Short-Term Information Technology Development Plan (2020-2021) comprising seven technological improvements. The implementation of these technological improvements come with an aim to improve the customer experience.

  1. Big Data – ABC logged in over 10,000 datasheets into its Big Data platform. The bank’s AI-based data analysis and mining platform worked as a one-stop data modelling service. On the other hand, the BI-based data-intelligent service platform gave the bank data-intelligent searches and financial statement indicators. Through these capabilities, ABC was able to analyse customer data and improve its CX, thereby growing the success rate it had for the mobile banking self-registration service.
  2. Cloud Computing – ABC is expanding its cloud infrastructure platform to cover three types of systems:
    1. Business transactions
    2. Internal management
    3. Data processing
  3. Application of AI – The bank applied voice recognition and natural voice processing to improve the knowledge and thinking ability of its AI platform.
  4. Distributed Architecture – ABC transformed its core system to a distributed architecture and moved towards an open platform. In one instance, the new distributed core system recorded 61% in trading volume on a peak trading day.
  5. BlockChain – ABC shortened the processing time for its pension business by optimising the blockchain-based processes.
  6. Information Security – Improved the technology protection system for cyber & information security and implemented the construction of a new enterprise-level network information Security Operation Centre (SOC). This system will manage the online management of vulnerability solutions and centralised monitoring of safety equipment.
  7. Network Technology – ABC implemented IPv6 into its internet application to improve the user experience, risk prevention, and control capability.

ICT contracts

  1. Collaboration with Huawei for implementing changes in the bank’s backbone network system to support its digital transformation strategy
  2. Partnered with Hong Kong-based SenseTime to introduce an AI-based digital receptionist
  3. Collaborated with Alibaba Cloud for financial cloud computing services
  4. Worked with Baidu for financial service applications and financial cloud
  5. Partnered with Tencent Cloud to get a map database system and customised development services.

5 Growth and Innovation Opportunities

  • #1 Cost to serve

ABC has noticed a constant increase in operating expenses over the years. The operating cost for 2020 was at USD 35.197 billion, an increase of 2.6% from the previous year when the operating expenses were at USD 34.31 billion. The incline in the operating cost was due to impairment losses went up from USD 21.22 billion in 2019 to USD 25.21 billion in 2020. Additionally, there was an increase in administration costs from USD 7.38 billion in 2019 to USD 7.57 billion in 2020.

On the contrary, the cost-to-income ratio for ABC stood at 29.23%. This showed a decrease of 1.26% from the previous year, thereby increasing the operating efficiency of the bank. The two key reasons for the increase in cost efficiency were:

  1. There were cost reductions in social insurances, housing funds, and early retirement benefits. The bank reduced its staff operating costs from USD 19.02 billion in 2019 to USD 18.88 billion in 2020.
  2. Business from retail banking increased from USD 36.83 billion in 2019 to USD 42.5 billion in 2020, representing a 3.9% increase. This was in spite of the bank’s income and expenditure being affected due to the pandemic, which resulted in a decline in the demand for consumer credit.

ABC bank maintains an efficient cost structure through expense management and revenue generation from the retail business. However, it should focus further on income from non-interest sources and expand its corporate business. The bank’s business from corporate banking reduced from USD 41.5 billion in 2019 to USD 39.94 billion in 2020, representing a 3.5% decline. To achieve an even lower cost-efficiency ratio, ABC can focus on the following strategies:

  1. The NPL ratio of the bank for 2020 has increased to 1.57% from the previous year’s 1.40%. Therefore, the bank should run more stringent checks over the credit score of an individual or an entity and advance loans only to those with a good credit score to avoid repayment defaults.
  2. The bank should focus on its non-interest income as it has decreased from USD 8.5 billion to USD 6.08 billion. Growing this segment will help offset the negative effect of the impairment losses that the bank faces.
  3. ABC should create flexible and low-cost products for corporates, which can help the bank regain its revenue loss of 3.5% and build credibility in the corporate business segment.
  • #2 Transformation of the branch and its branch network

Towards the end of 2020, ABC had 22,928 domestic branches. This count included the head office, the business departments of the head office, training institutes, specialised institutions, and other establishments. ABC also had 13 overseas branches and three overseas representative offices. At the end of 2020, the asset value of the overseas branches reached USD 144.46 billion, an increase of 2.6% compared to the previous year. The bank also had 16 subsidiaries, comprising of 11 domestic and five overseas subsidiaries.

The efforts made by ABC to transform digitally have been positive, and the bank should focus on reducing the number of physical branches as there are too many of them. ABC operates 83% as foundation level branches that support only the basic banking transactions and financial products.

The strategy of reducing the number of foundation level branches will help the bank curb its personnel cost and the expense of running a vast network of branches. The elimination will also free up infrastructure costs associated with lease agreements and rent. ABC can optimise its branch network further by:

  1. Reducing the number of foundation level branches by consolidating several branches which operate in close provinces into a single specialised branch that can serve a larger provincial area
  2. Running specialised branches on an efficient branch model where it can implement AI to increase self-service banking and reduce human intervention
  3. Eliminating branches that are low-performing and have a footfall of less than average in all other branches
  4. Replacing cash offices and ATMs with Interactive Teller Machines (ITMs) as micro branches in popular locations such as markets, malls, and stations to provide branch-like basic banking services
  5. Accelerating cloud service centers for remote banking that enable virtual bank branches through VR/AR technologies
  • #3 Customer experience
  1. ABC implemented online credit innovation to make online financing more convenient for customers. The success of this strategy came with a result showing an increase of 122.2% in the balance of E-loans.
  2. The launch of versions 5.0 and 5.1 of the mobile banking app upgraded the platform and made it easy to use.
    1. The improvement in the online capabilities of the bank has seen an increase in the number of active monthly users of the bank’s mobile app to 100 million during 2020, which is an increase of 38.8% compared to the previous year.

The bank can further improve its customer’s experience by:

  1. Enhancing its smart robot in-branch facility with Machine Learning (ML) to deliver personalised messaging and support to customers
  2. Monitoring, measuring, and increasing the quality of service delivered to customers by assessing customer satisfaction levels and the number of customer complaints constantly
  3. Introducing customer loyalty programs where customers get rewarded with benefits and coupons when they use the bank’s services more
  4. The bank can also introduce at home services for senior customers or customers with a disability, similar to the services introduced by its peers in China.
  5. Increasing personalised services for customers through the active use of advanced and predictive analytics.
  • #4 Employee experience and productivity

ABC invested in training programs to enhance its employees’ capabilities. The bank also made investments in other areas for the benefit of its staff. However, the bank can enhance its employees experience further by:

  1. Cater personalised training programs for employees based on the departments they serve in and the level at which they operate to prepare them for future roles
  2. Provide counselling to help employees deal with grief, loss, and bereavement
  3. Incentivise and reward beyond insurance, stock options and rent assistance to boost employee morale and motivation
  4. Help employees pay off their student debt
  5. Promote in-house talent and allow employees to advance to higher roles within the organisation.
  6. The bank reduced its spending on social insurance, housing funds and retirement benefits to increase its cost efficiency; it should add back these benefits and rewards and try to improve cost efficiency from other sources.
  • #5 Society and planet contribution

ABC commits itself fully to the fight against poverty. The bank is doing this by guaranteeing the capital needs of the poor areas fully. The bank has also put in place numerous poverty alleviation programs, which have shown success through the signing up of 388 central and local poverty alleviation entities in 2020.

ABC has made substantial investments in green initiatives to promote green and low-carbon developments in a move to achieve carbon neutrality. The bank has also helped enterprises raise USD 18.37 billion through green loans, bonds and other means. ABC invested these funds in environmental governance, clean energy, and transportation.

ABC can take further initiatives to reduce its carbon footprint by:

  1. Building solar facilities on its premises and use the energy conserved from this to power its facilities
  2. Using energy-efficient devices by making one-time investments and saving costs in the long term
  3. Using smart sockets and motion detection sensors to reduce energy consumption
  4. Putting a stop to the usage of plastic products and adopt the ‘3R’ policy – reduce, reuse, and recycle

Organisation structure

Executive profile

Gu Shu

Chairman of the Board of Directors, Executive Director

Gu Shu has been the Chairman of the Board of Directors and an Executive Director of ABC since February 2021. He previously held the position as the Deputy General Manager of the Accounting and Settlement Department, the Deputy General Manager of the Planning and Finance Department, the General Manager of the Finance and Accounting department. Gu Shu was the board secretary and concurrently General Manager of the Corporate Strategy and Investor Relations Department, and the President of Shandong Branch of Industrial and Commercial Bank of China. He holds a Doctorate in Economics from Shanghai University of Finance and Economics and is a senior accountant.

Quote

  • Customer centricity, Annual Report 2020

We act on our customer-oriented philosophy in business activities, striving to become the first choice of our customers.

Zhang Qingsong

Vica Chairman of the Board of Directors, Executive Director, President

Zhang Qingsong was appointed as the President of the Bank in November 2019 and has served as the Vice-Chairman of the Board of Directors, Executive Director and President since January 2020. Previously, he was the executive vice president of Bank of China in November 2016 and an executive director as well as the vice president of Bank of China in August 2018. He was the Vice-Chairman and President of The Export-Import Bank of China in December 2018. He serves as the chairman of the China Institute of Rural Finance at the same time. Zhang has a Master’s degree in economics from the Graduate School of the People’s Bank of China and is an associate researcher.

Zhang Xuguang

Executive Director, Executive Vice President

Zhang Xuguang was appointed as an Executive Vice President of the Bank in December 2019 and has served as an Executive Director and an Executive Vice President since October 2020. He previously served as the executive vice president of the Tianjin branch and the deputy general director of the Executive Office, and the President of the Guangxi Zhuang Autonomous Region branch of China Development Bank. He has a master’s degree in law from Peking University and a Master’s degree in law from Minnesota State University in the United States and is a senior economist.

Zhu Hailin

Non-executive Director

Zhu Hailin currently works with Central Huijin Investment Ltd. and has served as a Non-executive Director of the Bank since June 2020. He has a doctor’s degree in economics from the Chinese Academy of Fiscal Sciences. In addition, he is an expert entitled to Government Special Allowance granted by the State Council, a certified public accountant in China (a non-practising member), and a supervisor for PhD candidates.

Liao Luming

Non-executive Director

Liao Luming currently works with Central Huijin Investment Ltd. and has served as a Non-executive Director of the Bank since August 2017. He received a doctor’s degree in public finance from the Public Finance Science Institute of the Ministry of Finance.

Li Qiyun

Non-executive Director

Li Qiyun currently works with Central Huijin Investment Ltd. and has served as a Non-executive Director of the Bank since June 2018. He holds a master’s degree in quantitative economics from the Information Department of Renmin University of China and is a senior engineer.

Li Wei

Non-executive director

Li Wei currently works with Central Huijin Investment Ltd. and has served as a Non-executive Director of the Bank since May 2019. He has a bachelor’s degree in finance from the Zheijang University of Finance and Economics and is a senior accountant.

Wu Jiangtao

Non-executive Director

Wu Jiangtao currently works with Central Huijin Investment Ltd. and has served as a Non-executive Director of the Bank since July 2019. He holds a doctor’s degree from the Chinese Academy of Fiscal Sciences of the Ministry of Finance and is a senior accountant.

Zhou Ji

Non-executive Director

Zhou Ji currently works with Central Huijin Investment Ltd. and has served as a Non-executive Director of the Bank since March 2021. She received a master’s degree in National Economic Planning and Management from the Department of National Economic Management of the Renmin University of China and is an economist.

Xiao Xing

Independent Non-executive Director

Xiao Xing currently works as chair and professor of the Department of Accounting, School of Economics and Management, Tsinghua University and an executive vice president of the Institute for Global Private Equity of Tsinghua University and has served as an Independent Non-executive Director of the Bank since March 2015. She holds a doctor’s degree in accounting.

Appendix A

  • twimbit Purpose Index

We evaluate Asia Pacific’s top banks to understand whether their strategic objectives, market positioning, and operational efficiency align with continued sustainability and profitability. In evaluating the respective bank’s focus areas and performance, we base our analysis on five purpose pillars and score each bank on them.

Endnotes

Agricultural Bank of China Ltd, (2020, December 31). Annual Report 2020.

http://www.abchina.com/en/investor-relations/performance-reports/annual-reports/202104/P020210428553217364770.pdf

Agricultural Bank of China Ltd, (2020, December 31). Corporate Social Responsibility Report 2020.

http://www.abchina.com/en/AboutUs/csr-report/202103/P020210330724856060672.pdf

Agricultural Bank of China Ltd. Development Strategies. Retrieved September 09, 2021 from

http://www.abchina.com/en/investor-relations/investment-value/development-strategies

China Banking News. Company News. Retrieved September 17, 2021 from

https://www.chinabankingnews.com/2021/06/04/alibaba-cloud-emerges-as-leading-provider-of-financial-cloud-computing-services-in-china-with-over-18-market-share-idc-report/

Chowdera. Company News. Retrieved September 17, 2021 from

https://chowdera.com/2021/07/20210726041915672r.html

Companies Market Cap. Company Financials. Retrieved September 10, 2021 from

https://companiesmarketcap.com/agricultural-bank-of-china/marketcap

Finadium. Company News. Retrieved September 17, 2021 from

https://finadium.com/baidu-deploying-advanced-private-financial-clouds-with-intel-chips/

Futureiot. Company News. Retrieved September 17, 2021 from

https://futureiot.tech/agricultural-bank-of-china-deploys-ai-based-virtual-receptionist/

Huawei. Company News. Retrieved September 17, 2021 from

https://e.huawei.com/at/publications/global/ict_insights/intelligent-ip-networks/foci/agricultural-bank-of-china

Law Insider. Green Credits. Retrieved September 10, 2021 from

https://www.lawinsider.com/dictionary/green-credits

Macrotrends. Company Stocks. Retrieved September 09, 2021 from

https://www.macrotrends.net/stocks/charts/ACGBY/agri-bank-china/roe

Simply Wall Street. Company News. Retrieved September 09, 2021 from

https://simplywall.st/stocks/hk/banks/hkg-1288/agricultural-bank-of-china-shares/news/agricultural-bank-of-china-hkg1288-investors-are-sitting-on

Wall Street Journal. Agricultural Bank of China Ltd. Executive Profile. Retrieved September 09, 2021 from

https://www.wsj.com/market-data/quotes/ACGBF/company-people

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