China CITIC Bank adds another key "piece" with the launch of a 10-billion-yuan AIC in Guangzhou

China CITIC Bank adds another key "piece" with the launch of a 10-billion-yuan AIC in Guangzhou

The integrated business layout of China CITIC Bank has welcomed a key new member.

On December 17, the second approved AIC (Financial Asset Investment Company) among joint-stock banks in China—CITIC Bank Financial Asset Investment (hereinafter referred to as "CITIC Financial Investment")—was unveiled in Guangzhou.

Breaking the tradition of "headquarters in the same city" by settling in Guangzhou reflects CITIC Financial Investment's signal of "getting close to industries" rather than "following headquarters," and also reveals the company's larger ambitions in business development.

Reportedly, as a key element in China CITIC Bank's integrated operations, CITIC Financial Investment will leverage CITIC Group's full financial license resources, integrate into the "CITIC Equity Investment Alliance" ecosystem, and strengthen its full-chain service capabilities of "fundraising, investment, management, and exit."

This alliance already has impressive strength, with funds under management exceeding 320 billion yuan and over 1,100 enterprises invested and incubated cumulatively.

It is reported that the addition of CITIC Financial Investment will help the CITIC system form a comprehensive financial service closed loop for technology enterprises through "equity + debt + loans + insurance," further enhancing systemic capacity in innovation capital supply and industrial value discovery.

For the overall strategy of China CITIC Bank, this key subsidiary’s establishment may well be an opportunity for the company to further transition towards being "big and light" and "big and strong."

AIC Lands

Since the launch of the market-oriented debt-to-equity swap pilot in 2016, the business scope of AICs has expanded from pure debt-to-equity swaps to include core debt-to-equity swaps, on-balance sheet direct equity investment and private equity management, financial advisory, and other off-balance sheet businesses.

After the scope of equity investment pilots expanded in 2024, AICs have been regarded as a main force of “patient capital” supporting tech innovation and industrial upgrading.

Now, both in policy and in the market, the positioning of AICs is no longer limited to risk resolution alone:

The market needs more capital flows into long-term capital operations that "invest early, invest small, invest long-term, invest in hard technology";

With net interest margin narrowing, banks seek to transition from traditional funding intermediaries to comprehensive financial service providers, enhancing profit resilience and diversity.

At the opening ceremony, CITIC Financial Investment revealed it would focus on two core functions going forward:

First, market-oriented debt-to-equity swaps, focusing on equity investment to repay debts, reducing corporate leverage, and increasing the proportion of equity financing;

Second, making full use of its equity investment license to serve high-level technological self-reliance, using capital to boost strong and supplementary chains;

And it emphasized integration into the group’s “CITIC Equity Investment Alliance” ecosystem to enhance full-chain service capability in “fundraising, investment, management, and exit.”

In line with its current transformation trajectory, the AIC license is a crucial move in CITIC Bank's "Five Leaderships" strategy.

In nearly ten years of retail transformation exploration, CITIC Bank gradually realized that a "single-core" strong business was no longer enough to support long-term development; what is needed is a comprehensive systemic capability covering strategy, business, risk management, technology, and talent;

In 2024, the bank established its "Five Leaderships" strategy, focusing on wealth management, integrated financing, transaction settlement, foreign exchange services, and digitalization, aiming to build a differentiated financial service model.

Strengthening equity investment capacity will help achieve the "Five Leaderships" goals.

On one hand, it supports integrated financing business:

Without the AIC license, a bank can only make equity investments by issuing private fund products via its wealth management subsidiary, indirectly investing in unlisted company equity or funds, or investing in domestic assets via licensed offshore subsidiaries;

Once the equity financing gap is filled, "debt + equity" can address the gaps in loan schemes for tech and startup companies;

Further deepened debt-equity synergy can connect with investment banking business to form a closed loop of "bond underwriting + equity financing + debt-to-equity swaps," consolidating the bank’s market position in corporate debt financing instrument underwriting.

As of the end of Q3, the bank’s integrated financing balance grew by 4.35% from the start of the year to 14.91 trillion yuan, with the size and number of debt financing instruments and projects leading the market.

Expansion of the "big collaboration" ecosystem and internal coordination among group financial and industrial subsidiaries are building pilot comprehensive financial scenes in technology enterprise services, cross-border go-global services, and asset revitalization innovation.

On the other hand, the establishment of AIC also facilitates the first "Five Leaderships" goal of wealth management:

For example, it can provide equity investment products for private banking and high-net-worth clients, matching their diversified asset allocation needs;

Additionally, by participating in equity investment, the bank can connect with quality company shareholders and management, creating incremental opportunities for wealth management business.

All these will further advance CITIC Bank’s core transformation towards "big and light".

Chairman Fang Heying stated at the beginning of the year that all company efforts are aimed at "exploring the path from the first growth curve to the second growth curve through the efficiency revolution of 'big and light' and the momentum shaping of 'big and strong'."

From this perspective, although AIC’s equity investment carries higher risk weights, its business model is more focused on leveraging social capital by setting up funds, rather than relying entirely on the bank’s own funds.

Its potential to increase capital utilization efficiency, expand light asset business, and increase non-interest income will surely accelerate the bank’s transformation into a modern commercial bank characterized by light capital, high efficiency, and high value-added.

Given that the AIC equity investment pilot was only recently opened up, current data can hardly fully reflect the complete potential of AICs.

For example, as of 2024, the net profit of AICs for the five major banks totaled only 18.354 billion yuan, just 1.4% of parent banks’ earnings.

AIC’s role remains more in risk resolution and catalyzing integrated effects, achieving low-cost deposit accumulation and expanding fee income space.

Currently, apart from the chairman and general manager, other members of the CITIC Financial Investment management team have yet to be determined;

The chairman is Jiang Dongming, former president of CITIC Bank’s Guiyang Branch, who previously was deputy general manager of the Asset & Liability Management Department at the bank’s headquarters before heading to the branch. The general manager is Wu Wei, formerly deputy president of the Shenzhen branch.

The Goal of "Big and Light"

The efficiency revolution of "big and light" may correspond to CITIC Bank’s long-standing inefficiency dilemma.

Xinfeng’s calculations show that although CITIC Bank’s total assets have consistently ranked in the upper middle among joint-stock banks, its ROE (Return on Equity) from 2012–2019 was persistently among the lowest (bottom 1-3), displaying a "big and heavy" profile.

During this period, with sharply rising bad loan rates in manufacturing and wholesale/retail, CITIC Bank began to realize the importance of retail business for stable profitability and improved capital returns, launching a retail transformation in 2014 that has lasted over a decade.

By 2018, retail was viewed as an equal core to corporate business, with its profit contribution rising from 2% at the start of reform to 29%;

In 2021, as retail’s contribution surpassed 30%, the bank proposed wealth management as a fulcrum, with "integration of segments, public-private linkage, group synergy" as levers to achieve a "pole vault" for retail finance.

However, the previously rapid retail growth abruptly stalled, and by 2024 retail’s profit contribution had fallen to 11%.

This setback was closely tied to economic cycles.

With weakening income expectations and slackening credit demand in recent years, the bank’s "golden age" of relying on fast household sector leverage increase has come to an end;

For example, Ping An Bank is still "scraping bone to cure poison," and even "retail king" China Merchants Bank can’t avoid performance fluctuations.

Nevertheless, in the "new three-year plan" put forward in 2024, CITIC Bank still places retail at the core, stressing "if retail isn’t strong, there’s no talking about being first-class."

Looking closer, the retail strategy in the new strategic round has shifted, with the biggest improvement being emphasis on 'system'.

In the new strategy, CITIC Bank regards system-building as key to advancing retail, aiming to improve comprehensive capabilities in scale-price balance, capital-light development, etc., through systematic construction in customer management, products, and risk control;

Chairman Fang Heying summarizes current policy as "system is king, long-termism, and internal expertise," saying "retail cannot rely on points to drive areas, but must build its business by area covering points—constructing the entire retail system."

The overall "new three-year plan" likewise reflects CITIC Bank’s focus on systems:

For instance, the "Five Leaderships" strategy’s wealth management, integrated financing, transaction settlement, forex services, and digitalization are not five isolated directions, but a closely related, mutually reinforcing organic whole.

Fang Heying explains: "The 'Five Leaderships' is the path of light capital, a refinement plan and practical layout based on solid foundations. They are both points and area, and also a body—both goal and process."

From this perspective, the landing of the AIC license is also an important part in supplementing and perfecting the system.

Changes in financial figures suggest CITIC Bank’s systematic reform has achieved partial results in advancing the "big and light" and "big and strong" goals:

For example, in the first half of the year, off-balance and off-balance comprehensive financing grew faster than on-balance assets, deposit growth exceeded liability growth, and wealth management scale growth surpassed deposit growth—all indicating the bank is now focusing equally on efficiency and quality rather than just scale.

In the first three quarters, the bank’s non-interest income contribution rate was 16.44%, in the upper echelon of the industry, up 1.43 percentage points year-on-year;

Cost-income ratio was 28.58%, mid-range among peers, optimized by 0.21 percentage point year-on-year;

ROE was 6.62%, upper middle among peers, but down 0.15 percentage point year-on-year.

Everbright Securities analyst Wang Yifeng predicts overall ROE should be around 9.81% in 2025;

Wang points out the bank sharply cut low-yield bill business in Q3, stabilizing overall asset yield levels. Subsequent repricing of maturing deposits should see ongoing cost-controls taking effect.

However, performance in the first three quarters shows that CITIC Bank’s fundamentals remain unimpressive:

Revenue for the first three quarters fell 3.46% year-on-year to 156.6 billion yuan, and profit grew by 1.6 billion yuan, or 3.02%, after a 4.83 billion yuan "provision rebound";

However, asset quality did not significantly improve, with end-quarter bad loan ratio at 1.16%, the same as at year start. Provision coverage dropped from 209.43% to 204.16%, and loan provision ratio fell from 2.43% to 2.36%.

This means, the "big and light" transformation has yet to convert into new growth momentum.

Xinfeng notes that CITIC Bank has completed a round of management changes this year:

With the appointment of President Lu Wei, and Vice Presidents Jin Xinian and Gu Lingyun, the "post-70s" cohort now forms the backbone of senior management, and the leadership is "younger";

Lu Wei returned from heading CITIC Trust, while Dong Wenze was transferred from the wealth management subsidiary to a branch president role. Such rotations among top management across different roles and subsidiaries helps cultivate versatile talent.

With the new management in place, whether the bank can use AIC and other business system layout to complete the leap to the second growth curve remains to be seen.

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