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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Dear investors and analysts, good morning. I'm Du Chunye, Board Secretary of Postal Savings Back of China. I'll be the host of today's conference call. First, I'd like to express our warm welcome and sincere gratitude to all of you for joining us for the first quarterly results conference call.
PSBC has always attached great importance to commentations with the capital markets. Although the information disclosed in quarterly results report is limited, we always take opportunity to give you a more comprehensive introduction through our conference call with more than an hour. Hoping to have honest communications with you.
On the call today are the bank's Executive Director and Vice President, Mr. Zhang Xuewen; also, department heads from the Board office, personal banking, general finance, consumer credit, credit card, Internet finance, corporate banking, small enterprise finance, financial markets, asset management, risk management, credit management, asset and liability, information technology and financial management department, altogether, 15 departments. Today's conference call will be covered by simultaneous interpreting. We will first invite our Vice President, Mr. Zhang Xuewen, to introduce the bank's first quarter performance. Then we'll move into the Q&A session. [Operator Instructions]
Now welcome Mr. Zhang Xuewen.
Ladies and gentlemen, good morning. Thank you for your attention to PSBC. I believe you have read our first quarterly report. Let me briefly introduce several main indicators. In the first quarter, the net assets exceeded CNY 10 trillion for the first time, reaching CNY 10.14 trillion, up by 6.6% over the prior year-end. Preprovision profit and net profit increased substantially, reaching CNY 32 billion and CNY 18.5 billion, respectively, up by 14.4% and 12.3% year-on-year, with the growth rate of net profit returning to a double-digit level. Operating income was CNY 68.5 billion, up by 8.3% year-on-year, of which the net fee and commission income was CNY 4.9 billion, up by 5.3% year-on-year. Accounting for 7.97% of the operating income, the NPL ratio was 0.83%, up by 3 basis points compared with the end of last year. The cost-to-income ratio was further reduced by 2.6 percentage points to 52.6% compared with the same period of last year. On March 29, we released 2018 performance. [indiscernible], we have held annual result announcement in Hong Kong and Chengdu, respectively. And in Hong Kong, Singapore, the Middle East and Europe, we have conducted road shows, communicating with over 200 investors and analysts. Your insights are invaluable to PSBC. For each key word you are concerned about, we have followed a specific implementation plan, and we believe that we can respond to market concerns gradually. To address your concerns, I'd like to report to you on the latest development. First, a major focus of tension, the net profit growth. We do understand that behind your tension to the net profit growth of PSBC is the expectation of our distinctive development model. In 2018, our net profit grew by 9.8%, [indiscernible] the average level of the banking sector. I've got few concerns from my investors and market after the growth, after they're being incorporated into the category of large banking and commercial bank by the regulator. In the first quarter, our net profit grew by 12.3%, and preprovision profit grew by 14.4%, both achieving double-digit growth and continue into the industry. Here, I'd like to emphasize once again that PSBC is still a growing bank. We are confident of maintaining a good momentum of growth rate. Second, concerns about delivering of the NIM. With the beginning of the interest rate liberalization, frankly speaking, the whole banking industry is breaking the pressure of lowering interest margin. PSBC will strive to give [indiscernible] to its advantages of extensive network, large customer base and stable liability side and carefully arrange the asset structure to reduce impact and maintain an industry-leading edge in NIM. In the first quarter, our NIM was 2.58%, up by 1 basis point year-on-year. On the one hand, the scope of liabilities was under effective control. In the first quarter, the competition over deposits was fierce. We organized particularly the marketing campaign. And in the first quarter, the bank's market share of new deposits was 8.61%, with the balance of deposits increasing by CNY 515.2 billion compared with the prior year-end. The [ costs ] of deposits maintained at a level of 1.48%.
On the other hand, the asset structure continue to be optimized with stronger credit expansion. The balance of loans reached CNY 4.53 trillion, up by 6% compared with the prior year-end, and the loan-to-deposit ratio was 49.59%. Third, the asset quality. I have stressed that a clean balance sheet is the highlight of PSBC and shows our accountability to investors.
In the first quarter, the NPL ratio was only 0.83%, down by 3 basis points compared with the prior year-end. The allowance coverage ratio was 363.17%, up by 16 percentage points compared with the prior year-end. The annualized code of credit was 0.88%, down by 21 basis points compared with the prior year-end. The NPL generation ratio was only 0.12%.
All indicators continued to improve. We will continue to adhere to the principle of prudence, and the adequate provision of low NPL generation ratio. We have confidence in the asset quality in the future. Fourth, about the capital adequacy ratio. In the first quarter, our core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio was 9.61%, 10.66% and 13.44%, respectively.
[indiscernible] were over 2 percentage points higher than the regulatory requirements and also in line with the bank's capital plan. At the same time, we are actively promoting the Asia IPO and hope to become a state-owned bank listed in both Chinese Mainland and Hong Kong markets as soon as possible.
At the annual performance council, General Manager, Mr. Zhang Jinliang, introduced that PSBC will speed up transformation in 5 aspects, which are to make the bank unique, comprehensive, light, intelligent and intensive. To this end, we should strengthen the populace of headquarters leadership, risk management, information technology and talent team. Our work is now on progress. About strengthening the head office. First, various methods such as internal recruitment, open recruitment and recommendations from intermediary should be adapted to increase the introduction of high-end talent in key fields urgently needed for the transformation and development of the head office. Second, we'll develop the bank with talent. We'll increase the number of staff at the head office via direct channels, improve the quality and competence for us to better manage and serve loyal level of institution.
About strengthening risk management and control. First, Chief Risk Officer, Chief Information Officer and the Head of Audit Bureau headquarters and other risk management personnel should be collected in time to improve the comprehensive risk management. Second, we will optimize the capital management via rolling plan that will make a forward-looking 3-year rolling capital plan to ensure sustainable development. Third, to achieve a clear mind, strictly control the asset quality and comprehensively strengthen the asset quality control system. About strengthening IT support. First, we'll strengthen the building of cloud platform. 42 systems such as mobile banking and online banking were incorporated into the cloud platform. The daily transactions on cloud platform exceeded 171 million, accounting for 62.4% of the total transaction. Second, we will promote the building of data mart through the building of RWA and risk data mart. We can realize the dual engine measurement of regulatory capital and economic capital, further strengthen the building of data products that will complete the R&D of 35 products, incorporate and display analysis model will result in the system and provide fast support for business management and for senior marketing, also strengthen the application of AI technology, deep learning-based intelligent customer service system, remote authorization robot, and more intelligent projects have been launched.
At the same time, we have boldly communicated [indiscernible] and financial and other fintech partners to accelerate the implementation of relevant work about strengthening talent support with an open mind. We'll recruit talent from the whole society and start social recruitment and internal recruitment of key post as appropriate.
At present, we have organized and carried out [indiscernible] recruitment and social recruitment in the line of IT. You can see the advertisement of PSBC on the media. I want to build an independent IT team with financial knowledge, technology expertise and excellent R&D capability. At the same time, benchmarking of ourself against advance peers and in line with the laws of the industry market and value will improve our incentive mechanism. That's all for the introduction of first quarter performance and business development. We are looking forward to your valuable comments and suggestions. We will always pay attention to feedback from the market, refer to market concerns, adhere to the high-quality development to fulfill our IPO commitment and generate returns to investors. Thank you.
Thank you, Mr. Zhang. Next, we will move into the Q&A session.
[Operator Instructions] And welcome the first question... first one [ HSBC ] [ Richard Wong ].
I also like to congratulate your bank on your performance on net profit and also revenue [indiscernible] doubled your growth. I have 2 questions. The first one question is about on NIM. I know that NIM for your bank roughly is growing. However, in the quarter-on-quarter sense, it is still facing pressure. In terms of the coming quarters and in the year, asset growth will grow stronger. So what's your outlook? And in your rough picture in Q1, based on the Q1 performance, will you grow further or you will stay at the current level or will you face pressure? That's the first question. And second question, it's roughly, let's say, relatively long-term question. For your bank, let's look at the [indiscernible] business. We may look at things like the network of your [ outlets, that's your ] customer base. However, for the noninterest income as a share of the total income is lowered compared with your peers. So going forward, in the next period, not only for next quarter, especially for the medium term, how do you look at your ways to improve the commission income and what measures you have to achieve that goal?
Thank you for your question. The first question is about NIM, the question into our asset and liability partners. Mr. Lyu, he will be in a better position to take that question.
Thank you. Thank you for the question. As you see here, this year, for Q1, the [indiscernible] market [indiscernible] pressure across the market. Our NIM at PSBC is stable. And you have indicated in your question, in the briefing just now we have heard, across the industry, in the future, especially in the validation of interest rate and NIM, they are facing more pressure in the next few quarters. The pressure will be primarily in the cost of liability, and this is pretty rigid. This is by all banks across the industry. We have our highlight in the features. Our LDR is [ resolved ]. We still have room for growth for LDR. Secondly, the retail strategy will enable us to make sure that in the future, in asset pricing, we will have more strength. We'll have more active seat in the asset pricing. Therefore, we have the confidence to make sure that as long as we are given [ this inclinations ], we'll have the advantage in NIM. As for further to increase our fee and commission income, I will direct your question to Mr. [ Mir ] from our finance department, please.
Now something about fee and commission income, how are you generating profit in Q1 in fee and commission income for the bank without the CYN 4.90 billion growth? 5.28% across the industry is a pretty advantageous level. About -- on the credit card and e-business is growing rapidly in Q1. And commission and fee income grew by 7.01%, with e-payment and the credit card business growing very rapidly. This is [ a great spirit ] for our settlement and we'll have the bank card business, which is about 18%. Also you can see is about 6.48%. This is a bancassurance business. Due to the new regulations on asset management, this fee commission of the wealth management is also declining about 3.87%. Financial intermediary business income is relatively leading compared with our peers. Going forward, we would take measures to make that we will elevate the contribution of the intermediary business. We'll have these 3 major matters. First, we will coordinate and also strengthen the input we have established to intermediary business and task force. We consolidate our departments where we try to figure out our way forward for intermediary business and KPI in the cost and also R&D for credit, simply that one. We will come up with measures so that our sales in the IT and the sales force will be strengthened. Secondly, we'll also be more intensive to the traditional market, I mean, for the [ highlight ] market, we'll [ see great ] serious and for the traditional business. And on the debit card settlement and also Asian fee, we will be more intensive so that we will improve the quality. Market share also increased. In the credit card business, this year, we tried to increase more new credit card to reach 10 million cards compared to last year. Online growth -- online and off-line will be integrated. And most active users will be seeing access per user contribution, but we will try to increase the repayment to increase the transaction so that we have more income. Next is coordination, connectivity. We'll try to acquire more value of the customers. We will coordinate different contributors, e-commerce and ensuring post the saving to combine and to expand our scope of the business. And issuance of new credit card and e-payment sales, IP and custom [indiscernible] and also sales [indiscernible] will try to strengthen the diversion of customers from agency sales of IP, of the management and also other business will be more coordinated so that our intermediary business will strengthen its assets.
I'll give you some additional comments on [indiscernible]. For Q1, our intermediary business, as for the growth, it grew only by 23% as the share increases. The growth rate is somewhat declining. You may wonder, is it true? There is a year-on-year trend in Q1 last year, once transaction, according to accounting principles, is different from the methodology of this year. If we exclude the differences in accounting principle, the Q1 growth is still normal. That's the explanation.
Throughout the year, according to estimate, compared with 2018, we will not decline. We will not decline. What's the reason for that? There they are. According to our colleagues from finance department, first, our income from credit card business last year is about some 7 million new cards. This year will exceed last year's new card issue, credit card, and the -- and for the income of credit cards, we also see an increase. We are making full efforts. Second reason, in the payment business, we see great [indiscernible]. The third-party cooperation is in full swing. Third reason, asset management, total MT last year, our asset was focused on things like a new regulation on asset management business, for example, restructuring and/or going towards the net value of the MT. Going forward, we will focus on the side of employee income. We will come up with measures. With those measures for intermediary business, the income from intermediary business this year will pick up. At least, we will be flat but also keep looking for growth.
[indiscernible] from Morgan Stanley.
[indiscernible] Morgan Stanley. My question concerns what are the growth targets for the total assets? And some assets growing excessively high, so what's the reason?
Payment department will provide for you.
Thank you for the question. You had a look at the growth asset in Q1. According to our annual results in Hong Kong, our [indiscernible] told us already. For 2019, we estimate our asset growth will be flat. You were talking about total assets in Q1. It will grow excessively high in Q1. I can give you 6 -- [ 36% ] numbers for the reason total asset grew by 6.5%. [indiscernible] grew by 6%. Deposits grew by 5.97%, almost 6%. These figures. First, the growth of total asset in Q1 was very high. What's the reason? We have about 40,000 outlets taking more deposits compared with the previous Q1. It's about [indiscernible] in the 10 billion [indiscernible] previous years. Historically speaking, our ability, especially for deposits, is seasonality shaped, primarily results in more growth in deposits in Q1 and Q4 which are increasing. In Q2 and Q3, we see stable growth or for some reasons, like market reasons, we will see some volatility or decline. For those few perspective, throughout the year, total asset will see stable growth. Secondly, looking to the future, the total assets will see stable growth but will optimize the structure of asset. In the future, in the next 3 quarters, we'll strengthen our extension of credit. The credit measure of total assets will increase. It's conducive to our streamlining of the NIM and will add our profitability. Thirdly, given low market rate, in controlling maturity and duration, we'll try to make sure that in bench market, we'll see more investment business so that the risk and return will be stable, invest-assured. Given some growth, we will also see high-quality growth for investors. It's also conducive for the outgrowth and interest income and reported income. Thank you. Next question.
Next question is from [indiscernible] Securities. [indiscernible] please.
I have 2 questions. First is on micro and private loan interest rate. I see the [ IRC ] also other regulatory also having some new comments on net interest rate. For the inclusive asset yield loan as a share of the total loan what's the rate of the ratio? What about the interest rate for new loans across the year? What will be the next trend for the interest rate for these loans? Next question about your Asia IPO. You have a schedule for IPO process. How will you -- when will you complete the process IPO? Without IPO, what about the core Tier 1 APR and ACR compared with last year?
Thank you for the question. As for SME, small and medium-sized enterprise, loans, we have dedicated units. Mr. Lyu will take the floor.
Thank you for the question. Yesterday, we also took part -- we also got informed about the ratings meeting. We also learned some information, which was an update. Your question is about inclusive finance for SME, its interest rate and its share. The council and regulator are very concerned about the scenario for SME. This year, regulator [indiscernible] is also having certain metrics for our business [indiscernible] based off the loan and increased interest rate, they're all being monitored by this regulator. We started early with an early mover. We have a large size. We have a special structure of customer base. Therefore, we have it under special regulation. According to our estimate, so far, in Q1, our standard credit is about 6.36 to SME. Compared with this side, we're a bit higher. For some historical reasons, at a structured customer base, we will have efficient results. In short, we are higher than the big 5, as well as other tier about 12% to 13%. Q1, we had a loss side, that was the reason. Other banks is a bit lower. That's for the share of interest rates. Throughout the year, we will see a reasonable rate of interest. The window that is provided by the regulator [indiscernible] commercial bank. We have to contribute our [ reduced ] share to the real economy, and overall interest rate will be -- compared with last year, will be still reasonable, I mean, in growth. That's it. Thank you. As for Asia IPO, [indiscernible] will take the floor.
[indiscernible] in 2017, we announced our plan for the Asia IPO so far. Efforts are underway to [ render ] our application of the documents to the evaluator. As for the progress, we will make disclosures according to the rule. As for the capital replenishment, I will give you further information. Our bank is committed to high efficiency in savings. And so the balance, capital adequacy ratio remains stable together with our business growth in 2018. Without any external capital injection, CAR increased a lot. In 2019, at the end of Q1 this year, the core Tier 1 ACR (sic) [ CAR ] is about 9.61, and the core Tier 1 -- and the Tier 1 is 10.66. CAR is at 13.44%. According to our [ profit net ] of capital in the next fiscal years, the capital of our bank will be able to secure the need of development. Our pressure is under control. Thank you.
From Bank of America, Winnie Yu.
A question dealing with capital. In Q1, your core Tier 1 declined by 16 basis points. We'll see rapid growth in size of the orders. Wages also increased by 61%. We do see some capital returned in fact for our IPO. So over the longer term, how do you deal with capital? The PSBC ROE is roughly about the charge of 13%. After adjustments of 80% of -- from a dividend payout, through your internal capital retention rate, it's resulting in the growth of core capital of about 8% to 9% given such ROE. In ability -- as for the risk-weighted asset, growth is about 18%. The loan growth in past years is also approaching [ 18 to ] 20 or even higher level.
Here is my question. For the 20% on the credit growth, then 2 to 3 years, it will be sustainable, in the plan, or in other words, in the next 2 to 3 years. How do you look at the possibility of managing your internal capital with the growth in risk-weighted assets? People were talking about big 6 rather than big 5, so with your participation in capital and other requirement in addition to capital, it's considered [ as systemically important then ] so you will see more requirement in firstly about CAR on 7.5% to 8.7% or even become a globally FID. Do you have such plans with this pressure in capital in that context?
Thank you, Winnie. Thank you for the question. Let me give you a response. First, PSBC as you know is committed to high efficiency needs or capital, that's our exposure. Given our history, we will stay above the current ratio, above 1 to 5 -- to 2 percentage points as the new buffer, additional buffer over the 10 years of business that we end up doing in that context. In the past 2 years, the LDR as our credit growth rates are evidently higher than the industry average. In Q1, CAR, absolute value of CAR compared with the earlier figure is a bit lower, is declining, I mean. However, the net value of -- from capital due to profitability is seeing 3% growth compared with the end of last year. In the future, we'll see further efforts, or we'll focus with 2 -- both denominators. We will make sure that it will be sustainable in long-term growth. We've also tried to get more injection from internal capital. You can see the growth in credit and RWA. We are seeing intensive arrangement in assets. As a large SOE commercial bank, we will try to highlight our features. Our -- the risk-weighted assets as a share of total assets is still the lowest among the peers. RWA as a share of total assets is about 45% roughly. Basic advantage, we will retain that advantage in the future given our efforts in optimizing asset structure, equally to both equity and also fixed income as our internal/external resources. Our priority now will be -- is we'll make sure -- IPO, we will make sure that -- actually, [ we have to make sure that we'll reduce ] the growth in Mainland and Hong Kong. We also try to integrate the domestic platforms, domestically so that in the future, our banks will see more diverse assortment of financing from both capital markets. That will come out with a mortgage here, capital structure so that the overall cost of financing will be minimized. At the FID, the process for FID so far requires we just make sure as you can see for the global bank level, we see what that is. We don't have additional requirements against the benchmark. As for the guidelines for spend, regulator are also coming on complications with the government. PSBC had a distinctive model which has set operations for agency sales. It's also worth noting our deals at the competition. In our preparation for FID, we will be given more differentiated regulation rules.
From HSBC, Jia Wei Lam.
I have 2 questions. First, about the effective tax rate. Your tax rate is lower than your peers. However, every quarter, we see some volatility in Q1. It's about 10.4%, which is effective rate. So what's your comment compared with the previous 2 years? Going forward, will you see a more consistent rate with your peers, which is the evolving trend? Interesting, according to the market, it's about macro liquidity, according to the market. Those liquidity provide us so far with the implied cuts in RRR. Will we see slowdown of that cut? According to the liquidity environment so far, marginally, it is not as believed as earlier in the year.
Thank you. As for the tax rate, I think Mr. [indiscernible] will take the floor.
Thank you. Thank you for the question. For tax rate, for SME and also inclusive finance, China has some tax cuts as well as the favorable policies so far in recent years. Across all that, we are seeing favorable tax rate in the future, and our offset is the share of SME compared with our peers is higher. Our interest rate, historically speaking, according to our customer structure, we are higher than other banks. Our share is higher than theirs. Therefore, our tax rate going forward, at least compared with our peers, will be more favorable. That's for the first question.
The second question is about the market liquidity. Mr. Lyu will take the floor.
Thank you. Thank you for the question. Yesterday, PBOC dealt with that in a very [indiscernible] way, we were never saw -- and stripped or tightened in liquidity. We would also not be [indiscernible] at least. We hardly see it in the batch on repo interest rate. It is stable so far. Here at PSBC, in the market, is a major provider of liquidity in the market. For some time in the past, we didn't see a major change in the market. It's pretty evident. Yesterday, PBOC said whether we will cut RRR, whether we see [indiscernible] or whether that we will continue that, I can assure you, we'll be talking about or we will [ operate this policy ]. We don't see major availability, more availability in liquidity in Q1. However, in the past year -- past few years, we're seeing cuts in RRR, therefore, we are seeing more multiples. We are seeing stable history in the recent past. In the future after the countercyclical adjustments, it will continue according to PBOC. We will see a moderate policy in monetary policy. We won't see major change in policy market. Thank you.
[Operator Instructions] Next question from Industrial Securities.
On the one hand, it's about financial development and reform, this year, regulators were talking about financial industry risks. So what matters over time and the ideas also differ across different factors. So what's your opinion about financial reform? What will be the measures either for the bank or for the industry-wide? So what challenges and opportunities there are? Next question, about market policy, about fine-tuning of our policy. What about the credit extension of the quarters in the policy change?
Let me confirm your question because the connection was poor was just now. Would you repeat your question? First is about financial development and reform, right? Second question was dealing with what? Would you please explain the context?
The follow-up question in addition to the liquidity question, for your bank, the next few quarters, what about the credit extension policy like and structure and orientation to customers? Because we are seeing fine-tuning in the macro policy, right? You will continue your previous policy or you will adjust your policy.
Thank you. Thank you for the question. I see. Mr. Lyu will take the question.
Thank you. On the financial development and reform, we are supposed to present [indiscernible] this year as a new philosophy that is followed through the [ economic ] and financial development and reform. Total size structure of the site to optimize the financial structure to minimize the cost of financing, to get better efficiency arrangement of resources as well as this feeding effect, knock-on effect to make financials a better pillar for the real economy as for our bank. If the Central Government told the regulator they have been making repeated comments that financial sector should support a real economy whereas not in micro enterprises and it increase the financial balance sheet and support. PSBC is going to -- and it has been and it will be intensive in the inclusive finance as our core business. Financial development and reform is [ a threat ] for our vendors, definitely for the liquidity.
According to my interpretation, your question was asking about given the changes in the liquidity policy, will there be any new change in our support for the real economy. That was my understanding of your question. Given such a stable liquidity in the market, or let's say a slightly tight liquidity, it's a blessing for us. There are several reasons. For the credit availability, it is subject to capital as well as cost of funding. So far in Q1, deposits grew by 510 billion. Loan increased by only 260 billion. Therefore, we see the deposits. It is enough to support the incoming growth in credit. Second reason, as a major supplier of funds in the market, the liquidity in the market is seeing changes. First of all, we will assume our share liability or responsibility as a major SOE bank. Secondly, we will make business arrangements, and that respectively we will take to get full support the real economy as a response to this financial development and reform. In credit extension, we can look at the existing and the growth of the credit. The retail loans is about 50%. It's about 50% [ as our ] share in retail. Therefore, in the future, in order to increase our profit and income and then to better support real economy, it will be very instrumental. Thank you for your question.
Next question from BOC International.
My question is about SME loans. NPL ratio is increasing, it's a major concern for your bank from the perspective of Q1. The asset quality of SME is good or bad for you. According to some sources of information, the last year's loans for SME, some of them are mature and have been repaid. For some SMEs, they are not going to renew their loans. They don't have [indiscernible] loans. For the economy outlook, they are seeing pressure. That's the reason. So for your bank, what's your information?
Thank you. Mr. Lyu from SME department will take the question.
Let me respond to your question and other colleagues would make some additional comments. As for SME, we were an early mover. We have a large customer base. We have also a large base of customer account managers. Since last year, our loans extended last year, was pretty handsome from Q1. In terms of finance for SMEs, NPL is about 8.9%. Compared with the last year, it's about 23 basis points decline. Overall, NPL ratio compared with other financial institutions were still below average.
In recent years, we are adopting a barbell strategy. Since last year, our bank is strengthening our input of IT and big data, therefore, using big data to [ use control ] for the last 2 years. In Q1, we also see some breakthroughs in Q1, this Q1 and last year's Q1. Going forward, further risk control also are improving in quality. They're instrumental, the cornerstone. That's my response to your first question.
Question 2 about the demand for new loan. Compared with our peers' SME business, our loans for SME maturity is about 1 year, duration about 1 year. Some are about 38 months. Some are calculated on basis of months. Some are calculated on the basis of year. Anyway, they will mature within 1 year. As for the renewal rate, some of them are not renewing their loan. That's normal because customers have their own banks for their business. Some have seen a worse picture in their own operation. For our banks, our renewal rates are stable. About 70 to 80, they will renew their loan with it. As for customer onboarding, according to our big data, we are also acquiring information as per demand for renewal of loans. That's my answer. Thank you. I don't know whether my colleagues have additional comments to make. Some departments may have additional comments to make. First, as for asset quality, for some loan business. So we are improving our mix for liquidity. SME loans, according to [indiscernible], which are more profits there is more demand, [indiscernible] the asset quality is about 1% or even lower, their credit quality is very high. We are confident about their credibility. Asset quality is probably controlled in certain regions. In the adoption of IT, especially for Internet financing or Internet loans, it is also an important measure to control asset quality. Mobile loan is pretty high. The mobile loans for this year is 48% -- 47% in mobile phone outlet. It's important overall to control it.
Secondly, efforts are underway for digital. On mobile sales and risk control, mobile extension, credit can extend it on-site and also [ create ] extension on the credit really. Realizing our network advantage, given authority from regulators, we are making efforts. We're going into China, and we'll penetrate their market. In asset quality, we are making efforts on refunds so that quality can be maintained. In the interest of time, we can only take a final question.
Final question from Haitong International, Steven Chan.
Two questions. About inclusive finance in SME. In the Central Government meeting and the regulator also told us that asset banks industry is going to maintain cost recovery and a slight profitability, which is the NPL ratio of under 3%. Therefore inclusive finance interest will be 5% to 7%. In that way, can we make sure that it will be breakeven or even slight profit for your bank? Interest rate for loans, for inclusive finance is about 6.8%. Will we see some pressure both on a declining in order to break even, help to break even, I mean? Second, you have, for many quarters, provision coverage ratio as high as 260. So going forward, what's your the outlook for the -- around target ratio? Will it peak?
Thank you. First question, Mr. Lyu will take the question.
My colleagues may also add something else. For interest rates for SME loan, they count the briefing also informed the public together with the regulator. They are pretty candid. As for interest rate, the breakeven, we have to look at the cost of loan, the cost of funding, at the cost of risk, cost of operation, which will all be focused into our final last year. Yesterday, the regulator was approaching the question from a national perspective. The NPL ratio is [ 1% to 3% ] and interest rate is about 5% to 7.5%. That will -- it will break even. A different financial institution is also interpreting from their own perspective in cost of operations, cost of funding, 3 metrics. They may have different interpretation. For our bank, according to our calculation for Q1, 6.86%, excluding the policy -- hit policy for the favorable tax cuts or VAT cut. So on behalf of financial service subsidy, excluding both policies, our bank will be able to break even with standard profit which will be sustainable. We don't try to hide interest rate. We are 3.91%, away from the 3%. We're able to break even. We have calculated that already. We can break even. Clearly, we will reduce that level, at least we'll be reasonable in that level in the [ RISC ] together with other departments of the government. Also see the fact that we are [ large in size ] and our rapid growth and a special structure of the company bring no doubt. We simply start the offering of differentiated KPI. Our interest rate will also be quite sustainable, and we take into consideration the policy of the country. We've also given some policy to the customers. And for the coverage ratio, risk management, [indiscernible] will take the floor.
On many occasions, our CEO has made a point on that. We will have to make preparation when the weather is still good. With the changes in the macro economy, preemptively, we'll make preparation for the coverage, so that we can better prepare for the risk in the future. In Q1 2019, our provision is about [ CYN 186 billion ], a growth of CYN 8.5 billion, considering that the cost of credit will be stable. Some additional comments, we are seeing some additional volatility in the macro economy for the banking industry. It is somewhat disturbing. We may be prone to some uncertainties in the macro economy as the asset quality -- asset structure of our bank is reasonable and profitable. We're able to withstand the shock in the future if asset quality is under product control, rest assured. We'll be prudent in our setting aside of provision. We'll be proactive in the provision for asset impairment so that we can better make sense of it. Thank you.
Together with the 6 management members and 8 investors having joined the conference [ and the ] 15 questions, in the interest of time, we have to conclude here for the Q&A session. Thank you. Thank you for your questions.
In Q1 2019, our bank [ has a peaking in ] equipment and channel after our IPO, so we'll continue our communication with investors and analysts so that we can give you more understanding of our bank. I can give you some announcements on the 10th of May in Beijing [ Yangxi whole ] convention center which is the venue of the general forum of the financial corporation, we will hold events in future integration in the manner we shape in and the new [ blue ocean ] for the retail which is the 2019 Capital Markets Open Day with formal discussions, we will focus on e-payment, online credit, e-commerce, inclusive finance, fintech as well as the transformation of our retail outlook. We will approach it from different zones to give you a better understanding of -- on the retail finance of our bank. Our President-elect, Mr. [indiscernible], as our Vice President in charge of the retail and IP together with the directors of -- and other management members will discuss with investors and analysts in detail our outlook for the future in the industry. We'll give you a detailed map of the new ocean of our retail business. We are looking forward to your participation in 2019 Q1 and our results briefing is concluding. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]