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BUSINESS
OVERVIEW
We are an innovative and competitive fast-growing PRC commercial bank that targets mid- to
high-end customers. As of March 31, 2011, we had RMB1,685.2 billion in total assets, RMB825.7 billion
in total loans and RMB1,138.0 billion in total customer deposits. Our net profit for the year ended
December 31, 2010 was RMB12,794 million, representing an increase of 67.4% over our net profit of
RMB7,643 million for the year ended December 31, 2009. As of December 31, 2010, we were the sixth
largest National Joint Stock Commercial Bank and were ranked 11th among all PRC commercial banks,
in both cases in terms of total assets. We were ranked number 100 in The Banker’s “Top 1,000 World
Banks” list published in July 2010 in terms of total assets. On August 18, 2010, we successfully completed
our A Share listing on the Shanghai Stock Exchange.
Since we commenced our operations on August 18, 1992, as a national commercial bank, we have
provided a wide range of competitive financial products and services to retail and corporate banking
customers and government and financial institutions. We also conduct treasury operations for our own
account and on behalf of our customers. We believe that, by providing various types of innovative products
and services, we occupy a leading position within the PRC banking industry.
• Retail Banking: We have a fast-growing, high-quality retail banking platform with an advanced
business mix focusing on mid- to high-end customers. We were one of the first commercial
banks in China to establish a Renminbi wealth management business under our “Sunshine
Wealth Management” (–}QIt Œ¡ ) brand. As of March 31, 2011, our retail wealth management
products accounted for approximately RMB146 billion in assets under management. In 2003,
we became one of the first PRC banks to provide personal construction machinery loans, and
maintained a leading market share in this business from 2003 to 2010. This is an example of
synergy between corporate banking business and retail banking business by a PRC Bank
through self-innovation and supply chain integration. We believe that we were also the first
PRC bank to offer a combined debit and credit card, which has been tailored to the preference
of Chinese consumers to have linked debit and credit accounts.
• Corporate Banking: Our corporate banking segment has strong operations and a high-quality
customer base. As of March 31, 2011, we provided banking services to a majority of the
state-owned enterprises under the administration of the SASAC and a large number of the top
500 enterprises of China. We intend to develop our corporate banking business with SME
banking customers with growth potential in economically-developed areas such as the Bohai
Rim, the Yangtze River Delta and the Pearl River Delta, as well as high growth areas such as
Central and Western China. We were one of the first National Joint Stock Commercial Banks
to engage in investment banking, custody services and other emerging banking businesses. As
of March 31, 2011, we ranked first among PRC banks in terms of the number of issuers of
short-term commercial paper and medium-term notes underwritten in the PRC, and ranked third
among PRC commercial banks and first among the National Joint Stock Commercial Banks in
the amount of bonds underwritten. As of December 31, 2010, we ranked second among the
National Joint Stock Commercial Banks with RMB276.5 billion of assets under custody. We
believe that we were the first National Joint Stock Commercial Bank to receive approval by the
MOF to engage in all three of (i) the direct payment of expenditures on behalf of the MOF, (ii)
the payment of expenditures on behalf of entities authorized by the MOF, and (iii) the
collection of non-tax revenue on behalf of the MOF. As of March 31, 2011, the Industrial and
Commercial Bank of China was the only other PRC bank to have received the same approval.
Our “Yin Guan Bao” (’€•ÜOÝ ) online customs duty payment service is a leader in the industry.
According to the General Administration of Customs, as of December 31, 2010, we ranked first
among National Joint Stock Commercial Banks in the amount of customs duty payments
guaranteed online.
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• Treasury Business: We are an active dealer in the domestic inter-bank market. In 2010, we
obtained type A qualification for underwriting book-entry treasury bonds (Š ^3_ W Pµb•’•W
u2˜^b Tá ) of the MOF, and received the “Most Influential in the National Inter-bank Local
Currency Market Award” (QhW ’€ˆL•“g,^c^ X4g Qw^ X4_q—ÿR›sN ) from the China Foreign
Exchange Trading Center and the “Outstanding Settlement Member in the National Inter-bank
Bond Market Proprietary Business of 2010” (2010^t^¦QhW ’€ˆL•“PµR8^ X4•êqßimRÙQ*yÀ}P{—
b Tá ) award from the China Central Depositary & Clearing Co., Ltd. In 2010, we ranked
second among National Joint Stock Commercial Banks in terms of the amount of inter-bank
market bonds settled.
As of March 31, 2011, we had approximately 30.09 million retail banking customers and
approximately 304,000 corporate banking customers. We provide our services through our branch outlets
and our electronic banking network, with a strategic emphasis on China’s relatively affluent regions, such
as the Bohai Rim, the Yangtze River Delta, the Pearl River Delta and other economically developed areas.
As of December 31, 2008, 2009, and 2010, and March 31, 2011, we had a total of 458, 519, 605, and 617
branches and sub-branches, respectively, including, as of March 31, 2011, 33 tier-one branches, 22
tier-two branches and 562 network outlets. As of March 31, 2011, we also had a total of 860 self-service
banking centers, and 4,506 ATM machines. Our headquarters are located in Beijing and we have a
representative office in Hong Kong.
We have received many awards and honors for our outstanding business performance and
management capabilities, including:
• In April 2011, our low carbon financial services and products were awarded by Chinese Banker
magazine as one of “The Best Ten Financial Products” for corporate loan business.
• In the first quarter of 2011, we received several recognitions from Zuoyue 2010 Wealth
Management League Table Awards (SS•Š 2010^t‘ч•t Œ¡c’ˆLiœ ), including: Outstanding
Customer Service Innovation Bank Award (SS•Šg RÙRue°’€ˆLsN ); Outstanding Banker Award
(SS•Š’€ˆL[¶sN ) granted to Mr. Guo You, our President; Outstanding Wealth Management
Product Award (SS•Š‘ч•t Œ¡u"TÁsN ) (for –}QIt Œ¡m;g [ö ) granted to our Sunshine Wealth
Management products and Outstanding Banking Card Award (SS•Š’€ˆLSasN ) (for –}QI[XŒ¸T
N Sa), Outstanding Retail Loan Product Award (SS•ŠP Œ¸u"TÁsN ) (for ‘Ñ’êf Œ¸ ), and
Outstanding SMEs Finance Service Brand Award (SS•ŠN-\ O im‘ч•g RÙTÁrLsN ) (for –}QIRu
Pg Œ¬Nû‘Ñ
‡•O im ). Our “Sunshine Wealth Management” (–}QIt Œ¡ ) brand was also named the “Most
Influential Personal Wealth Management Brand in 2008-2009” (2008-2009^t^¦g Qw_q—ÿR›P
N”t Œ¡TÁrLsN ).
• In 2006, 2007 and 2008, Sina.com named us the “Most Innovative Bank of the Year” (^t^¦g
QwRue°’€ˆL ).
• In 2006, Sohu.com named us the “Most Innovative Bank of the Year” (g QwRue°’€ˆLsN ).
OUR COMPETITIVE STRENGTHS
Our competitive strengths include:
Fast-growing bank with significant enhancement in overall strength and business structure
Since we commenced our operations in 1992, we have maintained high growth in capital, profit and
scale, and have improved our overall competitiveness. As of March 31, 2011, we had RMB1,685.2 billion
in total assets, RMB825.7 billion in total loans and RMB1,138.0 billion in total customer deposits. From
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December 31, 2008 to December 31, 2010, the CAGR of our total assets, total loans, total customer
deposits and net profit were 32.0%, 29.0%, 30.3% and 32.2%, respectively. Our net profit grew 67.4%
from 2009 to 2010. We have also significantly enhanced our asset quality and capital strength in recent
years. The balance and percentage of our non-performing loans fell from RMB9,362 million and 2.00%,
respectively, as of December 31, 2008 to RMB5,831 million and 0.75%, respectively, as of December 31,
2010. During the same period, our net capital and capital adequacy ratio rose from RMB43,705 million
and 9.10%, respectively, as of December 31, 2008 to RMB103,312 million and 11.02%, respectively, as
of December 31, 2010.
We strive to develop our business in a balanced manner and have allocated our internal resources to
optimize the growth of our retail, SME and fee- and commission-based business, while raising our overall
profitability and operational efficiency. Our retail loans as a percentage of total loans rose from 20.2% as
of December 31, 2008 to 24.9% as of December 31, 2010, and rose further to 25.3% as of March 31, 2011.
Our SME loans as a percentage of total loans rose from 10.0% as of December 31, 2009 to 14.4% as of
December 31, 2010, and rose further to 16.2% as of March 31, 2011. The percentage of our net fee and
commission income to total operating income also rose from 8.8% for the year ended December 31, 2008
to 13.2% for the year ended December 31, 2010, and rose further to 17.1% as of March 31, 2011. We
believe that our approach of continually optimizing our business model will further increase our
profitability and competitiveness and help to sustain our continued growth in the PRC banking industry.
Leading innovation capabilities and a business model with unique characteristics
We have adopted a core value and corporate culture of “innovation first” and have established an
Innovation Committee in our head office to (i) encourage innovation in all aspects of our business,
including operational concepts and models, organizational structures, management systems, product
development, service systems, marketing strategy, performance appraisals and risk management, (ii)
encourage cross-business-sector cooperation and resources integration and (iii) to continue to enhance our
overall competitiveness through reform and innovation. The characteristics of our innovation activities
principally include: (i) in respect of our operational concepts and models, promoting our model-based
operations; (ii) in respect of our products, using products as a starting point to drive our innovation
capabilities, diversifying our product offerings, and developing products across our business lines; (iii) in
respect of our work processes, effectively aligning authority and responsibility across all departments; and
(iv) in respect of our human resources, training and building up a pool of innovative talent.
On the basis of our experience in recent years, we have adopted an innovative model-based
operations philosophy and process:
• “Model-based operations” refers to a process of forming standardized and systemized solutions
based on an in-depth understanding of industry characteristics and customer demand, and
replicating these solutions for customers in the same industry or for similar customers in other
industries. Our objective is to provide differentiated and diversified services to different
industries and customer groups with growing demands for sophisticated financial services, and
to achieve market expansion and rapid growth of our credit, treasury, and deposit products by
integrating our internal resources.
• The primary characteristics of our model-based operations are: (i) focusing on the needs of our
customers as our first priority; (ii) having standardized, specialized and systematic operations
that are easily replicable, and that can reduce duplication, improve efficiency, reduce
operational costs, and increase the number of high-quality customers while optimizing the
structure of our assets and liabilities; (iii) mitigating risks; (iv) facilitating cooperation among
our different departments; and (v) developing competitive differentiation, and enhancing our
service and brands.
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• Based on the demand characteristics of different customers and industries, we develop
corresponding model-based operations methods and risk management systems to obtain
efficient, standardized and systemized low-risk solutions in our major businesses, including
corporate banking, SME banking, retail banking and fee- and commission-based and treasury
businesses.
• Relying on our cash management IT platform and our integrated products and services, we
provide comprehensive financial services to a number of high-value customers, including the
Suning Appliance Group through close cooperation between different departments and
branches of our Bank. The provision of such services to the Suning Appliance Group has
brought a daily average deposit of approximately RMB3,430 million during the year ended
December 31, 2010 and a loan balance of approximately RMB2,440 million as of December 31,
2010. Other successful instances where our head office, branch offices and sub-branch offices
have cooperated to provide comprehensive financial services under model-based operations
include Sinotruk, Kunming Iron and Steel, Shanxi Taigang Stainless Steel Co., Ltd., and the
Midea Group and their respective upstream and downstream business partners.
We are dedicated to developing a broad range of innovative products in our business lines:
• Retail Business: With regard to our personal wealth management business, we have developed
a number of pioneering products for the China market, including Renminbi wealth management
products, Renminbi structured wealth management products, credit-linked wealth management
products, wealth management trust products and structured wealth management products
embedded with an option whose underlying asset is an A-share listed stock. With regard to our
credit card business, we believe we were one of the first banks to build a credit card database
in China, and were one of the first to launch a number of products and services, including the
UnionPay Platinum Credit Card, the Visa Infinite Card, a combined debit and credit card,
mobile phone dynamic password authentication, and interest-free installment functions. With
regard to our retail loans business, we were one of the first banks to launch personal
gold-pledged loans and personal construction machinery loans in China and have become a
leader in these areas. We have also integrated our second-hand housing financing and electronic
pre-approval model to provide second-hand housing mortgages and other financing to
customers through a specialized and efficient one-stop business model.
• Corporate Business: We were one of the first PRC banks to launch “Yi Gui Tong”
(N gܕ ), an enterprise settlement service that achieves real time settlement in our Bank. We
are also among the first group of underwriters of short-term commercial paper and
medium-term notes in China to obtain lead underwriter qualification and have maintained a
leading position in this business. We were one of the first National Joint Stock Commercial
Banks to obtain enterprise annuity custodian and account manager qualifications, and we
launched a supply-chain financing, and “Full Link” (Qhz • ) vehicle financing service before
most of our competitors. We have also developed various types of innovative and specialized
products for our SME banking customers according to their geographic location and the
industry in which they operate.
• Inter-bank and Treasury Businesses: We established a “market-oriented fund operation
platform” in 2010, an internal financial market to facilitate the sharing of funds for our
treasury, bond trading and inter-bank businesses. We plan to develop and launch new products
in our treasury business, and have in recent years successively developed a series of new
products such as local and foreign currency interest-rate structured products, exchange rate
structured products, bond investment products and foreign exchange and precious metal
investment products, and have achieved competitive pricing power in the industry.
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Through innovation, we believe that we have increased the loyalty of our retail banking customers,
enhanced the competitiveness of our corporate business and improved our pricing power in the inter-bank
and treasury businesses. Our innovation capabilities have been widely recognized in the banking industry
and have helped us to win several major awards. Sina.com named us the “Most Innovative Bank of the
Year” for the years 2006, 2007, and 2008. The Financial Times and the Chinese Academy of Social
Sciences named us the “Most Innovative Bank of the Year” for 2010, reflecting our adherence to the
principle of “innovation first”. Additionally, we received the Outstanding Customer Service Innovation
Award and several outstanding product awards in the 2010 Wealth Management League Table Awards.
Fast-growing, high-quality retail platform with an advanced business structure focusing on
mid- to high-end customers
The rapid economic growth of China in the last 30 years has resulted in the emergence of an
upper-middle class, which has in turn created significant opportunities in China’s retail banking industry.
Our broad range of quality products, flexible and effective sales abilities and comprehensive sales
channels have contributed to our success. The contribution of our retail business to our operating income
increased from 18.5% in 2008 to 22.9% in 2010, and 26.5% in the first quarter of 2011. The balances of
our retail loans and deposits also have grown quickly during this period, increasing from RMB94,447
million and RMB111,456 million (including personal structured deposits) as of December 31, 2008 to
RMB208,843 million and RMB201,156 million (including personal structured deposits) as of March 31,
2011, respectively. For the year ended December 31, 2010, the non-interest income contribution from our
retail business to our total non-interest income was 41.3% and non-deposit assets accounted for
approximately 53.9% of the balance of assets managed under our retail business. This has enabled our
retail business to maintain rapid and sustainable growth and gives us a competitive advantage over our
competitors in an environment when interest rates have become increasingly market-oriented.
In the process of building cooperative platforms with local governments and leading enterprises,
attracting large numbers of personal customers and strengthening our personal customer base, we have
been dedicated to the growth of our mid- to high-end customer base. In recent years, we have substantially
increased the number of our customers with asset balances of more than RMB500,000 and RMB10 million
under our management. From December 31, 2008 to December 31, 2010, the CAGR of the number of these
customers were 39.7% and 64.3%, respectively. As of March 31, 2011, the total balance of assets of
individual customers with assets under management of more than RMB500,000 accounted for 55.5% of
the balance of assets under the management of retail banking business. This demonstrates the value
contributed to our business by mid- to high-end customers. We believe that the introduction of our
Enterprise Customer Information Facility (ECIF) and our Enterprise Customer Information System (ECIS)
in 2011 can facilitate the centralization of our customer information across our product lines and further
identify cross-selling opportunities, further enhancing our ability to serve mid- to high-end customers and
increasing their contribution to our total income.
We provide a wide variety of high-quality and unique retail banking products. In 2003, we were
among the first PRC banks to launch a personal construction machinery loan business and have since then
consistently maintained a leading market share in this sector. As of March 31, 2011, the NPL ratio of such
business was 0.02%. This is a pioneering example of establishing synergy between corporate banking and
retail banking through innovation and integration of the industry supply chain in the PRC banking
industry. For the year ended December 31, 2010, the total sales revenue of the 50 construction machinery
manufacturers which had business relationships with us contributed the majority of the sales revenue of
the PRC construction machinery manufacturing industry. In the past three years, the CAGR of the balance
of our personal construction machinery loans was 52.7% and the balance of these loans as of March 31,
2011 was RMB48,633 million. We believe that this product, marketed to SME business owners, will
continue to benefit from the increasing demand for construction machinery resulting from the strong
economic growth of China.
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Our credit card business has grown rapidly in recent years. As of December 31, 2008, 2009 and 2010,
we had issued 4.73 million, 6.40 million and 8.58 million credit cards, respectively, representing a CAGR
of 34.7%. For the years ended December 31, 2008, 2009 and 2010, total transaction volume was
RMB17,332 million, RMB52,307 million and RMB76,732 million, respectively, representing a CAGR of
110.4%, and revolving balance was RMB776 million, RMB2,184 million and RMB3,148 million,
respectively, representing a CAGR of 101.4%. We issued 556,921 credit cards in the first quarter of 2011,
which maintained our trend of rapid growth. The percentage of contribution in terms of transaction volume
from our Titanium Card and other premium cards in 2008, 2009 and 2010 was 13.0%, 18.9% and 34.7%,
respectively, demonstrating the continuous change in our customer portfolios and the success of our mid-
to high-end customer strategy. As of March 31, 2011, 32.3% of our credit card customers were also retail
banking customers, and, in reliance on our combined debit and credit card and our data mining technology,
we believe that we can effectively cross-sell our deposit, wealth management and other quality retail
products to these customers.
We have opened many new branch outlets to expand the coverage of our retail banking business.
From January 1, 2008 to March 31, 2011, we opened 193 new branches and sub-branches. While striving
to strengthen the development of our outlets, we increased the operational efficiency of our outlets by
optimizing our outlet staffing and resources allocation, and enhancing our internal facilities and work
processes. We plan to expand our electronic banking network and carry out retail business through our
advanced electronic banking platform. The number of transactions conducted through our electronic
banking platform in 2010 accounted for approximately 70% of the total number of our transactions,
reducing our operational costs significantly, extending the coverage of our outlet services and providing
greater customer convenience.
Strong corporate banking franchise with a high-growth SME business
We have rooted ourselves firmly in the corporate banking industry and have laid a strong foundation
for the future growth of our corporate business. We have positioned ourselves to target mid- to high-end
customers and to provide banking services to large, high-quality enterprises and high-growth enterprises.
As of March 31, 2011, we had approximately 304,000 corporate banking customers, had established
business relationships with 90% of all of China’s state-owned enterprises under the administration of the
SASAC and many of the top 500 enterprises of China, and forged strategic alliances or key cooperative
relationships with more than 1,000 large and leading domestic enterprises from all industries.
We target large and medium-sized corporate banking customers, and the core of our model-based
operations lies in a close and deep understanding of customer demand. We design specialized industry
solutions and services for an entire industry value chain by analyzing the cash flow, information and
logistics of that industry and the financial behavior of customers in that industry. We seek to win the
loyalty of and be the preferred bank for mid to high-end customers, who are the key to an industry value
chain. We also seek to be the principal bank for new customers entering those customers’ value chains in
order to achieve large-scale cooperation among upstream and downstream enterprises. We have promoted
our model-based operations system in eight major industries, including, but not limited to, the automobile,
construction machinery, and steel industries. For example, our “Full Link” (Qhz • ) vehicle financing
service has a large number of allied manufacturers, and a wide coverage of industry chains and regions.
“Full Link” (Qhz • ) has generated more than RMB100 billion in business volume since the service was
introduced in 2001. In addition, our “head office to head office cooperation” model for the construction
machinery industry and “Golden Chain” (‘Ñ‚r“È ) finance services for the steel industry have developed
into strong market brands. In the trade finance sector, we have also developed factoring, cargo charge, 1+N
supply chain and various other model-based solutions.
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In recent years, we have focused on using model-based operations to develop our SME business. In
response to the requirements and particular characteristics of SMEs, we have introduced our “Sunshine
Value Plan” (–}QIRuP<Š Rƒ ) with the following features:
1) conducting a credit upgrade of SMEs through a variety of risk mitigating methods. For
example, under our “wholesaler’s model,” large corporates of higher credit ratings provide
credit support for SMEs who are their contracting counterparties;
2) providing project financing, financial advisory, securities listing advisory and other
comprehensive services to SMEs by synergizing the comprehensive service advantages of
China Everbright (Group); and
3) carrying out large-scale marketing through network cooperation and the establishment of
financing platforms. For example, we conduct large-scale development and marketing of SME
groups within our target markets through the channels such as industry associations, trade
unions and government entities.
Our “Sunshine Value Plan” (–}QIRuP<Š Rƒ ), with its principle of model-based operations, has
enhanced our ability to penetrate the SME banking segment: (i) our SME loans as a percentage of total
loans rose from 10.0% as of December 31, 2009 to 14.4% as of December 31, 2010 and rose further to
16.2% as of March 31, 2011. (ii) Our SME banking customer base has expanded rapidly. We increased our
number of SME banking customers by 66.3% from December 31, 2009 to December 31, 2010 from 6,191
to 10,295, and increased this number by a further 10.6% as of March 31, 2011 to 11,382. (iii) Revenue
generated by our SME business has increased gradually, which, through synergy with other businesses,
drove the income growth of our loan business, settlement business, liability business and fee- and
commission-based business. Our “Sunshine Value Plan” (–}QIRuP<Š Rƒ ) has also created advantageous
conditions for cross-selling to mid- to high-end retail business customers. Our “Sunshine Value Plan” (–}
QIRuP<Š Rƒ ) received the Outstanding SME Financial Service Product Award in the 2010 Wealth
Management League Table awards. Due to the strong performance in the area of our SME business, the
CBRC named Mr. GUO You, our President, one of the “Top Ten Leaders of 2010 of financial services for
small enterprises by banking and financial institutions” (2010^t^¦’€ˆLim‘ч•j_iËN-\ O im‘ч•g RÙSAY’
˜ ŽÍN”ri ) in December 2010.
Industry-leading wealth management franchise and other new fee- and commission-based
businesses
We were approved by PRC banking regulators to carry out Renminbi wealth management services
in China as early as 2004, and our “Sunshine Wealth Management” (–}QIt Œ¡ ) is a popular brand in China.
As of December 31, 2008, 2009 and 2010, and March 31, 2011, the balance of assets under management
of our corporate and retail wealth management services was approximately RMB99,375 million,
RMB113,731 million, RMB199,616 million, and RMB222,423 million, respectively, and the number of
customers of our “Sunshine Wealth Management” (–}QIt Œ¡ ) brand was approximately 340,000, 390,000,
620,000, and 800,000, respectively. We believe we occupy a leading position in the PRC banking industry
in terms of wealth management overall competitiveness, service standards, and risk control capabilities.
In the past three years, the CAGR of the assets under the management of our wealth management service
was 41.7%, the CAGR of fee and commission income from our wealth management business was 49.4%,
and the percentage of such fee and commission income to our total fees and commission income has
remained above 16% since 2008.
Our wealth management business is positioned to target mid- to high-end customers and provides a
comprehensive wealth management service to individuals, financial institutions, and enterprises. Our
independent wealth management information technology platform, professional investment research team,
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and rich experience in asset management enable us to maintain the high recognition of our “Sunshine
Wealth Management” (–}QIt Œ¡ ) products in the market, while also continuously enhancing their
competitiveness. In addition, our transparent disclosure of information regarding our wealth management
products helps to enhance customers’ confidence in our products and services, and further improves our
customers’ experience. Our early-mover advantage and innovation capabilities of our wealth management
business will help us consolidate our leading position in the wealth management market of China, laying
the foundations for the future growth of our asset management and private banking businesses.
In addition to our wealth management business, we attach importance to developing fee- and
commission-based business and other new businesses, including asset custody, asset management, and
investment banking businesses. As of March 31, 2011, assets under our custody were RMB309,023
million. We believe that we occupy a leading position among the National Joint Stock Commercial Banks
in terms of custody business. Our cash management business has also experienced rapid growth in the past
two years. The CAGR of total customers and transaction volume from 2008 to 2010 were 147% and 364%,
respectively, in that period. During the same period, our enterprise annuity business grew rapidly with its
balance increasing from RMB2,820 million as of December 31, 2008 to RMB11,404 million as of
December 31, 2010. Furthermore, as one of the first PRC banks to obtain the qualifications required for
lead underwriting of short-term commercial paper and medium-term notes, our debt underwriting business
has been consistently at the forefront of the industry. For the year ended December 31, 2010, we ranked
first among PRC banks in terms of the number of issuers of debt instruments underwritten in the PRC,
third among PRC Banks and first among the National Joint Stock Commercial Banks in terms of the
underwriting volume.
Benefiting from the fast development of our wealth management business and other emerging
businesses, our net fee and commission income grew with a CAGR of 47.2% from December 31, 2008 to
December 31, 2010. For the year ended December 31, 2010, our net fee and commission income was
RMB4,709 million. From 2008 to 2010, our net fee and commission income as a percentage of our
operating income rose from 8.8% to 13.2%.
Prudent and comprehensive risk management with improving asset quality
We have established a comprehensive risk management system to carry out effective identification,
assessment, monitoring, management, and control of credit, market, liquidity, operational, and compliance
risks. Our experienced professionals continue to develop and enhance the culture, policy, organization,
process, and technology of our comprehensive risk management system.
We promote a philosophy and culture of “creating value through effective risk management” and
seek to enhance our business value and maximize long-term returns for shareholders by balancing risks
and benefits and attaching importance to both control and efficiency. We have built a matrix-style risk
management structure which includes vertical management of credit risk, centralized management of
market risk and hierarchical management of operational and compliance risks. We believe that we have
coordinated communication between risk management departments and business departments and that they
share a common risk management objective while ensuring independence. Since 2006, we have assigned
chief risk officers to our branches. In 2008, we implemented a program of stationing risk managers in
business departments of our head office to ensure the independence of our risk management functions,
optimize the risk management process, further enhancing its link to our business strategy and move risk
management checkpoints closer to the operational frontline. Focusing on our business development and
operational objectives, and through the implementation of an overall process management (comprised of
various segments such as risk identification, examination and approval, documentation management,
supervision and control and non-preforming loan management) we believe we have reached a reasonable
balance between risk and efficiency. While ensuring effective risk management, we continue to improve
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the operational efficiency of the risk management process, enhance our market competitiveness, and
support our prudent operation and continuing development. In addition, we apply a variety of advanced
risk management tools to enhance the sophistication of our risk management and the level of its
refinement. For example, we were one of the first domestic banks to voluntarily implement the New Basel
Capital Accord and since 2004 we have implemented an internal ratings-based (IRB) approach pursuant
to the New Basel Capital Accord. Our advanced IRB approach has been effectively applied to our
corporate loan business and supports our business and risk decision-making. We have also established a
comprehensive early warning system to identify and strengthen the management of economic capital and
provisions.
Benefiting from our comprehensive risk management system, we have enhanced our asset quality
and substantially reduced the balance of non-performing loans and the NPL ratio, which decreased from
RMB9,362 million and 2.00%, respectively, as of December 31, 2008 to RMB5,745 million and 0.70%,
respectively, as of March 31, 2011. As of December 31, 2009 and 2010 and March 31, 2011, the NPL ratio
of loans extended to new corporate banking customers since January 1, 2005 was 0.38%, 0.24% and
0.23%, respectively. In the past three years, our special mention loans as a percentage of our total loans
fell from 5.5% as of December 31, 2008 to 1.7% as of March 31, 2011. During the same period, we
increased the provisions for non-performing loan coverage from 150.11% to 329.52%. With regard to local
government financing vehicles, our NPL ratios were 0.47% and 0.57% and our provision coverage ratios
were 517.30% and 466.18%, respectively, as of December 31, 2010 and March 31, 2011.
Experienced and visionary management and talented employees
Our senior management team has extensive experience in the banking and financial industry in
China. The key members of our senior management have on average approximately 20 years of
management experience in the financial industry. Mr. TANG Shuangning, our Chairman, has held several
important leadership positions including Vice-Chairman of the CBRC and a number of key positions in the
PBOC. He was named one of the “20 Most Influential Leaders of Listed Companies in the PRC Securities
Market of the Last 20 Years” (N-W ‹IR8^ X4 20^t – 20OMg Qw_q—ÿR›N ^ QlSø˜ ˆ– ). Mr. LUO Zhefu, our
Vice-Chairman, has served in several important positions in Agricultural Bank of China and China
Construction Bank. Mr. GUO You, our Executive Director and President, has held several important
positions in the PBOC and the SAFE. All members of our Board of Directors and Board of Supervisors
are leaders, experts or scholars with extensive experience in government, financial administration or the
banking industry. They are capable of leading our long-term development.
We have a talented and high-quality workforce. We emphasize the training of our employees. As of
March 31, 2011, approximately 98% of our employees had college degrees or above, and approximately
11% had postgraduate degrees, which serves as a strong basis for our competitiveness. As of March 31,
2011, we had more than 900 employees qualified as associate financial planners (AFP), certified financial
planners (CFP), or chartered financial analysts (CFA). In order to better serve our customers, we provide
continuing training programs to our employees to enhance their business knowledge, professional skills
and service abilities. From 2008 to 2010, we organized over 500 staff training sessions which had a total
attendance of more than 77,000 employees.
We vigorously promote a performance-oriented culture, that provides employee incentivization and
discipline, encourages employees to participate in innovation, and endeavors to attract and retain the best
employees. In July 2009, we launched a “voice of employees” program (P¾€}Š Rƒ ) throughout our Bank.
By establishing mailboxes to send messages to our branch heads within our 33 tier-one branches,
organizing staff family member seminars and open days with our senior management, and arranging for
branch heads to work as on-site manager at sub-branches across the PRC, we are able to collect concrete
suggestions and proposals from employees regarding our products and services which serve as a basis for
our decision-making.
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Distinct integrated financial platform of China Everbright (Group) and strong shareholder
base
One of our major Shareholders, China Everbright (Group), an important window for the reform and
opening-up of China, was established with the approval of the PRC government in Hong Kong in 1983
as the first central government-level financial holding company. China Everbright (Group) has developed
into a financial conglomerate engaging in banking, securities, insurance, mutual funds, leasing, and asset
management. We believe that the reputation of China Everbright (Group) in Hong Kong and China helps
to improve our brand image. Its distinct integrated financial platform also enhances our ability to provide
our customers with a comprehensive package of financial products and allows us to share customers and
sales channels. For example, making use of our “Sunshine Value Plan” (–}QIRuP<Š Rƒ ) brand, we provide
our SME banking customers not only with working capital loans, bank acceptance bills and other
conventional banking services, but also the securities, insurance, and other value-adding services provided
by China Everbright (Group). Our custody services also benefit from the synergy between China
Everbright (Group) and us. We endeavor to establish cooperative relationships for the purposes of sharing
resources, information sharing and cross-selling with China Everbright Limited, Everbright Securities,
Everbright Pramerica Fund Management, Sun Life Everbright, China Everbright Financial Holding Asset
Management Company, and their subsidiaries and affiliated companies. We believe that the comprehensive
financial platform of China Everbright (Group) enables us to provide our customers with comprehensive
financial service solutions and therefore further enhance our competitiveness.
Huijin is our largest Shareholder. As the only National Joint Stock Commercial Bank which has
received capital injection from, and is controlled by, the PRC central government, we have benefited from
our strong shareholder background which enhances our overall image and market position.
OUR STRATEGIES
We are committed to becoming one of the most competitive National Joint Stock Commercial Banks.
We plan to focus on mid- to high-end customers and improve our profitability and operational efficiency
through structural optimization, product innovation, services and technologies, and better risk pricing and
risk management capabilities. We intend to expand and improve our corporate banking business, focus on
our retail banking business and accelerate the development of our new fee- and commission-based banking
business to realize sustainable development. We expect this development will be based on greater
efficiency, stronger risk control, greater vitality, and stronger innovation capability. We also expect to be
more forward-looking, with a culture of greater cohesiveness, synergy, and quality, as well as a stronger
sense of social responsibility. Our strategies are as follows:
Further optimize our business structure to achieve the balanced development of our corporate
banking, retail banking, and other new banking business
We plan to expand and improve corporate banking business, focus on retail banking services and
accelerate the development of our new fee- and commission-based business. We also intend to improve our
profitability and the sustainability of our business development based on an objective of equal contribution
from our large corporate banking customers, SME banking customers and retail banking customers in
order to achieve balanced and coordinated development.
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Corporate Banking. We plan to continue to optimize the customer composition and industry and
geographic focus of our corporate banking business. We plan to consolidate and expand our valuable mid-
to high-end customer base and increase the number of core customers through “model-based operations.”
We plan to expand our presence in key PRC industries such as the iron and steel, automobile,
transportation, power and petrochemicals industries, as well as the new strategic industries set forth in the
12th Five-Year Plan, thereby further realizing the optimization of our customer base and industry focus.
We also intend to focus on the financing requirements of SMEs, increasing and expanding our SME
banking customer base by adopting “model-based operations,” and attracting and retaining loyal SME
banking customers. In addition, while optimizing our customer base and industry focus, we plan to
continue to optimize our product mix to meet the varied demands of customers, for example, through the
provision of package solutions and cash management products. In addition, we intend to continue to focus
on developing our business in the developed Bohai Rim, Yangtze River Delta and Pearl River Delta, as
well as high growth areas such as Central and Western China. We have further strengthened our focus on
the Yangtze River Delta and the Pearl River Delta, growing our business in these areas at a faster rate than
our Bank-wide growth rate, and we expect to continue this trend in the near future.
Retail Banking. We have taken advantage of the fast growth of China’s middle class and increasing
per capita income. We intend to continue to develop our retail business through committing increasing
resources and further improving our customer mix, product mix, and geographical mix. Our strategies
include:
(1) continue to focus on mid- to high-end customers; further expand our range of retail products;
strengthen cross-selling; and integrate customers resources based on our core businesses, such
as savings, retail loans, wealth management products, and credit cards;
(2) target high-end customers; leverage the product and innovation capabilities of our “Sunshine
Wealth Management” (–}QIt Œ¡ ) brand; learn from the experiences of both domestic and
foreign peers; provide customized products and services; strive to meet the individualized
demands on various customers; and strengthen our “high-end retail” private banking business
and brand;
(3) expand our retail business customer base and explore pilot projects with micro-business
enterprises;
(4) analyze the preferences of retail banking customers and identify and exploit opportunities for
sizeable projects, such as urban medical insurance cards, housing maintenance funds and
relocation funds for the increasingly urbanized PRC population;
(5) strengthen the synergy between our retail banking and corporate banking businesses and adopt
bundled sales in order to attract new customers more effectively; and
(6) improve our distribution network; strengthen physical channels by improving and upgrading
existing branches and assigning designated areas for wealth management and savings; develop
electronic channels; and form efficient and multi-channel retail banking service networks.
Fee- and Commission-Based Business. We plan to continue to focus on mid- to high-end customers
as our target customer base and implement initiatives to develop our fee- and commission-based products
and services in order to capture the trend of gradual liberalization of interest rates and the
disintermediation of the financial industry. Furthermore, we intend to:
(1) develop more competitive credit card, wealth management, guarantee, investment banking,
treasury and custody products;
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(2) develop and expand inter-bank cooperation channels and provide commercial banks, securities
firms, fund management companies, finance companies and other financial institutions with
treasury products, transaction investment and custody services; and
(3) promote the development of fee- and commission-based products and services through
improving both our customer management information system and technologies and our
internal policies such as our performance assessment and examination system.
Continue to promote model-based operations
In order to further promote model-based operations, our President took up the responsibility for
cross-department coordination. In August 2010, our head office established the Customer Development
Committee, which is mainly responsible for matters relating to model-based operations such as personnel
assessment, performance evaluation, profit sharing, transfer pricing, and other management mechanisms.
For our large and medium corporate banking customers, we plan to promote model-based operations
and expand our key customer base among ten key industries. We plan to:
(1) Implement the project management mechanism of our model-based operations; set up four
professional committees for the wholesale and retail, automobile, steel, and pharmaceutical
industries under the Customer Development Committee of the head office; clearly define major
responsibilities; and implement key account management;
(2) Improve the employee incentive and monitoring mechanisms for our model-based operations
and include them in the 2011 performance evaluation; adjust the profit sharing models among
the lead branch and supporting branches with respect to specific model-based operations
businesses; and include model-based operations in the Sunshine Service customer survey
system; and
(3) Continue to explore opportunities for model-based operations in additional industry sectors
with promising growth potential, such as the pharmaceuticals, food, nonferrous metal, and
transportation industries.
Our SME model-based operations mainly focus on target markets, establishing cooperative
relationships with different levels of our customers and reinforcing brand promotion efforts. We plan to:
(1) continue to focus on targeting supply chain participants, high-tech SMEs, and SMEs clustered
in certain regions or industries and reinforce our efforts in innovation and promotion of our
service model;
(2) implement a multi-layer management structure and strengthen our capital raising platform,
with our head office and branches responsible for interregional and intraregional capital raising
platforms for mass marketing and large-scale credit extension; and
(3) reinforce our efforts to promote our “Sunshine Value Plan” (–}QIRuP<Š Rƒ ) brand and improve
brand influence. We aim to significantly improve our brand awareness through multiple
channels and levels and increase the contribution of our brand image to our marketing efforts
for SME business.
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In retail banking, we plan to actively explore model-based operations solutions for developing new
customer groups. In line with initiatives set out in the PRC government’s 12th Five-Year Plan, such as
urbanization, social medical insurance and environment protection, we intend to offer a comprehensive
suite of new financial services for our customers, such as distribution and management of relocation funds,
urban medical insurance cards and high-end low carbon financial products. We plan to also further
subdivide our model-based operations to accommodate the needs of different customer groups. For
example, with regard to private banking and the high-income group of SME business owners, we intend
to intensify resource integration and synergy between our corporate and retail businesses, develop
differentiated financial service products, and attract more mid- to high-end customers to improve our
efficiency and profitability.
Provide comprehensive financial services solutions to mid- to high-end customers, focusing on
SME entrepreneurs
In order to attract SME entrepreneurs by our model-based operations, we plan to continue to improve
marketing and product innovation capabilities with an aim to effectively provide them with comprehensive
and high-quality financial services.
In terms of enhancing our marketing capabilities, we intend to leverage our existing model-based
operations solutions to attract new customer groups with similar characteristics, to whom we target our
mass-marketing. At the same time, we will continue to develop new model-based operation solutions to
be able to proactively adjust and diversify our customer mix and model structure.
To improve our product innovation capabilities, we intend to continue to reinforce product research
and development. We intend to provide industry-specific solutions in accordance with the operational
patterns of logistics, information and cash flow to supply chain participants and SMEs clustered in certain
regions or industries that are either upstream or downstream of our core customers. For high-technology
SMEs, we plan to exploit their high-growth characteristics and provide tailored products suitable for their
lifecycles and industrial upgrade processes. We will also explore cross-selling opportunities, leverage our
own strengths such as our “Sunshine” brand and use the China Everbright (Group) financial platform to
realize a synergy between our corporate banking and retail banking businesses as well as a synergy
between our different retail banking businesses, and use our relationship with other subsidiaries of China
Everbright (Group) to provide a comprehensive package of financial service solutions for our customers.
In the area of corporate banking, we plan to expand our financing business to offer products that
cover the entire SME value chain such as cash management and “Full Link” (Qhz • ). Further, we plan
to utilize trade financing products to better serve our SME customers, including pledged trade financing,
receivable financing, and purchase order financing. With respect to retail banking, we intend to make use
of the competitive strengths of our wealth management, payroll deposit, and credit card products to
improve and expand the comprehensive services we provide to SME entrepreneurs.
Adhere to our prudent and comprehensive risk management model and further improve our
risk pricing capability
We intend to continue to adhere to our prudent and comprehensive risk management model, maintain
the stability of our risk management system and apply our matrix-style risk management framework,
which consists of (i) vertical management of credit risk, centralized management of market risk, and
hierarchical management of operational and compliance risk; (ii) safeguarding the culture of “creating
value through effective risk management” while keeping risk management and business lines independent
of each other; and (iii) continuing to balance return and risk borne to ensure our risk is within acceptable
limits.
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While adhering to the above principles, in order to respond to changes in macroeconomic and
industrial trends such as interest rate and exchange rate liberalization, and to address increasing
competition, we plan to set up a forward-looking dynamic risk management mechanism. We also plan to
further enhance our risk management in critical areas, such as post-disbursement management. By
regularly reviewing risk management policies, continually optimizing the allocation of risk management
resources and following the principle of “controllable risk, measurable cost, good transparency and
adequate risk compensation ability,” we intend to closely align innovation and risk management so our risk
management system can adapt to the changing circumstances. We aim to increase the integration level of
our risk management systems and existing business strategies, thereby creating competitive advantages
compared to our competitors.
At the same time, we intend to further improve our risk management system and risk control
capability through the following measures:
(1) Further improve our risk pricing capability and risk-adjusted rate: in 2010, we initiated an
economic capital measurement system. We continue to develop the system, particularly its risk
pricing capability and plan to incorporate it in our budget, monitoring and assessment
management system. We plan to treat the implementation of the New Basel Capital Accord as
an opportunity to clearly define the impact of economic value creation and capital utilization,
strengthen capital based risk pricing, drive our transition to a more refined management model,
and improve our risk-adjusted return, thereby putting into action the concept of value creation
via risk management;
(2) Continue to improve risk identification and control capability: we intend to adhere to various
strategic business initiatives and develop dedicated risk management subsystems to achieve
targeted risk control. For example, we have developed risk management subsystems
specifically for model-based operations, our SME credit business and current high-risk
business sectors such as local government financing vehicles and real estate. We plan to focus
on priority and strategic businesses in our development plan, provide focused support for
business development and innovation, and provide technical support and safeguards for the
whole process of risk identification, measurement, monitoring, control and assessment; and
(3) Continuously enhance our risk management structure and risk management culture: we intend
to further improve our risk management organization framework and the risk management
structures in our second tier branches to ensure that risk management is adapted to our business
and market conditions. We also plan to continue to reinforce overall risk management
awareness so that adherence to our risk policies and procedures becomes habitual for our
employees in order to build a strong, principle-driven, and self-disciplined risk culture.
In addition, we intend to promote the comprehensive implementation of the New Basel Capital
Accord in 2011 and ensure that our compliance efforts conform with regulatory requirements. We will also
enhance our technical support system to effectively measure, analyze and manage credit, market and
operational risk. Pursuant to our development strategy, we will apply the knowledge gained from the
implementation of the New Basel Capital Accord, including improvements in our risk tolerance index
system, to enhance risk awareness throughout our business. We will also closely track developments
concerning and regulatory reactions to the New Basel Capital Accord, maintain an advanced risk
management technical system, and provide timely and effective decision-making and technical support for
our operations and regulatory compliance.
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Enhance our competitiveness through innovation, service, and technology
Innovation, service and technology will continue to be the three drivers behind the development of
our scale, quality, efficiency and business structure. We intend to continue to develop innovative products
and services for mid- to high-end target customers, to strengthen the “Sunshine Service” (–}QIg RÙ ) brand,
to enhance the satisfaction and loyalty of our customers, and to use advanced technology to strengthen our
business management. We intend for these three drivers to continue to serve as the basis for our continued
competitiveness and sustainable future development.
Developing through innovation
We intend to continue to stress “development through innovation” as the primary guiding principle
for our future management and development, continue to strengthen the principle of innovation as our core
value within our corporate culture, focus our operational efforts of our management on innovation
awareness, and enhance our service level, asset quality, profitability, and brand characteristics through our
industry-leading systems and product innovations, which will allow us to consolidate our leading position
in banking innovation in the PRC.
In line with our goal of creating value for customers through innovation, we have adopted a
“bottom-up” model and guiding principles based on customer needs and industry developmental trends.
We plan to gradually improve our “four in one” innovation management mechanism, which consists of
consultancy, supervision, reward, and evaluation. We plan to improve our internal organization, create
synergies between our different departments (for example, integrate our investment banking business’s
product resources with our corporate business’s customer resources) and push forward innovation in all
our management systems in line with consumer demand. In addition, we intend to (i) leverage our internal
resources, including cooperation among our business lines as well as potential cooperation with other
financial institutions of China Everbright (Group), (ii) adhering to the principle of individualization and
differentiation, exploit innovations in our emerging fee- and commission-based business such as
investment banking, financial management and cash management, and (iii) provide customers with more
diverse products and services by enhancing existing products and expanding the upstream and downstream
coverage of value-added areas.
Growing through service
We plan to enhance awareness of our brands and improve service efficiency, including by promoting
the “Sunshine Service” (–}QIg RÙ ) brand, and to create greater value for our customers and increase their
satisfaction and loyalty through the provision of differentiated services.
(1) Upgrade our services and improve our service standards. Through our “star-rated” counter
service initiative, we plan to improve customer service at our branch outlets, increase the
professionalism of our employees and create a friendly and welcoming environment for
customers.
(2) Develop specialized service capabilities. We intend to enhance specialized service capabilities
in response to customer demands, provide customized technologies, products and service plans
according to the needs and industries of our customers.
(3) Improve service processes. We plan to streamline our office functions; establish mechanisms
to quickly respond to the market; enhance management efficiency; improve support of our
branches by our head office, support of our front offices by our back offices, and support of
our customers by us; and reduce internal communication costs.
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(4) Improve efficiency of our service channels. We intend to strengthen our presence in
economically developed regions of China such as the Bohai Rim, the Yangtze River Delta and
the Pearl River Delta and expand into new markets with growth potential; complete the
establishment of wealth management centers in key locations; increase the efficiency and
capacity of our network; and invest more resources in electronic banking including self-service
banking centers, online banking and phone banking.
Strengthening through technology
Based on our customer service philosophy, we plan to adopt state-of-the-art technology to provide
better customer service and support and create an enhanced customer experience in order to create
additional business opportunities under our modern banking platform.
(1) Enhance our customer information database and track customer demand. We plan to improve
our customer database, which includes approximately 40 industry groups to further enhance the
depth and breadth of customer information; further analyze customer data with new
technology; and better understand customer demands.
(2) Accelerate systems build-up. Focusing on areas such as customer relationship management,
product innovation, electronic channel construction, and risk control, we plan to accelerate the
development of our application system and enhance our research and development capability
to meet customer demands in areas such as electronic banking payment gateway and product
function integration.
(3) Improve our technological systems and reduce operational risk. We intend to optimize overall
monitoring and process management of our IT system; simplify IT operations, maintenance
management, and reduce business operating risk; improve IT operations and maintenance
efficiency; accelerate the development of our emergency and disaster backup system for our
information systems; and complete the construction of our remote disaster backup center and
the roll-out of our automatic disaster switchover platform.
(4) Increase our investment in technology to maintain our competitive advantage in respect of
technology application. In light of the requirements of the New Basel Capital Accord, we will
strive to stay ahead of our competitors in technological application capabilities.
In order to implement our long-term strategic plans and realize sustainable development, we will
strive to improve our human resources management system and attract and train outstanding talent. We aim
to build a customer-oriented team of employees with strong business skills and a strong sense of mission,
with product, service and technological innovation as key principles.
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Build an industry-leading low-carbon banking brand
We believe that low-carbon banking is one of the future growth opportunities of the banking industry
in China. The development of a green economy is one of the key topics in the PRC government’s 12th
Five-Year Plan and one of the focuses for energy conservation in State Council work report of 2011. The
CBRC has also proposed that banking institutions should become “practitioners” to promote the
low-carbon concept and “innovators” in respect of low-carbon financial services. According to the CBRC,
banking institutions should also strive to have a greater voice and authority in the global carbon financial
system. In 2010, we entered into a carbon neutral service agreement with China Beijing Environment
Exchange therefore became a “carbon neutral bank” in China. In addition, in light of national guidelines
for developing the green economy and promoting an energy-saving society, we intend to continue to
promote our carbon finance business through various means, including through a green credit mechanism,
model-based financing and innovative carbon finance products, and building an industry-leading
low-carbon banking brand. We plan to continue to intensify our own energy conservation and emissions
reduction, purchase carbon emission reduction credits, optimize business flow, enhance internal work
efficiency and reduce internal energy consumption. We plan to also encourage our corporate and retail
banking customers to conserve energy and reduce their emissions.
(1) We intend to establish a dedicated department to lead our low-carbon finance business efforts,
which will formulate a comprehensive set of plans that encompass our guiding principles,
business mechanism, model-based operations and team building in order to establish a strong
foundation for developing and introducing new low-carbon finance products and services.
(2) Based on promoting the improvement of the low-carbon credit environment, while emphasizing
the environmental conditions for access to credit projects and restricting loans to high energy
consumption and high pollution industries, we intend to stress the provision of loans to new
strategic industries, low-carbon economic regions and green projects that are compliant with
national industrial policy in order to foster new business growth.
(3) We plan to develop new low-carbon financing models in light of the SME low-carbon financing
demands to support their green initiatives, form operating models that are mutually beneficial
for banks, government entities, and enterprises, and further expand those enterprises’ financing
channels. We plan to introduce low-carbon projects in some branches and replicate the
successful projects in our Bank.
(4) Based on the success of issuing and marketing our “Go Green Zero Carbon Card” (}‚r–öx³
Oáu(Sa ), we intend to continue to offer more green and public welfare products to our retail
banking customers. At the same time, we plan to continue to strengthen our electronic bank
system to encourage customers to adopt a low-carbon lifestyle through our paperless, low-cost
and efficient e-bank services.
(5) We plan to continue to improve our risk management mechanisms in relation to our low-carbon
finance business and green financial product innovation, and establish risk prevention measures
in support of credit projects and product development in accordance with relevant international
and domestic laws and regulations as well as clean energy trading rules.
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OUR PRINCIPAL BUSINESSES
Our principal business segments consist of corporate banking, retail banking and treasury operations.
The following table sets forth, for the periods indicated, our operating income by business segments.
For the three months
For the year ended December 31, ended March 31,
2008 2009 2010 2011
Amount % of total Amount % of total Amount % of total Amount % of total
(in millions of RMB, except percentages)
Corporate banking ..... 18,792 75.9% 17,743 73.0% 25,553 71.5% 7,971 71.4%
Retail banking ........... 4,577 18.5 5,107 21.0 8,200 22.9 2,963 26.5
Treasury operations ... 1,344 5.4 1,419 5.8 1,927 5.4 219 2.0
Other operations(1) ..... 50 0.2 34 0.2 48 0.2 18 0.1
Total ........................ 24,763 100.0% 24,303 100.0% 35,728 100.0% 11,171 100.0%
Note:
(1) Mainly includes income from our equity investment and subsidiaries.
Corporate Banking
We provide a broad range of corporate banking products and services to government agencies,
financial institutions and corporations. Corporate banking constitutes our primary source of income, which
consists primarily of corporate loans, discounted bills and corporate deposits as well as fee- and
commission-based products and services such as agency services for government revenues and
expenditures, tariff payment and guarantee services, remittance and settlement services, acceptance and
guarantee services, assets custody services, cash management, investment banking, and financial advisory
services. As of December 31, 2008, 2009, 2010 and March 31, 2011, our corporate loans (including
discounted bills) accounted for 79.8%, 78.1%, 75.1% and 74.7% of our total loans and our corporate
deposits (including corporate structured deposits) accounted for 82.2%, 83.2%, 84.4% and 82.3% of our
total deposits from customers, respectively. Operating income from corporate banking accounted for
75.9%, 73.0%, 71.5% and 71.4% of our total operating income for the year ended December 31, 2008,
2009 and 2010 and three months ended March 31, 2011, respectively.
Customer Base
We have extensive customer relationships with many large Chinese business groups and leading
companies, government agencies, financial institutions and SMEs which we believe have strong growth
potential. As of March 31, 2011, we had provided banking services to a majority of large-scale state-owned
enterprises supervised by the SASAC as well as a large number of the top 500 enterprises of China. We
have developed strategic corporation relationship with more than 1,000 large business group and leading
companies in their respective industries in China. We believe that we were the first National Joint Stock
Commercial Bank approved by the MOF to engage in the following three types of business at the same
time: (i) direct payment of expenditures on behalf of the MOF, (ii) authorized payment of expenditures on
behalf of the MOF and (iii) non-tax revenue collection on behalf of the MOF. As of March 31, 2011, only
the Industrial and Commercial Bank of China possessed the same qualifications as us for operating the
above three business at the same time. We are a leading domestic underwriter of short-term commercial
paper and medium-term notes in China. In addition to expanding our customer base, we have focused on
optimizing our customer mix. As of March 31, 2011, we had approximately 297,673 corporate deposit
customers, among which approximately 5,226 customers had more than RMB10 million on deposit, and
approximately 14,285 corporate loan customers, among which approximately 1,996 had more than RMB10
million of loans outstanding.
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SMEs are strategically important to our development and growth. From December 31, 2009 to
December 31, 2010, the number of our SMEs customers has increased by 66.3%. We mainly focus on the
following three types of SMEs: (i) supply chain participants who have advanced production facilities and
equipment as well as advanced technologies to provide long term supporting services or supplies to large
state-owned enterprises, leading companies, government agencies and other core clients; (ii) SMEs
clustered in certain regions or industries, who have brands with sound reputations and high market shares
in certain regions or industries; or (iii) high-technology SMEs, who have been included in the national
SME administration and service system, including technological SMEs within national level high-tech
industrial parks, software parks, industrial bases for the Torch Program (a national program to develop
high and new technology) and national university technology parks.
We also focus on developing long-term relationships with customers in economically developed
regions such as the Bohai Rim, the Yangtze River Delta and the Pearl River Delta as well as in those
industries strategically important to China’s economy. As of December 31, 2010, approximately 59% of
our corporate deposit customers and approximately 69% of our corporate loan customers were located in
these three regions. As of March 31, 2011, the top five industries to which we provided corporate loans
were: (i) manufacturing, (ii) real estate, (iii) wholesale and retail, (iv) transportation, storage and postal
services, and (v) water, environment and public utilities management. As of December 31, 2008, 2009 and
2010, and March 31, 2011, the balance of our loans to these five industries represented 67.1%, 72.2%,
73.7% and 74.6% of the balance of our total corporate loans, respectively.
Major Products and Services
Corporate Loans
Corporate loans have historically been the largest component of our loan portfolio. Based on
maturity, our corporate loans could be classified into short-term loans and medium to long-term loans. Our
corporate loans mainly include supply chain finance, SME loans, real estate industry loans and trade
finance. Our corporate loans are predominantly RMB-denominated. As of December 31, 2008, 2009 and
2010, we had RMB341,013 million, RMB461,454 million and RMB571,232 million in corporate loans
outstanding respectively, representing a CAGR of 29.4% over this period. As of March 31, 2011, the
amount of corporate loans outstanding was RMB606,007 million.
Supply Chain Finance
In response to the growing demand for financially efficient supply chains, we provide our targeted
customers with supply chain finance by extending our banking services to their customers and suppliers.
The banking services we provide to the customers and suppliers on the supply chain primarily include
working capital loans, discounted bills, bank acceptance bills, settlement, letters of credit and letters of
guarantee and other comprehensive services. Our supply chain finance solutions connect our key
customers with manufacturers, suppliers, distributors, end users and other parties at upstream and
downstream levels of the supply chain in mutually beneficial transactions.
We believe that supply chain finance represents an opportunity for us to transform from a bank that
meets only a fraction of our customers’ trade needs to an integral and valued business partner that provide
optimal solutions across our customers’ entire supply chain. Supply chain finance helps our customers to
decrease costs and optimize working capital from one end of the supply chain to the other. Moreover, it
creates deeper and broader customer relationships for us during the process and creates synergies between
our different business lines.
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We believe that we have a first-mover advantage and are the market leader in the supply chain
finance business in China. We started providing supply chain finance for the automotive industry under
our brand “Full Link” (Qhz • ) in 2000, which provides comprehensive and tailored banking services to
suppliers of automobile spare parts, automakers and distributors at each stage of automotive production
and distribution process. At the upstream and midstream levels, we provide suppliers of automobile spare
parts and automakers with working capital loans, discounted bills and letters of credit to facilitate the
production of automobiles and import of spare parts. At the downstream levels, we provide distributors
with loans and discounted bills. As of March 31, 2011, we had approximately 3,175 “Full Link” (Qhz • )
customers. For the year ended December 31, 2008, 2009 and 2010 and for the three months ended March
31, 2011, the transaction volume for our “Full Link” (Qhz • ) service amounted to approximately
RMB34.7 billion, RMB55.7 billion, RMB113.5 billion and RMB31.8 billion, respectively. In 2010, we
received “Top Ten Finance Products Award” (‘ч•u"TÁSAOssN ) from The Chinese Banker magazine for
marketing of our “Full Link” (Qhz • ).
Our success in supply chain finance in the automotive industry enables us to implement such
business model across other industries. We have been expanding our supply chain finance business into
other industries that we believe have strong growth potential such as steel, nonferrous metal and home
appliances industries. As of March 31, 2011, we had approximately 288 “Golden Chain” (‘Ñ‚r“È )
customers.
SME Business
Our SME business is strategically important for our growth. In June 2009, in order to serve our SME
customers, we established the SME division in our head office and also set up dedicated and specialized
teams at branch level. Our specialized service and team and tailored credit approval procedure drive the
rapid development of our SME business and enhance our SME service efficiency and quality. Under our
“Sunshine Value Plan” (–}QIRuP<Š Rƒ ), we provide our SME customers with both traditional banking
services, such as working capital loans and bank acceptance bills, and innovative and value-added services
in securities, insurance and investment banking areas.
We have developed tailored credit plans for SMEs through model-based operations. In the recent two
years, our SME loan business has grown rapidly. The total number of our SME customers increased 66.3%
from December 31, 2009 to December 31, 2010, from 6,191 to 10,295. As of March 31, 2011, our total
SME customers had increased further to 11,382. As of December 31, 2009 and 2010 and as of March 31,
2011, our SME deposits amounted to RMB81.0 billion, RMB147.4 billion and RMB158.7 billion,
respectively. As of March 31, 2011, our SME loans (excluding discounted bills) amounted to RMB134.0
billion and as of December 31, 2010, our SME loans (excluding discounted bills) amounted to RMB112.2
billion, representing 14.4% of our total loans, with an increase of approximately RMB47.2 billion, or
72.5% from December 31, 2009. As of March 31, 2011, 73.0% of our SME loans business was focused
in developed areas of China, with 22.8% in the Bohai Rim, 33.8% in the Yangtze River Delta, 16.4% in
the Pearl River Delta, and 27% in other regions. As of December 31, 2010 and 2009 and March 31, 2011,
the NPL ratio (including discounted bills) for our SME loan business was 2.21%, 4.77%, and 1.82%
respectively. As of March 31, 2011, the average NPL ratio on new loans added since 2008 was 0.11%. As
of December 31, 2009 and 2010 and for the three months ended March 31, 2011, the provision coverage
ratio for our SME loan business was 118.24%, 173.28%, and 189.12%, respectively.
In September 2009, at the Second PRC SME Finance Forum, we were awarded the “Top Ten SME
Financial Service Providers in the PRC” award and our “Sunshine Value Plan” (–}QIRuP<Š Rƒ ) was also
awarded the “Best Finance Solutions for PRC SMEs” (N-W N-\ O img Os‡•ŒÇe¹hH ) award. In addition,
our “Sunshine Value Plan” (–}QIRuP<Š Rƒ ) received the “Outstanding SME Financial Service Product
Award” in the 2010 Wealth Management League Table Awards. In December 2010, Mr. GUO You, the
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President of our Bank, was voted by the CBRC as one of the “Top Ten Leaders of 2010 of financial
services for” (SAY’˜ ŽÍN”ri ) small sized enterprises by banking and financial institutions (2010^t^¦’€ˆL
im‘ч•j_iË\ O im‘ч•g RÙSAY’˜ ŽÍN”ri ).
Trade Finance
We provide trade finance services to customers engaging in domestic or international trade. Our
domestic trade finance primarily includes finance under domestic letters of credit, factoring, supply chain
buyers’ finance and supply chain sellers’ finance. Our international trade finance primarily includes
inward documentary bills, outward documentary bills, packing loans, export discounts, forfeiting,
factoring and trade finance under export credit insurance. The volume of our trade finance amounted to
approximately RMB104.0 billion, approximately RMB269.6 billion and approximately RMB348.3 billion,
respectively for the year ended December 31, 2008, 2009 and 2010 and approximately RMB113.6 billion
for the three months ended March 31, 2011. The volume of our international settlement transactions
amounted to approximately USD45.3 billion, approximately USD41.6 billion and approximately USD46.8
billion, respectively, for the year ended December 31, 2008, 2009 and 2010 and approximately USD14.7
billion for the three months ended March 31, 2011.
Discounted Bills
Discounted bills refer to our discounted purchase of bank acceptance bills and commercial
acceptance bills with a remaining maturity of less than six months (no longer than 1 year for electronic
commercial bills). We may resell these bills to the PBOC or other financial institutions authorized to
conduct bill discounting, providing us with additional liquidity and spread income. As of December 31,
2010, we had outstanding discounted bills of RMB13,789 million, representing 1.8% of our total loan
amount. We have proactively participated in the development of electronic bill business, construction and
promotion of the e-bill system with the PBOC and were therefore granted the “Business Development
Award for E-Commercial Drafts” (–û[PUFimS/yhimRÙbÓ\UsN ) by the PBOC. For the year ended December
31, 2010, our total transaction numbers of our electronic discounted bills totalled approximately 1,400,
and we were ranked the third of the National Joint Stock Commercial Banks according to the data
published by the PBOC. As of March 31, 2011, bank acceptance bills outstanding accounted for 88.5% of
our total discounted bills outstanding.
Corporate Deposits
We offer our corporate customers time and demand deposits in Renminbi and major foreign
currencies. As of March 31, 2011, our corporate deposits (including corporate structure deposits)
amounted to RMB936,828 million, an increase of 4.5% from RMB896,814 million as of December 31,
2010, which in turn increased by 33.4% from RMB672,280 million as of December 31, 2009.
Fee- and Commission-based Products and Services
We provide our corporate customers with a broad range of fee- and commission-based products and
services, including agency services for government revenues and expenditures, tariff payment and
guarantee services, remittance and settlement service, acceptance and guarantee services, asset custody
services, cash management, investment banking and financial advisory services. As we have focused on
developing and offering fee- and commission-based corporate banking products and services in recent
years, this segment of business has grown significantly and generated net fee and commission income of
RMB1,251 million, RMB1,671 million and RMB2,566 million for the year ended December 31, 2008,
2009 and 2010, respectively, representing a CAGR of 43.2% over this period.
Agency Services for Government Revenues and Expenditures
We provide agency services to central and local governments in respect of collection of revenues and
payment of expenditures. We were the first of the National Joint Stock Commercial Banks approved by
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the MOF to engage in the following three types of business at the same time: (i) direct payment of
expenditures on behalf of the MOF, (ii) authorized payment of expenditures on behalf of the MOF and (iii)
non-tax revenue collection on behalf of the MOF. For the three years ended December 31, 2008, 2009 and
2010 and for the three months ended March 31, 2011, we provided agency services to the treasury of the
PRC central government with an aggregate transaction volume totaling approximately RMB967.9 billion.
Tariff Payment and Guarantee Services
We cooperate with the General Administration of Customs of the PRC to provide online tariff
payment and guarantee services for our corporate customers. For the year ended December 31, 2010, tariff
paid through our online tax payment service amounted to approximately RMB56,342 million, an increase
of 24.8% from 2009.
In March 2007, we became one of the first banks authorized by the General Administration of
Customs of the PRC to provide banking guarantee services to our online tariff payment customers. The
guarantee service for online tariff payment means, subject to the request from the import and export
enterprises, we will present the payment guarantee notes to the governing customs according to the
relevant regulations of the General Administration of Customs of the PRC. Our payment guarantee notes
enable import and export enterprises to obtain a preferential treatment of “clearance before payment,”
pursuant to which the enterprises will obtain a grace period of 15 days for delayed tariff payment. As of
December 31, 2010, we had 474 customers using our guarantee service for online tariff payment, and had
guaranteed tariffs worth approximately RMB46.9 billion.
Remittance and Settlement Services
We provide our corporate customers with remittance, foreign currency exchange and settlement
services for bank drafts, bank notes, corporate checks and other negotiable instruments. For the year ended
December 31, 2008, 2009 and 2010 and for the three months ended March 31, 2011, fees and commissions
generated from our remittance and settlement services amounted to RMB313 million, RMB404 million,
RMB660 million and RMB267 million, respectively, representing a CAGR of 45.2% from 2008 to 2010.
During the 11 years from 2000 to 2010, we had successively won “J.P. Morgan (Elite) Quality Recognition
Award” (n {—Œê‘ÏŠ•‹IsN ) from J.P. Morgan Chase.
Acceptance and Guarantee Services
We provide surety services for our corporate banking customers primarily through letters of credit,
bid guarantees, performance guarantees and other forms of bank guarantees. For the three years ended
December 31, 2008, 2009 and 2010 and for the three months ended March 31, 2011, fees and commissions
generated from our acceptance and guarantee services amounted to RMB303 million, RMB380 million,
RMB486 million and RMB176 million, respectively, representing a CAGR of 26.6% from 2008 to 2010.
For the three months ended March 31, 2011, fees and commissions generated from our acceptance and
guarantee services amounted to RMB176 million.
Custody Services
We provide custody services to securities investment funds, securities company’s collective asset
management plans, corporate annuity funds, private wealth management and QDIIs as well as custody
service to trust company’s collective asset trust plan, industrial investment funds and equity funds. We are
also among the first batch of the National Joint Stock Commercial Banks to obtain enterprise annuity
custodian and account manager qualification.
Our custody services benefit from the synergies between China Everbright (Group) and us. We
endeavor to establish cooperative relationships for the purposes of cross-selling, product design and
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information sharing with China Everbright Limited, Everbright Securities, Everbright Pramerica Fund
Management, Sun Life Everbright, China Everbright Financial Holding Asset Management Company and
their subsidiaries and affiliated companies.
In 2010, we focused on adjusting the distribution of assets under custody, balancing the proportion
and structure between securities assets and non-securities assets, steadily promoting the custody of
securities asset and greatly developing the custody of non-securities asset, including in particular the
custody of insurance fund debt investment plan and structural trust plan, which achieved outstanding
performance. The amount of insurance fund debt investment plan under custody increased from
approximately RMB2,700 million as of December 31, 2008 to RMB8,289 million as of March 31, 2011,
while the amount of securities investment trust plan under custody increased from approximately
RMB7,302 million as of December 31, 2008 to approximately RMB33,338 million as of March 31, 2011.
As of March 31, 2011, we had assets of approximately RMB309.0 billion under custody, making us
a leader among the National Joint Stock Commercial Banks, representing an increase of 47% over March
31, 2010. For the year ended December 31, 2010, our custody service fees amounted to RMB175 million,
representing an increase of 55% from the year ended December 31, 2009. In January 2010, we won the
“Custody Business Innovation Award for 2010” (2010^t^¦‘ÑrLbX{¡imRÙRue°sN ) at the “2010 Beijing
Youth Financial Star Campaign” (S —R 2010^tŒ¡f iœ ) organized by Beijing Youth Daily.
Cash Management
We provide integrated cash management services to our corporate customers to assist them in
managing their cash flow. Our cash management services include cash collection, disbursement, account
management, liquidity management, wealth management and financing services. Through our branch and
sub-branch network as well as our internet banking system, we provide our customers who have group
entities in multiple locations with comprehensive and one-stop cash management services. As of
December 31, 2010, we had approximately 7,000 cash management customers, representing an increase
of 147% from December 31, 2009. The total value of the transaction volume processed by our cash
management services reached approximately RMB931.7 billion in 2010, representing an increase of 364%
from 2009.
We were awarded the “Best Cash Management Bank – Star Team” (g Oss−‘Ñ{¡t ’€ˆL – W –ŠNKf )
at the China Cash Management Industry Summit (N-W s−‘Ñ{¡t ˆLimšØ\ðg ) organized by Beijing Unbank
Information Consultation Centre (’€oOá ). At the 2010 Treasury World Chinese Enterprise Financial
Innovation and the Most Reliable Bank among the PRC CFOs Forum (“Œ¡ŒÇY)N 2010”N-W O im‘ч•Rue°
ŠÖXÇf¨{,VÛ\FN-W CFOg OáŒô’€ˆLŠU•x˜ sNvÛQx ) hosted by the magazine Chief Financial Officers (™–^-
Œ¡RÙ[˜ ), we were awarded the “Best Cash Management Innovation Award” (g Oss−‘Ñ{¡t Rue°sN ) and
“The Best Corporate Finance Brand Award” (g OsQlSø‘ч•TÁrLsN ).
Investment Banking and Financial Advisory
We provide investment banking services and financial advisory services to our corporate customers.
We are one of the first banks qualified to underwrite short-term commercial paper when the PRC
Government permitted this business in May 2005. Since then, we have actively sought to develop our
capabilities and become a market leader in this product area. As of December 31, 2010, we had
successfully underwritten 253 short-term commercial paper which ranked us first among Chinese banks
in terms of the aggregate number of short-term commercial paper underwritten by us. We had successfully
underwritten short-term commercial paper with a total transaction value of approximately RMB313.1
billion, which ranked us first among the National Joint Stock Commercial Banks. As of the same date, we
had also underwritten 43 medium-term notes for our corporate customers with a total transaction value of
approximately RMB68.5 billion, which ranked us second among the National Joint Stock Commercial
Banks in terms of total number of deals and issue amount.
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Through our financial advisory service platform, we provide our customers with tailored financial
solutions and advice, including derivatives, debt financing, structured financing and in-depth industry and
financial markets analysis.
Our innovative and high-quality investment banking and financial advisory services have been well
acknowledged by our customers. In May 2010, in the competition for the excellent PRC investment banks
(banking category) (N-W S@Q*yÀb•ˆLŠU•x (’€ˆL˜^ )) organized by Securities Times, we won “Best
Innovative Investment Bank” (g OsRue°’€ˆLb•ˆL ) and “Best Bond Underwriter” (g OsPµR8b•’•’€ˆL )
awards. We also won the “Best Bond Underwriting Project” (g OsPµR8b•’•˜ vî ) award for our
underwriting of the RMB40 billion 2009 to 2011 medium-term notes of Shenhua Group Corporation
Limited. In 2009, we won “Best Investment Bank” (g Os’€ˆLb•ˆL ) and “Best Bond Underwriting Bank”
(g OsPµR8b•’•b•ˆL ) awards from the same competition organized by Securities Times.
Marketing
We implement differentiated marketing strategies. When marketing our services and products, we
take into consideration various factors such as customer recognition and loyalty, risk tolerance, market
demand and competition. Our head office is responsible for formulating our overall corporate business
development plans and establishing our general marketing guidelines based on industry, geographical
region, customer and product considerations. Our branches develop and implement detailed marketing
plans tailored to key regions, customers and businesses based on these guidelines.
Marketing for corporate banking is conducted primarily by our relationship managers across
different departments. Our relationship managers are responsible for marketing our services and products
to both existing and prospective customers as well as conducting market analysis and client assessment.
We provide our relationship managers with on-going training programs to improve their product
knowledge, marketing skills and credit assessment capabilities. As of December 31, 2010, we employed
2,546 corporate banking relationship managers working closely with other specialized staff to cross-sell
our products and services.
We encourage cooperation and cross-selling among different departments and different business
lines and have placed significant emphasis on teamwork and cross-department and cross-business-line
initiatives in marketing. Moreover, we cooperate with other financial services subsidiaries of China
Everbright (Group) in order to provide our customers with more comprehensive financial services.
We seek to provide differentiated products and services tailored to our customers to meet their
specific needs. Our head office and branches in strategically important cities are generally responsible for
coordinating client coverage and marketing efforts for our largest corporate customers in an effort to
ensure consistency and quality of service. In response to customers’ needs, we set up cross-department and
cross-business-line project teams from time to time.
Retail Banking
We offer our retail banking customers a wide range of products and services, including retail loans,
bank cards, retail deposits and fee- and commission-based products and services. We believe that retail
banking business is critical to our success. To achieve the success, we have strategically accelerated the
development of our retail banking business, continuously reinforced the image of our “Sunshine” brand,
expanded our market share, improved our customer base and provided our customers with innovative and
products and services to satisfy their various demands.
As a result of our efforts, our retail banking business has experienced significant growth in recent
years. Our retail loans accounted for 20.2%, 21.9%, 24.9% and 25.3%, respectively, of our total loans, and
our retail deposits (including retail structured deposits) accounted for 17.8%, 16.8%, 15.6% and 17.7%,
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respectively, of our total deposits from customers as of December 31, 2008, 2009, 2010 and March 31,
2011. For the year ended December 31, 2008, 2009 and 2010 and for the three months ended March 31,
2011, our retail banking business generated operating income of RMB4,577 million, RMB5,107 million,
RMB8,200 million and RMB2,963 million, respectively, representing 18.5%, 21.0%, 22.9% and 26.5% of
our total operating income.
Customer Base
We have established an extensive retail banking customer base. We divide our customers into
ordinary customers and mid- to high-end customers and have focused our marketing efforts on our mid-
to high-end customers, many of whom are senior management officers and small business owners. Among
our mid- to high-end customers, we define quality customers as those who have assets under management
of RMB500,000 to RMB1 million, affluent customers as those who have assets under management of more
than RMB1 million to RMB10 million, and private banking customers as those who have assets under
management of more than RMB10 million.
As of March 31, 2011, we had approximately 519,500 retail loan customers and approximately 20.8
million deposit customers with total deposits of approximately RMB201,156 million. In the recent years,
the number of customers with outstanding assets under our management exceeding RMB500,000 and
RMB10 million has significantly increased and the CAGR of the number of customers in these categories
was 39.7% and 64.3% respectively from 2008 to 2010. As of March 31, 2011, we had approximately
139,244 retail customers that had assets under our management in excess of RMB500,000, and the
outstanding assets of such customers under our management represented 55.5% of the total assets under
our management in our retail banking business. Among such retail customers, approximately 1,663 had
assets under our management in excess of RMB10 million.
In light of the rapid growth of GDP and personal disposable income in China, we believe that the
number of our mid- to high-end customers and their average financial assets will continue to increase. We
intend to further broaden our customer base and improve our customer loyalty by providing tailored retail
banking products, expanding our retail banking sales force and applying differential pricing policies.
Moreover, we have expanded the use of electronic banking platforms such as online banking and ATMs,
which will offer greater convenience to our customers and reduce our operating costs.
Major Products and Services
Retail Loans
As of December 31, 2008, 2009 and 2010, our retail loans outstanding totaled RMB94,447 million,
RMB141,836 million and RMB194,497 million, representing a CAGR of 43.5% over this period. As of
March 31, 2011, our retail loans outstanding totaled RMB208,843 million.
Residential and Commercial Mortgage Loans
We provide our customers with floating-rate residential mortgage loans, both for the purchase of
residential and commercial properties. We provided both fixed-rate and hybrid-rate residential and
commercial mortgage loans before July 7, 2009. As of March 31, 2011, the amount of residential and
commercial mortgage loans outstanding was RMB122,787 million, amounting to 58.8% of our total retail
loans and representing an increase of RMB4,507 million as of December 31, 2010. In order to improve
both average and comprehensive yield, we launched differentiated pricing strategy for residential and
commercial mortgage loans.
As of March 31, 2011, the amount of newly-built home residential mortgage loans outstanding was
approximately RMB74,101 million, amounted 70.26% of our total residential mortgage loans. However,
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in light of China’s increasing urbanization and as China’s residential property market matures, we expect
mortgages for the purchase of secondary market properties to increase as a proportion of our total
residential mortgage lending business. Our residential mortgage loans are generally secured by the
underlying property being purchased. We generally offer loans with maturities up to 30 years and for up
to 70% of the property value. We also offer commercial mortgage loans to finance the purchase of
commercial properties by our customers. Typically, our commercial mortgage loans have terms of less than
10 years and the amount of loans is normally not more than 50% of the value of the underlying commercial
property and no more than 55% of value of properties for both commercial and residential purposes.
In order to satisfy the diverse demands of our customers, we have initiated an electronic preliminary
loan approval procedure which allows our customers to be informed of the approval result during their
second-hand property transaction. To facilitate the efficiency of the loan approval process, we also
introduced an automatic approval procedure in 2011. In addition, we have also introduced maximum
mortgage loans with a simple approvals process, whereby a borrower may use the purchased property as
maximum collateral to take out loans that can be revolved within 30 years and within the relevant loan’s
credit limit.
We have also introduced maximum mortgage loans, whereby a borrower may use the purchased
residential property as maximum collateral to take out loans that can be revolved within 30 years and
within the relevant loan’s credit limit. Property mortgage is used as the main security and the incomes of
customers are the main source for repayment of loans.
In recent years, the PRC government has implemented a series of adjustment measures aimed at
cooling down the PRC real estate market. For example, in January 2011, the PRC State Council issued a
circular prohibiting non-residents of a city from purchasing properties in that city unless they can prove
that they have paid taxes or social insurance in that city for at least one year. In addition, the circular
restricts banks from issuing mortgages for purchasing an individual’s third or further additional properties.
While such new policies will generally influence the demand for mortgage loans in the market, our
residential and commercial mortgage loans outstanding nonetheless increased from RMB118,280 million
as of December 31, 2010 to approximately RMB122,787 million as of March 31, 2011, representing 58.8%
of our total retail loans outstanding. In addition, the circular also requires commercial banks to grant loans
for the purchase by an individual of their second residential property with interest rates at no less than
110% of the PBOC benchmark rate, which enables us to adopt a differentiated pricing strategy with respect
to our residential and commercial mortgage loans. This facilitates the increase of our average yield on such
loans.
Personal Construction Machinery Loans
We provide purchasers of construction machinery with mortgage loans pursuant to cooperation
agreements entered into by us with manufacturers of construction machinery. In the event that a machinery
purchaser fails to repay the loan, the manufacturer shall repurchase and dispose of the machinery to repay
the outstanding loan pursuant to the cooperation agreement.
We started our personal construction machinery loan business in 2003 and believe that we are the
pioneer and the market leader in this business. The manufacturers with whom we cooperate include
Zoomlion Heavy Industry Science & Technology Development Co., Ltd., SANY Group Co., Ltd. and other
major players in the personal construction machinery industry. According to the total sales revenue of 2010
provided by our cooperative enterprises and estimated industry data, the revenue of these manufacturers
amounted to more than a majority of the total revenue of the personal construction machinery industry. We
believe that the personal construction machinery loan business will continue to grow in light of China’s
increasing urbanization and the expected continued growth of China’s economy. As of March 31, 2011,
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the outstanding balance of our personal construction machinery loans amounted to RMB48,633 million,
representing 23.3% of our total retail loans.
Personal construction machinery loans generally have relatively low non-performing loan ratios. In
2010, we had no new non-performing loans for personal construction machinery loans.
Personal Consumption Loans
Our personal consumption loans mainly include comprehensive consumer loans and automobile
loans. As of March 31, 2011, we had approximately RMB13.1 billion of personal consumption loans
outstanding, representing 6.9% of our total retail loans.
We provide comprehensive consumer loans for living-related expenses and general consumption
such as home renovation, car parking spaces, large-ticket durable goods and overseas education. As of
December 31, 2010, we had total consumer loans outstanding of approximately RMB10.83 billion,
representing 5.6% of our total retail loans.
We provide automobile loans for up to 70% of the purchase price of the automobile and usually
require the purchased automobile or residential properties as collateral for the loan. Our target customers
for automobile loans are those customers whom we consider to have sound credit. As of March 31, 2011,
we had approximately RMB489 million in automobile loans outstanding, representing 0.3% of our total
retail loans.
From 2009, we started cooperating with Ping An Insurance Co. to provide personal consumption
loans with flexible maturity terms up to 36 months to customers who purchased personal consumption loan
insurance from Ping An Insurance Co.. Through such cooperation, we further expand our customer base
of our personal consumption loan business.
Personal Businesses Loans
Personal business loans are granted to private proprietors or small business owners to meet their
funding needs arising from their business operations. As of December 31, 2010, we had approximately
RMB3,919 million in personal business loans outstanding, representing 0.2% of our total retail loans.
We grant loans to individuals who own properties for business operation purpose. The RMB loans
are secured by the properties for business operation purpose. The income generated from the operation of
the properties shall be used to repay the loan. We generally offer loans with maturities up to 12 years and
for up to 60% of the property value.
Bank Cards
We offer a number of bank card products to our customers, comprising a variety of debit cards and
credit cards. We believe that we were also the first bank in China to offer a combined debit and credit
cards.
As of March 31, 2011, we had issued approximately 39.7 million bank cards, including
approximately 30.5 million debit cards and approximately 9.1 million credit cards. The total fees and
commissions generated by our bank card business in 2010 were RMB988 million, representing 19.4% of
our total fees and commissions for the year.
We are a member of China UnionPay, China’s national inter-bank card information exchange and
transaction network organization. We hold a 2.56% shareholding in China UnionPay.
The table below sets forth, as of the dates and for the periods indicated, the numbers of bank cards
issued and the total transaction volumes for these bank cards.
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As of
As of December 31, March 31,
Item 2008 2009 2010 2011
(in thousands)
Number of debit cards issued .................... 25,750 22,320 28,240 30,540
Number of credit cards issued ................... 4,731 6,402 8,584 9,139
Total .......................................................... 30,481 28,722 36,824 39,679
For the three
months ended
For the year ended December 31, March 31,
Item 2008 2009 2010 2011
(in millions of RMB)
(1)
Transaction volume for debit cards .......... 14,283.7 30,919.5 55,089.0 18,266.4
Transaction volume for credit cards ........... 17,332.0 52,307.0 76,732.0 24,411.0
Total .......................................................... 31,615.7 83,226.5 131,821.0 42,677.4
Note:
(1) Excluding deposits and money transfers made through debit cards.
Debit Card Services
We issue debit cards under the brand name “Sunshine Card” (–}QISa ) to customers who maintain
deposit accounts with us . Our Sunshine debit card provides our customers with access to various financial
services including cash deposit and withdrawal, fund transfer, settlement and bill payment. In addition, our
debit card can also be used for funds transactions, foreign exchange transactions, wealth management and
some of our other fee- and commission-based businesses.
We have established different levels of Sunshine debit card to meet the needs of different customers.
We issue Sunshine gold cards to those who have assets under our management no less than RMB100,000
(inclusive) and no more than RMB500,000 (exclusive), Sunshine platinum cards to those who have assets
under our management no less than RMB500,000 (inclusive) to no more than RMB1 million (exclusive)
and Sunshine diamond card to those who have assets under our management more than RMB1 million
(inclusive). From time to time, we introduce debit cards with various special features or co-branded cards
together with our partners. For example, we introduced “Sunshine Ladies’ Card” (–}QIO N”Sa ) for our
female customers and “Sunshine Auto Card” (–}QIˆLŽÊSa ) specifically designed for automobile owners.
Credit Card Services
We believe that our credit card center is one of the first domestic banks to receive a CCCS (Customer
Contact Center Standard) Five Star Certification, BSI (British Standard Institution) Certification under
ISO9001 standard for quality management system and BSI certification under ISO27001 standard
information security management system simultaneously. By following international credit card
operational standards, our credit card business integrates with local culture and realizes a coordinated
development in scale, efficiency and quality.
Our credit card business has grown rapidly since 2008. During 2008, 2009 and 2010 and the three
months ended March 31, 2011, we had issued approximately 4.7 million, 6.4 million, 8.6 million and 9.1
million credit cards, respectively, representing a CAGR of 35.3% from 2008 to 2010. As of December 31,
2010, the transaction volume and overdraft balance of our credit card of that year amounted to RMB76.7
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billion and RMB13.0 billion, respectively. According to the data in the Overall Operation of Payment
System in 2010 issued by the PBOC, the market share of the credit card issued by us approached 4%,
making us one of the leaders of more than 60 Chinese credit card issuing institutions.
Along with growth in scale, we constantly optimize the customer structure and work to significantly
increase the profitability of our credit card business. For the year ended December 31, 2008, 2009 and
2010, our operating income from credit cards were approximately RMB300 million, RMB960 million and
RMB1,510 million, respectively, representing a CAGR of 124.4%. For the year ended December 31, 2010
and for the three months ended March 31, 2011, the contribution of our Gold Card customers to our total
credit card transaction volume accounted for 68.0% and 71.8%, respectively. For the year ended December
31, 2008, 2009 and 2010, the contributions from high-end customers holding a Titanium Card and above
to our total credit card transaction volume accounted for 13.0%, 18.9% and 34.7%, respectively, showing
the continuous change in our customer portfolio and the success of our mid- to high-end customer strategy.
As of December 31, 2010, the number of our Titanium Card customers and above accounted for 2.6% of
our total credit cards customers, which approximately was doubled in 2010.
We have successfully launched dozens of innovative products. For example, we were one of the first
to build a credit card database in China, and were one of the first to launch the UnionPay Platinum Credit
Card, the Visa Infinite Card, mobile phone dynamic password authentication, and interest-free installment
functions. We were also one of the first to issue a combined debit and credit card, which combines the
debit account and credit account of the customer into one to suit PRC consumer habits even better. At the
same time, some of our credit card products are integrated with traditional Chinese cultural elements. For
instance, our classical “Fortune Card” (y•Sa ) features the Chinese character “Fortune” (y• ) written by
Emperor Kangxi on its front and has been very popular with our customers due to its Chinese element. As
of March 31, 2011, we had issued approximately 3.8 million Fortune Cards.
Due to the outstanding achievements of our credit cards products above, we have received a number
of awards including:
• In April 2009, our Sina Music Credit Card won the “Elan Award – The Best Security Financial
Card Design Award” (O †-sN – g Os[‰Qh‘ч•SaŠ-Š sN ). This was the first time a Chinese
card-issuing enterprise won the award since the Elan Awards came into existence 22 years ago.
• On July 31, 2010, our combined debit-and-credit card was given the “Best User Experience
Award” (g Osu(b6šÔšWOáu(Sa ) by Tencent.com and other organizations.
• On December 15, 2010, we won “2010 Financial Innovation Awards for Individuals” (2010^t
^¦P N”‘ч•Rue°sN ) and “2010 Awards for Credit Card with Potential Growth” (2010^t^¦Oáu(
Sao[R›sN ) during 2010 Netease Golden Diamond Awards session organized by Netease.
• On December 28, 2010, our credit card won “2010 Best Low-carbon Finance Award” (2010^t
g OsONx³‘ч•sN ) and our “Sunshine Wealth Management” (–}QIt Œ¡ ) was awarded “The Most
Trustworthy Wealth Management Products” (g ŠOát Œ¡u"TÁsN ) during the 2010 golden
phoenix wealth management session organized by Ifeng.com and phtv.ifeng.com.
In January 2011, we won “the 2010 Top Credit Card Center Award” in the Fifth Annual Brand
Recognition Competition sponsored by Beijing News.
Our credit card business is managed and operated by our Credit Card Center based in Beijing. Our
Credit Card Center maintains independent accounting and management systems and established credit card
business departments in all our branches to manage and operate our credit card business. We have tailored
our service system based on different characteristics, transaction behaviors and contributions of different
customers. Our credit card income consists primarily of annual fees, interest and late payment penalties
that we collect from our cardholders as well as commissions we collect from merchants accepting our
cards.
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Retail Deposits
We offer personal demand deposits and time deposits in Renminbi and foreign currencies to our retail
banking customers. Personal demand deposits include general demand deposits and flexible-term deposits.
Personal time deposits consist of general time deposits, call deposits, education savings deposits, and
deposits and withdrawals in lump sums, deposits in instalments while withdrawing in lump sums and time
deposits with periodic interest payments that can be withdrawn on demand. We currently offer regular time
deposit products with terms ranging from three months to five years for RMB-denominated deposits and
longer than one month for foreign currency-denominated deposits.
Our retail deposits (including personal structured deposits) amounted to RMB111,456 million,
RMB135,423 million, RMB166,366 million and RMB201,156 million as of December 31, 2008, 2009 and
2010 and as of March 31, 2011, respectively, accounting for 17.8%, 16.8%, 15.6% and 20.9% of our total
deposits from customers for the same periods. Retail deposits grew by a CAGR of 22.2% from 2008 to
2010.
Fee- and Commission-based Products and Services
We offer our retail banking customers a wide range of fee- and commission-based products and
services such as personal wealth management, fund agency services, securities agency services,
remittance, travel financial services and agency sales of gold bullion. For the year ended December 31,
2008, 2009 and 2010 and for the three months ended March 31, 2011, our net fees and commissions
relating to our retail banking business amounted to RMB906 million, RMB1,444 million, RMB2,129
million and RMB693 million respectively, representing a CAGR of 53.3% from 2008 to 2010.
Personal Wealth Management Services
We are one of the first banks that are authorized by PRC regulators to perform personal wealth
management services. We believe that we have developed very strong brand recognition in the market
under our brand name “Sunshine Wealth Management” (–}QIt Œ¡ ) for the breadth, innovation and quality
of our personal wealth management products and services. We have a comprehensive portfolio of personal
wealth management products including fixed return products, stock investment products, bonds
investment products, fund products, insurance products, QDII and other structured products and financial
advisory services. For the year ended December 31, 2008, 2009 and 2010 and the three months ended
March 31, 2011, our net fees and commissions relating to our personal wealth management service
amounted to approximately RMB377 million, approximately RMB642 million, approximately RMB851
million and approximately RMB201 million, respectively, representing a CAGR of 50.2% from 2008 to
2010.
As of March 31, 2011, we had over 800,000 “Sunshine Wealth Management” (–}QIt Œ¡ ) customers,
420 “Sunshine Wealth Management” (–}QIt Œ¡ ) centers and a team of 1,500 dedicated relationship
managers able to provide one-on-one wealth management services.
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In the Second Annual China Wealth Management Business Overall Rating Lists ({,NŒ\FN-W t Œ¡~=
ŠUiœ ), we were awarded the “Best Wealth Management Bank of 2008-2009” (2008-2009^t^¦g Ost Œ¡’€
ˆL ) award and our “Sunshine Wealth Management” (–}QIt Œ¡ ) brand won the “Most Influential Personal
Wealth Management Brand in 2008-2009” (2008-2009^t^¦g Qw_q—ÿR›P N”t Œ¡TÁrL ) award. “Sunshine
Wealth Management” (–}QIt Œ¡ ) was awarded the “Best Wealth Management Brand of the Year” (^t^¦g
Ost Œ¡TÁrLsN ) award in a campaign organized by Beijing News in 2009 for the selection of golden brands
in the banking industry. In January 2011, our Sunshine Wealth Management products received the
Outstanding Wealth Management Product Award (for –}QIt Œ¡m;g [ö ) in the 2010 Wealth Management
League Table Awards.
Bancassurance
We distribute insurance policies as agent for certain insurance companies. As of March 31, 2011, we
had entered into comprehensive cooperative agreements with 17 insurance companies as agent for their
insurance products. For the year ended December 31, 2010, we distributed insurance products with a total
transaction volume of approximately RMB23.1 billion and we received total fees and commission from
our bancassurance business of RMB130 million.
Brokerage
As of March 31, 2011, we had entered into third party depository agreements with 64 brokerage
companies. During 2010, we had approximately 779,000 third party depositary customers and distributed
collective wealth management plans with a total value of RMB3.67 billion.
Fund Agency Services
We act as an agent for the issuance and trading of fund products and provide fund transfer services
between securities companies and customers who maintain trading accounts with us. As of March 31,
2011, we had distributed 466 funds as agent and established business cooperation relationship with over
34 domestic funds in China. For the year ended December 31, 2010 and for the three months ended March
31, 2011, we distributed fund products with a total transaction volume of approximately RMB5.8 billion
and RMB1.0 billion and received fees and commissions of approximately RMB48.4 million and RMB22.0
million respectively. As of March 31, 2011, we ranked the second in terms of funds assets under custody
among the National Joint Stock Commercial Banks.
International Travel Financial Services
We are recognized by the embassies of the United Kingdom, Ireland, Australia and Singapore for
providing one-stop professional international travel financial services. We have introduced more than 20
types of products to cover the financial needs of our customers for travel, overseas study and emigration
under our “Everbright International Travel” (QIY’QúW • ) brand. At the 3rd International Education
Service Industry Summit held on December 11, 2010, we were awarded “The Best Provider of
International Travel Financial Services” (g OsQúW ‘ч•g RÙj_iËsN ) by virtue of our prominent strength in
delivering innovative financial service products relating to overseas study.
Agency Sales of Gold Bullion
We act as agent for our customers to trade gold bullion in designated branches. We believe we were
among the first PRC banks to open gold bullion counters for our retail banking customers. In 2009, as one
of the first batch of members of the Shanghai Gold Exchange, we developed one of the first bank
brokerage system to accept individual customers’ orders to trade on the Shanghai Gold Exchange. In the
same year, we were authorized by Shanghai Gold Exchange as the first pilot bank to grant retail loans with
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gold bullion as collateral. As of December 31, 2010 and March 31, 2011, we had approximately 150,000
and 155,000 gold bullion customers respectively. For the year ended December 31, 2010, our annual
transaction volume for gold bullion was approximately 28,400 kilograms with aggregate trading volume
of approximately RMB254.6 million. For the three months ended March 31, 2011, our transaction volume
for gold bullion was approximately 36.87 kilograms with aggregate trading volume of approximately
RMB12.3 million.
Marketing
Our head office formulates the overall marketing strategies, guidelines and standards for promoting
our retail banking products and services. Our branches formulate specific marketing plans in accordance
with instructions from our head office and tailor such plans to specific regions, customer preferences and
market conditions. Our relationship managers implement the marketing strategies and plans through
various marketing channels. As of December 31, 2010, we had a total of approximately 3,750 retail
banking relationship managers and marketing staff.
We market our retail products and services to our customers through physical and electronic
channels. Our branches and sub-branches are strategically located in regions where we believe our key
target customers are located. We also emphasize the importance of online banking, phone banking, and
mobile phone banking for our retail banking business.
We segment our customers into ordinary customers and mid- to high-end customers. Our marketing
efforts in relation to ordinary customers are primarily based on outreach by our relationship managers,
presentations given at our branches and general media advertisements. For our mid- to high-end
customers, we have introduced customized financial products and value-added services tailored to our
customers’ individual risk preferences, financial goals, and service preferences.
We emphasize the importance of synergies between our corporate and retail banking businesses as
well as synergies between different business lines of retail banking and we encourage cross-selling among
different business lines and segments. For example, we emphasize the development of retail banking
businesses such as payroll services for our corporate banking customers and promote our credit cards and
wealth management products to eligible retail banking customers. Our branches are required to prepare
their own relevant working plans to incentivize cross-selling. We have adopted measures to motivate our
staff to participate in marketing initiatives and we have provided regular training to our sales force.
Treasury Operations
Our treasury operations consist primarily of (i) money market activities, (ii) investment portfolio
management, and (iii) treasury transactions on behalf of customers. In conducting our treasury operations,
we seek to ensure our liquidity and achieve a balance between returns and risks on our investment
portfolio, taking into consideration the market and macroeconomic conditions. For the year ended
December 31, 2010, operating income from our treasury operations was RMB1,927 million, representing
5.4% of our total operating income.
Money Market Activities
Our money market activities primarily consist of (i) short-term inter-bank placements with other
domestic banks, foreign invested banks and other non-bank financial institutions through inter-bank
money market, (ii) repurchase and reverse repurchase transactions through inter-bank money markets, and
(iii) short-term placements in foreign currencies, debt repurchases in foreign currencies, foreign exchange
swaps and other money market activities in international financial market.
We are an active participant in money market activities and are one of 16 banks approved by the
PBOC to engage in SHIBOR quoting. As one of the SHIBOR-quoting banks, we provide daily quotes
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according to our own liquidity and capital supply and demand. For the year ended December 31, 2010, our
transaction volume for pledged repurchase transaction amounted to approximately RMB6,930 billion.
Investment Portfolio Management
We classify our investment portfolio into (i) bonds, and (ii) equity instruments. As of December 31,
2010, the value of our investment portfolio was RMB186,762 million, representing an increase of 35.7%
from December 31, 2009. As of December 31, 2010, bond and equity instrument value stood at
RMB186,663 million and RMB99 million, respectively, which accounted for 99.9% and 0.1% of our total
investment portfolio. See “Assets and Liabilities – Assets – Investment Securities and Other Financial
Assets.”
Proprietary Trading Activities
We purchase and sell various highly-liquid debt securities and bills for trading purposes, from which
we seek to obtain short-term profits. We primarily invest in debt securities issued by the PRC government
and PRC policy banks, PBOC bills and short-term financing notes. We employ strict stop-loss and other
limits for such trading transactions. We also hold a limited number of derivative financial instruments,
including interest rate swaps, currency forward contracts and currency swaps, to hedge against our
investment risks.
Proprietary Trading Activities
We seek to achieve a target return on our investment portfolio through our evaluation of interest rate,
exchange rate, credit, liquidity, macroeconomic trends and other risks associated with investment. In the
domestic market, we primarily invest in debt securities issued by the PRC government, PBOC bills, debt
securities issued by the policy banks, debt securities issued by other financial institutions and
non-financial institutions. In the international market, we invest in investment-grade foreign currency debt
securities issued by foreign governments, financial institutions, corporations and international
organizations.
Treasury Transactions on Behalf of Customers
We also engage in treasury transactions on behalf of our corporate and retail banking customers,
including primarily foreign currency derivatives, debt settlement and foreign currency trading. In
conducting these transactions, we generally conduct back-to-back transactions to hedge against our risk
exposure.
PRODUCTS AND SERVICES PRICING POLICY
The interest rates we charge on our RMB-denominated loans are generally regulated by the PBOC.
For RMB-denominated corporate loans and retail loans (other than residential mortgage loans and credit
card balances), we are not permitted to set the interest rate lower than 90% of the relevant PBOC
benchmark rate, but there has been no upper limit since October 29, 2004. See “Supervision and
Regulation – PRC Banking Supervision and Regulation – Pricing of Products and Services – Interest Rates
for Loans and Deposits.” Interest rates for foreign currency-denominated loans are generally not subject
to PRC regulatory restrictions, and we are permitted to negotiate the interest rates on such loans.
Interest rates for our RMB-denominated demand and regular time deposits cannot be higher than the
applicable PBOC benchmark rate. However, we are permitted to provide negotiated time deposits to
insurance companies, the National Council for Social Security Fund and Postal Savings Bank of China
under certain circumstances. We are also permitted to negotiate the interest rates on foreign currency
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deposits other than those denominated in U.S. dollars, Euros, Japanese Yen and HK dollars in an amount
less than US$3 million or equivalent. See “Supervision and Regulation – PRC Banking Supervision and
Regulation – Pricing of Products and Services – Interest Rates for Loans and Deposits.”
With respect to fee- and commission-based business, certain services are subject to government
guideline prices, such as basic Renminbi settlement services specified by the CBRC and the NDRC. See
“Supervision and Regulation – PRC Banking Supervision and Regulation – Pricing of Products and
Services – Pricing for Fee- and Commission-based Products and Services.”
In compliance with applicable regulatory requirements, we price our products based on criteria
including the risk profile of our assets, an individual customer’s contribution to our business, our costs,
the expected risk- and cost-adjusted returns, and our internal fund pricing benchmarks. In addition, we
consider general market conditions and prices for similar products, and services offered by our
competitors.
DISTRIBUTION CHANNELS
We provide our customers with user-friendly services through our multi-channel distribution
network. As of March 31, 2011, our distribution network consisted of 617 branch outlets nationwide,
including 33 tier-one branches, 22 tier-two branches and 562 other network outlets, complemented by a
comprehensive electronic banking platform.
Branch Outlets
As of March 31, 2011, we had 617 branch outlets excluding our head office, consisting of 33 tier-one
branches, 22 tier-two branches and 562 other network outlets. Our head office is located in Beijing and
is responsible for the overall decision-making and management of our Bank. Our tier-one branches are
generally located in the capital cities of the provinces, autonomous regions and directly-controlled
municipalities of China and certain other strategically important cities, while our tier-two branches are
located in other cities within China’s provinces and autonomous regions. The tier-two branches report to
the tier-one branch in their respective region and are able to establish lower-tier network outlets in the
same city.
We have extensive coverage of the economically developed areas in China. As of March 31, 2011,
we had 129, 121 and 116 branch outlets in the Bohai Rim, the Yangtze River Delta and the Pearl River
Delta respectively.
The following table sets forth, for the periods indicated, the number of our domestic branch outlets
by geographical region.
As of December 31, As of March 31,
2008 2009 2010 2011
Regions Number % of total Number % of total Number % of total Number % of total
Bohai Rim ..................... 99 21.6% 112 21.6% 127 21.0% 129 20.9%
Yangtze River Delta....... 86 18.8 101 19.5 116 19.2 121 19.6
Pearl River Delta ........... 83 18.1 95 18.3 114 18.8 116 18.8
Central China................. 66 14.4 79 15.2 96 15.9 96 15.6
Northeastern China ........ 64 14.0 66 12.7 73 12.1 74 13.1
Western China................ 60 13.1 66 12.7 79 13.0 81 12.0
Total ............................. 458 100.0% 519 100.0% 605 100.0% 617 100.0%
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Electronic Banking
We provide a broad array of electronic banking services including self-service banking, internet
banking, phone banking and mobile phone banking. As of December 31, 2010, we had approximately 3
million electronic banking customers (excluding phone banking customers), representing a significant
increase of 82.9% from December 31, 2009. In 2010, we completed approximately 242 million electronic
transactions, accounting for 70% of our total number of transactions, with a total transaction volume of
approximately RMB6,870 billion.
Our electronic banking services aim to become the “most user-friendly” in the PRC and has
successively obtained special awards in selection campaigns sponsored by third parties. In 2009, during
the Annual Call Center Exhibition (ACCE) held by the International Customer Management Institute
(ICMI), we were given the “2009 China’s Best Call Center Award” (2009N-W g OsT|SëN-_ÃsN ). In 2010,
at the 2010 Annual Meeting of Online Bankers organized by the China Financial Certification Authority
(CFCA), we won the “China Online Banking Best Customer Experience Award” (N-W }²N ’€ˆLg Os[¢b6
šÔWsN ).
Self-service Banking
Our self-service banking platform provides convenient and efficient services to our customers and
reduces our operating costs. As of March 31, 2011, we had 860 self-service banking centers and 4,506
ATMs. In 2010, the total value of all transactions conducted through our self-service banking platform was
approximately RMB70,535 million, representing an increase of 61% from 2009. For the three months
ended March 31, 2011, the total value of all transactions conducted through our self-service banking
platform was RMB22,736 million.
Internet Banking
Our internet banking platform, www.cebbank.com, consists of both retail internet banking and
corporate internet banking systems. Our corporate internet banking products and services include account
inquiries, account management, money transfers and remittance, group treasury services, loans, foreign
currency business, investment and treasury services, and cash management. Our retail internet banking
products and services include retail account management, money transfers and remittance, fee payment,
investment and wealth management, credit cards, retail loans, and online shopping.
We seek to improve the security of our internet banking system and have implemented various
measures for strengthening the system and end-user security, including use of third party digital
certification, providing our customers with USB key, security token, and short messaging service (SMS)
dynamic password and identification services, and sending short messaging service (SMS) notices to our
customers in relation to changes in their accounts.
As of March 31, 2011, we had approximately 73,500 corporate internet banking customers and
approximately 2.6 million retail internet banking customers. In 2010, the total transaction amount in
respect of our corporate and retail internet banking customers was approximately RMB5,830 billion and
approximately RMB930.2 billion, respectively, and the total transaction volume for our internet banking
was RMB6,780 billion. For the three months ended March 31, 2011, the total transaction amount in respect
of corporate and retail internet banking customers was RMB1,730 billion and RMB395.3 billion,
respectively, and the total transaction volume for our internet banking was RMB2,130 billion.
Phone Banking
We offer phone banking services through our customer service number “95595” 24 hours a day,
seven days a week. The phone banking service hotline includes both staffed and automated services and
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can be accessed throughout China. Our phone banking services include account management, information
inquiries, money transfers and settlement, bill payment, investment and wealth management, and retail
loans. As of March 31, 2011, we had approximately 2.67 million phone banking customers. The total
transaction volume for our phone banking business was RMB5,648 million for the year of 2010 and
RMB1,312 million for the three months ended March 31, 2011, respectively.
Mobile Phone Banking
Our mobile phone banking services include account inquiries, money transfer and remittance, fee
payment, and credit card repayment, allowing our customers with mobile phones to access convenient and
personalized banking services. As of March 31, 2011, we had approximately 479,100 retail customers
using our mobile phone banking services. The total transaction volume for our mobile phone banking
business was approximately RMB1,154 million for the year of 2010 and approximately RMB325 million
for the three months March 31, 2011, respectively.
INFORMATION TECHNOLOGY
We consider information technology to be one of the driving forces of our further development. We
have constructed a multi-level structure of information technology systems covering all aspects of our
business operations, including channel management, customer management, product management,
transaction processing, financial management, risk management, decision-making support and sharing
support. Substantially all of our business transactions are processed and maintained by our information
technology system. We believe that our advanced information technology system has greatly improved,
and will continue to improve, our efficiency, the quality of our customer service, and our risk and financial
management capabilities.
We have established a technology strategic committee responsible for making important decisions on
strategies, planning, standards, information security system and budgets for technology development
throughout our bank. Information technology departments have been established at both the head office
and branch levels. Our head office’s experienced information technology team mainly consists of technical
personnel aged 30-35 who have at least five years of relevant working experience. We plan to gradually
increase the number of technical personnel in the coming years. As of March 31, 2011, we had 490
employees with information technology-related responsibilities.
We completed the consolidation of our bank-wide integrated counter systems in 2002 in order to
have all of our key businesses and service systems operated under the centralized management of our head
office. In 2005, we completed an overall upgrade of our core business systems, accounting system, and
risk management system. In 2010, we completed the construction of our remote disaster recovery centre
and our same city automatic disaster switchover platform. In 2006, we started the construction of the
enterprise-level data warehouse (EDW), which provides information for both our internal analysis and
external reporting purposes. The EDW consolidated data from 38 systems of our Bank and enables us to
conduct bank-wide data analysis and exchange, allowing us to conduct more advanced analysis of clients’
needs, risk management and production design.
We have adopted a series of measures to enhance the levels of information technology system
operation and management, including: (i) establishing in Beijing two same-city mutual backup data
centers, continually improving the same-city disaster recovery system in respect of servers, storage,
networks and engine room facilities and improving the capability of the information technology system to
resist disasters; (ii) strengthening the network security management, enhancing the security of network
operation by means of firewalls, intrusion detection system (IDS), logical partition, physical partition,
redundant backup of equipment and wiring and strengthening the centralized administration of networks
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BUSINESS
by building up a bank-wide unified network administration platform and a data volume monitoring
platform; (iii) implementing an information technology service management (ITSM) project,
strengthening system monitoring and warning, regulating incident management, changes management,
configuration management and other day-to-day operational work, lowering the risks associated with
information system maintenance and operation; (iv) based on the infrastructure of two data centres within
the same city, formulating corresponding disaster recovery plans, and regularly carrying out recovery
practice drills; and (v) establishing a uniform head office platform for centralized management of the
system daily log book, enhancing the warning capability of the system and providing a measure for audit
monitoring. Since the establishment of our Bank, we have not suffered any major information technology
system failure and related losses. We believe that we are one of the first PRC commercial banks to initiate
electronic processing of letters of credit, to use a bank-wide video platform and non-paper operating
process between head office and branches, and to support the multi-center management of documentation
in order to ensure mutual support and backup between different centers.
We construct our bank-wide information security system in light of our actual needs and by reference
to international standards and norms. Our technology strategic committee sets our overall information
security development strategies and plans in light of the policies and requirements of the PRC government
and regulators. We have adopted a variety of security measures to enhance the security of our information
technology system and the reliability of our operations, including advanced firewall technologies, hacker
detection systems, network monitoring, and safeguard tools and systems.
We outsource some applications and information technology functions to independent third parties.
Our outsourced IT functions include the maintenance of office computers; the development, operation and
maintenance of our credit card system; and the operation of our data center. We select suitably qualified
outsourcing companies through a bidding process. Generally, we enter into service contracts with
outsourcing companies and then manage and supervise their daily operations. In addition, we carry out
inspections to assess their overall service quality every three months and the service quality of their main
service personnel every six months. We conduct strict scrutiny of such third parties when we procure
information technology support from outside sources. In order to reduce the risks associated with the
outsourcing, we monitor the whole outsourcing process, including project proposal, selection of
contractors, negotiation and execution of contracts, daily management, appraisal and inspection for
acceptance.
In recognition of our efforts in the area of information technology systems, we have won a number
of awards. Our centralized operation project of the national documentation centre (QhW U®‹IN-_ÖÆN-•K
qߘ vî ) was awarded the second prize and our system users’ management platform was awarded the third
prize of “Banking Technology Development Award of 2010” (2010^t^¦’€ˆLyÑb€v|\UsN ) by the PBOC. In
a selection campaign organized by HEXUN.com in 2009 and conducted during the Third China E-Banking
Summit, our online banking product “E-Path Sunshine” (E•ï–}QI ) was awarded the “Best Online Bank
with the Highest Growth Potential (Personal Online Banking)” (g Qwb •w`’}²N ’€ˆLsN (P N”}²’€ )) award
and the “Most Innovative Service (Personal Online Banking)” (g OsRue°g RÙsN (P N”}²’€ )) award. In
2008, we were awarded the “Best Risk Prevention Award for Online Banking Operation” (N-W }²N ’€ˆL
˜¨–“–2{ÄsN ) award, and the “2008 China Online Banking Best Customer Experience Award” (2008N-W
}²N ’€ˆLg Os[¢b6šÔšWsN ) by the China Financial Certification Authority (CFCA).
COMPETITION
We face significant competition in our principal areas of business from other commercial banks and
other financial institutions in China. We currently compete primarily with the Large Commercial Banks
and the other National Joint Stock Commercial Banks. We also face increasing competition from other
financial institutions, including city commercial banks and foreign banks operating in China. Our
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competition with other commercial banks and financial institutions in China primarily focuses on the
variety, pricing and quality of products and services, convenience of banking facilities, reach of
distribution network, and brand recognition as well as information technology capabilities. Furthermore,
we face competition in the provision of financial services to our customers from non-banking institutions
such as securities firms and insurance companies.
Our competition with foreign-invested financial institutions will likely intensify in the future. In
2006, pursuant to its WTO commitment, the PRC government eliminated measures restricting the
geographical presence, customer base and operational licenses of foreign-invested banks operating in
China. In addition, China’s Closer Economic Partnership Arrangement with Hong Kong and Macau allows
smaller banks from those jurisdictions to operate in the PRC, which has also increased competition in the
PRC banking industry.
See “Risk Factors – Risks Relating to the Banking Industry in China – We face intense competition
in PRC banking industry as well as competition from alternative corporate financing and investment
channels” and “Financial Information – General Factors Affecting Our Results of Operations – The
Competitive Landscape in the PRC Banking Industry.”
In response to this competitive environment, we intend to continue to implement our strategies to
differentiate us from our competitors and to enable us to continue to compete effectively in the PRC
commercial banking industry.
EMPLOYEES
As of December 31, 2008, 2009, 2010 and March 31, 2011, we had 16,987, 19,217, 22,267 and
22,653 employees, respectively. The number of our employees as of December 31, 2010 includes 2,584
employees at our head office and 19,683 employees at our branches and sub-branches.
The following table sets forth the total number of our employees by function as of March 31, 2011.
As of March 31, 2011
Number % of total
Management .................................................................................. 271 1.20%
Corporate banking ......................................................................... 4,892 21.60
Retail banking (other than credit card business) ........................... 5,034 22.22
Credit card .................................................................................... 711 3.14
Treasury operations (head office) .................................................. 39 0.17
Planning and finance ..................................................................... 378 1.67
Operation and support ................................................................... 7,537 33.27
Risk management, internal control, and legal .............................. 1,208 5.33
Information technology ................................................................. 490 2.16
Electronic banking......................................................................... 1,035 4.57
Others (1) ........................................................................................ 1,058 4.67
Total ............................................................................................ 22,653 100.0%
Note:
(1) Consists primarily of administrative and supporting departments.
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The following table sets forth the total number of our employees by age as of March 31, 2011.
As of March 31, 2011
Number % of total
Under 29 ....................................................................................... 11,649 51.42%
30 to 39......................................................................................... 7,208 31.82
40 to 49......................................................................................... 3,170 14.00
over 50 .......................................................................................... 626 2.76
Total ............................................................................................ 22,653 100.0%
The following table sets forth the total number of our employees by education level as of March 31,
2011.
As of March 31, 2011
Number % of total
Master’s degree and above ............................................................ 2,604 11.50%
Bachelor’s degree .......................................................................... 14,491 63.97
Associate degree and vocational schools ....................................... 5,142 22.69
Others............................................................................................ 416 1.84
Total ............................................................................................ 22,653 100.0%
We contribute to our employees’ social insurance, provident housing fund and certain other
employee benefits in accordance with PRC laws and regulations. We have established a performance-
based compensation system whereby an employee’s compensation is determined based on his position and
performance review. In addition, we provide training programs to our employees to improve their
professional competence and skills.
We provide our employees with training sessions on various topics, such as the international
economic environment, globalization of and competition in the finance industry, environment-friendly
finance, low-carbon economics, sustainable development, team building, banking industry innovation and
service, detailed management, model-based operations, project management, corporate culture, bank
development strategy, legal compliance, risk management, retail business, corporate business, financial
compliance, information disclosure, electronic bank business, and human resources.
Our labor union represents the interests of the employees and works closely with our management
on labor-related issues. We have not experienced any strikes or other material labor disputes that have
interfered with our operations, and we believe that the relationship between our management and the labor
union has been, and remains, good.
In addition to employees who have entered into written employment contracts with us, we had also
engaged 3,078 independent contract workers by signing contracting agreements with third party human
resources agencies as of March 31, 2011. These contractors generally hold non-key positions with us such
as cleaners and assistants. Our labor relationship with such independent contract workers is compliant with
the PRC Labor Law. According to the PRC Labor Contract Law, there is no labor contract relationship
between the independent contract workers and us. The independent contract workers enter into labor
contracts with the relevant human resources agencies, and such agencies perform the obligations of
employers to the independent contract workers. These independent contract workers generally hold
non-key positions with us, and we are subject to the obligations of labor using units in accordance with
the PRC Labor Contract Law. Pursuant to the contracting agreements, we advance the human resources
agencies salary payments, social security contributions and other related payments for the independent
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contract workers. The human resources agencies in turn, make payments of salaries to the independent
contract workers and social security contributions and other related payments to relevant governmental
entities. We have been advised by our PRC legal counsel, King & Wood PRC Lawyers, that if the third
party human resources agencies fail to pay remuneration to the independent contract workers, we may also
be held jointly liable for claims brought by the independent contract workers in accordance with PRC
laws. However, we are entitled to seek indemnification from the third party human resources agencies
under the contracting agreements.
PROPERTIES
We are headquartered in Beijing, PRC. At April 30, 2011, we held [676] properties and leased [1,087]
properties in the PRC.
Owned Properties
At April 30, 2011, we owned [676] properties with an aggregate gross floor area of approximately
[664,603.16] square meters in the PRC. Among the [676] properties, we have obtained relevant land use
rights certificates, building ownership certificates or real estate certificates for [614] properties,
representing an aggregate gross floor area of approximately [617,585.00] square meters and building
ownership certificates but without proper land use rights certificates for [11] properties, representing a
total gross floor area of approximately [19,479.51] square meters. We do not have the relevant title
certificates for [51] properties with an aggregate gross floor area of approximately [27,538.65] square
meters due to various title defects or for other reasons.
Properties to be Acquired
At April 30, 2011, we had entered into contracts to purchase 11 properties with an aggregate gross
floor area of approximately 99,358.34 square meters.
Leased Properties
At April 30, 2011, we leased [1,087] properties in the PRC with an aggregate lettable area of
approximately 633,180.65 square meters.
For the 1,087 leased properties in the PRC, according to the opinion given by our PRC legal advisors,
the relevant lessors have provided relevant title certificates to lease [757] properties, representing a total
lettable area of approximately [472,895.51] square meters. We have not been provided with the relevant
title ownership certificates of 330 properties, representing a total lettable area of approximately
[160,285.14] square meters.
Nevertheless, we have obtained confirmation letters in respect of [111] properties, representing an
aggregate lettable area of approximately [39,785.28] square meters from these lessors which undertake to
compensate us for all of our losses arising from defective legal titles.
Property Titles
For the [676] properties we hold and occupy in the PRC, we have obtained relevant land use rights
certificates, building ownership certificates or real estate certificates for [614] properties, representing an
aggregate gross floor area of approximately [617,585.00] square meters and building ownership
certificates but without proper land use rights certificates for [11] properties, representing a total gross
floor area of approximately [19,479.51] square meters. There are [51] properties representing an aggregate
gross floor area of approximately [27,538.65] square meters for which we have not obtained title
certificates. We are in the process of applying for the relevant land use rights and building ownership
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certificates that we do not yet hold, and we plan to cooperate closely with the local land and property
management authorities to expedite such applications and obtain the relevant valid title certificates as soon
as practicable. While there may be legal impediments to our obtaining certain of these title certificates as
a result of these title defects, the aggregate gross floor area of these properties with defective titles is
immaterial comparing to all of the properties we own. Accordingly, it is not expected that these defect
properties will have any material adverse impact on the operations and financial position of the Group as
a whole.
For the [1,087] leased properties in the PRC, the relevant lessors have not provided valid title
certificates to lease [330] properties, representing an aggregate lettable area of approximately
[160,285.14] square meters, which mainly have commercial uses, including as offices, outlets, Self-service
Banking, and ATMs. As the owners of the properties, the lessors are responsible for applying for the
relevant valid title certificates or providing us the consent to lease the properties. In respect of this, we
have proactively procured these lessors to apply for the relevant valid title certificates or provide us the
consent to lease properties. Among these leased properties with defective legal title, the lessors of [111]
leased properties with an aggregate lettable area of approximately [39,785.28] square meters have
provided confirmation letters to undertake to compensate us for losses arising from their defective legal
title. For the remaining [219] properties without such confirmation letters, as advised by our PRC legal
advisors, we will have the right to seek compensation from the lessors pursuant to the relevant lease
agreements. We are of the view that most of these leased properties occupied can, if necessary, be replaced
by other comparable alternative premises without any material adverse effect on our operations.
Due to various title defects or for other reasons, we cannot obtain title certificates for some of these
properties. For title defects that we cannot rectify, we believe that the lack of such title certificates and/or
the existence of such title defects will not have a material adverse effect on our business, financial
condition and results of operations, as the relevant properties represent a minor portion of the total value
of our properties. Our directors are of the view that the defective properties individually and collectively
are not crucial to our operations. See “Risk Factors – Risks Relating to Our Business – We do not possess
the relevant land use right certificates or building ownership certificates for some of our properties, and
we may be required to seek alternative premises for some of our offices or business sites due to our
landlords’ lack of relevant title certificates.”
Property Valuation
Jones Lang LaSalle Sallmanns Limited, an independent property valuer, has valued the property
interests that we owned at April 30, 2011 with commercial value of RMB[10,513.9] million (including the
total value of the properties held and occupied by the Group). The text of the valuation letter, a summary
of values and the valuation certificates issued by Jones Lang LaSalle Sallmanns Limited for this document
are set out in Appendix V.
No commercial value is attributed to any leased properties, properties to be acquired, owned
properties and properties under construction without proper title certificates.
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MAJOR INTANGIBLE ASSETS
We own various intellectual property rights including trademarks, patents, domain names, copyrights
and non-patented technology. We conduct business under the “China Everbright Bank” “CEB” and “N-W
QIY’’€ˆL ” brand names.
Trademarks
As of March 31, 2011, we held 13 registered trademarks and 9 registration applications which have
been accepted for consideration in the PRC. As at the Latest Practicable Date, we also held [●] registered
trademarks and filed [two] trademark registration applications outside the PRC.
On March 20, 2008, we entered into a trademark license agreement with China Everbright (Group),
pursuant to which we were granted a license to use their “QIY’”, “Everbright” and “ ” trademarks for
nil consideration. China Everbright (Group) does not have the right to unilaterally terminate the license
agreement. On December 29, 2009, China Everbright (Group) undertook to us that it would renew these
trademarks and continuously license us to use them at nil consideration, with no time limit being specified
in the undertaking.
Invention Patents
As of March 31, 2011, we had 2 patent applications in China which have been accepted for
consideration in the PRC.
Domain Names
As of March 31, 2011, we had registered 20 domain names in the PRC.
LEGAL AND REGULATORY
Licensing Requirements
As of the Latest Practicable Date, we had obtained all financial operating licenses required for
conducting our current businesses.
Legal Proceedings
We are involved in certain legal proceedings in the ordinary course of our business. Most of these
proceedings involve enforcement claims initiated by us to recover payments of our non-performing loans.
The legal proceedings against us include actions relating to customer disputes and claims brought by our
counterparties on contracts related to our banking operations.
As of March 31, 2011, we had 63 pending litigation and arbitration cases each with a claim value
of over RMB30 million, amounting to approximately RMB3,795.8 million and US$32.9 million in
aggregate respectively. Out of these 63 cases, we or our branch outlets were plaintiffs in 61 cases with an
aggregate value of RMB3,574.7 million and US$32.9 million, and we or our branch outlets were
defendants in two cases with an aggregate value of RMB221.1 million. We believe that we have made
adequate provision with respect to current and pending proceedings against us. As of March 31, 2011, our
litigation provision amounted to RMB42.5 million. Please see Note 39 to our consolidated financial
statements in the Accountants’ Report in Appendix I to this document for the details of the provision. We
do not expect any of our current and pending legal or arbitration proceedings to have, individually or in
the aggregate, a material adverse effect on our business, financial condition or results of operations, even
if they are determined against us.
[As of the Latest Practicable Date, none of our directors, supervisors, and senior management was
involved in any material litigation, arbitration or administrative proceedings.]
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Regulatory Reviews and Proceedings
We are subject to inspections and examinations by the relevant PRC regulatory authorities, including
the PBOC, CBRC, MOF, CSRC, CIRC, SAIC, SAFE, NAO, and SAT, as well as their respective local
offices. These audits and examinations have previously resulted in findings of incidents of non-compliance
and the incurrence of certain penalties. Although these incidents and penalties did not have any material
adverse effect on our business, financial condition and result of operations, we have implemented
improvement and remedial measures to prevent the recurrence of such incidents.
As of the Latest Practicable Date, four sub-branches of our Bank are renewing their insurance agency
permits (OÝ–“Q|imNãt Š1Sï‹I ). We have been advised by our PRC legal counsel, King & Wood PRC
Lawyers, that there is no material legal impediment for us to renew such permits. During the Track Record
Period and up to the Latest Practicable Date, save as disclosed in this document, we have not violated any
relevant rules or regulations in any material respect and have obtained all material licenses, approvals,
permits and certificates from the appropriate regulatory authorities. We have also been advised by our PRC
legal counsel, King & Wood PRC Lawyers, that save as disclosed in this document, our Bank has complied
with the applicable PRC laws and regulations in all material respect and has obtained all material licenses,
approvals, permits and certificates from the appropriate PRC regulatory authorities. Please see “– Legal
and Regulatory” and “Supervision and Regulation – PRC Banking Supervision and Regulation – Other
Operational and Risk Management Ratios” for more information on our non-compliance.
Our Hong Kong representative office is subject to Hong Kong laws and regulations, as well as the
regulatory oversight of relevant authorities in Hong Kong. As of the Latest Practicable Date, our Hong
Kong representative office was not in breach of respective local legal and regulatory requirements and
adheres to ordinary and routine supervisory procedures.
Administrative Proceedings
Certain regulatory inspections and examinations have resulted in our being subject to fines and
penalties as a result of our non-compliance with regulatory requirements. From January 1, 2008 to March
31, 2011, we were subject to a total of [26] fines and penalties of an aggregate value of RMB[3.07] million
as a result of non-compliance with the PRC regulatory authorities other than the tax authorities:
• [six] fines and penalties totaling RMB[1.49] million were imposed by the CBRC for, among
other things, non-compliance with certain requirements regarding bill business, calculation of
risk assets, credit scale management and approving credit card applications from ineligible
applicants. The CBRC imposed a fine of RMB350,000 for our approval of credit card
applications from 23 applicants who were illegible for application of credit cards in respect of
age;
• [nine] fines and penalties totaling RMB[645,000] were imposed by the PBOC for, among other
things, failure to report certain large and suspicious transactions and non-compliance with
certain settlement requirements and anti-money laundering requirements;
• [eight] fines and penalties totaling RMB[875,000] were imposed by the SAFE for, among other
things, non-compliance with regulations relating to foreign exchange business;
• [one] fine and penalty of RMB[25,000] was imposed by the MOF for, among other things,
non-compliance with certain financial and accounting regulations;
• [two] fines and penalties totaling RMB[35,000] were imposed by the SAIC for, among other
things, publication of advertisements not complying with certain regulations;
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In addition to the above, aggregate tax penalties of approximately RMB[1,489,753] (including late
payment penalties) were imposed by the PRC tax authorities, including aggregate tax penalties of
approximately RMB1,300,311 imposed by local tax bureaus for delayed payment of business tax, stamp
duty and other taxes; and aggregate tax penalties of approximately RMB189,442 imposed by the state tax
bureau for our failure to withhold individual income tax on behalf of our employees.
As of the Latest Practicable Date, we have paid all of the above administrative fines and penalties.
These penalties did not, individually or in aggregate, have a material adverse effect on our business,
financial condition or results of operations. We have taken, and will continue to take, the following key
steps and measures to rectify the issues identified by the PRC regulatory authorities:
• regarding related party transaction issues: our financial restructuring has effectively resolved
certain historical connected transactions. At the same time, we have reduced the credit limit for
loans to related parties, strengthened the management of the granting of authorization for
related party transactions;
• regarding our bill business: we have strengthened the process for the verification of the
authenticity of trading backgrounds and the clearance and recovery of advances made in our
bill business;
• regarding the calculation of risk assets: the relevant accounting work has been improved by
clarifying the standards for calculating risk assets, perfecting risk management processes,
strengthening the management of risk assets data collection and improving business training
and systems development;
• regarding credit scale management: we have strengthened our implementation of regulators’
directives on loan scale control;
• regarding the approval of credit card applications from ineligible applicants: we have improved
our credit card approval model, required our authorized credit card approval officers to strictly
follow our approval requirements and procedures and strengthened the verification of the
contents of the application documents;
• regarding anti-money-laundering: we have established a system for reporting and submitting
data on large transactions and suspicious transactions, and formulated relevant anti-money-
laundering procedures. In addition, we periodically provide anti-money-laundering training to
staff at different levels to raise awareness of anti-money-laundering issues;
• regarding issues of non-compliance settlement: we have revised the relevant regulations and
guidelines, and further strengthened the supervision of the accounting and settlement business
at branch and sub-branch level to effectively mitigate operational risks;
• regarding non-compliance in foreign exchange business: we have studied and thoroughly
implemented relevant national policies and applicable regulations, and strengthened the
supervision and inspection of non-compliance by staff and the enforcement of related
disciplinary procedures;
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• regarding non-compliance in financial matters: we have taken stringent financial disciplinary
measures, recovered concealed deposits of funds, strengthened financial management. We have
standardized the marketing of our wealth management products and improved the standards
and transparency of marketing materials for wealth management products;
• regarding tax non-compliance: we have strengthened training in tax law and regulation for our
employees, carried out periodic self-inspection with respect to tax law compliance and
promptly rectified tax issues found through such self-inspection;
• regarding other non-compliance: we have conducted fire control examinations and verifications
prior to and through construction. We have improved our internal control system, strengthened
the monitoring and inspection of compliance with internal control requirements, and hold
compliance education activities on a continuing basis.
Through the above measures, we believe that we have taken appropriate actions to rectify the
identified deficiencies. As of the Latest Practicable Date, we had paid substantially all of the fines and
penalties according to the requirements of the PRC regulatory authorities.
Findings of Regulatory Examinations
Certain routine or ad hoc examinations or inspections conducted by the PRC regulatory authorities
have revealed certain deficiencies or incidents of non-compliance in various areas of our business
operations, risk management and internal control. The results of the principal examinations or inspections
are summarized below.
CBRC
The CBRC conducts onsite and off-site inspections on us, including on-site inspections of our head
office, branches and sub-branches. Based on these inspections, the CBRC issues inspection reports
annually setting forth its findings and recommendations. In the inspection report in 2010, the CBRC
acknowledged the improvement in our risk management and internal control systems. However, the report
also pointed out certain deficiencies and gave us some recommendations The key recommendations made
by the CBRC in its report and our primary remedial measures adopted are set forth below.
Main recommendations Main remedial actions taken
Further improving the effectiveness of • We have issued a couple of internal
corporate governance, mainly including regulations on information disclosure and
strengthening the fulfilment of information invited officers of competent authorities,
disclosure obligations and appointing the intermediaries, and professionals to
chairman of the board of supervisors conduct training on information disclosure.
We require relevant staff members to
comprehend the information disclosure
requirements of listed companies and
regulate the related working procedures in
order to ensure compliance with applicable
information disclosure requirements.
• We have been liaising with relevant
authorities and potential candidates for the
position of the chairman of our board of
supervisors in order to facilitate the
appointment of an appropriate individual
as soon as possible.
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Main recommendations Main remedial actions taken
Reinforcing the management of liquidity risk
• As of July 2010, our loan-to-deposit ratio • The Planning and Finance Department took
was 77.35%, 2.35 percentage points higher the lead in establishing a periodical
than the required ratio. communication mechanism, with the aim
of strengthening the coordination between
our head office and our various business
lines and departments. Proactive
adjustments to the size of loan grants for all
business lines are being adopted on a
quarterly/monthly basis for the year 2011.
The size of loan grants is generally
determined with reference to the growth of
deposits. We have also strengthened
control of loan-to-deposit ratio at the
branch and sub-branch level. As of March
31, 2011, our loan-to-deposit ratio was
71.60%, which complied with the required
ratio.
• At the end of 2010, our core liabilities ratio • We aim to achieve greater stability in
was 52.78%, 7.22 percentage points lower demand deposits through enhanced
than the required ratio. marketing efforts to attract deposits and
encourage time deposits of three months or
above in order to improve our core
liabilities ratio gradually.
• At the end of 2010, the fixed deposits • We attach importance to the proportion of
accounted for a smaller proportion of our medium and long-term loan balances and
total deposits than in 2009, while medium- have taken measures to control the growth
and long-term loans accounted for a greater of such proportion appropriately. We have
proportion of our total loans than in 2009. formulated and refined internal regulations
Such mismatch may create problem in including “Liquidity Risk Management
liquidity management. Measures of China Everbright Bank”,
“Emergency Liquidity Risk Management
Measures of China Everbright Bank” and
“2011 Policy Guidance on Liquidity Risk
Management of China Everbright Bank”.
Attaching great importance to information • In accordance with a resolution of our
technology risk control through improving Strategy Committee, we established an
the stability of information technology information technology risk management
systems, preventing the risk of internal team consisting of representatives from the
information leakage, defending against Information Technology, Risk Management
attacks from phishing websites, and ensuring and Audit Departments and an information
information security. technology risk monitoring system.
• We have appointed dedicated operation
maintenance managers and established a
24-hour duty mechanism in order to
respond promptly to information system
risks.
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BUSINESS
Main recommendations Main remedial actions taken
• We have strengthened supplier and
business management, formulated a list of
critical equipment and required our
suppliers to keep us regularly informed
regarding spare parts status in order to
control service quality.
• We have further enhanced the safety of our
internet banking function, especially its
ability to deal with threats from phishing
websites, by implementing overall risk
control measures including testing,
reporting and processing.
• We have strengthened accountability for
information technology risk events and
considered the occurrence of information
technology risk events as a criterion for the
assessment of relevant departments.
Strictly controlling the accumulative • We have issued a couple of internal
operational risk that arises from our rapid guidelines and notices on operational risk
development. control to improve our operational risk
system.
• We have launched a few operational risk
control training seminars for our
employees.
• We have carried out self-assessments for
operational risk control, self-inspections
for business and investigations for
operational risk.
• We have emphasized accountability in
respect of material operational risk events.
Strictly implementing relevant loan regulations, • We have made amendments to the relevant
including amending our standard contract contracts.
template and loan payment mechanism • We issued a special notice with
requirements requirements on fund monitoring,
improving training, initiating assessments
and establishing an on-going supervision
system with the aim to prevent
misappropriation of funds.
• We have strengthened our internal audit
work in respect of the implementing of the
relevant loan regulations.
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BUSINESS
Main recommendations Main remedial actions taken
Executing comprehensive investigations into • We have made improvements in the areas
credit management risk. of loan classification management,
approval on loan disbursement, fund
monitoring and credit record management.
• We have strengthened our credit card
approval and risk identification processes.
• We have strived to implement the real
estate credit policy in order to reduce risks
associated with personal residential
mortgage loans.
We acknowledged the significance of the opinions of, and requests from, the CBRC, and have
organized rectification and actively taken measures to enhance internal management and risk control. The
inspections of CBRC did not have a material adverse effect on our financial condition or results of
operations.
The CBRC prohibits PRC banks from providing deposit interest rates higher than the applicable
PBOC benchmark interest rate or free gifts to attract depositors. If it finds any violation by any bank in
its inspection, it will require such bank to stop providing such high deposit interest rates, and may apply
penalties and announce the violation to the public. In September 2010, our Shenzhen branch received a
notice from the CBRC requiring one of our sub-branches in Shenzhen to stop providing gifts for deposits.
The Shenzhen sub-branch has stopped providing gifts for deposits. As of the Latest Practicable Date, we
have not been subject to any penalty by the CBRC for such non-compliance.
NAO
The NAO conducts audits of state-owned and state-controlled enterprises, including us, from time
to time. During its most recent audit of us, the NAO audited the profit and loss and assets and liabilities
of our head office and 27 branches and sub-branches in 2006.
The NAO noted that a continuous expansion of our operation scale, a drop in the non-performing
loan ratio, an increase in operation efficiency, effective work was done in structural adjustments, and some
of the businesses were advantageously positioned on the market. Meanwhile, the NAO also identified
certain operational deficiencies including, among others, non-compliance in extending loans, use of false
vouches for accounting entries, concealed deposit of funds and over-estimation of certain business scales.
The findings by the NAO did not have any material adverse effect on our financial condition and results
of operations.
To address the issues pointed out by the NAO, we adopted corresponding rectification measures, and
reported the rectification results at various stages to the NAO:
• regarding non-compliance issues in our credit business: we have adopted relevant rectification
measures to resolve relevant issues in a timely manner, taken precautions against our Bank’s
capital risk, reviewed or revised relevant business management measures, and further regulated
various operation processes;
• regarding non-compliance issues in deposit and settlement business: while strengthening
specific business rectification, we have adopted multiple measures, revised relevant regulations
and guidelines, consolidated corporate counter operations at the branch level, strengthened the
supervision and inspection of accounting settlement business, and effectively mitigate
operational risks;
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• regarding non-compliance issues in bill business: we have strengthened the process for the
verification of the authenticity of trading backgrounds to prevent similar issues from recurring,
and have also strengthened the clearance and recovery of advances made in the bill business
to minimize the loss of our funding;
• regarding non-compliance issues in financial matters: we have taken stringent financial
disciplinary measures where necessary, pursued the recovery of concealed deposits of funds,
strengthened financial expense management, revised expense management procedures, and
organized training on fake invoice detection;
• we have organized, supervised and urged comprehensive and thorough rectification for
non-compliance in our operations;
• we have strengthened our accountability system, investigated and severely punished those
responsible for material non-compliance, and duly implemented penalties.
In addressing the issues identified by the NAO, we have strengthened our internal control policies
and systems, reinforced our execution capabilities, nurtured a compliance culture, and established risk
prevention mechanisms with long-term effect.
Except for the aforesaid, during the Track Record Period, the PRC regulators did not impose any
other penalties or extra requests regarding our administrative procedures.
Non-compliance by Employees, Customers and Other Third Parties
We have, from time to time, detected non-compliance incidents committed by our employees,
customers and other third parties. In the three years of 2008, 2009 and 2010, we claimed liabilities of 151
person-times for non-compliance incidents committed by our employees, mainly relating to non-
compliance with our internal rules regarding credit granting process, counter processing procedures and
accounting related matters. None of our Directors and senior management has been involved in any of
these non-compliances. We believe that these non-compliances, individually or in aggregate, have no
material adverse impact on our business operations and financial performance.
The Directors are of the view that the findings of the regulatory authorities and the non-compliance
incidents did not reveal any material deficiencies in the Bank’s business operations, internal audit, internal
control or risk management.
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