Annual 2015 年報 Reportp 2015
卓越穩健卓 越 穩 健 ProsperP withihP Prudence d 拓展創新 Expand with Innovations 年報 Annual Report 2015
此年度報告以環保紙張印製。 This annual report is printed on environmentally friendly paper. Vision To become a first-class medium to large bank in Hong Kong Mission • Provide better service to our customers • Create higher value to our shareholders • Build up broader career path for our associates • Assume full responsibilities as a corporate citizen Core Values • Integrity • Impartiality • Prudence • Creation
28/F, CCB Tower, 3 Connaught Road Central, Central, Hong Kong Tel: 3918 6939 www.asia.ccb.com Contents
02 About Us
03 About CCB
04 Our History
06 To Customers and Shareholders
07 Board of Directors and Executive Management
15 Subsidiary, Joint Venture and Associated Companies
16 Corporate Social Responsibility
18 Awards and Honors
20 Report of the Directors
24 Business Review
28 Independent Auditor’s Report
30 Consolidated Statement of Comprehensive Income
31 Consolidated Statement of Financial Position
32 Consolidated Statement of Changes in Equity
34 Consolidated Statement of Cash Flows
35 Notes to the Consolidated Financial Statements
135 Unaudited Supplementary Financial Information
165 Service Network
This annual report is printed on environmentally friendly paper. About Us
CHINA CONSTRUCTION BANK (ASIA)
China Construction Bank (Asia) Corporation Limited “CCB (Asia)” is the retail and commercial business platform of China Construction Bank Corporation “CCB” in Hong Kong, offering a wide array of banking products and services to customers, including consumer banking services, commercial banking services, corporate banking services, private banking services and cross-border financial services, etc.
For consumer banking, in addition to providing conventional transactional, foreign exchange and cash services, CCB (Asia) also offers deposits, loans (including personal loans, credit cards loan, residential mortgages and auto-financing), securities agency and investments, consolidated banking, insurance, RMB services, credit card, electronic banking services and safe deposit boxes services.
For commercial banking, CCB (Asia) provides a range of financial products and services to corporations, securities firms and small and medium sized enterprises, including bilateral commercial loans, syndicated loans, SME loans, trade finance, residential and commercial mortgages, FX products, machinery and equipment leasing, stockbroker financing as well as electronic banking, corporate wealth management, cash management and deposit services. CCB (Asia) also capitalizes on the extensive branch network of CCB to create synergistic businesses such as RMB cross-border collaboration services including SBLC loans, LC discount, RMB deposit, remittance and foreign exchange.
For corporate banking, CCB (Asia) provides bilateral loans, syndicated loans, club deals and trade finance to blue- chip companies and large local corporations. Besides, CCB (Asia) also offers comprehensive financing solutions to large state-owned enterprises and Chinese conglomerates, including the provision of credit enhancement service in supporting domestic companies in Mainland China to issue its offshore corporate bond. Fully supported by CCB, CCB (Asia) launches synergistic businesses such as entrusted payment, export account receivable risk participation, discount against draft avalization and more. Other business developments of corporate banking include the aircraft finance business and the emerging business in the Shenzhen Qianhai Financial District and the Shanghai Pilot Free Trade Zone.
In addition, CCB (Asia)’s treasury business includes inter-bank money market transactions and investment in debt instruments. The bank also trades in debt instruments, derivatives and foreign currency for its own account. The Treasury carries out customer driven derivatives, such as foreign currency transactions.
02 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 About CCB
CHINA CONSTRUCTION BANK
Founded in 1954 and headquartered in Beijing, CCB is a leading commercial bank in China renowned globally. Adhering to the development strategy of “integration, multi-function, intensiveness, innovative banking and smart banking”, CCB is committed to serving the real economy and strengthening comprehensive risk management. CCB has achieved consistent and balanced development in scale, quality and effectiveness, with key financial indicators and market value in the leading position among peers.
As at the end of 2015, CCB’s total assets stood at RMB18.35 trillion. Net profit amounted to RMB228,900 million and key financial indicators including ROA, ROE and capital adequacy ratio took the lead in the global banking sector. As an integrated banking group, CCB has established subsidiaries in non-banking business fields like investment banking, mutual funds, trusts, leasing, insurance, futures and pension.
With over 14,000 branches and sub-branches in Mainland China, CCB provides services to over 3 million corporate clients and 300 million individual customers. It has well-established close cooperative relationships with a large number of high-end customers and outperforming companies from industries which are strategically important to China’s economy. As of the end of 2015, the bank has established over 130 outlets overseas including 27 tier one organizations, covering 25 countries and regions. The overseas network includes 18 branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo, Seoul, New York, Ho Chi Minh City, Sydney, Taipei, Luxembourg, Macau, Toronto, London, Paris, Barcelona, Amsterdam, Milan and Zurich, and seven wholly- owned subsidiaries including CCB (Asia), CCB London, CCB Russia, CCB Dubai, CCB Europe, CCB New Zealand and CCB International.
The bank was listed on the Stock Exchange of Hong Kong Limited (Stock Code: 939) in October 2005 and the Shanghai Stock Exchange (SSE Code: 601939) in September 2007.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 03 Our Historyy
1912 1936 1945 CCB (Asia) originated from The The bank’s business was World War II ended and Hong Bank of Canton which was suspended due to the Great Kong was liberated. Former staff established in Hong Kong in Depression. Through re- rebuilt The Bank of Canton and 1912 by Chinese businessmen, capitalization by the prominent its banking business was quickly including Li Yuk Tong and Look Huo and Soong families, the back on track. It soon became the Pong Shan from San Francisco bank finally resumed business on largest Chinese-owned remittance in the United States. It was the November 23 and was chaired by and foreign exchange bank in first locally incorporated bank Soong Tse Ven. Hong Kong in the post-war era. owned by Chinese people. Led by the chairman and chief manager Look Pong Shan, the bank was The bank expanded its business headquartered at 6 Des Voeux to Macau by setting up a Road Central, Hong Kong, which subsidiary named Kuong Tung is now the flagship branch of Ngan Hong, which was the CCB (Asia). first Chinese-owned financial institution registered in Macau.
Celebration of the 35th Anniversary of The Bank of Canton (1947)
1966 Shanghai Fire & Marine Insurance The Bank of Canton resumed its business through Co. Ltd. became a subsidiary re-capitalization by the Soong and Huo families in 1936, chaired by Soong Tse Ven (fourth from right) of The Bank of Canton and was renamed Hongkong & Shanghai The Bank of Canton’s head office was located Insurance Company Limited. at 6 Des Voeux Road Central Later, QBE Insurance Group in Australia became a shareholder of 1941 Hongkong & Shanghai Insurance Company Limited and renamed Hong Kong was occupied by it QBE Hongkong & Shanghai Japan in World War II. The bank’s Insurance Limited, which is an business was suspended again. associated company of CCB (Asia) today.
04 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Our Historyy
1984 2006 2013 Security Pacific National Bank China Construction Bank acquired Business integration of CCB Hong acquired a 100% interest in The a 100% interest in Bank of Kong Branch and CCB (Asia). Bank of Canton and renamed it America (Asia) from Bank of Security Pacific Asian Bank in America and renamed it China 1988. Construction Bank (Asia).
CCB Hong Kong Business Integration Ceremony (2013)
The inauguration of CCB (Asia) (2007) The three buildings of CCB in Hong Kong were officially inaugurated. CCB Tower is the The inauguration of Security Pacific Asian Bank head office of CCB (Asia), located 2009 at Central; CCB Centre is the mid- Acquired AIG Finance (Hong to-back office of CCB’s entities in Kong) and renamed it China Hong Kong, situated in Kowloon Construction Bank (Asia) Finance, Bay; CCB Hong Kong Training 1992 CCB (Asia) has become one of Centre is CCB’s first offshore Security Pacific Corporation the largest credit card issuing training site, located at Sai Wan. merged with Bank of America institutions in Hong Kong. Corporation. Security Pacific Asian Bank became a wholly-owned subsidiary of Bank of America Corporation and was renamed Bank of America (Asia) in 1993.
Signing ceremony of the acquisition of AIG Finance (Hong Kong) (2009)
(From left to right) CCB Centre, CCB Tower & CCB Hong Kong Training Centre
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 05 To Customers and Shareholderss
We are delighted to announce that the consolidated net profit after tax for China Construction Bank (Asia) Corporation Limited [“CCB (Asia)”] reached HKD2,501 million for the year ended December 31, 2015 , an increase of 46.2% as compared to 2014.
Total operating income of CCB (Asia) for the year 2015 amounted to HKD6,320 million, an increase of 23.3% as compared with that of 2014. Net interest income and non-interest income were HKD5,349 million and HKD970 million, represented an increase of 12.9% and 150.3% respectively. Under effective cost controls, the amount of total operating expenses moderately increased by 5.2% to HKD2,810 million while the cost-to-income ratio reduced to 44.5%. In 2015, the loan impairment charges increased by 57.2% to HKD452 million was mainly due to higher allowances made for commercial loans and trade finance businesses.
Total consolidated assets of CCB (Asia) stood at HKD507.5 billion as at December 31, 2015, a mild increase of 1.5% from HKD500.2 billion at the end of 2014. Available-for-sale financial assets grew by HKD26 billion, or 43.7%, to HKD85.7 billion. These securities have low risk profiles, and are mainly issued by governments and banks. Advances to customers and trade bills slightly dropped by 2.9% to HKD238.1 billion. Asset quality was continuously maintained at a satisfactory level. Impaired advances to customers represented 0.11% of the total advances to customers. Impaired advances and trade bills coverage ratio was 298.7% as at December 31, 2015, an increase of 32.1 percentage points when compared to the position as at the end of 2014. Deposits from customers increased by 11.3% to HKD305.6 billion whereas certificates of deposit and other debt securities issued dropped by 21.7% to HKD52.5 billion.
As at December 31, 2015, CCB (Asia)’s Common Equity Tier 1 Capital Ratio and Tier 1 Capital Ratio were both 13.7% while the Total Capital Ratio was 16.6%. Average liquidity coverage ratio for the year 2015 was 140.0%. All these ratios were maintained at sound levels, which were well above the regulatory requirements.
With the full support from our parent bank, China Construction Bank, and unremitting efforts of our board of directors and staff, CCB (Asia) manages to maintain a steady growth. Taking this opportunity, we would like to express our sincere gratitude to our customers and shareholders for your continuous support!
Wang Hongzhang Mao Yumin Chairman Chief Executive Officer
Hong Kong, April 1, 2016
06 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Board of Directors and Executive Managementt In 2015
BOARD OF DIRECTORS
WANG Hongzhang Chairman, Non-Executive Director MAO Yumin Chief Executive Officer, Executive Director JIANG Xianzhou Alternate Chief Executive, Executive Director Miranda KWOK Pui Fong President, Executive Director KANG Yi Non-Executive Director HU Zhanghong Non-Executive Director LI Weiping (resigned on June 19, 2015) Non-Executive Director YING Chengkang Non-Executive Director XUE Shengli (appointed on June 19, 2015) Non-Executive Director Bucky FONG Wing Foon Independent Non-Executive Director James S. DICKSON LEACH Independent Non-Executive Director CHAN Wing Kee GBS, OBE, JP Independent Non-Executive Director Lord Peter LEVENE Independent Non-Executive Director
SECRETARIES
Betty CHAN Pik Ha Secretary to the Board of Directors Ted YAU Ka Bo Company Secretary
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 07 Board of Directors and Executive Managementt In 2015
WANG Hongzhang Chairman, Non-Executive Director
Mr. Wang, aged 61, has served as chairman and non-executive director of the Bank since July 2, 2013 and is the chairman of the Strategy and Corporate Governance Committee of the Board of Directors of the Bank. Mr. Wang has served as chairman and executive director of China Construction Bank Corporation since January 2012, and chairman of Sino-German Bausparkasse Co., Ltd. since July 2012. From November 2003 to November 2011, Mr. Wang was chief disciplinary officer of the People’s Bank of China (the “PBOC”). From June 2000 to November 2003, Mr. Wang was the president of Chengdu Branch of the PBOC and administrator of Sichuan Branch of the State Administration of Foreign Exchange. From April 1996 to June 2000, Mr. Wang was deputy director-general of the Supervision Bureau and director-general of the Internal Auditing Department of the PBOC. From November 1989 to April 1996, Mr. Wang served on various positions including assistant president of Qingdao Branch, deputy director of the General Administration Office, deputy director of the Finance Planning Department and general manager of the Banking Business Department of Industrial and Commercial Bank of China (“ICBC”). From January 1984 to November 1989, Mr. Wang worked in the Industrial and Commercial Credit Department and the General Administration Office of ICBC. From September 1978 to January 1984, Mr. Wang worked in the Credit Bureau, Savings Bureau and Industrial and Commercial Credit Department of the PBOC. Mr. Wang is a senior economist and a certified public accountant. Mr. Wang graduated from Liaoning Finance and Economics College with a bachelor’s degree in finance in 1978, and obtained his master’s degree in economics from Dongbei University of Finance and Economics in 1997.
MAO Yumin Chief Executive Officer, Executive Director
Mr. Mao, aged 61, has over 30 years of experience in the banking and financial sector. Prior to the current position as the chief executive officer of CCB (Asia) since July 2013, he was the chief executive of China Construction Bank Hong Kong Branch from 2011 to 2013; the chief investment officer of China Construction Bank from 2007 to 2010; the chairman of CCB (London) from 2008 to 2011; and the vice chairman of CCB (Asia) from 2007 to 2011.
Before rejoining China Construction Bank in 2007, Mr. Mao was the executive director and chief executive officer of Shanghai Ai Jian Corporation Limited from 2006 to 2007, which is a public listed company on the Shanghai Stock Exchange, with core businesses in financial trust, securities, real estate, asset management, etc. From 2003 to 2006, he was the senior vice president and the executive director of Cathay International Holdings Limited, which is listed on the London Stock Exchange. From 1997 to 2003, Mr. Mao was the chief executive of China Construction Bank Hong Kong Branch, leading the branch’s commercial business developed swiftly. He was the deputy general manager of International Department of China Construction Bank from 1992 to 1994 and promoted to the general manager of the Department from 1994 to 1996.
Mr. Mao received his bachelor’s degree in finance from Jiangxi University of Finance and Economics in 1983 and completed the Program for Management Development (the 70th Session) in Graduate School of Business Administration of Harvard University, the USA in 1995.
08 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Board of Directors and Executive Managementt In 2015
JIANG Xianzhou Alternate Chief Executive, Executive Director
Mr. Jiang, aged 54, is the alternate chief executive and executive director of the Bank. He has over 29 years of experience in the financial sector, specializing in commercial banking and asset management. Before taking over his current position in 2014, he was the Chairman of China Construction Bank Principal Asset Management Co. Ltd., a subsidiary of China Construction Bank Corporation, from 2005 to 2014. Mr. Jiang helped spearhead the establishment of the subsidiary, which has now prospered and become a leading asset management company in the industry. Mr. Jiang has assumed numerous senior positions since joining China Construction Bank in 1986. He was promoted to deputy general manager of the Administration Office in 1995, and to deputy general manager of the International Business Department in 1997. In 2004, he took over as general manager of the Institutional Business Department and the Fund Custody Department.
Mr. Jiang graduated from Dongbei University of Finance & Economics in 1982, receiving a bachelor’s degree in Economics. He attained his master’s degree in finance from the Research Institute of Fiscal Science at the Ministry of Finance of the PRC in 1986. He went on to receive a Master of Science in International Banking at Heriot-Watt University in the UK in 1993.
Miranda KWOK Pui Fong President, Executive Director
Ms. Kwok, aged 55, is the president and executive director of the Bank. Ms. Kwok has been serving the Bank for over 30 years. Prior to July 2013, when China Construction Bank reorganized its Hong Kong business by integrating CCB (Asia) and the Hong Kong Branch, she had been the president and chief executive officer of the Bank. Ms. Kwok is a member of the Bank’s senior management and Executive Committee that support the overall bank management and corporate governance, enabling the sustainable development of the Bank. Ms. Kwok also serves as member of the asset and liabilities committee and credit committee of the Bank.
Ms. Kwok’s banking career began in 1984 when she joined Bank of America, Hong Kong as a management trainee and had worked in diversified capacities of various divisions. In 1996, she was transferred to Bank of America (Asia) (renamed to CCB (Asia) in December 2006) from Bank of America, Hong Kong, and was promoted to chief credit officer and senior vice president, responsible for credit approval and portfolio review, special assets management, collection, credit policies and procedures etc. She was appointed chief risk officer in 2005 to manage credit, market and operational risk. In addition, she assumed responsibilities over compliance, internal control and the corporate secretariat. From 2008 to 2010, she assumed the role of head of Consumer Banking in charge of retail business, credit card and wealth management in Hong Kong and Macau.
Ms. Kwok is the vice president of the Hong Kong Institute of Bankers, the director of Hong Kong Mortgage Corporation Limited and a member of the Securities and Futures Appeals Tribunal, the Public Affairs Forum, the Competition Commission and the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Review Tribunal, as well as being a general committee member of the Federation of Hong Kong Industries. Ms. Kwok graduated with an honorable bachelor of social sciences degree in economics and management from the University of Hong Kong in 1984, and graduated with honors from the Graduate School of Retail Bank Management of the Consumer Bankers Association in the United States in July 2001.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 09 Board of Directors and Executive Managementt In 2015
KANG Yi Non-Executive Director
Mr. Kang, aged 49, has served as non-executive director of the Bank since July 2, 2013 and is a member of the Strategy and Corporate Governance Committee of the Board of Directors and the Risk Committee of the Board of Directors of the Bank. Mr. Kang is currently the general manager of the Corporate Banking Department of China Construction Bank Corporation (“CCB”). He joined CCB in July 1988. From April 2011 to October 2013, he served as general manager of the Personal Deposit and Investment Department in CCB. Mr. Kang has over 27 years of substantial banking experience. He was the general manager of the Fujian provincial branch, the Gansu provincial branch and the Sanxia branch. Mr. Kang is a senior economist. He received a bachelor’s degree in economics from Shanghai University of Finance and Economics in 1988. In 1998, he also received a bachelor’s degree in law from Wuhan University.
HU Zhanghong Non-Executive Director
Dr. Hu, aged 47, has served as non-executive director of the Bank since July 2, 2013 and is a member of the Strategy and Corporate Governance Committee of the Board of Directors of the Bank. He is the chairman and chief executive officer of CCB International (Holdings) Limited.
In addition to his official business functions, Dr. Hu holds positions on various committees including chairman of the Chinese Financial Association of Hong Kong, member of the Process Review Panel for the Securities and Futures Commission of Hong Kong, and panel member of the Securities and Futures Appeals Tribunal of Hong Kong. Dr. Hu also serves as co-chairman of the Committee of VC/PE, vice- chairman of the Finance Committee of All China Youth Federation, and vice-chairman of the Securities Committee of the Hong Kong Chinese Enterprises Association.
LI Weiping Non-Executive Director (resigned on June 19, 2015)
Mr. Li, aged 62, served as non-executive director of the Bank during the period from April 25, 2014 to June 19, 2015 and was a member of the Strategy and Corporate Governance Committee of the Board of Directors and the Nomination and Remuneration Committee of the Board of Directors of the Bank. Mr. Li served as general manager of the Human Resources Department of China Construction Bank Corporation (“CCB”) from August 2008 to July 2014, and acted as employee representative supervisor of CCB and director of CCB International (Holdings) Limited. Mr. Li assumed various positions at CCB. He was in charge of the Human Resources Department from May 2008 to August 2008, and served as deputy general manager of Beijing Branch from August 2005 to May 2008, deputy general manager of Guangdong Branch from July 2001 to August 2005, and deputy general manager of Shenzhen Branch from February 1995 to July 2001. Mr. Li is a senior economist and graduated from Zhongnan University of Economics and Law with a bachelor’s degree in finance.
10 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Board of Directors and Executive Managementt In 2015
YING Chengkang Non-Executive Director
Mr. Ying, aged 60, has served as non-executive director of the Bank since May 8, 2014 and is a member of the Strategy and Corporate Governance Committee of the Board of Directors and a member of the Audit Committee of the Board of Directors of the Bank. He served as general manager of the Asset and Liability Management Department of China Construction Bank Corporation (“CCB”) from July 2014 to October 2015. He was responsible for the total scale and structure management of the CCB group’s asset and liability, capital management, fee-based business and service pricing management, internal/external interest rate pricing management, interest rate risk management, liquidity management, comprehensive management of off-balance sheet business, compilation of periodic financial reports for disclosure and other related matters.
After joining CCB in September 1987, Mr. Ying assumed various business and management positions relating to credit, treasury and financial planning at CCB’s Nanjing branch and Jiangsu branch. He was assigned to the Planning and Finance Department at the Head Office from March 2001. Up till July 2008, Mr. Ying served as the department’s deputy general manager and general manager, managing general planning, fixed assets acquisition, centralised purchasing, financial policy, financial application system development and other related matters. From July 2008 to July 2014, he served as general manager of the Finance and Accounting Department of CCB, responsible for the financial management, general business planning, performance management, cost management, accounting and reporting, financial internal control and other related matters of the CCB group.
Mr. Ying is a senior economist, and has been granted a special government subsidy by the State Council. He graduated from Nanjing University in 1982, receiving a bachelor’s degree in physics. He also received a master’s degree in industrial economics and business administration from Fudan University in July 1987. He has over 28 years of experience in bank management, credit, planning, finance, accounting, tax, audit and asset & liability management.
XUE Shengli Non-Executive Director (appointed on June 19, 2015)
Mr. Xue, aged 49, has served as non-executive director of the Bank since June 19, 2015 and is a member of the Strategy and Corporate Governance Committee of the Board of Directors and the Nomination and Remuneration Committee of the Board of Directors of the Bank. He joined China Construction Bank Corporation (“CCB”) in July 2014 as the general manager of the Human Resources Department. Prior to joining CCB, Mr. Xue had been working in the Organization Department of the CPC Central Committee since July 1996. From July 1987 to July 1996, Mr. Xue served in various positions in the People’s Liberation Army. He has extensive experience in human resources management and has completed a large number of research studies in relation to CCB’s human resources management after he joined CCB. Mr. Xue graduated from Jilin University in July 1987, receiving a Bachelor of Arts degree in Chinese Language & Literature. Mr. Xue was awarded a Master of Laws degree in Politics from Peking University in June 2005, and received a doctoral degree in Economics with specialization in Political Economics from Jilin University in June 2012.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 11 Board of Directors and Executive Managementt In 2015
Bucky FONG Wing Foon Independent Non-Executive Director
Mr. Fong, aged 86, has served as independent non-executive director of the Bank since April 4, 1972 and is a member of the Nomination and Remuneration Committee of the Board of Directors of the Bank. Mr. Fong is a director of Fong Sim & Co. (Hong Kong) Ltd., a long established trading business started by his father in 1946. The Fong family has been associated with the Bank since the 1930’s when the family contributed to the re-capitalisation of the Bank of Canton, the predecessor company of the Bank. Mr. Fong graduated from the University of California with a bachelor’s degree in June 1952.
James S. DICKSON LEACH Independent Non-Executive Director
Mr. Dickson Leach, aged 70, has served as independent non-executive director of the Bank since August 15, 1985 and is the chairman of the Audit Committee of the Board of Directors and a member of the Risk Committee of the Board of Directors of the Bank. Prior to his retirement, Mr. Dickson Leach was the chairman of Sir Elly Kadoorie & Sons Ltd., an unlisted company. He was the deputy chairman of CLP (Holdings) Ltd. and a director of Hong Kong Aircraft Engineering Co. Ltd. and Hong Kong & Shanghai Hotels, Ltd., all are listed companies. Since leaving Hong Kong, he has resigned from these directorships. He is now on the board of a U.S. private company and a Singaporean private company. He holds a master of business administration degree from Columbia University, and is a fellow of the Institute of Chartered Accountants in England and Wales.
12 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Board of Directors and Executive Managementt In 2015
CHAN Wing Kee GBS, OBE, JP Independent Non-Executive Director
Mr. Chan, aged 69, has served as independent non-executive director of the Bank since November 1, 2002 and is the chairman of the Nomination and Remuneration Committee of the Board of Directors of the Bank. Mr. Chan is the managing director of Yangtzekiang Garment Limited, director of YGM Trading Limited, director of Hong Kong Knitters Limited and independent non-executive director of China Travel International Investment Hong Kong Limited.
Mr. Chan is a standing committee member of The 12th Chinese People’s Political Consultative Conference of The People’s Republic of China, member of The Selection Committee of the H.K.S.A.R., vice chairman of China Overseas Friendship Association, chairman of Federation of Hong Kong Guangdong Community Organisations, honorary chairman & president of Hong Kong Federation of Overseas Chinese Associations, and council chairman of Cheng Si-Yuan (China-International) Hepatitis Research Foundation.
He was also a deputy to The 8th and 9th National People’s Congress of The People’s Republic of China, standing committee member of The 10th & 11th Chinese People’s Political Consultative Conference of The People’s Republic of China, member of Hong Kong Affairs Adviser, committee member of The Preparatory Committee of H.K.S.A.R., member of Basic Law Consultative Committee both in Hong Kong and Macau, member of Commission on Strategic Development of H.K.S.A.R., member of the Judicial Officers Recommendation Commission of Hong Kong, chairman of Small and Medium Enterprises Committee of the H.K.S.A.R., member of Textile Advisory Board, member of Economic Council of Macau, council member of Hong Kong Trade Development Council, chairman of HKTDC Mainland Business Advisory Committee, member of HKTDC Hong Kong/Japan Business Co-operation Committee, president of Chinese Manufacturers’ Association of Hong Kong, chairman of Friends of Hong Kong Association, chairman of Textile Council of Hong Kong, president of Federation of Hong Kong Garment Manufacturers, chairman of Hong Kong Shippers’ Council, and chairman of The Hong Kong Exporters’ Association.
Mr. Chan graduated from Purdue University with a bachelor of science degree in industrial engineering.
Lord Peter LEVENE Independent Non-Executive Director
Lord Levene, aged 74, has served as independent non-executive director of the Bank since September 23, 2013 and is the chairman of the Risk Committee of the Board of Directors and a member of the Audit Committee of the Board of Directors of the Bank. During the period from June 2006 to June 2012, he acted as independent non- executive director of China Construction Bank Corporation. Before that, he served as chairman of Lloyd’s and held directorships in various other listed companies including director of J Sainsbury plc from 2001 to 2004, and director of Deutsche Boerse from 2004 to 2005. He is the chairman of Starr Underwriting Agents Limited and General Dynamics (UK) Limited and a board member of Haymarket Group Ltd and Eurotunnel SA. Lord Levene was awarded a bachelor’s degree in economics and politics from the University of Manchester.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 13 Board of Directors and Executive Managementt Executive Management as of March 31, 2016
EXECUTIVE MANAGEMENT
MAO Yumin Chief Executive Officer JIANG Xianzhou Executive Director & Alternate Chief Executive Miranda KWOK Pui Fong President & Executive Director ZHU Feng Deputy Chief Executive GUO Zhipeng Deputy Chief Executive LIN Ju Deputy Chief Executive MA Chan Chi Deputy Chief Executive & Chief Financial Officer YANG Hao Deputy Chief Executive Benny HA Yun Sang General Manager, Head of Corporate Banking I Division Kenneth WONG Kwok Leung General Manager, Head of Corporate Banking II Division Patrick LEE Yuk Wun General Manager, Head of Commercial Banking Division Mimi LEE Yim Mei General Manager, Head of Institutional Banking Division ZHANG Bojie General Manager, Head of Products Division Ruby YAM Tze Ping General Manager, Head of Private Banking Division Chris JUE Wai Ling General Manager, Head of Consumer Banking Division Ahming LAU Chun Ming General Manager, Head of Cross-Border Financial Services Division CHEN Dajing General Manager, Head of Credit Card & Consumer Finance Division Sylvia NG Sau Wai General Manager, Head of Marketing Division Ashley ZHANG Hong General Manager, Head of Treasury Division Bacon YUEN Yiu Leung General Manager, Head of Finance Division Phoebe LEE Suet Ching General Manager, Head of Risk Management Division Arthur WONG Kwok Leung General Manager, Head of Information Systems Division David WANG Zhengde General Manager, Head of Internal Audit Division Jessie KWOK Yuen Wai General Manager, Head of General Management Office Grace LEE Shuk Ha General Manager, Head of Human Resources Division Edward CHIU Tak Wah General Manager, Head of Operations Division Janette YU Pui Man General Manager, Head of Legal & Compliance Division
14 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Subsidiary, Joint Venture and Associated Companiess As of March 31, 2016
SUBSIDIARY COMPANIES
CCB Nominees Limited 20/F, CCB Centre, 18 Wang Chiu Road, Kowloon Bay, Kowloon
Better Chief Limited 26/F, CCB Centre, 18 Wang Chiu Road, Kowloon Bay, Kowloon
Hong Kong (SAR) Hotel Limited 26/F, CCB Centre, 18 Wang Chiu Road, Kowloon Bay, Kowloon
CCB Securities Limited 18/F, CCB Centre, 18 Wang Chiu Road, Kowloon Bay, Kowloon
CCB Properties (Hong Kong) Holdings Limited 26/F, CCB Centre, 18 Wang Chiu Road, Kowloon Bay, Kowloon
CCB (Asia) Trustee Company Limited G/F, 6 Des Voeux Road Central, Central, Hong Kong
CCB Hong Kong Property Management Company Limited 29/F, CCB Tower, 3 Connaught Road Central, Central, Hong Kong
CCB (Asia) Insurance Broker Limited 18/F, CCB Centre, 18 Wang Chiu Road, Kowloon Bay, Kowloon (Incorporated on January 21, 2016)
JOINT VENTURE COMPANY
Diamond String Limited 11/F, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon
ASSOCIATED COMPANY
QBE Hongkong & Shanghai Insurance Limited 17/F, Warwick House, West Wing, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 15 Corporate Social Responsibilityy
CCB (Asia) senior management and 500 staff members participated in “Lifeline Express CCB (Asia) Charity Run/Walk 2015”, joining hands to raise funds for underprivileged cataract patients in Mainland China.
CCB (Asia) originated from the first Chinese bank in Hong Kong, The Bank of Canton, with more than 100 years of remarkable developments till now. On top of fostering a steadily progressing business, CCB (Asia) endeavors to fulfill social responsibilities as a corporate citizen, not only title-sponsoring and supporting several local mega events, but also pouring resources to the community and charity programs, with a view to contributing to society by promoting local culture and helping the needy.
HELPING MAINLAND CATARACT PATIENTS TO RESTORE SIGHT
Since 2011, CCB (Asia) has title-sponsored “Lifeline Express CCB (Asia) Charity Run/Walk” for five consecutive years, raising fund for the impoverished cataract patients to regain sight. The Bank raised more than HKD2.68 million for Lifeline Express Hospital Train in 2015, supporting more than 1,300 patients to receive free surgeries and treatment. The event was successfully held at The Clearwater Bay Golf and Country Club in November 2015. Apart from getting support from nearly 2,500 participants, the event invited Olympic gold medalists Guo Jingjing and Zhang Yiling to attend the Starting Ceremony and engage in the charity walk. Every step of the guests and participants signifies the restoration of sight step by step. Remarkably, CCB (Asia) gathered 500 staff together with their friends and relatives to join the walk, highlighting the Bank’s concerted efforts to serve the community, fulfill social responsibilities of a corporate citizen, and devote resources and time to caring the underprivileged.
CCB (Asia) has title-sponsored “Lifeline Express CCB (Asia) Charity Run/Walk” for five consecutive years, raising fund for Lifeline Express Hospital Train and helping Mainland China cataract patients to restore sight.
16 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Corporate Social Responsibilityy
PROMOTING CHINESE TRADITIONAL CULTURE, BRINGING INCLUSIVE ARTISTS’ TALENTS INTO FULL PLAY
CCB (Asia) has been the title-sponsor of the annual sports event “CCB (Asia) Hong Kong International Dragon Boat Races” held by the Hong Kong Tourism Board for three consecutive years, promoting Chinese traditional culture to the public and tourists. The 2015 Dragon Boat Races attracted around 162,000 citizens and tourists enjoying the races and captivated. Besides, following the success in 2014, CCB (Asia) once again invited artists with disabilities from Arts with the Disabled Association CCB (Asia) once again cooperated with Social Enterprise “ADAM” of ADAHK to hold exhibitions for the dragon Hong Kong (“ADAHK”) to design spectacular dragon boat display and boat display and giant paddle, aiming to deepen society’s giant paddles. They were also exhibited in Tsim Sha Tsui Promenade understanding towards inclusive arts. during the races and in CCB Centre in Kowloon Bay after that, showing local inclusive arts to the public. In 2015, during the races, CCB (Asia) set up “CCB (Asia) Row for Charity Zone” for the first time, donating money to ADAHK according to the distances paddled by participants on the dragon boat training machines, so as to join hands with the public to raise fund for ADAHK and contribute to local inclusive arts development.
CARING FOR OUR COMMUNITY
In the aspect of community service, CCB (Asia) has supported “Bringing Our Children a Brighter Future – Affiliated Youth Development Program” CCB (Asia) has title-sponsored “CCB (Asia) Hong Kong organized by The Boys’ & Girls’ Clubs Association (“BGCA”) of Hong International Dragon Boat Races” for 3 consecutive years, Kong for five consecutive years. The theme of 2015 program is ”Together promoting Chinese traditional culture to the public. we build with kids, together we share the fun”, promoting various wholesome activities to help the children and teenagers acquire stress relieving techniques and upkeep a healthy lifestyle. CCB (Asia)’s Corporate Volunteers were passionately devoted to such services to care for the community.
CARING FOR OUR STAFF’S HEALTH
CCB (Asia) always cares about its staff members and strives to create a joyful workplace for them. In October 2015, CCB (Asia) held “All-round Caring Week”again, bringing refreshment and health information to staff members every day during the week. The week remarkably ended with CCB (Asia) Volunteers Team supports “Bringing Our Children a Brighter Future – Affiliated Youth Development “Health Camp” where staff members proactively participated in various Program” with their family members. sports activities and enjoyed tasty healthy food.
ECHOING ENVIRONMENTAL PROTECTION
For environmental protection projects, CCB (Asia) has echoed and supported “Earth Hour” initiated by WWF for four consecutive years. The bank not only switched off non-essential lights in its offices and its outdoor illuminating signages located in Central and Tsim Sha Tsui during the designated timeslot on the event date, but also encouraged staff to support this activity at home. CCB (Asia) is also the “Earth Partner” of Friends of the Earth (Hong Kong) since 2012, contributing to the sustainable development of the future. CCB (Asia) cares about the health of its staff members and aims to raise staff members’ awareness on healthy lifestyles.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 17 Awards and Honorss
JANUARY 2015
Quamnet Outstanding Enterprise Awards – Outstanding Cross-Border Financial Services 2014 Quamnet
MARCH 2015
The 4th Outstanding Corporate Social Responsibility Award The Mirror
MARCH 2015
Caring Company The Hong Kong Council of Social Services
APRIL 2015
The 15th CAPITAL Outstanding Enterprise Awards – Outstanding RMB Banking Services CAPITAL
18 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Awards and Honorss
JUNE 2015
The Outstanding Brand Awards 2015 – Banking (Credit Card Services) Economic Digest
JUNE 2015
Financial Institution Awards 2015 – Bank of the Year – Outstanding Performance Bloomberg Businessweek/Chinese Edition
DECEMBER 2015
CAPITAL WEEKLY PROchoice Award 2015 – Corporate Social Responsibility CAPITAL WEEKLY
DECEMBER 2015
IFPHK Accredited Professional Financial Planning Firm 2016 Institute of Financial Planners of Hong Kong
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 19 Report of the Directorss
The directors have pleasure in submitting their annual report together with the audited consolidated financial statements for the year ended December 31, 2015.
PRINCIPAL PLACE OF BUSINESS
China Construction Bank (Asia) Corporation Limited (“the Bank”) is a licensed bank incorporated and domiciled in Hong Kong and has its registered office and principal place of business at 28/F, CCB Tower, 3 Connaught Road Central, Central, Hong Kong.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The principal activities of the Bank and its subsidiaries (collectively referred to as “the Group”) are the provision of a range of banking and related financial services through the Bank’s branches and subsidiaries. Further discussion and analysis of these activities as required by Schedule 5 to the Hong Kong Companies Ordinance, including a discussion of the principal risks and uncertainties facing the Group and an indication of likely future developments in the Group’s business, can be found in the Business Review set out on pages 24 to 27 of the Report of Directors. This discussion forms part of this Report of Directors. Other particulars of the Bank’s subsidiaries are set out in Note 24 to the consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
The profit of the Group for the financial year ended December 31, 2015 and the state of the Bank’s and the Group’s affairs as at that date are set out in the consolidated financial statements on pages 30 to 134.
DIVIDENDS
The directors do not recommend the payment of a final dividend for the year ended December 31, 2015 (2014: HKD Nil).
CHARITABLE DONATIONS
During the year, charitable donations made by the Group amounted to HKD1,380,000 (2014: HKD1,000,000).
CERTIFICATES OF DEPOSIT AND MEDIUM TERM NOTE ISSUED
During the year, the following notes were issued by the Bank under its Medium Term Note (”MTN”) Programme and Certificate of Deposit (“CD”) Programme to raise funds for general corporate purposes:
Consideration Amount Issued received Class Issued under HKD‘000 HKD‘000
Senior Notes MTN Programme 9,527,955 9,516,386 CDs CD Programme 32,681,378 32,573,341
42,209,333 42,089,727
20 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Report of the Directorss
EQUITY LINKED AGREEMENTS
At no time during the year was the Bank, or any of its holding company, subsidiaries or fellow subsidiaries a party to any arrangement to enable the directors of the Bank to acquire benefits by means of the acquisition of shares in or debentures of the Bank or any other body corporate.
DIRECTORS
(a) Directors of the Bank The directors of the Bank during the year and up to the date of the report were:
WANG Hongzhang (Chairman) MAO Yumin Bucky FONG Wing Foon James S. DICKSON LEACH CHAN Wing Kee GBS, OBE, JP Lord Peter LEVENE XUE Shengli (appointed on June 19, 2015) KANG Yi HU Zhanghong JIANG Chang (appointed on January 18, 2016) JIANG Xianzhou Miranda KWOK Pui Fong LI Weiping (resigned on June 19, 2015) YING Chengkang (resigned on January 18, 2016)
Pursuant to Clause 111 of the Bank’s Articles of Association, all the Directors of the Bank shall retire from office and being eligible offer themselves for re-election at the forthcoming annual general meeting of the Bank for three years up to the date of the annual general meeting of year 2019.
Mr. LI Weiping and Mr. YING Chengkang resigned on June 19, 2015 and January 18, 2016 respectively as non- executive director of the Bank. Mr. LI Weiping and Mr. YING Chengkang have respectively confirmed that they have no disagreement with the Board and nothing relating to the affairs of the Bank needed to be brought to the attention of the shareholder of the Bank.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 21 Report of the Directorss
(b) Directors of the Bank’s subsidiaries During the year and up to the date of this report, Mr. MAO Yumin, Mr. JIANG Xianzhou and Ms. Miranda KWOK Pui Fong are also directors in certain subsidiaries of the Bank. Other directors of the Bank’s subsidiaries during the year and up to the date of this report include:
CHOW Sai Keung CHENG Tat Kin LI Sai Cheong Christine JUE Wai Ling Raymond TSE (appointed on October 20, 2015) YUEN Yiu Leung Edward CHIU Tak Wah LIN Ju (appointed on January 4, 2016) KWOK Yuen Wai YANG Hao (resigned on January 4, 2016)
DIRECTORS’ MATERIAL INTERESTS IN TRANSACTIONS, ARRANGEMENTS AND CONTRACTS
No transactions, arrangements and contracts of significance to which the Bank, or any of its holding companies, subsidiaries, fellow subsidiaries, joint venture or associate was a party, and in which a director of the Bank had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.
DIRECTORS’ INTERESTS IN UNDERLYING SHARES AND DEBENTURES
At no time during the year was the Bank, or any of its holding companies, subsidiaries, fellow subsidiaries, joint venture or associate a party to any arrangement to enable the directors of the Bank to hold any interests in the shares or debentures of, the Bank or its specified undertakings or any other body corporate.
MANAGEMENT CONTRACTS
No contracts concerning the management and administration of the whole or any substantial part of any business of the Bank were entered into or existed during the year.
PERMITTED INDEMNITY PROVISIONS
The Articles of Association provides that every director, secretary or other officer of the Bank shall be entitled to be indemnified by the Bank against all costs, charges, losses, expenses and liabilities incurred by him in the execution and/ or discharge of his duties and/or the exercise of his powers and/or otherwise in relation to or in connection with his duties, powers or office. The Bank has maintained appropriate directors and officers liability insurance which provides personal protection for the directors and management against any financial loss arising from the potential exposures associated with supervising or managing the Bank.
22 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Report of the Directorss
STATEMENT OF COMPLIANCE
The consolidated financial statements for the year ended December 31, 2015 comply with the applicable disclosure provisions of the Banking (Disclosure) Rules.
AUDITOR
The consolidated financial statements have been audited by PricewaterhouseCoopers who retire and being eligible, offer themselves for re-appointment.
On behalf of the Board
WANG Hongzhang Chairman
Hong Kong, April 1, 2016
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 23 Business Revieww
In 2015, the global economy recorded lukewarm growth, due to high volatility in global financial and commodity markets as well as the sharp fall in oil prices and big commodity prices. The US Federal Reserve announced its first interest rate hike in seven years, an increase of 0.25%, as a step towards normalizing interest rates, while the RMB was added to the Special Drawing Rights (SDR), accelerating its globalisation and increasing its investment value. In the years immediately following the financial crisis, China acted as an engine driving global economic recovery, but recent figures show that its economic growth has slowed and uncertainty looms in the year ahead. Facing the risks of an economic downturn in the external environment and continuous capital outflows in emerging markets, it has cast a shadow over the local economy. Import and export figures were disappointing, affected by weak external demand, and the residential property market was also quiet in the fourth quarter due to factors such as the US interest rate hike.
In the shadow of a gloomy global economy, the depreciation of RMB, a volatile stock market, the start of a rate hike cycle, the downturn of the property market, slowing retail and export markets and weak loan demand, the Bank faces serious challenges ahead in 2016. One bright note is China’s “One Belt and One Road” initiative, a series of innovative bilateral and regional collaborations with countries geographically involved in the initiative, through which the Bank anticipates opportunities for local and cross-border business to sustain its long-term growth. The Bank will pursue these opportunities by leveraging ties with our parent company China Construction Bank Corporation (“CCB”).
In 2015, the Bank’s efforts bore fruit, culminating in the strengthening of our reputation, market share and brand awareness.
CORPORATE BANKING
In 2015, the Bank maintained the healthy development of our corporate banking business and saw an expansion in terms of clients and total assets. An increase in cross-border collaborations fuelled further progress in our local business, and product innovation and diversification of operations allowed us to scale up our service capacity.
The downward pressure of local and overseas economies in the second half of 2015 affected funding costs and market demand, with RMB-denominated collaborative trade financing business being hardest hit, resulting in a slowdown of credit growth. By seeking more low-cost funding sources and channelling clients to multi-currency loans, the Bank took the initiative in controlling lending and kept the size of our credit portfolio stable. The Bank also prioritised syndicated loan business, trying to increase its market share by leveraging our customer edge. In addition, we referred our clients to CCB’s Mainland branches, boosting bilateral business cooperation.
The Bank’s credit business is expected to remain stable in 2016. We will strive to widen our customer base for deposits and develop more low-cost deposits to maintain growth. Meanwhile, the Bank will enrich our cross-border products to meet customer needs. This will not only enhance the customer experience, but also increase sources of deposits and fee income.
The Bank will keep leveraging the Mainland’s economic development, as well as Hong Kong’s status as an international financial hub, to deepen collaborations with Mainland enterprises. We will focus especially on developing collaborative relationships with leading enterprises in the Mainland’s major industries. As Mainland implements its strategic overseas plans such as the “One Belt and One Road” and “Going Out” initiatives, the Bank aims to provide strong support for different enterprises in the form of excellent financial services.
24 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Business Revieww
INSTITUTIONAL BANKING
The Bank serves three types of institutional clients including banks; non-bank financial institutions such as securities companies, insurance companies, brokerage firms, trust companies, asset management companies and leasing companies; government or quasi-government entities as well as public utilities. Our major services include deposits, loans, trade financing, cash management, capital markets solutions and custody services. Through our wholly-owned subsidiary CCB (Asia) Trustee Company Limited, we also provide trust, fund administration, investor relations and custody services to RMB Qualified Foreign Institutional Investors ((R)QFII), RMB Qualified Domestic Institutional Investors ((R)QDII) and funds.
While based primarily in Hong Kong and dedicated to the development strategies and goals of our parent company, the Bank has also been tapping the liability business in Southeast Asian and other overseas markets, expanding the scope of our services and our customer base on the back of the Mainland’s economic reform policy. For the loan asset business, we have strived to develop more local customers, while also working with a number of local Chinese financial institutions in establishing and expanding bilateral lending business. We have also explored business opportunities under “One Belt and One Road” and provided support to “Going Out” Mainland customers and major construction projects so as to continually enhance our asset scale.
In October 2014, the Bank was awarded the right to operate cross-border fund settlements and forex business for the Shanghai-Hong Kong Stock Connect. Since then, we have become a key executor of forex for the Southbound Trading Stocks, contributing tremendously to this milestone scheme. The Bank has also watched closely the process of “Opening up Capital Account”, by not only hosting the “Banking and Mutual Recognition of Funds Forum”, but also helping the southbound and northbound distribution of funds through our expanded cooperation with CCB.
Moving forward, with the Mainland’s ongoing economic transformation, as well as the acceleration of the “Going Out” policy for Mainland financial institutions and “Coming In” for overseas entities, the scale and revenues of our institutional business are expected to grow steadily in 2016.
COMMERCIAL BANKING
The Bank has been supportive of the local SME business development, a move that helped us successfully increase our operating income and diversify credit risks. By absorbing the SME companies’ operating account funds, the Bank managed to enhance deposit stability and lower funding costs. In 2015, we continued to expand our business network through opening two new SME centres. Riding on a network of five SME centres covering Hong Kong Island, Kowloon and the New Territories, we have further enhanced our market presence and deepened customer relationship.
In 2015, Hong Kong’s economy faced downward pressure, posing enormous challenges to our SME clients. As SMEs are the mainstay of local economy, we are poised to strengthen our SME business development in hopes of solidifying the SME customer base to enhance cross-selling opportunities and reinforce customer relationship.
The Bank is set to invest resources in developing the local SME business through improving and optimising the existing SME network and resources. This will enable us to enhance market awareness, broaden the customer base and increase business diversification.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 25 Business Revieww
CONSUMER BANKING AND CREDIT CARD & CONSUMER FINANCE
In 2015, our consumer banking business maintained its growth momentum. Through the branch network and ATMs, as well as other channels such as phone, mobile and internet banking, the Bank was able to provide customers with a wide variety of products and services. The Bank is also committed to promoting a series of new businesses and network expansions including branch expansion and relocation, as well as establishing presences in new locations. During the last year, we set up a Personal Loan Centre in Tsim Sha Tsui and a new branch in Tai Wai as well as relocating our Cheung Sha Wan branch to street-level. A number of branches also underwent renovation for a fresh new look and better banking experience for customers. The Bank will continue to step up our collaborations with CCB Mainland branches in order to seize opportunities through its extensive branch network, channels and customer base.
In addition, the Bank has been optimising our online banking functions and enhancing the customer experience through new services such as mobile app, new ATM functions and e-cheque. We also launched a new bonus point scheme, offering special gift redemption every season, upgrading the birthday privileges of packaged banking, in hopes of attracting more mid-to-high end customers and ensuring customer satisfaction.
The Bank’s credit card business also grew steadily as we launched a new series of new products to successfully acquire more new customers. Although the new rate hike cycle in the US and the uncertain global economic situation dampened the market sentiment, the Bank managed to sustain growth in our mortgage, auto loan and personal loan businesses through further optimisation of our business structure.
Looking ahead, the Bank aims to continue optimising products, channels and processes as well as conducting collaborations with CCB branches to build greater customer base and bolster customer relationship. We hope to boost our business revenues through providing more comprehensive and quality services.
PRIVATE BANKING
In 2015, the Bank recorded significant growth in income, loans, deposits, number of customers and assets under management for our private banking business. Total revenue including interest income and fee income, grew by 130% compared to 2014. Loans jumped 142% and deposits rose 10%, while customer numbers and assets under management grew by 43% and 41% respectively.
In the past year, the Bank upgraded our investment and insurance product platforms, including launch of a trading service for preference shares, which enabled private banking customers to subscribe to the preference shares issued by CCB in December 2015.
The Bank’s development strategy in cross-border finances has been well implemented in private banking and in 2015 the Bank continued to work with the Mainland, Hong Kong and overseas branches. By combining the advantages of each, we were able to provide customers with one-stop services both locally and internationally meeting the needs of individuals, families and enterprises. Effective collaborations not only strengthen the relationship between customers and CCB, but also enhance the customer loyalty and deliver a multi-win situation.
The Bank is ready to explore collaborations with the Mainland and overseas branches, and expand our customer base in Hong Kong and Southeast Asia in a legal and compliant manner. We will also enrich our product platform, and develop our investment consultation and customer relationship teams to ensure delivery of highly professional and effective services.
26 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Business Revieww
TREASURY BUSINESS
In 2015, the Bank had breakthroughs in our offshore RMB market business, broker transactions of money and foreign exchange, sales and trading of financial products, market-making activities and customer services. In addition to establishing a broader cooperative relationship in treasury business with peers, corporate and institutional clients, the Bank was also able to provide local retail and SME clients with more flexible and diversified RMB investment and financing products. Since the fourth quarter of 2014, when the Hong Kong Monetary Authority designated the Bank as one of the Primary Liquidity Providers (PLP) for the offshore RMB market in Hong Kong, the Bank has focused on the businesses of CNH market-making transactions in foreign exchange and money market, the investment of dim-sum bonds and refining RMB financing channel, in order to assume the responsibilities of a PLP. The Bank launched RMB- denominated equity-linked products, while also introducing the forex margin trading using RMB as pledged deposits and dealing currency. For the Bank’s intermediary business, we successfully seized the opportunity to greatly increase the transaction volume and income of our forex business. We also established debt capital market business to help clients expand their financing channels, which not only optimised our existing services, but also helped boost our fee income growth.
The market is expected to face a wide variety of challenges. In particular, the US Federal Reserve’s rate hike in late 2015, its first in nearly ten years, is set to bring marked changes to the low-interest business environment of the past decade. The offshore RMB exchange rate is expected to fluctuate further – borne out by the overnight interbank rate soaring over 100% once already in early 2016. The Bank will endeavour to take appropriate measures against risks, further explore fee income sources, refine our debt securities portfolio management and increase our interest income.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 27 Independent Auditor’s Reportt
To the Members of China Construction Bank (Asia) Corporation Limited (incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of China Construction Bank (Asia) Corporation Limited (the “Bank”) and its subsidiaries set out on pages 30 to 134, which comprise the consolidated statement of financial position as at December 31, 2015, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The directors of the Bank are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
28 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Independent Auditor’s Reportt
OPINION
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Bank and its subsidiaries as at December 31, 2015, and of their financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the Hong Kong Companies Ordinance.
PricewaterhouseCoopers Certified Public Accountants
Hong Kong, April 1, 2016
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 29 Consolidated Statement of Comprehensive Incomee For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
Note 2015 2014
Interest income 12,865,718 11,580,535 Interest expense (7,516,254) (6,840,780)
Net interest income 6 5,349,464 4,739,755 Net fees and commission income 7 1,074,586 1,047,734 Net trading losses 8 (139,279) (710,100) Net (losses)/gains from financial instruments designated at fair value through profit or loss 9 (76,542) 8,324 Net gains from disposal of available-for-sale financial instruments 60,181 – Other operating income 10 51,450 41,680
Total operating income 6,319,860 5,127,393 Operating expenses 11 (2,809,559) (2,669,609)
Operating profit before impairment losses 3,510,301 2,457,784 Impairment allowances released/(charged) on advances to banks 671 (671) Impairment allowances charged on loans and advances 12 (451,809) (287,446) Impairment allowances (charged)/released to repossessed assets (170) 216
Operating profit 3,058,993 2,169,883 Loss on sale of subsidiaries 42 – (53,661) Share of profits of an associate 26 28,486 38,047 Share of profits of a jointly controlled entity 25 43,338 43,168
Profit before taxation 3,130,817 2,197,437 Taxation 14 (630,121) (487,404)
Profit for the year 2,500,696 1,710,033 Other comprehensive income for the year net of tax Items that may be reclassified subsequently to profit or loss: Net movement in investment revaluation reserve 16 38,801 55,231 Net movement in exchange reserve 16 – 121
Total comprehensive income for the year 2,539,497 1,765,385
The accompanying notes are the integral part of these consolidated financial statements.
30 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Consolidated Statement of Financial Positionn As at December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
Note 2015 2014
ASSETS Cash and balances with banks and central banks 18 82,020,035 56,747,605 Placements with banks maturing between one and twelve months 59,036,367 107,302,864 Advances to banks 1,360,748 19,707,016 Advances to customers and trade bills 19 238,090,313 245,169,462 Financial instruments measured at fair value through profit or loss 20 3,807 51,036 Available-for-sale financial assets 21 85,695,259 59,649,364 Held-to-maturity investments 22 5,473,670 – Derivative financial instruments 23 6,289,264 1,060,654 Interest in a joint venture 25 1,937,240 1,893,902 Interest in an associate 26 265,914 237,428 Deferred tax assets 27 112,428 116,732 Fixed assets 28 3,563,991 3,627,061 Other assets 29 23,659,467 4,670,744
Total assets 507,508,503 500,233,868
LIABILITIES Deposits and balances of banks 30 80,965,080 101,946,271 Deposits from customers 31 305,625,384 274,504,268 Certificates of deposit and other debt securities issued 32 52,501,887 67,018,583 Derivative financial instruments 23 6,744,725 1,053,151 Current tax payable 27 146,728 168,676 Deferred tax liabilities 27 18,276 20,042 Other liabilities 33 9,897,287 6,463,486 Subordinated debts 34 5,776,365 5,766,117
Total liabilities 461,675,732 456,940,594
EQUITY Share capital 35 28,827,843 28,827,843 Reserves 17,004,928 14,465,431
Total equity 45,832,771 43,293,274
Total equity and liabilities 507,508,503 500,233,868
Approved and authorised for issue by the Board of Directors on April 1, 2016.
WANG Hongzhang MAO Yumin Chairman Executive Director and Chief Executive Officer
The accompanying notes are the integral part of these consolidated financial statements.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 31 Consolidated Statement of Changes in Equityy For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
Investment revaluation reserve and Share General hedging Exchange Regulatory Other Merger Retained Note capital reserve reserve reserve reserve reserve reserve profits Total
Balance as at January 1, 2015 28,827,843 750,956 37,637 – 2,360,788 15,913 62,262 11,237,875 43,293,274
Changes in equity for 2015: Profit for the year –––––––2,500,696 2,500,696 Other comprehensive income 16 – – 38,801–––––38,801
Total comprehensive income – – 38,801––––2,500,696 2,539,497
Regulatory reserve – – – – (52,864) – – 52,864 –
Balance as at December 31, 2015 28,827,843 750,956 76,438 – 2,307,924 15,913 62,262 13,791,435 45,832,771
The accompanying notes are the integral part of these consolidated financial statements.
32 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Consolidated Statement of Changes in Equityy For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
Investment revaluation reserve and Share General hedging Exchange Regulatory Other Merger Retained Note capital reserve reserve reserve reserve reserve reserve profits Total
Balance as at January 1, 2014 28,827,843 750,956 (18,127) (237) 2,467,044 15,913 62,262 9,422,235 41,527,889
Changes in equity for 2014: Profit for the year – – –––––1,710,033 1,710,033 Other comprehensive income 16 – – 55,231 121 – – – – 55,352
Total comprehensive income – – 55,231 121 – – – 1,710,033 1,765,385
Regulatory reserve – – – – 11,220 – – (11,220) –
Disposal of a subsidiary 42 – – 533 116 (117,476) – – 116,827 –
Balance as at December 31, 2014 28,827,843 750,956 37,637 – 2,360,788 15,913 62,262 11,237,875 43,293,274
The accompanying notes are the integral part of these consolidated financial statements.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 33 Consolidated Statement of Cash Flowss For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
Note 2015 2014
Net cash inflow from operations 41(a) 82,809,604 45,977,020 Hong Kong Profits Tax paid (352,247) (376,670) Mainland tax paid (297,284) (166,005)
Net cash inflow from operating activities 82,160,073 45,434,345
Investing activities Purchase of available-for-sale financial assets (80,142,414) (56,837,368) Purchase of held-to-maturity investments (5,473,643) – Proceeds received from redemption and disposal of available-for-sale financial assets 51,748,536 16,608,473 Purchase of property and equipment (180,073) (287,031) Dividends received from listed and unlisted investments 3,977 3,748 Net cash outflow from disposal of subsidiaries (net of cash and cash equivalents disposed) 42 – (1,038,695)
Net cash outflow from investing activities (34,043,617) (41,550,873)
Financing activities Issuance of subordinated debts – 5,761,633 Interest paid on subordinated debts (247,171) –
Net cash (outflow)/inflow from financing activities (247,171) 5,761,633
Increase in cash and cash equivalents 47,869,285 9,645,105 Cash and cash equivalents as at January 1 59,496,073 50,514,862 Effect of foreign exchange rate changes (914,266) (663,894)
Cash and cash equivalents as at December 31 41(b) 106,451,092 59,496,073
Cash flows from operating activities include: Interest received 13,118,792 11,721,664 Interest paid 7,761,574 6,724,098
The accompanying notes are the integral part of these consolidated financial statements.
34 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
1 GENERAL INFORMATION
The consolidated financial statements for the year ended December 31, 2015 comprise China Construction Bank (Asia) Corporation Limited (“the Bank”) and its subsidiaries (together referred to as “the Group”) and the Group’s interest in an associate and a joint venture. The consolidated financial statements have been approved by the Board of Directors on April 1, 2016.
2 SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance These consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collectively include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and accounting principles generally accepted in Hong Kong.
The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Bank. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group and the Bank for the current and prior accounting periods reflected in these consolidated financial statements.
A summary of the significant accounting policies adopted by the Group is set out below.
(b) Basis of preparation General The measurement basis used in the preparation of the consolidated financial statements is the historical cost basis except for financial instruments classified as trading, designated at fair value through profit or loss and available-for-sale (see Note 2(h)) which are stated at fair value.
The preparation of consolidated financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of HKFRSs that have significant effect in the consolidated financial statements and major sources of estimation uncertainty are discussed in Note 4.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 35 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Basis of preparation (continued) General (continued) In preparing the capital adequacy ratios of the Group, they are prepared according to the basis of consolidation for regulatory purposes. The main difference between the consolidation basis for accounting and regulatory purposes is that the former includes the Bank and all its subsidiaries, an associate and a joint venture whereas the latter excludes CCB Securities Limited (“CCBS”), CCB Nominees Limited (“CCBN”) and CCB (Asia) Trustee Company Limited (“CCBT”) which conduct non-banking related business. Details of the subsidiaries which are not included in consolidation for regulatory purposes are as follows:
Name of company Principal activities Total assets Total equity December 31, December 31, December 31, December 31, 2015 2014 2015 2014
CCBS Securities brokerage business 614,341 643,656 608,024 606,163
CCBN Custodian and nominee services 39,078 39,699 39,023 39,036
CCBT Trustee and custodian business 6,849 7,474 (7,140) (146)
The accounting policies set out below have been applied consistently across the Bank and its subsidiaries and to all periods presented in these consolidated financial statements.
(c) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed or has rights, to variable return from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transaction, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.
36 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Subsidiaries (continued) When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
In the Bank’s statement of financial position, its investments in subsidiaries are stated at cost less impairment losses, if any (Note 2(m)).
(d) Associate An associate is an entity in which the Group or the Bank has significant influence, but not control, or joint control, over its management, including participation in the financial and operating policy decisions.
An investment in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the associate’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the associate’s net assets and any impairment loss relating to the investment (Note 2(m)). Any acquisition-date excess over cost, the Group’s share of the post-acquisition post-tax results of the associate and any impairment losses for the year are recognised in the consolidated income statement.
When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. For these purposes, the Group’s interest in the associate is the carrying amount of the investment under equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate.
Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in the income statement.
When the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that associate, with a resulting gain or loss being recognised in the income statement. Any interest retained in that former associate at the date when significant influence is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(h)).
In the Bank’s statement of financial position, its investment in an associate is stated at cost less impairment losses, if any (Note 2(m)).
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 37 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Joint arrangements Under HKFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.
Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Any interest retained in those former joint ventures at the date when joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(h)).
(f) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who are responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer, President & Executive Director, and Deputy Chief Executives that make strategic decisions.
(g) Goodwill Goodwill represents the excess of
(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over
(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.
When (ii) is greater than (i), then this excess is recognised immediately in the income statement as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment or more frequently if events or changes in circumstances indicate that the carrying value may be impaired (see Note 2(m)). Impairment is recognised immediately in the income statement and is not reversed in a subsequent period.
On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.
38 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) Financial instruments (i) Initial recognition The Group classifies its financial instruments into different categories at inception, depending on the purpose for which the assets were acquired or the liabilities were incurred. The categories are: fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets and other financial liabilities.
Financial instruments are measured initially at fair value, which normally will be equal to the transaction price. In case of a financial asset or financial liability not held at fair value through profit or loss, financial instruments are measured at transaction price plus transaction costs that are directly attributable to the acquisition of the financial asset or issue of the financial liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately.
The Group recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets and financial liabilities at fair value through profit or loss is recognised using trade date accounting. From this date, any gains and losses arising from changes in fair value of the financial assets or financial liabilities at fair value through profit or loss are recorded.
(ii) Classification Fair value through profit or loss This category comprises financial assets and financial liabilities held for trading, and those designated at fair value through profit or loss upon initial recognition, but excludes those investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured.
Trading financial instruments are financial assets or financial liabilities which are acquired or incurred principally for the purpose of trading, or are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit- taking. Derivatives that do not qualify for hedge accounting (Note 2(i)) are accounted for as trading instruments.
Financial instruments are designated at fair value through profit or loss upon initial recognition when:
– the assets or liabilities are managed, evaluated and reported internally on a fair value basis;
Financial assets and financial liabilities under this category are carried at fair value. Changes in the fair value are included in the income statement in the period in which they arise. Upon disposal or repurchase, the difference between the net sale proceeds or the net payment and the carrying value is included in the income statement.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 39 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) Financial instruments (continued) (ii) Classification (continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than (a) those that the Group intends to sell immediately or in the near term, which will be classified as held for trading; (b) those that the Group, upon initial recognition, designates as at fair value through profit or loss or as available-for-sale; or (c) those where the Group may not recover substantially all of its initial investment, other than because of credit deterioration, which will be classified as available-for-sale. Loans and receivables mainly comprise advances to customers and banks, and placements with banks.
Loans and receivables are carried at amortised cost using the effective interest method, less impairment losses, if any (Note 2(m)).
Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity for which the Group has the positive intention and ability to hold to maturity, other than (a) those that the Group, upon initial recognition, designates as at fair value through profit or loss or as available-for-sale; and (b) those that meet the definition of loans and receivables.
Held-to-maturity investments are carried at amortised cost using the effective interest method less impairment losses, if any (Note 2(m)).
If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held-to-maturity, it shall be reclassified as available-for-sale and remeasured at fair value.
Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets and are not classified in any of the other three categories above. They include financial assets intended to be held for an indefinite period of time, but which may be sold in response to needs for liquidity or changes in the market environment.
Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from changes in the fair value are recognised directly in other comprehensive income and accumulated separately in equity, except for impairment losses and foreign exchange gains and losses on monetary items such as debt securities which are recognised in the income statement as classified as net trading income.
Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, are carried at cost less impairment losses, if any (see Note 2(m)).
When the available-for-sale financial assets are sold, gains or losses on disposal include the difference between the net sale proceeds and the carrying value, and the accumulated fair value adjustments which are previously recognised in other comprehensive income shall be reclassified from equity to the income statement.
40 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) Financial instruments (continued) (ii) Classification (continued) Other financial liabilities Financial liabilities, other than trading liabilities and those designated at fair value through profit or loss, are measured at amortised cost using the effective interest method.
(iii) Fair value measurement principles The fair value of financial instruments is based on their quoted market prices at the reporting date without any deduction for estimated future selling costs. Non-derivative financial assets are priced at current bid prices, while non-derivative financial liabilities are priced at current offer prices. Derivative financial instruments are priced at mid-price.
If there is no publicly available latest traded price nor a quoted market price on a recognised stock exchange or a price from a broker/dealer for non-exchange-traded financial instruments, or if the market for it is not active, the fair value of the instrument is estimated using valuation techniques that provide a reliable estimate of prices which could be obtained in actual market transactions.
Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate used is a market rate at the reporting date applicable for an instrument with similar terms and conditions. Where other pricing models are used, inputs are based on market data at the reporting date.
(iv) Derecognition A financial asset is derecognised when the contractual rights to receive the cash flows from the financial asset expire, or where the financial asset together with substantially all the risks and rewards of ownership, have been transferred.
A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired.
(v) Offsetting Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 41 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) Financial instruments (continued) (vi) Embedded derivatives An embedded derivative is a component of a hybrid (combined) instrument that includes both the derivative and a host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. The embedded derivatives are separated from the host contract and accounted for as a derivative when (a) the economic characteristics and risks of the embedded derivative are not closely related to the host contract; and (b) the hybrid (combined) instrument is not measured at fair value with changes in fair value recognised in the income statement. The embedded derivative of the Bank’s structured notes are separated from the host contract and is accounted for in accordance with Note 2(h)(ii). These embedded derivatives are presented in the consolidated statement of financial position together with the host contract.
(i) Derivative financial instrument and hedging activities Derivative financial instruments (“derivative”) are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
Hedge accounting recognises the offsetting effects on the income statement of changes in the fair values of the hedging instrument and the hedged item. The Group assesses and documents whether the financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items attributable to the hedged risks both at hedge inception and on an ongoing basis. The Group discontinues prospectively hedge accounting when (a) the hedging instrument expires or is sold, terminated or exercised; (b) the hedge no longer meets the criteria for hedge accounting; or (c) the Group revokes the designation.
(i) Fair value hedge A fair value hedge seeks to offset risks of changes in the fair value of recognised asset or liability that will give rise to a gain or loss being recognised in the income statement.
The hedging instrument is measured at fair value, with fair value changes recognised in the income statement. The carrying amount of the hedged item is adjusted by the amount of the changes in fair value attributable to the risk being hedged. This adjustment is recognised in the income statement to offset the effect of the gain or loss on the hedging instrument.
When a hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting, or the Group revokes designation of the hedge relationship, any adjustment up to that point, to a hedged item for which the effective interest method is used, is amortised to the income statement as part of the recalculated effective interest rate of the item over its remaining life.
42 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Derivative financial instrument and hedging activities (continued) (ii) Cash flow hedge Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, or the foreign currency risk of a committed future transaction, the effective part of any gain or loss on remeasurement of the derivative financial instrument to fair value is recognised in other comprehensive income and accumulated separately in equity in the hedging reserve. The ineffective portion of any gain or loss is recognised immediately in the income statement.
If the hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated gain or loss is reclassified from equity and to be included in the initial cost or other carrying amount of the non-financial asset or liability.
If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gain or loss is reclassified from equity to the income statement in the same period or periods during which the asset acquired or liability assumed affects profit or loss (such as when interest income or expense is recognised).
For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is reclassified from equity to the income statement in the same period or periods during which the hedged forecast transaction affects profit or loss.
When a hedging instrument expires or is sold, terminated or exercised, or the Group revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity until the transaction occurs and is recognised in accordance with the above policy. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss is reclassified from equity to the income statement immediately.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 43 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Derivative financial instrument and hedging activities (continued) (iii) Hedge effectiveness testing In order to qualify for hedge accounting, the Group carries out prospective effectiveness testing to demonstrate that it expects the hedge to be highly effective at the inception of the hedge and throughout its life. Actual effectiveness (retrospective effectiveness) is also demonstrated on an ongoing basis.
The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed. The method which the Group adopts for assessing hedge effectiveness will depend on its risk management strategy.
For fair value hedge relationships, the Group utilises the cumulative dollar offset method as effectiveness testing methodologies. For cash flow hedge relationships, the Group utilises the cumulative dollar offset method.
For prospective effectiveness, the hedging instrument must be expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness, the changes in fair value or cash flows must offset each other in the range of 80 per cent to 125 per cent for the hedge to be deemed effective.
(j) Fixed assets Fixed assets are stated in the statement of financial position at cost less accumulated depreciation and impairment losses (see Note 2(m)).
Gains or losses arising from the retirement or disposal of an item of fixed assets are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in the income statement on the date of retirement or disposal.
Depreciation is calculated to write off the cost or valuation of items of fixed assets, less their estimated residual value, if any, using the straight line method over the estimated useful lives as follows:
– Freehold land indefinite – Leasehold land classified as held under the unexpired term of lease finance leases – Buildings (over interests in leasehold land period of lease term, ranged from classified as held under finance lease) 6 years to 34 years – Buildings (over freehold land) 50 years – Leasehold improvements shorter of lease term or their estimated useful lives, 7 years – Furniture and equipment 2–8 years
Freehold land is not depreciated.
44 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) Fixed assets (continued) Where parts of an item of fixed assets have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.
(k) Leases and hire purchase contracts An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
(i) Classification Leases which transfer substantially all the risks and rewards of ownership to the lessee are classified as finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the lessee are classified as operating leases.
(ii) Finance leases Where the Group is a lessor under finance leases, an amount representing the net investment in the lease is included in the statement of financial position as loans and advances to customers. Hire purchase contracts having the characteristics of finance leases are accounted for in the same manner as finance leases. Impairment losses are accounted for in accordance with the accounting policy as set out in Note 2(m).
Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased assets, or, if lower, the present values of the minimum lease payments of such assets, are included in fixed assets and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant leases or, where it is likely the Group will obtain ownership of the asset, the life of the asset, as set out in Note 2(j). Impairment losses are accounted for in accordance with the accounting policy as set out in Note 2(m). Finance charges implicit in the lease payments are charged to the income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are written off as an expense of the accounting period in which they are incurred.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 45 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Leases and hire purchase contracts (continued) (iii) Operating leases Where the Group has the use of assets under operating leases, payments made under the leases are charged to the income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.
(l) Repossessed assets In the recovery of impaired advances, the Group may take possession of assets held as collateral through court proceedings or voluntary delivery of possession by the borrowers. Where it is intended to achieve an orderly realisation of the impaired assets and the Group is no longer seeking repayment from the borrower, repossessed assets are reported in “Other assets”. The Group does not hold the repossessed assets for its own use.
Repossessed assets are recorded at the lower of the amount of the related advances and fair value less costs to sell at the date of repossession, and the related loans and advances together with the related impairment allowances are derecognised from the statement of financial position. They are not depreciated or amortised.
(m) Impairment of assets The carrying amount of the Group’s assets is reviewed at each reporting date to determine whether there is objective evidence of impairment. Objective evidence that financial assets are impaired includes observable data that comes to the attention of the Group about one or more of the following loss events which has an impact on the future cash flows on the assets that can be estimated reliably:
– significant financial difficulty of the issuer or borrower;
– a breach of contract, such as a default or delinquency in interest or principal payments;
– cash flow difficulties experienced by the borrower;
– breach of loan covenants or conditions;
– it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
– significant changes in the technological, market, economic or legal environment that have an adverse effect on the borrower;
– deterioration in the value of collateral;
– disappearance of an active market for financial assets because of financial difficulties; and
– a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
46 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Impairment of assets (continued) If any such evidence exists, the carrying amount is reduced to the estimated recoverable amount by means of a charge to the income statement.
Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of loans and receivables, held-to-maturity investments and other financial assets which are measured at amortised cost, whose recovery is considered doubtful but not remote. In this case, the impairment losses are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against loans and receivables directly and any amounts held in the allowance account relating to that borrower are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in the income statement.
(i) Loans and receivables Impairment losses on loans and receivables are measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets). Receivables with a short duration are not discounted if the effect of discounting is immaterial.
The total allowance for credit losses consists of two components: individual impairment allowances, and collective impairment allowances.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
The individual impairment allowance is based upon management’s best estimate of the present value of the cash flows which are expected to be received discounted at the original effective interest rate. In estimating these cash flows, management makes judgements about the borrower’s financial situation and the net realisable value of any underlying collateral or guarantees in favour of the Group. Each impaired asset is assessed on its own merits.
In assessing the need for collective loan loss allowances, management uses statistical modelling and considers historical trends of factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, the Group makes assumptions both to define the way the Group models inherent losses and to determine the required input parameters, based on historical experience and current economic conditions.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 47 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Impairment of assets (continued) (i) Loans and receivables (continued) The accuracy of the impairment allowances the Group makes depends on how well the Group can estimate future cash flows for individually assessed impairment allowances and the model assumptions and parameters used in determining collective impairment allowances. While this necessarily involves judgement, the Group believes that the impairment allowances on loans and advances to customers are reasonable and supportable.
Any subsequent changes to the amounts and timing of the expected future cash flows compared to the prior estimates that can be linked objectively to an event occurring after the write-down, will result in a change in the impairment allowances on loans and receivables and be charged or credited to the income statement. A reversal of impairment losses is limited to the loans and receivables’ carrying amount that would have been determined had no impairment loss been recognised in prior years.
When there is no reasonable prospect of recovery, the loan and the related interest receivables are written off.
Loans and receivables with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Group has made concessions that it would not otherwise consider. Renegotiated loans and receivables are subject to ongoing monitoring to determine whether they remain impaired or past due.
(ii) Available-for-sale financial assets When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative loss that had been accumulated in the investment revaluation reserve is transferred to the income statement. The amount of the cumulative loss that is recognised in the income statement is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in the income statement.
For unquoted available-for-sale equity securities that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the equity securities and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material.
Impairment losses recognised in the income statement in respect of available-for-sale equity securities are not reversed through the income statement. Any subsequent increase in the fair value of such assets is recognised directly in other comprehensive income.
Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in the income statement.
48 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Impairment of assets (continued) (iii) Held-to-maturity investments Impairment on held-to-maturity investments is considered at individual level. The individual impairment allowance is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the asset’s original effective interest rate, where the effect of discounting is material.
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the income statement. A reversal of impairment losses shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.
(iv) Other assets Internal and external sources of information are reviewed at each reporting date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:
– fixed assets;
– interests in leasehold land classified as being held under an operating lease; and
– investments in subsidiaries, associates and joint ventures.
If any such indication exists, the asset’s recoverable amount is estimated.
– Calculation of recoverable amount The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).
– Recognition of impairment losses An impairment loss is recognised in the income statement whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 49 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Impairment of assets (continued) (iv) Other assets (continued) – Reversals of impairment losses An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.
(n) Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and balances with banks, placements with banks, treasury bills and certificates of deposit that are readily convertible to known amount of cash and which are subject to an insignificant risk of changes in value.
(o) Employee benefits The Group contributes to defined contribution retirement schemes under either recognised ORSO scheme or MPF schemes that are available to the Group’s employees.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or contractive obligations to pay further contributions if the funds does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.
(p) Income tax Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in the income statement except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amount of tax are recognised in other comprehensive income or directly in equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
50 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) Income tax (continued) Deferred income tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
The principal temporary differences arise from asset impairment provisions, depreciation of premises and equipment, revaluation of certain assets including available-for-sale securities and premises and tax losses carried forward. However, the deferred income tax is not recognised if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax liabilities are provided in full on all taxable temporary differences and deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is charged or credited in the income statement except for deferred income tax relating to fair value re-measurement of available-for-sale investments and revaluation of premises which are charged or credited to other comprehensive income, in which case the deferred income tax is also credited or charged to other comprehensive income and is subsequently recognised in the income statement together with the realisation of the deferred gain and loss.
Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.
Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities if the Group or the Bank has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:
– in the case of current tax assets and liabilities, the Group or the Bank intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
– in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
– the same taxable entity; or
– different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 51 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(q) Financial guarantees issued, provisions and contingent liabilities (i) Financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Where the Group issues a financial guarantee to customers, the fair value of the guarantee (being the guarantee fees received) is initially recognised as deferred income within other liabilities. Where the Bank issues a financial guarantee for its subsidiaries, the fair value of the guarantee is estimated and capitalised as part of the cost of investment in subsidiaries and deferred income within other liabilities.
The deferred income is amortised in the income statement over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with Note 2(q) (ii) if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in other liabilities in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.
(ii) Other provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Bank has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
52 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(r) Revenue recognition Revenue is measured at the fair value of consideration received or receivable. Provided it is probable that economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the income statement as follows:
(i) Interest income Interest income for all interest-bearing financial instruments is recognised in the income statement on an accrual basis using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Cash rebates granted in relation to residential mortgage loans are capitalised and amortised to the income statement over three years or their expected life, whichever is shorter.
For impaired loans, the accrual of interest income based on the original terms of the loan is discontinued, but any increase in the present value of impaired loans due to the passage of time is reported as interest income.
Interest income and expenses on the financial instruments classified as trading or designated at fair value through profit or loss are presented together with all other changes in fair value arising from the portfolios as “Net (losses)/ gains from financial instruments designated at fair value through profits or loss” in the income statement.
(ii) Fees and commission income Fees and commission income arises on financial services provided by the Group including securities, foreign currency dealings and agency services for insurance companies, remittance, settlement and account management services, payment and collection services and credit cards services. Fees and commission income is recognised when the corresponding service is provided, except where the fee is charged to cover the costs of a continuing service to, or risk borne for, the customer, or is interest in nature. In these cases, the fee is recognised as income in the accounting period in which the cost or risk is incurred and is accounted for as interest income.
Origination or commitment fees received/paid by the Group which result in the creation or acquisition of a financial asset are deferred and recognised as an adjustment to the effective interest rate. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period.
Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on an asset-apportionate basis.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 53 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(r) Revenue recognition (continued) (iii) Finance income from finance lease and hire purchase contract Finance income implicit in finance lease and hire purchase payments is recognised as interest income over the period of the leases so as to produce an approximately constant periodic rate of return on the outstanding net investment in the leases for each accounting period. Contingent rentals receivable are recognised as income in the accounting period in which they are earned. Commission paid to dealers for acquisition of finance lease loans or hire purchase contracts is included in the carrying value of the assets and amortised to the income statement over the expected life of the lease as an adjustment to interest income.
(iv) Dividend income Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment is quoted ex-dividend.
(s) Translation of foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Hong Kong dollars (HKD), which is the Bank’s functional currency and the Bank’s and the Group’s presentation currency.
Foreign currency transactions during the year are translated into the functional currency of each entity at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of each entity at the foreign exchange rates ruling at the reporting date. Exchange gains and losses are recognised in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into Hong Kong dollars using the foreign exchange rates ruling at the transaction dates. Non- monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.
Exchange differences relating to investments at fair value through profit or loss and derivative financial instruments are included in gains less losses from trading securities or financial instruments designated at fair value through profit or loss. All other exchange differences relating to monetary items are presented as gains less losses from dealing in foreign currencies in the income statement. Differences arising on translation of available-for-sale equity instruments are recognised in equity in the exchange reserves.
The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Items on statement of financial position are translated into Hong Kong dollars at the foreign exchange rates ruling at the reporting date. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.
54 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(s) Translation of foreign currencies (continued) On disposal of a foreign operation, the cumulative amount of the exchange differences related to that foreign operation is reclassified from equity to the income statement when the profit or loss on disposal is recognised.
(t) Related parties For the purposes of these consolidated financial statements, a party is considered to be related to the Group if:
(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is a subsidiary or an associate of the Group;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.
Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.
(u) Non-current assets held for sale Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.
(v) Comparatives When necessary, comparative figures have been reclassified to conform with the current year’s presentation.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 55 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
(a) New and amended standards adopted by the Group Annual improvements 2010-2012 cycle These amendments include changes from the 2010-2012 cycle of the annual improvements project, that affect the below standards:
• Hong Kong Financial Reporting Standard (“HKFRS”) 8, ‘Operating segments’ The standard is amended to require disclosure of the judgements made by management in aggregating operating segments and a reconciliation of segment assets to the entity’s assets when segment assets are reported.
• HKAS 16, ‘Property, plant and equipment’ and HKAS 38, ‘Intangible assets’ Both standards are amended to clarify how the gross carrying amount and the accumulated depreciation are treated where an entity uses the revaluation model.
• HKAS 24, ‘Related Party Disclosures’ The reporting entity is not required to disclose the compensation paid by the management entity (as a related party) to management entity’s employee or director, but it is required to disclose the amount charged to the reporting entity by the management entity for services provided.
The above amendments do not have any material financial impact on the Group.
Annual improvements 2011-2013 cycle These amendments include changes from the 2011-2013 cycle of the annual improvements project, that affect the below standard:
• HKFRS 13, ‘Fair value measurement’ It clarifies that the portfolio exception in HKFRS 13, which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including non- financial contracts) within the scope of HKAS 39 or HKFRS 9.
The above amendment does not have any material financial impact on the Group.
56 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(b) New and amended standards that have been issued but are not effective for the financial year beginning January 1, 2015 and have not been early adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after January 1, 2015, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below:
HKFRS 9 ‘Financial instruments’ The complete version of HKFRS 9 replaces most of the guidance in HKAS 39. HKFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit and losses. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income. There is now a new expected credit losses model that replaces the incurred loss impairment model used in HKAS 39.
For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income for liabilities designated at fair value through profit or loss.
HKFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under HKAS 39. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The Group is yet to assess HKAS 9’s full impact.
Amendment to HKFRS 11, ‘Joint arrangements’ regarding acquisition of an interest in a joint operation This amendment provides new guidance on how to account for the acquisition of an interest in a joint venture operation that constitutes a business. The amendments require an investor to apply the principles of business combination accounting when it acquires an interest in a joint operation that constitutes a ‘business’. The amendments are applicable to both the acquisition of the initial interest in a joint operation and the acquisition of additional interest in the same joint operation. However, a previously held interest is not re- measured when the acquisition of an additional interest in the same joint operation results in retaining joint control. The application of this new standard has no material financial impact to the Group.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 57 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(b) New and amended standards that have been issued but are not effective for the financial year beginning January 1, 2015 and have not been early adopted (continued) Amendment to HKAS 16, ‘Property, plant and equipment’ and HKAS 38, ‘Intangible assets’ regarding depreciation and amortisation This amendment clarifies that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.
This has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. The presumption may only be rebutted in certain limited circumstances. These are where the intangible asset is expressed as a measure of revenue; or where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. The application of this new standard has no material financial impact to the Group.
Amendments to HKFRS 10 and HKAS 28 regarding the sale or contribution of assets between an investor and its associate or joint venture These amendments address an inconsistency between HKFRS 10 and HKAS 28 in the sale or contribution of assets between an investor and its associate or joint venture. A full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if those assets are in a subsidiary. The application of this new standard has no material financial impact to the Group.
Amendment to HKAS 27, ‘Separate financial statements’ regarding the equity method The amendment allows entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The application of this new standard has no material financial impact to the Group.
HKFRS 15, ‘Revenue from contracts with customers’ This is the converged standard on revenue recognition. It replaces HKAS 11, ‘Construction contracts’, HKAS 18, ’Revenue’ and related interpretations. Revenue is recognised when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service.
58 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(b) New and amended standards that have been issued but are not effective for the financial year beginning January 1, 2015 and have not been early adopted (continued) HKFRS 15, ‘Revenue from contracts with customers’ (continued) The core principle of HKFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:
• Step 1: Identify the contract(s) with a customer
• Step 2: Identify the performance obligations in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations in the contract
• Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
HKFRS 15 also includes a cohesive set of disclosure requirements that will result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The application of this new standard has no material financial impact to the Group.
Annual improvements 2014 – HKFRS 7, ‘Financial instruments: Disclosures’ If an entity transfers a financial asset to a third party under conditions which allow the transferor to derecognise the assets, HKFRS 7 requires disclosure of all types of continuing involvement that the entity might still have in the transferred assets. It provides guidance about what is meant by continuing involvement. There is a consequential amendment to HKFRS 1 to give the same relief to first time adopters. The amendment does not have any material financial impact on the Group.
Amendments to HKAS 1 for the disclosure initiative The amendments clarify guidance in HKAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The above amendments do not have any material financial impact on the Group.
There are no other HKFRSs or HK(IFRIC) interpretations that are not yet effective that would be expected to have a material impact on the Group’s consolidated financial statements.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 59 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(b) New and amended standards that have been issued but are not effective for the financial year beginning January 1, 2015 and have not been early adopted (continued) Amendments to HKFRS 10, HKFRS 12 and HKAS 28 ‘Investment entities: applying the consolidation exception’ The amendments clarify the application of the consolidation exception for investment entities and their subsidiaries.
The amendments to HKFRS 10 clarify that the exception from preparing consolidated financial statements is available to intermediate parent entities which are subsidiaries of investment entities. The exception is available when the investment entity parent measures its subsidiaries at fair value. The intermediate parent would also need to meet the other criteria for exception listed in HKFRS 10.
The amendments also clarify that an investment entity should consolidate a subsidiary which is not an investment entity and which provides services in support of the investment entity’s investment activities, such that it acts as an extension of the investment entity. However, the amendments also confirm that if the subsidiary is itself an investment entity, the investment entity parent should measure its investment in the subsidiary at fair value through profit or loss. This approach is required regardless of whether the subsidiary provides investment-related services to the parent or to third parties.
The amendments to HKAS 28 allow an entity which is not an investment entity, but has an interest in an associate or a joint venture which is an investment entity, a relief to retain the fair value measurement applied by the investment entity associate or joint venture, or to unwind the fair value measurement and instead perform a consolidation at the level of the investment entity associate or joint venture for their subsidiaries when applying the equity method.
(c) New Hong Kong Companies Ordinance (Cap. 622) In addition, the requirements of Part 9 “Accounts and Audit” of the new Hong Kong Companies Ordinance (Cap. 622) come into operation during the financial year, as a result, there are changes to presentation and disclosures of certain information in the consolidated financial statements.
60 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
(a) Impairment allowance (i) Advances to banks and customers Loan portfolios are reviewed periodically to assess whether impairment losses exist. The Group makes judgements as to whether there is any objective evidence that a loan portfolio is impaired, i.e. whether there is a decrease in estimated future cash flows. Objective evidence for impairment is described in Note 2(m). If management has determined, based on their judgement, that objective evidence of impairment exists, expected future cash flows are estimated based on historical loss experience for assets with credit risk characteristics similar to those of the Group. Historical loss experience is adjusted on the basis of the current observable data. Management reviews the methodology and assumptions used in estimating future cash flows regularly to reduce any difference between loss estimates and actual loss experience. Additional information is disclosed in Note 12.
(ii) Available-for-sale financial assets and held-to-maturity investments The Group determines that available-for-sale financial assets and held-to-maturity investments are impaired when there has been a significant or prolonged decline in the fair value below cost. The determination of when a decline in fair value below cost is not recoverable within a reasonable time period is judgemental by nature, so profit and loss could be affected by differences in this judgement.
The Group recognises an impairment loss for an available-for-sale debt instrument when there is objective evidence that the debt instrument is impaired. Objective evidence of an impairment for a debt instrument exists when one or more events have occurred after the initial recognition of the debt instrument (that is, a credit related event). Apart from taking into consideration the mark-to-market price of the issue and its external credit rating, the Group also makes estimates on the default rate and loss ratio of each investment. Additional information is disclosed in Note 21 and 22.
(b) Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in active markets are determined by using valuation techniques including discounted cash flows analysis and models based on current market parameters. All models are validated before they are used, and models are calibrated to ensure that output reflects actual data and comparative market prices. To the extent practical, models use only observable data, however areas such as credit spread and corrections require management to make estimates. Change in assumptions about these factors could affect reported fair value of financial instruments. Additional information is disclosed in Note 23.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 61 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT
The Group derives the majority of its revenue from managing risk from customer transactions. Effectively assessing and managing all types of risk is central to the success of the Group. Apart from a prudential risk culture, the Group has established risk governance, structure, risk management processes including policies and procedures for the identification, measurement, control and monitoring of credit, liquidity, operational, market and capital risks, by means of which risk and return are evaluated with the goal of producing sustainable revenue and reducing income volatilities.
The Board of Directors of the Bank, with the assistance of the Risk Committee, provides effective oversight over the affairs of the Group, the governance framework and practices through delegation of authority to the functional committees and the senior management. The Risk Committee shall review regularly the Group’s Risk Appetite Statement and recommend for the Board’s approval. The Chief Executive Officer is responsible for overseeing all lines of businesses within the Group, supported by the Management Committee comprising the senior management members. In addition, led by the senior management members, the functional committees including the Risk Management Committee, the Asset and Liability Committee (“ALCO”), the Operations Committee, the Information Technology Committee, approve policies and procedures formulated by various working committees and functional management to identify, analyse, manage and control credit risk, market risk, liquidity risk, operational risk and capital risks through the use of reliable and up-to-date management and information systems. Policies and procedures are updated on an ongoing basis to reflect changes in markets, products and industry best practices. The internal auditors also perform risk-based audits to ensure the soundness of the governance and compliance with the policies and procedures.
The Group has established policies and procedures to govern the launch of new products and services. A working committee, New Product Approval Committee, is delegated by the Management Committee to review and approve new product and service. Composed of management members from key functional areas, the working committee convenes meetings to assess and discuss product proposals of the Group. This aims to ensure that risks are properly identified and effective control measures are in place to mitigate any risks involved prior to the roll-out of any new product or service.
62 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. Credit risk exists in the Group’s loans, leases, credit cards, trade finance and treasury transactions. There is also credit risk in off-balance sheet financial arrangements such as loan commitments, trade-related contingencies and transaction-related contingencies.
The Group has appointed the intermediate holding company, CCB, as its credit adviser. Credit Risk Management is responsible for providing centralised credit risk management and control in the Group. It is independent of the business units, and is headed by the Deputy Chief Executive overseeing Risk Management who assists the Chief Executive Officer and the Risk Management Committee in the Group’s credit risk management. The Risk Management Committee is a central forum for overseeing the Group’s overall asset quality as well as resolving all the important risk or governance issues on credit risk, operational risk, market risk, liquidity risk, interest rate risk, strategic risk and reputation risk. It is chaired by the Deputy Chief Executive overseeing Risk Management, and the other members are the Group’s President and Executive Director, the Chief Financial Officer, the Head of Risk Management, the Head of Legal and Compliance, the Head of Market Risk and the Head of Operational Risk.
Credit Risk Management’s key functions include the followings:
– Ensure the Group’s risk profile is in line with the risk appetite and strategies set by the Bank.
– Establishing credit strategies, policies and procedures of the Group and issuing lending and monitoring guidelines to credit officers and business units. Credit policies and procedures are constantly revisited and updated whenever warranted to accommodate portfolio development, market changes and regulatory requirements.
– Approving credits within the lending authority delegated by the Risk Management Committee according to the risk, size and nature of the transactions.
– Maintaining the internal risk rating system for measurement of credit risk exposures. The Group adopts a two dimensional risk rating methodology for the corporate portfolio, for which risk ratings are assigned to the obligor and facility separately. This system provides granularity in the rating scale and hence more refined risk differentiation for better risk and reward analysis and enhanced risk quantification. For a certain part of the consumer portfolio, in-house scoring models are also adopted to measure the credit risk involved.
– Monitoring and controlling large exposures, connected lending, product and industry concentration based on established policies and internal risk limits to ensure prudent credit decisions are made and that the Group complies with statutory requirements and supervisory guidelines.
– Monitoring criticised loans and managing recoveries of problem assets. Collection and problem asset management are separately handled by specialised teams which possess the relevant experience and expert knowledge.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 63 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) – Assessing collective and individual loan impairment losses and allowances regularly to ensure the adequacy of impairment allowances.
– Managing and monitoring the Group’s overall asset quality.
– Supervising the stress-testing programme to provide a forward-looking assessment of the Group’s risk exposures under stressed conditions, and enable the Group to project tail risks on a bank-wide basis, to quantify such potential losses and the impact on the Bank in terms of profitability, liquidity and capital adequacy.
– Co-ordinating and driving credit related initiatives throughout the Group to ensure compliance with regulatory requirements.
(i) Credit risk for advances In addition to underwriting standards, the Group manages credit risks through an effective and prudent credit approval process. In making credit recommendations and decisions, only officers with appropriate banking experience and product knowledge are delegated specific approval authorities. There is an additional post-approval review process which monitors the quality of credit decisions and issues. Results of the post-approval review are used to ensure quality of the credit decisions made, to identify negative trends which need attention or actions, and to ensure adherence to existing policies and procedures.
In the approval process, the credit officers assess the purpose and structure of the loan, the ability of a particular borrower or counterparty to service the proposed facilities, as well as the nature of the underlying collateral where applicable. The Group categorizes its loans and leases into either consumer or corporate and commercial credits and monitors their risks separately as discussed below:
Consumer credits are grouped by products and their risk attributes for purposes of evaluating credit risk, and on-going monitoring of asset quality. Standard credit underwriting criteria are established and exceptional approvals for deviations from such criteria are required and monitored.
Corporate and commercial credits are evaluated for the default risk, taking into consideration the related credit enhancements. To support the credit assessment, internal risk rating will be assigned to the customers. These risk ratings are monitored regularly and updated upon any changes in the borrower’s or counterparty’s financial position, repayment ability and the related credit enhancements.
(ii) Credit risk for treasury transactions The credit risk of the Group’s investment in debt securities and treasury hedging transactions is managed by the use of both internal and external credit ratings and credit limits set on individual counterparties. Internal and external credit ratings, credit default swap prices and news on each counterparty are closely tracked and monitored.
64 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) (iii) Credit-related commitments The risks involved in credit-related commitments and contingencies are essentially the same as the credit risk involved in extending loan facilities to customers. These transactions are therefore subject to the same credit approval, portfolio maintenance and collateral requirements as for customers applying for loans.
(iv) Collateral and other credit enhancements The Group obtains collateral in respect of loans advanced to mitigate the credit risk of the transactions and has established policies and guidelines on the eligibility and valuation of collateral and other credit enhancements. However, the approval of credits will be based on the assessment of debt servicing ability rather than solely dependent on collateral or other credit enhancements. The main collateral types and credit enhancements include charges over properties, securities, deposits, account receivables, investment funds, vehicles and machinery, and guarantees.
(v) Risk concentration The Group sets various risk limits to control exposure to countries, individual counterparties, industries, intra-group exposures and loan portfolios to avoid excessive risk concentration.
(vi) Credit review and audit The internal auditors conduct periodic reviews and independent audits of the Group’s credit portfolio and credit risk management process. This is mainly to ensure due compliance with established credit policies and procedures, and to evaluate the effectiveness of the credit management process and control mechanism. The results of these reviews and audits are reported to the Audit Committee as well as the Board of Directors for effective oversight and monitoring.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 65 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) (vii) Maximum exposure
2015 2014
Credit risk exposures relating to on-balance sheet assets by class are as follows: Cash and balances with banks and central banks 82,020,035 56,747,605 Placements with banks maturing between one and twelve months 59,036,367 107,302,864 Advances to banks 1,360,748 19,707,016 Advances to customers and trade bills 238,090,313 245,169,462 Financial instruments measured at fair value through profit or loss 3,807 51,036 Available-for-sale financial assets 85,661,416 59,618,077 Held-to-maturity investments 5,473,670 – Derivative financial instruments 6,289,264 1,060,654 Other assets 23,606,335 4,633,604 Credit risk exposures relating to off-balance sheet items are as follows: Financial guarantees and other credit related contingent liabilities 3,003,644 3,115,303 Loan commitments and other credit related commitments 61,241,291 51,387,137
565,786,890 548,792,758
The above table shows the maximum credit risk exposure to the Group as at December 31, 2015 and 2014, without taking account of any collateral held, master netting agreements or other credit enhancements attached. For on-balance sheet assets, the exposures set out above are based on net carrying amounts. For letters of guarantee issued, the maximum exposure to credit risk is the maximum amount that the Group could be required to pay if the guarantees are called upon. For loan commitments and other credit related liabilities that are irrevocable over the life of the respective facilities or revocable in the event of a significant adverse change, the maximum exposure to credit risk is disclosed as the full amount of the committed facilities sought on these balances.
66 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) (vii) Maximum exposure (continued) Credit risk mitigation, collateral and other credit enhancements The Group uses a variety of techniques to reduce the credit risk arising from its lending activities. Enforceable legal documentation establishes the Group’s direct, irrevocable and unconditional recourse to any collateral, security or other credit enhancements provided. The table below describes the nature of collateral held and their financial effect by class of financial asset:
Balances and placements with These exposures are generally considered to be low risk due to the banks and other financial nature of the counterparties. Collateral is generally not sought on institutions these balances.
Derivative financial instruments Master netting agreements are typically used to enable the effects of derivative assets and liabilities with the same counterparty to be offset.
Financial instruments measured These exposures are carried at fair value which reflects the credit at fair value through profit or risk. No collateral is sought directly from the issuer or the loss – debt securities counterparty.
Available-for-sale investment The fair values of these securities have reflected the credit risk. No securities – debt securities collateral is sought directly from the issuer or the counterparty.
Securities lending Under the policy of the Group, collateral coverage ratio under securities lending is 100%. When the collateral coverage ratio drops below the coverage requirement, margin call would be performed.
Loans and advances and trade These exposures are secured, partially secured or unsecured bills depending on the type of customers and the products offered to them. Types of collaterals include residential properties, other properties, standby LC acceptable to the Group and bank deposits, etc. Other credit enhancements mainly represent recognised guarantee. Analysis of gross advances to customers covered by collateral is listed in Unaudited Supplementary Financial Information Note 4(a)(i).
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 67 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) (vii) Maximum exposure (continued) Credit risk mitigation, collateral and other credit enhancements (continued)
Contingent liabilities and The components and nature of contingent liabilities and commitments commitments is disclosed in Note 38. Regarding the commitments that are unconditionally cancellable without prior notice, the Group would assess the necessity to withdraw the credit line in case the credit quality of a borrower deteriorates. Accordingly, these commitments do not expose the Group to significant credit risk. The exposure on commitments that are not unconditionally cancellable including letter of credit, letter of guarantee issued and other loan commitments and credit related liabilities are secured, partially secured or unsecured depending on the type of customers and the products offered to them.
(viii) Credit quality of gross advances to customers and trade bills and gross advances to banks
2015 2014
Gross advances to customers Neither past due nor impaired 203,611,762 177,692,720 Past due but not impaired 671,568 699,582 Impaired 223,704 144,953
204,507,034 178,537,255
Trade bills Neither past due nor impaired 34,590,943 67,274,501 Past due but not impaired 1,834 – Impaired 139,549 136,048
34,732,326 67,410,549
Gross advances to banks Neither past due nor impaired 1,360,748 19,707,687
68 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) (viii) Credit quality of gross advances to customers and trade bills and gross advances to banks (continued) (1) Neither past due nor impaired The credit grading of gross advances and trade bills that were neither past due nor impaired can be analysed by reference to the loan classification system as defined by the Hong Kong Monetary Authority (“HKMA”) as follows:
2015 2014
Gross advances to customers Pass 203,435,151 177,608,927 Special mention 176,611 83,793
203,611,762 177,692,720
Trade bills Pass 34,590,943 67,274,501
Gross advances to banks Pass 1,360,748 19,707,687
(2) The aging analysis of gross advances to customers and trade bills which were past due but not impaired are as follows:
2015 2014
Gross advances to customers Overdue three months or less 671,568 699,582
2015 2014
Trade bills Overdue three months or less 1,834 –
(3) Impaired advances and trade bills Classified or impaired advances to customers and trade bills follow the definition set out in the Banking (Disclosure) Rules and represent advances which are either classified as “substandard” or below under the Group’s classification of loan quality, or individually assessed to be impaired. Details are shown in Note 19(d).
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 69 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) (ix) Credit quality of financial assets other than advances The following table presents an analysis of investments in debt securities by rating agency designation at the reporting date, based on Standard and Poor’s Ratings Services, or their equivalents, to the respective issues of the debt securities. In the absence of such issue ratings, the ratings designated for the issuers are reported. If there are different ratings for the same securities, the securities are reported against the lower rating.
2015 2014
AAA 5,834,588 8,235,232 AA+ to A- 73,133,320 46,125,422 Lower than A- 8,928,836 3,565,883 Unrated 3,242,149 1,742,576
91,138,893 59,669,113
Of which classified as Trading 3,807 12,046 Financial assets designated at fair value through profit or loss – 38,990 Available-for-sale financial assets 85,661,416 59,618,077 Held-to-maturity investments 5,473,670 –
91,138,893 59,669,113
70 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(a) Credit risk (continued) (x) Collateral and other credit enhancements held against financial assets At the reporting date, the lower of gross loan amount and the estimated fair value of the collateral and other credit enhancements held against financial assets is as follows:
2015 2014
Fair value of collateral and other credit enhancements held against financial assets that are: – neither past due nor impaired 120,190,174 126,633,168 – past due but not impaired 547,606 480,066
120,737,780 127,113,234
Collateral mainly includes residential properties, commercial and industrial properties and automobiles.
(xi) Repossession of collateral During the year, the Group obtained assets by taking possession of collateral with the carrying amount as follows:
2015 2014
Nature of collateral Residential properties 2,730 – Other assets 430 807
3,160 807
(b) Liquidity risk Liquidity risk is the risk that the Bank may not be able to fund the increase in assets or meet obligations as they fall due without incurring unacceptable losses. This may be caused by market disruption or liquidity squeeze whereby the Bank may only unwind specific exposures at significantly discounted values.
The purpose of liquidity management is to ensure sufficient cash flows to meet all financial commitments and to capitalise on opportunities for business expansion. This includes the Bank’s ability to meet deposit withdrawals either on demand or at contractual maturity, to repay borrowings as they mature, to comply with the statutory liquidity ratio, and to make new loans and investments as opportunities arise.
The Bank has established liquidity risk management policy which sets out the liquidity risk management framework of the Bank, which has been enhanced according to the requirements of HKMA Supervisory Policy Manual “Sound Systems and Controls for Liquidity Risk Management (LM2)” in 2011.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 71 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(b) Liquidity risk (continued) Liquidity risk management framework The Board of Directors is ultimately responsible for an effective liquidity risk management framework in place. Risk Committee (RC) is one of the committees set up by the Board of Directors. The duties of RC are to approve the risk management framework that is in line with the Bank’s business objectives and risk profile, and ensure that the liquidity framework is duly implemented and maintained by the senior management members.
Risk Management Committee (RMC) is set up to oversee the Bank’s overall asset quality as well as resolving all important risk-related or governance issues on liquidity risk. The RMC is responsible for providing guidance and overseeing the Bank’s liquidity risk management strategy and development; reviewing or approving liquidity risk management policies and reviewing the Bank’s liquidity risk position.
ALCO is a functional committee delegated by the Bank’s senior management to oversee the liquidity risk management in light of the business strategy.
Regular meetings of various committees are held to review the compliance status of liquidity measurements and the needs of change in strategy and policy. Daily liquidity management is performed by the Treasury. Risk Management Division is responsible for the daily monitoring of the liquidity limits and measurements, and submits regular reports of the liquidity profile to ALCO. Internal Audit periodically performs independent reviews on liquidity management framework to ensure the validity and effectiveness of the Bank’s liquidity risk management functions.
Funding Strategies The objective of the Bank’s funding strategy is to strive for a balance between business growth opportunities and funding stability. The Bank seeks to maintain diversified and stable funding sources with an appropriate mix of liabilities including customer deposits, interbank borrowings and issuance of negotiable certificates of deposit. The annual budgeted balance sheet of the Bank, which contains a plan for the composition of various sources of liabilities, is approved by the Board of Directors in each calendar year. Various considerations such as the target business growth, market sentiment, target financial ratios and regulatory requirements would be taken into account in the process of budgeting.
To manage the currency mismatch and avoid over-reliance on the currency swap market, the Bank sets limits on swapped fund ratios of major currency positions which are subject to daily monitoring. The swapped fund ratios limit the extent of one currency’s assets being funded by other currencies through the swap market.
The funding support provided by CCB is one of the important components in the Bank’s funding strategies. The funding from CCB not only supports the Bank’s normal banking business but also provides additional liquidity cushion in case of local market liquidity drain.
72 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(b) Liquidity risk (continued) Stress scenario analysis The Bank regularly performs liquidity stress tests to project the Bank’s cash flows under stress scenarios and evaluate the sufficiency of liquidity cushion. The stress scenarios cover institution-specific crisis scenario, general market crisis scenario and combined crisis scenario. The cash flows under each stress scenario are determined by applying a standard set of prescribed stress assumptions to the Bank’s cash flow projection. The stress test results are regularly reported to the RMC and ALCO. The definition of liquidity cushion being held by the Bank is consistent to the definition of High Quality Liquid Assets for purposes of determining the Bank’s Liquidity Coverage Ratio. It is the Bank’s policy that the liquidity cushion should be able to cover projected cash outflows under various prescribed stress scenarios.
Contingency Funding Plan (CFP) The Bank has a CFP that sets out the Bank’s strategies for identifying the occurrence of liquidity event and the operational procedures for addressing such emergency situation if it really takes place. The CFP contains a set of early warning indicators that helps to identify any emerging liquidity risks at an early stage. The CFP also includes detailed action steps and properly assigned responsibilities within the liquidity risk management framework. The list of potential funding sources, with due consideration of their reliability, priority and the expected available time during liquidity crisis, is included.
The Bank has not entered into any agreement or arrangement under which the Bank has to fulfil contingent funding obligations.
Liquidity measurements (i) Maturity analysis The maturity analysis lists out the assets and liabilities by their remaining maturities into different time buckets. The gap amount for each time bucket represents the liquidity exposure after netting the assets and liabilities maturing in the same bucket. The Bank maintains daily gap limits for each time bucket to manage liquidity risk. For some liabilities without prescribed maturity date such as demand deposits from customers, the liabilities are listed in the bucket of “Repayable on Demand”, resulting a larger negative gap in this time bucket. The Bank considers this is an inherent risk to a consumer and commercial bank that offers the demand deposit products to customers. By experience the demand deposits have stable outstandings and the negative gap does not materialise into an immediate outflow of liquidity. However, to mitigate the liquidity risk, inter-bank and other borrowing facilities, as well as contingency funding plan are in place to cover withdrawals at unexpected levels of demand. Apart from the stable customer deposits, the Bank has other sources to fund the earning assets, such as inter- bank borrowings, certificates of deposit issued, funding support from CCB and share capital.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 73 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(b) Liquidity risk (continued) Liquidity measurements (continued) (i) Maturity analysis (continued) The table below sets out the maturity profile of assets and liabilities analysed by the remaining period to repayment as at the reporting date:
As at December 31, 2015
3 months 1 year 5 years or less or less or less Repayable 1 month but over but over but over After on demand or less 1 month 3 months 1 year 5 years Undated Total
Assets Cash and balances with banks and central banks 14,288,136 67,731,899 – ––––82,020,035 Placements with banks maturing between one and twelve months – – 43,035,204 16,001,163 – – – 59,036,367 Advances to banks – 347,938 176,586 836,224 – – – 1,360,748 Advances to customers and trade bills 9,887,425 30,394,075 28,365,035 62,799,680 71,840,585 34,803,513 – 238,090,313 Financial instruments measured at fair value through profit or loss – – – 3,306 501 – – 3,807 Available-for-sale financial assets – 6,166,128 12,809,016 18,613,769 45,547,340 2,525,163 33,843 85,695,259 Held-to-maturity investments – – 4,974,833 – 498,837 – – 5,473,670 Derivative financial instruments – 1,094,063 1,155,428 3,842,658 197,115 – – 6,289,264 Interest in a joint venture – – – – – – 1,937,240 1,937,240 Interest in an associate – – – – – – 265,914 265,914 Deferred tax assets – – – – – – 112,428 112,428 Fixed assets – – – – – – 3,563,991 3,563,991 Other assets 3,048 21,834,046 708,584 501,807 565,759 45,408 815 23,659,467
Total assets 24,178,609 127,568,149 91,224,686 102,598,607 118,650,137 37,374,084 5,914,231 507,508,503
Liabilities Deposits and balances of banks 2,869,495 70,172,349 2,099,963 5,823,273–––80,965,080 Deposits from customers 64,339,855 86,292,456 78,925,916 75,292,510 774,647 – – 305,625,384 Certificates of deposit and other debt securities issued – 4,379,911 16,507,802 11,043,756 18,687,865 1,882,553 – 52,501,887 Derivative financial instruments – 1,126,117 1,324,170 3,911,372 383,066 – – 6,744,725 Current tax payable – – – 146,728 – – – 146,728 Deferred tax liabilities – – – – – – 18,276 18,276 Other liabilities 1,297 4,491,777 1,185,459 1,188,709 187,205 9,097 2,833,743 9,897,287 Subordinated debts – – – – – 5,776,365 – 5,776,365
Total liabilities 67,210,647 166,462,610 100,043,310 97,406,348 20,032,783 7,668,015 2,852,019 461,675,732
Net (liabilities)/assets gap (43,032,038) (38,894,461) (8,818,624) 5,192,259 98,617,354 29,706,069 3,062,212 45,832,771
Of which: Debt securities included in: – trading assets – – – 3,306 501 – – 3,807 – available-for-sale financial assets – 6,166,128 12,809,016 18,613,769 45,547,340 2,525,163 – 85,661,416 – held-to-maturity investments – – 4,974,833 – 498,837 – – 5,473,670
74 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(b) Liquidity risk (continued) Liquidity measurements (continued) (i) Maturity analysis (continued) As at December 31, 2014
3 months 1 year 5 years or less or less or less Repayable 1 month but over but over but over After on demand or less 1 month 3 months 1 year 5 years Undated Total
Assets Cash and balances with banks and central banks 9,800,544 46,947,061 –––––56,747,605 Placements with banks maturing between one and twelve months – – 52,168,245 55,134,619 – – – 107,302,864 Advances to banks – 6,140,077 8,554,044 5,012,895 – – – 19,707,016 Advances to customers and trade bills 8,474,850 19,086,185 45,622,649 87,500,450 53,407,792 31,077,536 – 245,169,462 Financial instruments measured at fair value through profit or loss – – 38,990 4,551 7,495 – – 51,036 Available-for-sale financial assets – 7,238,801 8,439,383 21,481,962 20,103,432 2,354,499 31,287 59,649,364 Derivative financial instruments – 558,139 271,922 180,201 50,392 – – 1,060,654 Interest in a joint venture – – ––––1,893,902 1,893,902 Interest in an associate – – ––––237,428 237,428 Deferred tax assets – – ––––116,732 116,732 Fixed assets – – ––––3,627,061 3,627,061 Other assets 2,442 2,704,063 735,183 675,420 507,837 44,971 828 4,670,744
Total assets 18,277,836 82,674,326 115,830,416 169,990,098 74,076,948 33,477,006 5,907,238 500,233,868
Liabilities Deposits and balances of banks 2,742,758 41,612,540 43,676,467 13,914,506 – – – 101,946,271 Deposits from customers 38,654,886 67,505,592 90,693,080 75,963,716 1,686,994 – – 274,504,268 Certificates of deposit and other debt securities issued – 2,258,667 5,437,068 37,615,022 19,716,564 1,991,262 – 67,018,583 Derivative financial instruments – 420,910 128,718 162,361 341,162 – – 1,053,151 Current tax payable – – – 168,676 – – – 168,676 Deferred tax liabilities – – ––––20,042 20,042 Other liabilities 5,753 1,033,557 1,114,251 1,265,552 201,691 9,618 2,833,064 6,463,486 Subordinated debts – – – – – 5,766,117 – 5,766,117
Total liabilities 41,403,397 112,831,266 141,049,584 129,089,833 21,946,411 7,766,997 2,853,106 456,940,594
Net (liabilities)/assets gap (23,125,561) (30,156,940) (25,219,168) 40,900,265 52,130,537 25,710,009 3,054,132 43,293,274
Of which: Debt securities included in: – trading assets – – – 4,551 7,495 – – 12,046 – financial assets designated at fair value through profit or loss – – 38,990––––38,990 – available-for-sale financial assets – 7,238,801 8,439,383 21,481,962 20,103,432 2,354,499 – 59,618,077
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 75 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued) (b) Liquidity risk (continued) Liquidity measurements (continued) (ii) Undiscounted cash flows by contractual maturities The following table details the remaining contractual maturities at the reporting date of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the reporting date) and the earliest date to pay.
As at December 31, 2015
3 months 1 year 5 years or less or less or less Repayable 1 month but over but over but over After on demand or less 1 month 3 months 1 year 5 years Undated Total
Non-derivative financial liabilities Deposits and balances of banks 2,869,495 70,193,020 2,103,626 5,908,868–––81,075,009 Deposits from customers 64,339,855 86,357,446 79,265,808 76,039,710 831,692 – – 306,834,511 Certificates of deposit and other debt securities issued – 4,416,976 16,736,607 11,348,684 20,014,273 3,145,182 – 55,661,722 Current tax payable – – – 146,728 – – – 146,728 Deferred tax liabilities – – – – – – 18,276 18,276 Other liabilities 683,581 4,364,251 1,011,603 809,396 185,616 9,097 2,833,743 9,897,287 Subordinated debts – 77,898 143,333 501,962 1,808,202 6,076,304 – 8,607,699
67,892,931 165,409,591 99,260,977 94,755,348 22,839,783 9,230,583 2,852,019 462,241,232
Cash flow of derivatives settled on a net basis – (38,944) (48,381) (200,075) 71,107 – – (216,293)
Cash flow of derivatives settled on a gross basis – inflow – 140,164,698 154,251,274 275,134,127 7,033,602 – – 576,583,701 – outflow – 140,194,973 154,260,276 275,511,130 7,650,569 – – 577,616,948
Contingent liabilities and commitments – contingent liabilities 332,991 135,831 550,955 1,733,183 148,947 101,737 – 3,003,644 – commitments 49,125,258 247,141 144,448 3,600,801 8,122,643 1,000 – 61,241,291
76 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(b) Liquidity risk (continued) Liquidity measurements (continued) (ii) Undiscounted cash flows by contractual maturities (continued) As at December 31, 2014
3 months 1 year 5 years or less or less or less Repayable 1 month but over but over but over After on demand or less 1 month 3 months 1 year 5 years Undated Total
Non-derivative financial liabilities Deposits and balances of banks 2,742,758 41,646,530 43,805,446 14,095,782 – – – 102,290,516 Deposits from customers 38,654,886 67,574,438 91,176,438 76,985,659 1,688,859 – – 276,080,280 Certificates of deposit and other debt securities issued – 2,375,077 5,619,032 38,712,077 21,245,063 2,242,713 – 70,193,962 Current tax payable – – – 168,676 – – – 168,676 Deferred tax liabilities – – ––––20,042 20,042 Other liabilities 5,753 1,033,557 1,114,251 1,265,552 201,691 9,618 2,833,064 6,463,486 Subordinated debts – – 123,599 123,599 988,788 7,002,102 – 8,238,088
41,403,397 112,629,602 141,838,766 131,351,345 24,124,401 9,254,433 2,853,106 463,455,050
Cash flow of derivatives settled on a net basis – 39,595 29,005 (17,761) 17,873 – – 68,712
Cash flow of derivatives settled on a gross basis – inflow – 64,369,117 50,051,861 47,346,323 5,464,835 – – 167,232,136 – outflow – 64,098,394 50,003,594 47,361,216 6,174,916 – – 167,638,120
Contingent liabilities and commitments – contingent liabilities 424,628 – 751,361 1,863,075 76,239 – – 3,115,303 – commitments 44,007,670 – 950,905 2,005,511 4,423,051 – – 51,387,137
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 77 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk Market risk management by the Group Market risk is the risk of loss arising from adverse changes in market rates and prices such as foreign exchange rates and interest rates and prices of debt securities. The Group’s exposure to market risk arises from its day-to-day activities associated with loans, deposits, securities held for liquidity purposes and proprietary trading positions.
The Group’s Risk Management Committee is responsible for overseeing the market risk of the Group. The Group’s market risk framework comprises market risk management policies and control procedures with appropriate delegation of market risk limits.
The Group’s trading activities are primarily related to foreign exchange and money market transactions. The Group manages its exposure to market risk through the establishment of various trading limits. In addition to the overall limits, documented trading policies and procedures define acceptable boundaries within which traders can execute transactions in their assigned markets.
Value-at-Risk (“VaR”) for the Group VaR is a technique which estimates the potential losses that could occur on risk positions taken due to movements in market rates and prices over a specified time horizon and to a given level of confidence. The Group uses VaR to measure and report the trading book market risk position. The Group sets up VaR limit to control the trading book maximum market risk exposure. The Group adopts historical simulation approach to calculate VaR at a 99% confidence level for a one-day holding period.
The table below shows the trading VaR for the Group.
2015 2014
Trading VaR 5,027 1,455 Trading VaR for interest rate risk 3,841 1,454 Trading VaR for foreign exchange risk 1,437 186
(i) Currency risk Currency risk management by the Group The Group’s foreign currency positions arise from treasury activities and foreign exchange dealing to support the commercial and consumer banking operations. The Group has formulated a foreign exchange policy in managing the Group’s foreign exchange risk. The foreign currency positions are managed within established limits, including open risk position limits.
In addition to adopting VaR to measure foreign exchange risk, a stress testing programme was developed to assess the potential loss that the Group may incur from the foreign exchange positions. The stress testing programme incorporates sensitivity analysis on changes in foreign exchange rates with various degree of severity. The methodology and assumptions of stress testing programme are properly documented, reviewed and approved by the Risk Management Committee and/or the Steering Committee on Stress-testing, with its update at least once a year or when the portfolio or the market conditions changes significantly.
78 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk (continued) (i) Currency risk (continued) Currency risk management by the Group (continued) The Group developed the medium stress scenario based on annualized volatility (95% confidence interval) of major foreign currencies in past 10-year historical record, as well as some forward-looking adjustment factor(s). The stress testing is conducted on outstanding foreign exchange positions. The prior year figures have been restated to conform with the current year’s presentation. The result of the medium stress scenario are used to estimate the impact on the Group’s profit before tax in response to the changes in the foreign exchange rates as specified in the stress testing programme and the result is as follows (Note 1):
Increase/(decrease) in Group’s profit before taxation 2015 2014 (Restated)
Increase in foreign exchange rates 10,942 (7,121) Decrease in foreign exchange rates (10,942) 7,121
The following percentage changes are adopted on the significant foreign currency positions in stress testing (for medium stress scenario)(*):
– 0.8% for United States dollars (2014: 0.8%);
– 11.8% for Chinese Renminbi (2014: 4.5%) (Note);
– 16.7% for Euro (2014: 16.1%);
– 15.3% for Pound Sterling (2014: 15.2%);
– 23.8% for Australian dollars (2014: 23.5%); and
– 21.0% for Swiss Franc (2014: 18.0%).
(*) The above estimation excluded the RMB capital
Note: The stress scenario for Chinese Renminbi position was formulated taking the reform of central parity rate on August 11, 2015 into consideration. The historical data from August 11, 2015 till December 31, 2015 was adopted consequentially to replace the original data of the past 10 years.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 79 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk (continued) (i) Currency risk (continued) The following table indicates the currency concentration of the Group’s assets and liabilities.
As at December 31, 2015
HKD USD EUR RMB Others Total
Assets Cash and balances with banks and central banks 34,759,107 32,674,898 2,008,248 11,887,496 690,286 82,020,035 Placements with banks maturing between one and twelve months 26,167,000 25,614,246 1,777,183 5,472,595 5,343 59,036,367 Advances to banks – 659,277 25,840 675,631 – 1,360,748 Advances to customers and trade bills 120,847,984 71,373,210 3,609,238 41,383,132 876,749 238,090,313 Financial instruments measured at fair value through profit or loss 3,690 – – 117 – 3,807 Available-for-sale financial assets 10,711,549 39,163,099 2,405,245 33,415,366 – 85,695,259 Held-to-maturity securities 4,698,793 774,877–––5,473,670 Derivative financial instruments 29,936 5,817,941 133,189 180,392 127,806 6,289,264 Interest in a joint venture 1,937,240––––1,937,240 Interest in an associate 265,914––––265,914 Deferred tax assets 112,428––––112,428 Fixed assets 3,563,991––––3,563,991 Other assets 1,271,987 21,095,507 99,419 1,166,428 26,126 23,659,467
Spot assets 204,369,619 197,173,055 10,058,362 94,181,157 1,726,310 507,508,503
Liabilities Deposits and balances of banks 15,073,042 51,201,028 13,456 14,578,200 99,354 80,965,080 Deposits from customers 159,077,491 65,835,343 1,111,420 74,810,896 4,790,234 305,625,384 Certificates of deposit and other debt securities issued 5,757,932 21,475,422 4,477,590 18,449,378 2,341,565 52,501,887 Derivative financial instruments 12,490 375,614 64,478 5,767,536 524,607 6,744,725 Current tax payable 130,269 400 – 16,059 – 146,728 Deferred tax liabilities 18,276––––18,276 Other liabilities 7,666,243 818,227 107,788 1,215,391 89,638 9,897,287 Subordinated debts – 5,776,365–––5,776,365
Spot liabilities 187,735,743 145,482,399 5,774,732 114,837,460 7,845,398 461,675,732
Forward purchases 52,628,184 276,397,940 6,578,096 250,783,162 14,830,078 601,217,460
Forward sales (24,118,027) (321,724,064) (10,837,168) (235,492,862) (9,077,957) (601,250,078)
Net long/(short) position 45,144,033 6,364,532 24,558 (5,366,003) (366,967) 45,800,153
80 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk (continued) (i) Currency risk (continued) As at December 31, 2014
HKD USD EUR RMB Others Total
Assets Cash and balances with banks and central banks 22,319,198 13,614,131 411,261 19,612,561 790,454 56,747,605 Placements with banks maturing between one and twelve months 18,103,523 14,347,120 15,086 74,833,502 3,633 107,302,864 Advances to banks 219,292 12,254,256 260,732 6,939,863 32,873 19,707,016 Advances to customers and trade bills 98,650,573 69,011,116 647,430 76,433,264 427,079 245,169,462 Financial instruments measured at fair value through profit or loss 11,537 38,990 – 509 – 51,036 Available-for-sale financial assets 23,145,074 5,500,673 – 30,908,166 95,451 59,649,364 Derivative financial instruments 22,735 831,379 10,575 122,740 73,225 1,060,654 Interest in a joint venture 1,893,902––––1,893,902 Interest in an associate 237,428 ––––237,428 Deferred tax assets 116,732 ––––116,732 Fixed assets 3,627,061––––3,627,061 Other assets 1,203,030 1,703,483 11,711 1,711,921 40,599 4,670,744
Spot assets 169,550,085 117,301,148 1,356,795 210,562,526 1,463,314 500,233,868
Liabilities Deposits and balances of banks 19,904,485 39,089,895 2,386 42,718,399 231,106 101,946,271 Deposits from customers 126,857,126 66,211,576 423,891 76,810,349 4,201,326 274,504,268 Certificates of deposit and other debt securities issued 5,774,396 30,977,444 – 27,924,808 2,341,935 67,018,583 Derivative financial instruments 18,769 149,934 19,770 299,720 564,958 1,053,151 Current tax payable 163,676 260 4 4,733 3 168,676 Deferred tax liabilities 20,042––––20,042 Other liabilities 4,328,236 735,374 10,964 1,329,166 59,746 6,463,486 Subordinated debts – 5,766,117–––5,766,117
Spot liabilities 157,066,730 142,930,600 457,015 149,087,175 7,399,074 456,940,594
Forward purchases 24,728,473 121,581,492 550,009 59,879,287 11,077,246 217,816,507
Forward sales (16,255,969) (94,913,588) (1,447,935) (99,452,898) (5,632,292) (217,702,682)
Net long/(short) position (Note) 20,955,859 1,038,452 1,854 21,901,740 (490,806) 43,407,099
Note: The net long position in RMB was mainly representing the RMB assets in relation to the RMB capital.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 81 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk (continued) (ii) Interest rate risk Interest rate risk management by the Group The Group’s interest rate exposure arises from the positions in the banking book and proprietary trading. The interest rate risk exposure in the banking book arises from its normal course of banking activities, such as lending, accepting deposits, investing in securities for liquidity purposes and issuance of debts as needed to fund assets. The governing objective in interest rate risk management is to minimise the potential significant loss as a result of changes in interest rates. The Group holds weekly interest rate setting meetings to review the latest market rate movements and the overall portfolio yield. Interest rate risk is managed on a daily basis by the Treasury Division within the limits approved by the Risk Management Committee. The instruments used to manage interest rate risk include interest rate swaps and other derivatives.
The Group is exposed to two major sources of interest rate risk, namely, repricing risk and basis risk.
Repricing risk arises from the timing differences in rate changes and cash flows that occur in the repricing and maturity of fixed and floating rate assets and liabilities, and, to a much less significant extent, contingent liabilities and commitments (e.g. loan commitments). The Group uses forward rate agreements and interest rate swaps to mitigate the repricing risk. The Group generally monitors mismatches by monthly time buckets up to one year and by yearly time buckets thereafter.
Basis risk arises from different pricing basis of assets and liabilities, which results in changes in the yield on assets and cost of liabilities by different amount within the same repricing period. For example, loan assets are being tied to the Hong Kong dollar prime rate, and deposit liabilities tied to the Hong Kong Interbank Offer Rate (“HIBOR”). Basis risk primarily occurs in the Group’s Hong Kong dollar books. The Group has established stress testing programme to assess the potential erosion of net interest income that the Group may incur from basis risk.
The Group mainly uses two methodologies to measure and monitor its interest rate risk exposure. One methodology is VaR measurement. Another methodology is using stress test to assess the banking book interest rate risk (“IRRBB”). In 2015, the IRRBB stress-testing has further incorporated the repricing gap and several types of yield curve movement. The prior year figures have been restated to conform with the current year’s presentation. For interest rate risk monitoring purpose, the Risk Management Committee reviews the IRRBB stress-testing from time to time, in particular when reviewing the repricing limits.
82 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk (continued) (ii) Interest rate risk (continued) Interest rate risk management by the Group (continued) Based on data of the statement of financial position and the IRRBB stress-testing results, change of 100 basis points in interest rates would change the Group’s profit before tax as follows:
Increase/(decrease) in Group’s profit before taxation 2015 2014 (Restated)
Increase by 100 basis points 379,448 361,866 Decrease by 100 basis points (379,448) (361,866)
Interest rate repricing gap The table below summarises the Group’s exposure to interest rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. The carrying amounts of derivative financial instruments, which are principally used to reduce the Group’s exposure to interest rate movements, are under the heading “Non-interest bearing”.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 83 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk (continued) (ii) Interest rate risk (continued) Interest rate repricing gap as at December 31, 2015
3 months 1 year 5 years or less or less or less 1 month but over but over but over After Non-interest or less 1 month 3 months 1 year 5 years bearing Total
Assets Cash and balances with banks and central banks 67,761,554 – – – – 14,258,481 82,020,035 Placements with banks maturing between one and twelve months – 43,035,204 16,001,163 – – – 59,036,367 Advances to banks 292,665 206,019 862,064 – – – 1,360,748 Advances to customers and trade bills 135,921,123 57,417,162 30,226,254 13,365,050 26,781 1,133,943 238,090,313 Financial instruments measured at fair value through profit or loss – 501 3,306 – – – 3,807 Available-for-sale financial assets 6,940,345 16,205,829 20,649,396 39,340,683 2,525,163 33,843 85,695,259 Held-to-maturity securities – 4,974,833 – 498,837 – – 5,473,670 Derivative financial instruments – – – – – 6,289,264 6,289,264 Interest in a joint venture – – – – – 1,937,240 1,937,240 Interest in an associate – – – – – 265,914 265,914 Deferred tax assets – – – – – 112,428 112,428 Fixed assets – – – – – 3,563,991 3,563,991 Other assets 2,737 5 26 – – 23,656,699 23,659,467
Total assets 210,918,424 121,839,553 67,742,209 53,204,570 2,551,944 51,251,803 507,508,503
Liabilities Deposits and balances of banks 70,463,035 2,099,963 6,068,596 – – 2,333,486 80,965,080 Deposits from customers 133,415,902 87,027,829 67,306,061 738,979 – 17,136,613 305,625,384 Certificates of deposit and other debt securities issued 5,084,260 16,772,554 10,924,772 17,838,045 1,882,256 – 52,501,887 Derivative financial instruments – – – – – 6,744,725 6,744,725 Current tax payable – – – – – 146,728 146,728 Deferred tax liabilities – – – – – 18,276 18,276 Other liabilities – – – – – 9,897,287 9,897,287 Subordinated debts – – – – 5,776,365 – 5,776,365
Total liabilities 208,963,197 105,900,346 84,299,429 18,577,024 7,658,621 36,277,115 461,675,732
Net repricing gap 1,955,227 15,939,207 (16,557,220) 34,627,546 (5,106,677)
84 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(c) Market risk (continued) (ii) Interest rate risk (continued) Interest rate repricing gap as at December 31, 2014
3 months 1 year 5 years or less or less or less 1 month but over but over but over After Non-interest or less 1 month 3 months 1 year 5 years bearing Total
Assets Cash and balances with banks and central banks 46,988,116 – – – – 9,759,489 56,747,605 Placements with banks maturing between one and twelve months – 52,168,246 55,134,618 – – – 107,302,864 Advances to banks 6,263,408 8,735,024 4,708,584 – – – 19,707,016 Advances to customers and trade bills 113,382,168 81,008,006 44,622,182 5,227,370 34,643 895,093 245,169,462 Financial instruments measured at fair value through profit or loss – 40,594 10,318 124 – – 51,036 Available-for-sale financial assets 7,439,527 9,124,306 20,936,356 19,763,389 2,354,499 31,287 59,649,364 Derivative financial instruments – – – – – 1,060,654 1,060,654 Interest in a joint venture – – – – – 1,893,902 1,893,902 Interest in an associate – – – – – 237,428 237,428 Deferred tax assets – – – – – 116,732 116,732 Fixed assets – – – – – 3,627,061 3,627,061 Other assets 376 16 76 470 – 4,669,806 4,670,744
Total assets 174,073,595 151,076,192 125,412,134 24,991,353 2,389,142 22,291,452 500,233,868
Liabilities Deposits and balances of banks 41,868,226 43,676,466 13,914,505 – – 2,487,074 101,946,271 Deposits from customers 93,838,572 96,392,534 72,635,132 55,660 – 11,582,370 274,504,268 Certificates of deposit and other debt securities issued 3,883,837 9,463,584 33,077,607 18,602,257 1,991,298 – 67,018,583 Derivative financial instruments – – – – – 1,053,151 1,053,151 Current tax payable – – – – – 168,676 168,676 Deferred tax liabilities – – – – – 20,042 20,042 Other liabilities – – – – – 6,463,486 6,463,486 Subordinated debts – – – – 5,766,117 – 5,766,117
Total liabilities 139,590,635 149,532,584 119,627,244 18,657,917 7,757,415 21,774,799 456,940,594
Net repricing gap 34,482,960 1,543,608 5,784,890 6,333,436 (5,368,273)
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 85 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(d) Capital management Being an authorised institution incorporated in Hong Kong, the Bank is regulated by the HKMA who sets and monitors capital requirements for the Bank as well as the consolidated position for the banking subsidiaries as prescribed by the HKMA. A non-banking financial subsidiary, CCBS, is subject to the supervision and capital requirements of the Hong Kong Securities and Futures Commission.
According to the Banking (Capital) Rules (“Capital Rules”), the Group is required to maintain adequate regulatory capital to support credit risk, market risk and operational risk.
In addition to meeting the regulatory requirements, the Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.
The Group actively and regularly reviews and manages its capital structure to maintain a balance between higher shareholder returns and the advantages and security afforded by a sound capital position, and, when necessary, makes adjustments to the capital structure in light of changes in economic conditions.
The Group monitors its capital structure on the basis of the capital adequacy ratio as calculated in accordance with the Capital Rules and there have been no material changes in the Group’s policy on the management of capital during the year.
The Group has formulated a policy on internal capital adequacy assessment process (“CAAP”) that sets out the methodologies, assumptions and techniques that the Group adopts in allocating the capital requirements on the residual risks that are not covered by the Capital Rules. The Group adopts the scoring approach in deriving the internal minimum capital requirement.
Throughout the years ended December 31, 2015 and 2014, the Group has complied with the capital requirements imposed by the HKMA. Additional information is disclosed in Unaudited Supplementary Financial Information Note 3.
86 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(e) Fair value of financial assets and liabilities (i) Financial assets and liabilities measured at fair value Fair value estimates are generally subjective in nature, and are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. The Group measures fair value using the following hierarchy method:
Level 1: fair values measured using quoted market prices (unadjusted) in active markets for identical financial instruments.
Level 2: fair values measured using valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes quoted prices in active markets for similar financial instruments, or quoted prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3: fair values measured using significant unobservable inputs. This category includes inputs to valuation techniques not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
Where available, the most suitable measure for fair value is the quoted market price. In the absence of organised secondary markets for most of the unlisted securities and over-the-counter derivatives, direct market prices of these financial instruments may not be available. The fair values of such instruments are therefore calculated based on established valuation techniques using current market parameters or market prices provided by counterparties.
Options traded over the counter are valued using broker quotes price. For other derivative financial instruments, the Group uses estimated discounted cash flows to determine their fair value and the discount rate used is a market rate at the end of the reporting period applicable for an instrument with similar terms and conditions. The fair value of interest rate swaps and currency swaps are calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the reporting date.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 87 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(e) Fair value of financial assets and liabilities (continued) (i) Financial assets and liabilities measured at fair value (continued) The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value treatment is categorised:
Level 1 Level 2 Total
As at December 31, 2015 Assets Held for trading: debt securities 3,807 – 3,807 Available-for-sale securities: treasury bills 7,829,047 3,368,011 11,197,058 certificates of deposit 347,894 27,378,381 27,726,275 debt securities 42,770,814 3,967,269 46,738,083 equity securities 16,607 – 16,607 Derivatives financial instruments: exchange rate contracts forwards – 5,893,443 5,893,443 options purchased – 257,833 257,833 interest rate swaps – 31,275 31,275 currency swaps – 91,867 91,867 equity options purchased – 14,586 14,586 equity swaps – 260 260
50,968,169 41,002,925 91,971,094
Liabilities Certificates of deposit and other debt securities issued – 6,315,883 6,315,883 Derivatives financial instruments: exchange rate contracts forwards – 6,162,908 6,162,908 options written – 257,833 257,833 interest rate swaps – 51,717 51,717 currency swaps – 257,421 257,421 equity options issued – 260 260 equity swaps – 14,586 14,586 Subordinated debts – 5,776,365 5,776,365
– 18,836,973 18,836,973
88 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(e) Fair value of financial assets and liabilities (continued) (i) Financial assets and liabilities measured at fair value (continued)
Level 1 Level 2 Total
As at December 31, 2014 Assets Held for trading: debt securities 12,046 – 12,046 Designated at fair value through profit or loss: debt securities 38,990 – 38,990 Available-for-sale securities: treasury bills 2,846,069 8,199,290 11,045,359 certificates of deposit 232,358 18,430,161 18,662,519 debt securities 26,707,510 3,202,689 29,910,199 equity securities 14,048 – 14,048 Derivatives financial instruments: exchange rate contracts forwards – 968,567 968,567 options purchased – 70,909 70,909 interest rate swaps – 10,507 10,507 equity options purchased – 10,155 10,155 equity swaps – 516 516
29,851,021 30,892,794 60,743,815
Liabilities Derivatives financial instruments: exchange rate contracts forwards – 669,425 669,425 options written – 70,909 70,909 interest rate swaps – 13,767 13,767 cross currencies swaps – 288,379 288,379 equity options issued – 10,155 10,155 equity swaps – 516 516
– 1,053,151 1,053,151
There were no significant transfers between instruments in Level 1 and Level 2 for the year ended December 31, 2015 and 2014.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 89 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(e) Fair value of financial assets and liabilities (continued) (ii) Financial assets and liabilities not measured at fair value Financial assets and liabilities that are presented not at their fair value on the statement of financial position mainly represent cash and balances with banks, placements with and advances to banks, and advances to customers and trade bills. These financial assets are measured at amortised cost less impairment. Financial liabilities not presented at their fair value on the statement of financial position mainly represent deposits and balances of banks, deposits from customers, and certificates of deposit and other debt securities issued. These financial liabilities are measured at amortised cost.
The Group assessed that, except for medium term notes in other debt securities and subordinated debts measured at amortised cost and their fair values are stated in Note 32 and 34 respectively, the differences between fair values and carrying amounts of those financial assets and liabilities not presented on the Group’s consolidated statement of financial position at their fair values are minimal as most of the Group’s financial assets and liabilities are either short-term or priced at floating rates.
(f) Offsetting financial assets and financial liabilities (i) Financial assets The following financial assets are subject to offsetting, enforceable master netting arrangements or similar agreements.
As at December 31, 2015
Gross amounts of Net recognised amounts of financial financial liabilities assets Gross set off presented Related amounts not set off amounts of in the in the in the statement of financial position recognised statement statement Cash financial of financial of financial Financial collateral Net assets position position instruments received amount
Derivative financial assets 6,289,264 – 6,289,264 (4,106,646) – 2,182,618 Other assets 74,998 (53,555) 21,443 – – 21,443
6,364,262 (53,555) 6,310,707 (4,106,646) – 2,204,061
90 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(f) Offsetting financial assets and financial liabilities (continued) (i) Financial assets (continued) As at December 31, 2014
Gross amounts of Net recognised amounts of financial financial liabilities assets Gross set off presented Related amounts not set off amounts of in the in the in the statement of financial position recognised statement statement Cash financial of financial of financial Financial collateral Net assets position position instruments received amount
Derivative financial assets 1,060,654 – 1,060,654 (454,514) – 606,140 Other assets 246,741 (171,466) 75,275 – – 75,275
1,307,395 (171,466) 1,135,929 (454,514) – 681,415
(ii) Financial liabilities The following financial liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements.
As at December 31, 2015
Gross amounts of Net recognised amounts financial of financial assets liabilities Gross set off presented Related amounts not set off amounts of in the in the in the statement of financial position recognised statement statement Cash financial of financial of financial Financial collateral Net liabilities position position instruments received amount
Derivative financial liabilities 6,744,725 – 6,744,725 (4,106,646) – 2,638,079 Other liabilities 149,554 (90,276) 59,278 – – 59,278
6,894,279 (90,276) 6,804,003 (4,106,646) – 2,697,357
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 91 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 FINANCIAL RISK MANAGEMENT (continued)
(f) Offsetting financial assets and financial liabilities (continued) (ii) Financial liabilities (continued) As at December 31, 2014
Gross amounts of Net recognised amounts of financial financial assets liabilities set off presented Related amounts not set off Gross in the in the in the statement of financial position amounts of recognised statement statement Cash financial of financial of financial Financial collateral liabilities position position instruments received Net amount
Derivative financial liabilities 1,053,151 – 1,053,151 (454,514) – 598,637 Other liabilities 110,906 (75,617) 35,289 – – 35,289
1,164,057 (75,617) 1,088,440 (454,514) – 633,926
For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each agreement between the Group and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis, in the absence of such an election, financial assets and liabilities will be settled on a gross basis, however, each party to the master netting agreement or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the other party.
92 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
6 NET INTEREST INCOME
2015 2014
Interest income Interest income arising from financial assets that are not measured at fair value through profit or loss Placements and advances to banks 3,676,277 3,243,348 Advances to customers and trade bills 7,369,250 7,603,685 Available-for-sale financial assets 1,812,990 733,502 Held-to-maturity investments 7,201 –
12,865,718 11,580,535
Interest expense Interest expense arising from financial liabilities that are not measured at fair value through profit or loss Deposits and balances of banks 1,643,893 1,583,693 Deposits from customers 4,127,563 3,813,315 Certificates of deposit and other debt securities issued 1,391,679 1,352,710 Subordinated debt – 91,062
7,163,135 6,840,780
Interest expense arising from financial liabilities that are measured at fair value through profit or loss Certificates of deposit and other debt securities issued 101,537 – Subordinated debt 251,582 –
353,119 –
Net Interest Income 5,349,464 4,739,755
There were no interest income accrued on impaired financial assets for the year ended December 31, 2015 and 2014.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 93 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 NET FEES AND COMMISSION INCOME
2015 2014
Fees and commission income Agency fees – securities 293,059 216,300 – insurance services 196,031 152,887 Remittance, settlement and account management fees 83,851 53,915 Management fees received from intermediate holding company (Note 37(a)) 380,491 360,617 Trade finance 102,620 174,741 Credit cards related 143,977 127,571 Loan related 43,800 90,118 Others 5,407 5,482
1,249,236 1,181,631
Fees and commission expense Credit cards related (42,964) (45,995) Brokerage (41,932) (25,814) Others (89,754) (62,088)
(174,650) (133,897)
Net fees and commission income 1,074,586 1,047,734
Of which:
Net fee and commission income, other than amounts included in determining the effective interest rate, arising from financial assets or financial liabilities that are neither held for trading nor designated at fair value through profit or loss.
– fee and commission income 290,397 392,430
– fee and commission expense (42,964) (50,522)
94 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
8 NET TRADING LOSSES
2015 2014
Foreign exchange (170,970) (765,396) Interest rate contracts (11,680) (13,173) Options 43,800 67,332 Interest income from listed securities 639 415 Net (losses)/gains of debt securities (1,068) 722
(139,279) (710,100)
“Foreign exchange” under “Net trading losses” includes gains and losses from spot and forward contracts, options and translated foreign currency assets and liabilities, which are not designated as qualifying hedging relationship.
Net trading losses for 2015 included the foreign exchange losses of RMB assets in relation to RMB capital injection amounted to HK$183 million (2014: HK$580 million).
9 NET (LOSSES)/GAINS FROM FINANCIAL INSTRUMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
2015 2014
Interest income 394 34,776 Net losses (213) (26,452) Fair value change of debt securities (76,723) –
(76,542) 8,324
10 OTHER OPERATING INCOME
2015 2014
Dividend income from available-for-sale equity financial assets unlisted 3,900 3,678 listed 77 70 Others 47,473 37,932
51,450 41,680
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 95 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
11 OPERATING EXPENSES
2015 2014
Staff costs salaries and other benefits 1,362,701 1,249,850 pension and provident fund costs 99,258 95,704
1,461,959 1,345,554 Premises and equipment expenses excluding depreciation rental of premises 374,755 368,294 reversal of impairment on fixed assets (2) (18) maintenance 60,676 107,543 leasing of equipment 29,194 23,665 others 119,747 109,401
584,370 608,885 Auditor’s remuneration 6,864 6,489 Depreciation 242,758 204,603 Marketing expenses 260,582 263,453 Other operating expenses 253,026 240,625
763,230 715,170
2,809,559 2,669,609
12 LOAN IMPAIRMENT CHARGE
2015 2014
Advances to customers Individually assessed impairment allowances charged (Note 19(b)) 79,332 1,635 Collectively assessed impairment allowances charged (Note 19(b)) 321,330 276,957
400,662 278,592 Trade bills Individually assessed impairment allowances charged (Note 19(c)) 42,637 5,794 Collectively assessed impairment allowances charged (Note 19(c)) 8,510 3,060
51,147 8,854
Total 451,809 287,446
96 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
12 LOAN IMPAIRMENT CHARGE (continued)
Include in the above impairment allowances on loans charged/(released):
2015 2014
Advances to customers New and additional charges 451,168 324,380 Releases (3,853) (10,942) Recoveries (46,653) (34,846)
400,662 278,592 Trade bills New and additional charges 90,226 8,865 Releases (39,079) (11)
51,147 8,854
Total 451,809 287,446
13 BENEFITS AND INTERESTS OF DIRECTORS
(i) Directors’ emoluments
2015 2014
Fees 890 890 Salaries 12,225 15,051 Discretionary Bonuses 5,281 3,591 Other emoluments – 4 Contributions to provident fund 1,184 1,089
19,580 20,625
(ii) Directors’ material interests in transactions, arrangements or contracts No significant transactions, arrangements and contracts in relation to the Group’s business to which the Bank, or any of its holding companies, subsidiaries, fellow subsidiaries, joint venture or associate was a party and in which a director of the Bank had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 97 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
14 TAXATION
(a) Taxation in the consolidated statement of comprehensive income represents:
2015 2014 (restated)
Current tax – Hong Kong Profits Tax Provision for the year 417,954 380,207 Over-provision in respect of prior years (99,106) (33,336)
318,848 346,871 Current tax – Overseas Provision for the year 78,728 13,410 Withholding tax in the Mainland 230,007 137,223
308,735 150,633 Deferred tax Origination and reversal of temporary differences 2,538 (10,100)
630,121 487,404
The provision of Hong Kong Profits Tax for 2015 is calculated at 16.5% (2014: 16.5%) of the estimated assessable profits for the year.
(b) Reconciliation between tax expense and accounting profit at applicable tax rates:
2015 2014 (restated)
Profit before taxation 3,130,817 2,197,437 Notional tax on profit before tax, calculated at the rates applicable to profits in the countries concerned 516,585 362,325 Income not subject to taxation (152,942) (17,568) Expenses not deductible for taxation purposes 102,377 38,631 Over-provision in prior years (99,106) (33,336) Foreign withholding tax 230,007 137,223 Tax effect of temporary differences not recognised and reversal of previously recognised deferred tax assets 33,200 129
Actual tax expense 630,121 487,404
Note: The comparative figures have been reclassified to conform with the current year’s presentation.
98 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
15 NET HEDGING RESULTS
2015 2014
Fair value hedge – Loss on Hedging instruments (17,146) (10,082) – Gain on Hedged items 50,950 10,082
Net hedging results 33,804 –
16 OTHER COMPREHENSIVE INCOME
2015 2014
Items that may be subsequently reclassified to profit or loss: Available-for-sale investment revaluation reserve Changes in fair value recognised during the year 9,215 17,599 Reclassification adjustments for amounts transferred to profit or loss 29,586 37,454 Net movement in the available-for-sale investment revaluation reserve during the year in other comprehensive income 38,801 55,053 Hedging Reserve Changes in cash flow hedge – 178 Movement in investment revaluation reserve 38,801 55,231 Exchange Reserve – 121
Other comprehensive income (Note) 38,801 55,352
Note: There was no tax impact resulted from each component of other comprehensive income.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 99 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
17 SEGMENTAL INFORMATION
(a) Reportable segments The Group manages its businesses by divisions, which are organized by products services and customer types. In a manner consistent with the way in which information is reported internally to the executive management for the purposes of resource allocation and performance assessment, the Group has presented the following 4 reportable segments, under which there was a change in the grouping of commercial banking in 2015. Engaged mainly in businesses with small and medium sized enterprises, commercial banking was previously grouped with corporate banking. In 2015, to further align with the internal management structure and reporting information, it was grouped with consumer banking. Comparatives amounts have been restated to ensure consistent basis with the revised segment information.
(i) Corporate and institutional banking This segment mainly represents the provision of a range of financial products and services to corporations and financial institutions. The products and services mainly include commercial loans, syndicated loans, trade financing, foreign exchange and deposit-taking activities.
(ii) Consumer and commercial banking This segment mainly represents the provision of a range of financial products and services to individual customers and small and medium sized enterprises. The products and services mainly comprise residential and commercial mortgages, personal loans, credit cards, auto-financing, commercial loans, trade financing, deposit-taking activities, foreign exchange, wealth management, insurance and securities agency services.
(iii) Treasury This segment covers the Bank’s treasury operations. The Treasury Division enters into inter-bank money market transactions and invests in debt instruments. It also trades in debt instruments, derivatives and foreign currency for its own account. The Treasury carries out customer driven derivatives, such as foreign currency transactions. Its function also includes the management of the Group’s overall liquidity position, including the issuance of certificates of deposit.
(iv) Others This segment mainly represents management of shareholders’ funds and investments in premises and other unallocated units.
Segment assets and liabilities are mainly composed of placement with banks, advances to banks and customers, investment securities, derivatives financial instruments, deposits and certificates of deposit and other debt securities issued.
Revenue and expenses are allocated to the reportable segments with reference to interest and fee and commission income generated by those segments and the expenses incurred by these segments or which otherwise arise from the depreciation or amortisation of assets attributable to these segments.
100 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
17 SEGMENTAL INFORMATION (continued)
(a) Reportable segments (continued)
2015 Corporate Consumer and and Inter- Institutional Commercial segment Banking Banking Treasury Others elimination Total
Net interest income 1,574,715 2,371,156 663,246 740,347 – 5,349,464
Total operating income – External 3,861,932 587,802 1,830,170 39,956 – 6,319,860 – Inter-segment (2,124,494) 2,638,288 (1,453,434) 939,640 – –
Total operating income 1,737,438 3,226,090 376,736 979,596 – 6,319,860
Depreciation and amortization (28,952) (143,056) (7,447) (63,303) – (242,758)
Total operating expenses (347,915) (1,898,888) (116,663) (446,093) – (2,809,559)
Operating profit before impairment losses 1,389,523 1,327,202 260,073 533,503 – 3,510,301 Charge on impairment (158,698) (292,610) – – – (451,308) Non-operating profit – – – 71,824 – 71,824
Profit before taxation 1,230,825 1,034,592 260,073 605,327 – 3,130,817
Total assets 145,758,456 95,216,677 259,692,193 7,514,261 (673,084) 507,508,503 Total liabilities 116,922,269 194,140,352 147,001,953 4,284,242 (673,084) 461,675,732
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 101 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
17 SEGMENTAL INFORMATION (continued)
(a) Reportable segments (continued)
2014 (restated) Corporate Consumer and and Inter- Institutional Commercial segment Banking Banking Treasury Others elimination Total
Net interest income 1,103,197 1,876,067 1,131,505 628,986 – 4,739,755
Total operating income – External 4,517,841 613,932 175,593 (179,973) – 5,127,393 – Inter-segment (3,122,118) 1,976,647 521,046 624,425 – –
Total operating income 1,395,723 2,590,579 696,639 444,452 – 5,127,393
Depreciation and amortization (19,713) (116,837) (6,743) (61,310) – (204,603)
Total operating expenses (317,566) (1,794,919) (103,943) (453,181) – (2,669,609)
Operating profit/(loss) before impairment losses 1,078,157 795,660 592,696 (8,729) – 2,457,784 Charge on impairment (170,535) (117,366) – – – (287,901) Non-operating profit – – – 27,554 – 27,554
Profit before taxation 907,622 678,294 592,696 18,825 – 2,197,437
Total assets 177,420,801 88,963,057 226,550,978 7,465,414 (166,382) 500,233,868 Total liabilities 89,905,545 189,602,276 173,650,035 3,949,120 (166,382) 456,940,594
Note: The comparative figures have been reclassified to conform with the current year’s presentation.
102 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
17 SEGMENTAL INFORMATION (continued)
(b) Geographical information The following table sets out information about the geographical location of the Group’s revenue from external customers, profit before taxation, total assets, total liabilities, specified non-current assets, contingent liabilities and commitments. The geographical location of customers is based on the location at which the services were provided. Specified non-current assets comprise fixed assets, interests in leasehold land, interest in a joint venture and interest in an associate and the geographical location is based on the physical location of the asset for fixed assets, and the location of the operation to which they are allocated for interest in a joint venture and interest in an associate.
Revenue Contingent from Profit Specified liabilities external before Total Total non-current and customers taxation assets liabilities assets commitments
As at December 31, 2015 Hong Kong (place of domicile) 6,319,860 3,130,817 507,508,503 461,675,732 5,767,145 64,244,935
Revenue Contingent from Profit Specified liabilities external before Total Total non-current and customers taxation assets liabilities assets commitments
As at December 31, 2014 Hong Kong (place of domicile) 5,078,172 2,192,415 500,233,868 456,940,594 5,758,391 54,502,440 Macau 49,221 5,022 – – – –
5,127,393 2,197,437 500,233,868 456,940,594 5,758,391 54,502,440
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 103 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
18 CASH AND BALANCES WITH BANKS AND CENTRAL BANKS
2015 2014
Cash in hand 233,266 238,071 Balances with banks 1,927,199 3,086,568 Balances with central banks 12,127,672 6,475,905 Placement with banks maturing within one month 67,731,898 46,947,061
82,020,035 56,747,605
19 ADVANCES TO CUSTOMERS AND TRADE BILLS
(a) Advances to customers and trade bills less impairment
2015 2014
Advances to customers less impairment Gross advances to customers 204,507,034 178,537,255 Dealers’ commission and deferred fee income (63,896) (29,209) 204,443,138 178,508,046 Less: Impairment allowances collectively assessed (910,638) (684,849) individually assessed (114,226) (55,144)
Net advances to customers 203,418,274 177,768,053 Trade bills less impairment Trade bills 34,732,326 67,410,549 Less: Impairment allowances collectively assessed (11,856) (3,346) individually assessed (48,431) (5,794)
Net trade bills 34,672,039 67,401,409
Net advances to customers and trade bills 238,090,313 245,169,462
104 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
19 ADVANCES TO CUSTOMERS AND TRADE BILLS (continued)
(b) Movement in impairment allowances on advances to customers
2015 Collectively Individually assessed assessed allowances allowances Total
As at January 1,2015 684,849 55,144 739,993 Loans written off as uncollectible (137,535) (24,909) (162,444) Recoveries of advances written off 41,994 4,659 46,653 Impairment losses charged to the statement of comprehensive income (Note 12) 321,330 79,332 400,662
As at December 31, 2015 910,638 114,226 1,024,864
2014 Collectively Individually assessed assessed allowances allowances Total
As at January 1, 2014 506,011 58,518 564,529 Loans written off as uncollectible (125,597) (8,064) (133,661) Recoveries of advances written off 31,791 3,055 34,846 Impairment losses charged to the statement of comprehensive income (Note 12) 276,957 1,635 278,592 Disposal of China Construction Bank (Macau) Corporation Limited (“CCBM”) (4,313) – (4,313)
As at December 31, 2014 684,849 55,144 739,993
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 105 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
19 ADVANCES TO CUSTOMERS AND TRADE BILLS (continued)
(c) Movement in impairment allowances on trade bills
2015 Collectively Individually assessed assessed allowances allowances Total
As at January 1, 2015 3,346 5,794 9,140 Impairment losses charged to the statement of comprehensive income (Note 12) 8,510 42,637 51,147
As at December 31, 2015 11,856 48,431 60,287
2014 Collectively Individually assessed assessed allowances allowances Total
As at January 1, 2014 286 – 286 Impairment losses charged to the statement of comprehensive income (Note 12) 3,060 5,794 8,854
As at December 31, 2014 3,346 5,794 9,140
106 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
19 ADVANCES TO CUSTOMERS AND TRADE BILLS (continued)
(d) Impaired advances and trade bills and impairment allowance (i) Impaired advances and allowances are analysed as follows:
2015 2014 % of gross % of gross advances advances
Gross impaired advances 223,704 0.11 144,953 0.08 Individual impairment allowances (114,226) (55,144)
109,478 89,809 Gross individually assessed impaired advances 138,075 0.07 55,215 0.03 Individual impairment allowances (114,226) (55,144)
23,849 71 Net realisable value of collateral held against the impaired advances 42,701 19,997
Impaired advances are advances with objective evidence of impairment.
The above individual impairment allowances were made after taking into account the realisable value of collateral in respect of such advances.
As at December 31, 2015, the Group’s gross impaired advances to customers included $85,629 (2014: $89,738) advances mainly comprised credit card advances and unsecured personal loans for which impairment allowances were collectively assessed.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 107 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
19 ADVANCES TO CUSTOMERS AND TRADE BILLS (continued)
(d) Impaired advances and trade bills and impairment allowance (continued) (ii) Impaired trade bills and allowances are analysed as follows:
2015 2014 % of gross % of gross trade bills trade bills
Gross impaired trade bills 139,549 0.40 136,048 0.20 Individual impairment allowances (48,431) (5,794)
91,118 130,254 Gross individually assessed impaired trade bills 139,549 0.40 136,048 0.20 Individual impairment allowances (48,431) (5,794)
91,118 130,254 Net realisable value of collateral held against the impaired trade bills – –
Impaired trade bills are advances with objective evidence of impairment.
(e) Net investment in finance leases and hire purchase contracts Loans and advances to customers include net investments in equipment leased to customers under finance leases and hire purchase contracts having the characteristics of finance leases. The contracts usually run for an initial period of 5 to 20 years. The total minimum lease payments receivable and their present value at the year-end are as follows:
2015 2014
Total minimum lease payments 7,337,969 7,479,099 Unearned future finance income on finance leases (342,881) (991,997)
Present value of the minimum lease payments 6,995,088 6,487,102 Impairment allowances individually assessed (4,532) (2,132) collectively assessed (37,116) (32,652)
Impairment allowances (41,648) (34,784)
Net investment 6,953,440 6,452,318
108 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
19 ADVANCES TO CUSTOMERS AND TRADE BILLS (continued)
(e) Net investment in finance leases and hire purchase contracts (continued) The residual maturity analysis of the minimum lease payments and present value of the minimum lease payments are analysed as follows:
2015 2014
Total minimum lease payments Not later than one year 1,737,926 1,723,631 Later than one year and not later than five years 3,133,528 3,174,100 Later than five years 2,466,515 2,581,368
7,337,969 7,479,099
2015 2014
Present value of the minimum lease payments Not later than one year 1,648,495 1,595,728 Later than one year and not later than five years 2,947,922 2,842,137 Later than five years 2,398,671 2,049,237
6,995,088 6,487,102
20 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
2015 2014
Held for trading 3,807 12,046 Designated at fair value through profit or loss – 38,990
3,807 51,036
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 109 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
20 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Financial instruments measured at fair value through profit or loss analysed by type of issuer and place of listing are as follows:
Designated at fair value Held for Trading through profit or loss 2015 2014 2015 2014
Other debt securities issued by government 3,807 12,046 – – corporate – – – 38,990
3,807 12,046 – 38,990 Analysed by place of listing listed in Hong Kong 3,807 12,046 – 38,990
21 AVAILABLE-FOR-SALE FINANCIAL ASSETS
2015 2014
Treasury bills issued by central governments 11,197,058 11,045,359 Certificates of deposit issued by banks 27,726,275 18,662,519 Other debt securities issued by Banks 31,392,273 26,639,089 Corporate 15,345,810 3,271,110
85,661,416 59,618,077 Equity shares issued by corporate listed outside Hong Kong 16,607 14,048 unlisted 17,236 17,239
33,843 31,287
85,695,259 59,649,364 Analysed by place of listing listed in Hong Kong 19,572,807 4,638,333 listed outside Hong Kong 31,391,556 25,161,651 unlisted 34,730,896 29,849,380
85,695,259 59,649,364
The unlisted equity shares of $17,236 (2014: $17,239) is marked at cost. The fair value information has not been disclosed as there is no active trading market for the private equities and no observable inputs in order to reliably estimate the fair value of the unlisted equity. The equity is an investment made by the Group for being members of the electronic payment system in Hong Kong. Management has no intention to dispose of this investment as at December 31, 2015.
110 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
22 HELD-TO-MATURITY INVESTMENTS
2015 2014
Debt securities issued by Banks 4,974,833 – Corporate 498,837 – 5,473,670 – Analysed by place of listing Unlisted 5,473,670 – Market value of unlisted securities 5,472,374 –
The fair value of held-to-maturity financial assets is based on quoted market bid prices.
23 DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include forward, swap and option transactions undertaken by the Group in the foreign exchange and interest rate markets. The Group uses derivatives for proprietary trading and sale to customers as risk management products. These positions are actively managed through entering into offsetting deals with external parties to ensure the Group’s net exposures are within acceptable risk levels. No significant proprietary positions are maintained by the Group as at the reporting date. The Group also uses these derivatives in the management of its own asset and liability portfolios and structural positions.
(a) Notional amounts of derivatives
2015 2014 Managed in Managed in conjunction conjunction with financial with financial instruments instruments designated designated at fair value at fair value through Held for Used for through Held for Used for profit or loss trading hedging Total profit or loss trading hedging Total
Exchange rate contracts forwards 121,602,321 474,304,045 – 595,906,366 87,122,820 128,316,717 25,245 215,464,782 options purchased – 12,553,282 – 12,553,282 – 13,335,977 – 13,335,977 options written – 12,553,282 – 12,553,282 – 13,335,977 – 13,335,977 Interest rate swaps 2,842,915 – 23,643,510 26,486,425 4,481,952 – 568,046 5,049,998 Currency swaps 5,311,095 – – 5,311,095 2,351,724 – – 2,351,724 Equity options purchased/issued – 141,426 – 141,426 – 156,692 – 156,692 Equity swaps – 141,426 – 141,426 – 156,692 – 156,692
129,756,331 499,693,461 23,643,510 653,093,302 93,956,496 155,302,055 593,291 249,851,842
The principal derivatives instruments used by the Group are interest and foreign exchange rate related contracts, which are primarily over-the-counter derivatives. The Group also participates in exchange traded derivatives.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 111 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
23 DERIVATIVE FINANCIAL INSTRUMENTS (continued)
(b) Notional amounts of derivatives by remaining maturity analysis The following table provides an analysis of the notional amounts of derivatives of the Group by relevant maturity grouping based on the remaining periods to settlement at the reporting date.
2015 2014 1 year Over 1 year 1 year Over 1 year or less to 5 years Total or less to 5 years Total
Exchange rate contracts forwards 594,712,974 1,193,392 595,906,366 215,386,307 78,475 215,464,782 options purchased 11,188,145 1,365,137 12,553,282 10,651,956 2,684,021 13,335,977 options written 11,188,145 1,365,137 12,553,282 10,651,956 2,684,021 13,335,977 Interest rate swaps 2,415,118 24,071,307 26,486,425 2,552,008 2,497,990 5,049,998 Currency swaps – 5,311,095 5,311,095 – 2,351,724 2,351,724 Equity options purchased/issued 141,426 – 141,426 156,692 – 156,692 Equity swaps 141,426 – 141,426 156,692 – 156,692
619,787,234 33,306,068 653,093,302 239,555,611 10,296,231 249,851,842
(c) Fair values and credit risk weighted amounts of derivatives
2015 2014 Credit risk Credit risk Fair value Fair value weighted Fair value Fair value weighted assets liabilities amount assets liabilities amount
Exchange rate contracts forwards 5,893,443 6,162,908 4,763,353 968,567 669,425 1,100,754 options purchased 257,833 – – 70,909 – – options written – 257,833 136,557 – 70,909 157,832 Interest rate swaps 31,275 51,717 62,254 10,507 13,767 13,210 Currency swaps 91,867 257,421 127,402 – 288,379 58,793 Equity options purchased/issued 14,586 14,586 – 10,155 10,155 – Equity swaps 260 260 4,274 516 516 4,701
6,289,264 6,744,725 5,093,840 1,060,654 1,053,151 1,335,290
As at December 31, 2015 and 2014, the credit risk weighted amount was calculated in accordance with the Capital Rules and depends on the status of the counterparty and the maturity characteristics. The risk weights used range from 20% to 100% (2014: 20% to 100%) for all derivatives.
Derivative financial instruments are presented in net when there is legally enforceable right to set off the recognised amounts, and there is an intention to settle them on a net basis or realise the asset and settle the liability simultaneously. As at December 31, 2015, no derivative financial instruments have fulfilled the above criteria, and therefore no derivative financial instruments were offset on the statement of financial position (2014: Nil).
112 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
24 SUBSIDIARIES
Particulars of the subsidiaries as at December 31, 2015 are as follows:
Place of incorporation and place of Particulars of issued Name of company business shares held Percentage held Principal activities Directly Indirectly
CCBN Hong Kong HK$6,000,000 of 600,000 100% – Custodian and ordinary shares nominee services
CCBS Hong Kong HK$500,000,000 of 100% – Securities 500,000,000 ordinary brokerage business shares
CCBT Hong Kong HK$10,000,000 of 100,000 100% – Trustee and ordinary shares custodian business
CCB Hong Kong Property Hong Kong HK$10,000 of 10,000 100% – Management services Management Company ordinary shares and investment Limited holding
CCB Properties Hong Kong HK$1 of 1 ordinary share – 100% Investment holding (Hong Kong) Holdings Limited (“CCBPHK”)
Better Chief Limited (“BCL”) Hong Kong HK$100 of 100 – 100% Property investment ordinary shares
Hong Kong (SAR) Hotel Hong Kong HK$10,000 of 10,000 – 100% Hotel operation and Limited (“HKSAR Hotel”) ordinary shares management
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held directly by the Bank do not differ from the proportion of ordinary shares held. There is no non- controlling interest for both years for all of the subsidiaries.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 113 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
25 INTEREST IN A JOINT VENTURE
2015 2014
As at January 1 1,893,902 1,850,734 Share of profits 43,338 43,168
As at December 31 1,937,240 1,893,902
The joint venture listed below has share capital consisting solely of ordinary shares, which is held indirectly by the Group.
Particulars of the joint venture as at December 31, 2015 are as follows:
Place of Percentage of business/Place ownership held Nature of the Measurement Name of company of incorporation by the Group relationship method
Diamond String Limited Hong Kong 50% Note Equity
Note: Diamond String Limited’s principal activity is property investment and it is strategic to the Group’s activities, viz., holding property for the Bank’s operation. Diamond String Limited is a private company and there is no quoted market price available for its shares.
Contingent liabilities, guarantees and commitments in respect of joint venture There are no contingent liabilities, guarantees and commitments relating to the Group’s interest in Diamond String Limited as at December 31, 2015 and 2014.
Diamond String Limited has commitments contracted as at December 31, but not provided for, which are as follows:
2015 2014
Contracted sum 35,811 49,162 Deposit paid (12,958) (13,887)
Commitments outstanding 22,853 35,275
There was no dividend paid by Diamond String Limited to the Group during the year ended December 31, 2015 and 2014.
114 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
25 INTEREST IN A JOINT VENTURE (continued)
Summarised financial information for a joint venture Set out below is the summarised financial information for Diamond String Limited which is accounted for using the equity method.
As at December 31 2015 2014 (restated)
Current Cash and cash equivalents – 6,607 Other current assets 32,229 32,290
Total current assets 32,229 38,897 Financial liabilities (222,019) (232,917) Other current liabilities (24,911) (4,375)
Total current liabilities (246,930) (237,292) Non-current Financial assets 212,370 195,287 Other assets 1,817,899 1,848,117
Total non-current assets 2,030,269 2,043,404 Financial liabilities (1,603,790) (1,721,552) Other liabilities (25,133) (23,488)
Total non-current liabilities (1,628,923) (1,745,040)
Net assets 186,645 99,969
Note: The comparative figures have been reclassified to conform with the current year’s presentation.
Summarised statement of comprehensive income
For the year ended December 31 2015 2014
Revenue 222,691 227,297
Depreciation and amortisation (55,501) (55,002) Interest income 292 867 Interest expense (22,986) (29,799) Profit before taxation 108,811 114,200 Income tax expense (22,135) (27,864)
Profit for the year & total comprehensive income 86,676 86,336
Dividends received from joint venture – –
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 115 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
25 INTEREST IN A JOINT VENTURE (continued)
Summarised financial information for a joint venture (continued) Reconciliation of summarised financial information Reconciliation of the summarised financial information presented to the carrying amount of its interest in the joint venture.
Summarised financial information
2015 2014
Net assets as at January 1 99,969 13,633 Profit for the year 86,676 86,336
Net assets as at December 31 186,645 99,969 Interest in a joint venture @ 50% 93,322 49,984 Fair value adjustment of investment in property held by the joint venture at the acquisition date 1,843,918 1,843,918
Carrying value of interest in a joint venture as at December 31 1,937,240 1,893,902
26 INTEREST IN AN ASSOCIATE
2015 2014
Share of net assets 265,914 237,428
Particulars of the associate as at December 31, 2015 are as follows:
Place of Percentage of business/Place Particulars of issued ownership held Principal Nature of Measurement Name of company of incorporation and paid up capital by the Group activities relationship method
QBE Hongkong & Shanghai Hong Kong HK$78,192,220 of 25.50% Insurance Note Equity Insurance Limited (“QBE”) 78,192,220 ordinary shares
Note: QBE is the authorised insurance agents and brokers and it is a strategic partnership for the Group, providing insurance products to the Bank’s customers. QBE is a private company and there is no quoted market price available for its shares.
There are no contingent liabilities, guarantees and commitments relating to the Group’s interest in the associate as at December 31, 2015 and 2014.
116 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
26 INTEREST IN AN ASSOCIATE (continued)
The movement of the interest in the associate is as follows:
2015 2014
As at January 1 237,428 199,381 Share of profits 28,486 38,047
As at December 31 265,914 237,428
There was no dividend paid by QBE to the Group during the year ended December 31, 2015 and 2014.
Summarised financial information for an associate The Group has incorporated QBE’s results from December 1, 2014 to November 30, 2015 (2014: December 1, 2013 to November 30, 2014) since the financial statements of QBE as at December 31, 2015 is not yet ready and the impact of its one month result is not significant.
Set out below is the summarised financial information for QBE which is accounted for using the equity method.
As at November 30 2015 2014
Current Current assets 2,814,999 2,450,670 Current liabilities (1,612,576) (1,472,342) Non-current Non-current assets 617,835 579,260 Non-current liabilities (777,457) (626,498)
Net assets 1,042,801 931,090
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 117 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
26 INTEREST IN AN ASSOCIATE (continued)
Summarised financial information for an associate (continued) Summarised statement of comprehensive income
For the 12 months ended November 30 2015 2014
Revenue 1,692,326 1,680,834
Depreciation and amortisation 13,866 3,782 Interest income 25,202 24,173 Interest expense (13) – Profit before taxation 130,786 177,268 Income tax expense (19,075) (28,066)
Profit for the year & total comprehensive income 111,711 149,202
Dividends received from associate – –
Reconciliation of summarised financial information Reconciliation of the summarised financial information presented to the carrying amount of its interest in an associate.
Summarised financial information 2015 2014
Opening, net asset as at December 1 931,090 781,888 Profit for the year 111,711 149,202
Closing, net assets as at November 30 1,042,801 931,090
Interest in an associate @ 25.5% 265,914 237,428
118 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
27 INCOME TAX IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(a) Current tax payable in the consolidated statement of financial position represents:
2015 2014 (restated)
Provision for Hong Kong Profits Tax for the year 417,954 380,207 Provisional Profits Tax paid (287,622) (216,120) Balance of Profits Tax provision relating to prior years (63) (420) 130,269 163,667 Provision for tax in the Mainland 16,459 5,009
Current tax payable 146,728 168,676
(b) Deferred tax assets and deferred tax liabilities
2015 2014
Deferred tax assets recognised on the consolidated statement of financial position 112,428 116,732
2015 2014
Deferred tax liabilities recognised on the consolidated statement of financial position 18,276 20,042
As at December 31, 2015 and 2014, majority of the deferred tax assets and deferred tax liabilities recognised will be recovered after twelve months.
Note: The comparative figures have been reclassified to conform with the current year’s presentation.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 119 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
27 INCOME TAX IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
(b) Deferred tax assets and deferred tax liabilities (continued) The components of deferred tax assets recognised in the consolidated statement of financial position and the movements during the year are as follows:
Accelerated Provision Impairment tax for staff allowances depreciation bonus Others Total
As at January 1, 2014 72,052 (6,493) 33,588 5,427 104,574 Credited/(charged) to the statement of comprehensive income 30,125 (13,155) – (4,812) 12,158
As at December 31, 2014 & January 1, 2015 102,177 (19,648) 33,588 615 116,732 Credited/ (charged) to the statement of comprehensive income 38,565 (8,976) (33,115) (778) (4,304)
As at December 31, 2015 140,742 (28,624) 473 (163) 112,428
The components of deferred tax liabilities recognised in the consolidated statement of financial position and the movements during the year are as follows:
Accelerated tax depreciation Tax losses Others Total
As at January 1, 2014 (3,882) 16,392 (30,494) (17,984) Credited /(Charged) to the statement of comprehensive income 331 (1,267) (1,122) (2,058)
As at December 31, 2014 & January 1, 2015 (3,551) 15,125 (31,616) (20,042) Credited/(charged) to the statement of comprehensive income 274 3,273 (1,781) 1,766
As at December 31, 2015 (3,277) 18,398 (33,397) (18,276)
120 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
28 FIXED ASSETS
Leasehold Leasehold Furniture and land(*) Buildings improvements equipment Total
Cost: As at January 1, 2015 87,110 3,356,357 457,755 528,925 4,430,147 Additions – 260 25,444 154,369 180,073 Written off – – (4,281) (22,000) (26,281)
As at December 31, 2015 87,110 3,356,617 478,918 661,294 4,583,939
Accumulated depreciation: As at January 1, 2015 25,890 259,653 177,694 338,927 802,164 Charge for the year 1,463 91,006 54,273 96,016 242,758 Written off – – (4,048) (21,846) (25,894)
As at December 31, 2015 27,353 350,659 227,919 413,097 1,019,028
Allowances for impairment losses: As at January 1, 2015 – – 74 848 922 Reversal of impairment losses – – – (2) (2)
As at December 31, 2015 – – 74 846 920
Net book value: As at December 31, 2015 59,757 3,005,958 250,925 247,351 3,563,991
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 121 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
28 FIXED ASSETS (continued)
Leasehold Leasehold Furniture and land(*) Buildings improvements equipment Total
Cost: As at January 1, 2014 87,110 3,356,330 328,479 391,127 4,163,046 Additions – 27 130,691 156,313 287,031 Written off – – (1,415) (18,515) (19,930)
As at December 31, 2014 87,110 3,356,357 457,755 528,925 4,430,147
Accumulated depreciation: As at January 1, 2014 24,427 169,775 130,988 292,235 617,425 Charge for the year 1,463 89,878 48,121 65,141 204,603 Written off – – (1,415) (18,449) (19,864)
As at December 31, 2014 25,890 259,653 177,694 338,927 802,164
Allowances for impairment losses: As at January 1, 2014 – – 74 866 940 Reversal of impairment losses – – – (18) (18)
As at December 31, 2014 – – 74 848 922
Net book value: As at December 31, 2014 61,220 3,096,704 279,987 189,150 3,627,061
(*) All leasehold land are held under finance leases.
29 OTHER ASSETS
2015 2014
Accrued interest receivable 1,882,106 2,135,180 Settlement accounts 224,898 553,184 Customer liability under acceptances 404,306 213,145 Money market trade date receivable 20,150,390 1,163,280 Accounts receivable 776,036 393,402 Repossessed assets 3,160 807 Refundable deposits 91,197 86,447 Others 127,374 125,299
23,659,467 4,670,744
The fair value of other assets approximately equals to their carrying amount.
122 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
30 DEPOSITS AND BALANCES OF BANKS
2015 2014
Deposits and balances of banks 80,965,080 101,946,271
31 DEPOSITS FROM CUSTOMERS
2015 2014
Demand deposits and current accounts 19,759,007 11,635,702 Savings deposits 44,150,101 26,832,157 Time and call deposits 241,175,364 235,690,132 Structured notes 140,247 156,692 Other deposits 400,665 189,585
305,625,384 274,504,268
32 CERTIFICATES OF DEPOSIT AND OTHER DEBT SECURITIES ISSUED
2015 2014
Issued at amortised cost: Certificates of deposit 21,891,314 46,942,296 Other debt securities 24,294,690 20,076,287
46,186,004 67,018,583
Issued at designated at fair value through profit and loss: Certificates of deposit 1,564,975 – Other debt securities 4,750,908 –
6,315,883 –
52,501,887 67,018,583
As at December 31, 2015, the fair values of other debt securities issued at amortised cost were 24,342,973 (2014: 22,511,384). The fair values were measured using level 2 hierarchy method as disclosed in Note 5(e)(i).
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 123 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
33 OTHER LIABILITIES
2015 2014
Accrued interest payable 1,884,301 2,129,621 Settlement accounts 225,548 569,246 Accounts payable 484,218 403,881 Acceptances outstanding 404,306 213,145 Accrued salaries and welfare 244,842 231,136 Amount due to an intermediate holding companies 2,874,365 2,635,066 Money market trade date payable 3,515,661 – Others 264,046 281,391
9,897,287 6,463,486
The fair value of other liabilities approximately equals to their carrying amount.
34 SUBORDINATED DEBT
2015 2014
Subordinated debt – At fair value under fair value hedge 5,776,365 – – At amortised cost – 5,766,117
On August 20, 2014, the Bank issued subordinated note with aggregate nominal amount of USD750 million, bearing a fixed interest rate of 4.25% per annum to institutional investors. The note was issued at discount with maturity due on August 20, 2024. The note was listed on the Stock Exchange of Hong Kong Limited.
Subordinated debt was raised by the Bank for the development and expansion of business. The subordinated debt will be written off at the point of non-viability as determined by the HKMA. These notes have been qualified and included as the Bank’s Tier 2 Capital in accordance with the Capital Rules.
The Bank has not had any default of principal or interest or other breaches with respect to the subordinated debt during the year.
Subsequent to initial recognition, subordinated debt are measured at their amortised cost using the effective interest method, except where the Bank designates the subordinated debt at fair value starting July 2015 under fair value hedge. The fair value hedge principally consists of interest rate swaps that are used to protect against changes in the fair value of the subordinated debt due to movements in market interest rates.
As at December 31, 2014, the fair value of subordinated debt issued at amortised cost was 5,871,656. The fair values were measured using level 2 hierarchy method as disclosed in Note 5(e)(i).
124 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
35 SHARE CAPITAL AND RESERVES
(a) Share capital
2015 2014
Issued and fully paid 162,776,068 (2014: 162,776,068) HKD ordinary shares 6,511,043 6,511,043 440,000,000 (2014: 440,000,000) RMB ordinary shares 22,316,800 22,316,800
28,827,843 28,827,843
(b) Reserves (i) General reserve General reserve is appropriated from the retained profits for future use.
(ii) Investment revaluation reserve and hedging reserve The investment revaluation reserve comprises the cumulative net change in the fair value of available- for-sale financial assets until the financial assets are derecognised and is dealt with in accordance with the accounting policies adopted for the measurement of the available-for-sale financial assets at fair value.
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash flow in accordance with the accounting policy adopted for cash flow hedges in Note 2(i)(ii).
(iii) Regulatory reserve Regulatory reserve comprises reserves maintained in accordance with Hong Kong regulations. At Group level, it includes a regulatory reserve of $2,307,924 (December 31, 2014: $2,360,788) to satisfy the provisions of the Hong Kong Banking Ordinance for prudential supervision purposes. Movement in this reserve is made directly through retained profits and in consultation with HKMA.
(iv) Other reserve Other reserve is used to record the corresponding amount of the share options and bonus rewards granted by the former parent company to the Bank’s employees. The options and rewards granted are classified as equity-settled share-based payments and the amount recognised in other reserve represents capital contribution from its former parent company and is not distributable.
(v) Merger reserve Merger reserve arises as a result of the acquisition of a majority of the corporate banking business (“Acquired Business”) of CCB Hong Kong Branch (“HKBR”). This amount represented the difference between the net book value of the Acquired Business and the consideration paid.
(vi) Retained profits The Bank and its financial subsidiaries are required to maintain minimum capital adequacy ratios under their respective regulatory jurisdictions. The minimum capital requirements could therefore potentially restrict the amount of retained profits available for distribution to the shareholders.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 125 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
36 STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE BANK
Statement of Financial Position of the Bank
Note 2015 2014
ASSETS Cash and balances with banks and central banks 81,990,234 56,706,404 Placements with banks maturing between one and twelve months 59,036,367 106,799,341 Advances to banks 1,360,748 19,707,016 Advances to customers and trade bills 238,208,283 245,287,528 Financial instruments measured at fair value through profit or loss 3,807 51,036 Available-for-sale financial assets 85,695,259 59,649,364 Derivative financial instruments 6,289,264 1,060,654 Held-to-maturity investments 5,473,670 – Investments in subsidiaries 516,010 516,010 Interest in an associate 10,411 10,411 Deferred tax assets 112,428 116,732 Fixed assets 2,784,400 2,823,166 Other assets 23,635,146 4,622,201
Total assets 505,116,027 497,349,863
LIABILITIES Deposits and balances of banks 80,965,080 101,946,271 Deposits from customers 306,300,351 274,672,770 Certificates of deposit and other debt securities issued 52,501,887 67,018,583 Derivative financial instruments 6,744,725 1,053,151 Current tax payable 146,792 168,740 Other liabilities 7,151,578 3,677,090 Subordinated debts 5,776,365 5,766,117
Total liabilities 459,586,778 454,302,722
EQUITY Share capital 28,827,843 28,827,843 Reserves 36(a) 16,701,406 14,219,298
Total equity 45,529,249 43,047,141
Total equity and liabilities 505,116,027 497,349,863
Approved and authorised for issue by the Board of Directors on April 1, 2016.
WANG Hongzhang MAO Yumin Chairman Executive Director and Chief Executive Officer
126 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
36 STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE BANK (continued)
(a) Reserve movement of the Bank Details of the changes in the Bank’s reserve between the beginning and the end of the year are set out below:
Investment revaluation reserve and General hedging Regulatory Other Merger Retained reserve reserve reserve reserve reserve profits Total
Balance as at January 1, 2015 750,956 37,638 2,307,924 15,913 62,262 11,044,605 14,219,298
Profit for the year – – – – – 2,443,307 2,443,307 Other comprehensive income: change in fair value of available-for-sale financial assets – 38,801 – – – – 38,801
Total comprehensive income – 38,801 – – – 2,443,307 2,482,108
Balance as at December 31, 2015 750,956 76,439 2,307,924 15,913 62,262 13,487,912 16,701,406
Investment revaluation reserve and General hedging Regulatory Other Merger Retained reserve reserve reserve reserve reserve profits Total
Balance as at January 1, 2014 750,956 (18,015) 2,307,924 15,913 62,262 8,852,288 11,971,328
Profit for the year – – – – – 2,192,317 2,192,317 Other comprehensive income: change in fair value of available-for-sale financial assets – 55,653 – – – – 55,653
Total comprehensive income – 55,653 – – – 2,192,317 2,247,970
Balance as at December 31, 2014 750,956 37,638 2,307,924 15,913 62,262 11,044,605 14,219,298
37 MATERIAL RELATED PARTY TRANSACTIONS
During the year, the Group entered into transactions with related parties in the normal course of its banking business including lending, acceptance and placement of inter-bank deposits, correspondent banking transactions, securities brokerage and derivative transactions. The transactions were priced at the relevant market rates at the time of each transaction.
Advances to banks comprise advances to the intermediate holding company under normal course of business and bear interest ranging from 0.067% p.a. to 4.25% p.a. (2014: 0.037% p.a. to 4.5% p.a.) with a contractual term of 3 months to 1 year in 2015 (2014: 1 month to 1 year).
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 127 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
37 MATERIAL RELATED PARTY TRANSACTIONS (continued)
Save as disclosed in the above notes, transactions with related parties which the Group entered into during the years are summarised as follows:
(a) The amount of material related party transactions during the year and outstanding balances at the reporting date are set out below:
Intermediate holding company Fellow subsidiaries Associate 2015 2014 2015 2014 2015 2014
Interest income 1,185,327 2,242,788 31,483 5,197 – – Interest expense 1,567,567 1,363,294 13,559 29,328 5,432 4,322 Net fees and commission income – Management fees (Note 7) 380,491 360,617 – – – – – Others 1,100 389 – 2,000 – – Net trading losses – (1,626) – – – – Operating income 3,432 3,302 2,805 3,974 – – Operating expenses 63,913 9,189 4,237 4,530 – –
Amounts due from: Cash and balances with banks 26,206,125 21,185,417 155,473 – – – Placements with banks maturing between one and twelve months 29,606,588 4,886,802 – – – – Advances to banks 1,195,332 18,994,538 – – – – Advances to customers and trade bills 14,452,062 22,629,271 2,309,315 1,474,717 – – Available-for-sale financial assets 2,280,559 907,534 – – – – Derivative financial instruments 2,758,767 105,220 – – – – Other assets 21,008,252 1,931,382 29,860 62,219 – –
Amounts due to: Deposits and balances of banks 74,465,453 89,603,634 10,016 268,093 – – Deposits from customers 2,847 2,847 3,385,639 3,149,160 793,796 638,977 Certificates of deposit and other debt securities issued – – – – – – Derivative financial instruments 1,484,774 51,115 – – – – Other liabilities 6,451,253 2,963,333 58,457 33,975 2,990 2,117
Contingencies and commitments: Direct credit substitutes – – – – – – Other commitments – – 1,162,523 600,000 – –
Derivative financial instruments: (notional amount) Exchange rate contracts 237,041,027 26,022,356 – – – – Interest rate swaps – 38,776 – – – –
128 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
37 MATERIAL RELATED PARTY TRANSACTIONS (continued)
(a) The amount of material related party transactions during the year and outstanding balances at the reporting date are set out below: (continued) The Group may enter into transactions with entities directly or indirectly owned by the Mainland government through its government authorities, agencies, affiliations and other organisations (“state-owned entities”) in the normal course of business. These transactions are entered into on terms similar to those that would have been entered into with non-state-owned entities. These transactions include but are not limited to:
– lending and deposit taking;
– inter-bank balances taking and placing;
– insurance and securities agency;
– custody services;
– sale, purchase, underwriting and redemption of bonds;
– purchase, sale and leases of property and other assets; and
– rendering and receiving of utilities and other services.
The Group’s pricing and approval processes for major products and services do not depend on whether the customers or counterparties are state-owned entities. Having due regard to the substance of the relationships, the Group is of the opinion that none of these transactions are material related party transactions that require separate disclosure.
During the year ended December 31, 2014, the following transactions were entered into:
(i) The Bank disposed of CCBM to CCB as Macau Branch. For details, please refer to Note 42.
(ii) The Bank acquired net advances to customers and trade bills amounted to approximately HKD20.1 billion from HKBR at fair value.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 129 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
37 MATERIAL RELATED PARTY TRANSACTIONS (continued) (b) Directors and key management personnel During the year, the Group provided credit facilities to and accepted deposits from the directors and key management personnel of the Group and its holding companies and their close family members and companies controlled or significantly influenced by them. The credit facilities and deposits were provided and taken in the ordinary course of business and on substantially the same terms as for comparable transactions with persons of a similar standing, or where applicable, with other employees. These transactions did not involve more than the normal risk of collectability or present other unfavourable features.
2015 2014
Loans 14,172 9,850 Interest income earned 277 222
Deposits 45,369 29,644 Interest expense paid 723 393
Compensation – Salaries and other short-term benefits 35,585 39,536
(c) Loans to Directors Particulars of loans to directors disclosed pursuant to Section 17 of the Hong Kong Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) for the year ended December 31, 2015 are shown as below. They are not directly comparable with the loans to officers, which include directors and key management personnel, reported for the year ended December 31, 2014, which were pursuant to Section 161B of the predecessor Hong Kong Companies Ordinance (Cap. 32).
2015 2014
Aggregate amount in respect of principal and interest as at December 31 8,455 9,850
The maximum aggregate amount outstanding in respect of principal and interest during the year 11,245 15,058
38 CONTINGENT LIABILITIES AND COMMITMENTS
The following is a summary of the contractual amounts of each significant class of contingent liabilities and commitments to extend credit:
2015 2014
Direct credit substitutes 645,873 554,923 Transaction-related contingencies 1,417,612 1,665,654 Trade-related contingencies 940,159 894,726 Other commitments: which are unconditionally cancellable or automatically cancellable due to the deterioration in the credit worthiness of the borrower 49,125,258 44,007,670 with an original maturity under one year 1,698,285 448,879 with an original maturity over one year 10,417,748 6,930,588
64,244,935 54,502,440
130 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
38 CONTINGENT LIABILITIES AND COMMITMENTS (continued)
Contingent liabilities and commitments are credit-related instruments which include letter of credits, guarantees and commitments to extend credit. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers. These transactions are, therefore, subject to the same credit application, portfolio maintenance and collateral requirements as for customers applying for the loans. The contractual amounts represent the amounts at risk should the contract be fully drawn upon and the client defaults. As the facilities may expire without being drawn upon, the contract amounts do not represent expected future cash flows.
39 CAPITAL COMMITMENTS
Capital commitments outstanding as at December 31, not provided for in the consolidated financial statements are as follows:
2015 2014
Expenditure contracted but not provided for 86,869 75,453 Expenditure authorised but not contracted for 43,527 48,331
130,396 123,784
40 LEASE COMMITMENTS
At December 31, 2015, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:
2015 2014
Buildings: not later than one year 269,435 277,569 later than one year and not later than five years 219,853 287,750
489,288 565,319
The Group lease a number of properties under operating leases. The leases typically run for an initial period of 1 to 5 years with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased every 3 years to reflect market rentals. None of the leases includes contingent rentals.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 131 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
41 NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS
(a) Reconciliation of operating profit to net cash inflow from operations
2015 2014
Operating activities Operating profit 3,058,993 2,169,883 Adjustments for: Dividend income (3,977) (3,748) Depreciation 242,758 204,603 (Releases)/charges on impairment allowances on advances to banks (671) 671 Charges on impairment allowances on loans and advances 451,809 287,446 Charges/(releases) on impairment allowances on repossessed assets 170 (216) Written off of loans and advances net of recoveries (115,791) (98,815) Reversal of impairment on fixed assets (2) (18) Written off of fixed assets 387 66 Interest income on held-to-maturity investments (27) – Interest expenses on subordinated debts 251,582 91,062 Fair value adjustment on subordinated debts 10,541 – Effect of foreign exchange rate changes 1,644,083 898,376
5,539,855 3,549,310
(Increase)/decrease in operating assets Balances and placements with banks with original maturity beyond three months and balance with central banks 71,602,292 (89,792,348) Gross advances to banks 18,346,939 (7,362,765) Gross advances to customers and trade bills 6,743,131 52,142,373 Financial instruments measured at fair value through profit or loss with original maturity beyond three months 47,229 970,425 Derivative financial instruments (5,228,610) 522,272 Other assets (18,988,893) (1,527,948)
72,522,088 (45,047,991)
Increase/(decrease) in operating liabilities Deposits and balances of banks (20,981,191) (9,401,217) Deposits from customers 31,121,116 76,358,806 Derivative financial instruments 5,691,574 (513,678) Certificates of deposit and other debt securities issued (14,516,696) 24,139,349 Other liabilities 3,432,858 (3,107,559)
4,747,661 87,475,701
Net cash inflow from operations 82,809,604 45,977,020
132 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
41 NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(b) Cash and cash equivalents in the consolidated statement of cash flows
2015 2014
Cash and balances with banks and central banks 77,622,499 42,506,994 Placements with banks with original maturity within three months 28,481,856 14,989,136 Treasury bills and certificates of deposit held with original maturity within three months categorized as available-for-sale 346,737 1,999,943
106,451,092 59,496,073
(c) Reconciliation with the consolidated statement of financial position
2015 2014
Cash and balances with banks and central banks (Note 18) 82,020,035 56,747,605 Placements with banks maturing between one and twelve months 59,036,367 107,302,864 Financial instrument held categorised as – trading (Note 20) 3,807 51,036 – available-for-sale (Note 21) 85,695,259 59,649,364
Amounts shown in consolidated statement of financial position 226,755,468 223,750,869 Less: Amounts with an original maturity of beyond three months Placements with banks and money at call and short notice with banks (34,952,047) (106,554,339) Financial instrument held categorised as – trading (3,807) (51,036) – available-for-sale (85,348,522) (57,649,421)
Cash and cash equivalent in the consolidated statement of cash flows 106,451,092 59,496,073
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 133 Notes to the Consolidated Financial Statementss (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
42 DISPOSAL OF A SUBSIDIARY
In order to support the strengthening of business of CCB Group in Macau and increase the influence of overseas markets, management disposed of the assets and liabilities of the Bank’s wholly owned subsidiary CCBM to CCB as Macau Branch on June 7, 2014.
June 7, 2014
Consideration received in cash and cash equivalents 914,826
Analysis of assets and liabilities over which control was lost
Assets Cash and balances with banks and central banks 3,765,790 Advances to banks 865,275 Advances to customers 6,051,824 Investment securities 475,836 Other assets 126,015
11,284,740
Liabilities Deposits and balances of banks (2,182,270) Deposits from customers (6,548,827) Certificates of deposit and other debt securities issued (1,505,376) Other liabilities (79,780)
(10,316,253)
Net assets disposed of 968,487
Loss on disposal (53,661)
Net cash outflow on disposal of a subsidiary Consideration received in cash and cash equivalents 914,826 Less: cash and cash equivalents disposed of (2,375,168)
(1,460,342) Cash and cash equivalent of disposal group previously classified as held for sale 421,647
(1,038,695)
43 IMMEDIATE PARENT AND ULTIMATE CONTROLLING PARTY
At December 31, 2015, the Bank’s immediate parent is CCB Overseas Holdings Limited (“CCBOHL”), a company incorporated in Hong Kong. CCBOHL is controlled by CCB. Central Huijin Investment Ltd. is the controlling party of CCB, and is a wholly-owned subsidiary of China Investment Corporation which is a wholly state-owned investment and management company. The Group’s intermediate parent, CCB, which is a listed bank incorporated in the Mainland, produces financial statements available for public use.
134 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
The notes to the consolidated financial statements and the following unaudited supplementary information are prepared to comply with the Banking (Disclosure) Rules.
1 OVERDUE AND RESCHEDULED ASSETS
(a) Gross advances to customers overdue for more than three months:
2015 2014 % on total % on total advances to advances to customers customers
Six months or less but over three months 23,084 0.01 13,966 0.01 One year or less but over six months 2,891 – –– Over one year 45,531 0.02 46,391 0.03
Total gross amount of advances overdue for more than three months 71,506 0.03 60,357 0.04
Individually assessed impairment allowances made in respect of the above overdue advances 54,014 49,463
Net realisable value of collateral held against the overdue advances 5,320 18,240
Covered portion of overdue advances 2,891 1,065 Uncovered portion of overdue advances 68,615 59,292
71,506 60,357
Collateral held with respect of overdue advances to customers is residential properties.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 135 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
1 OVERDUE AND RESCHEDULED ASSETS (continued)
(b) Gross trade bills overdue for more than three months:
2015 2014 % on total % on total trade bills trade bills
Six months or less but over three months 1,697 0.01 –– One year or less but over six months ––136,048 0.20 Over one year 135,959 0.39 ––
Total gross amount of trade bills overdue for more than three months 137,656 0.40 136,048 0.20
Individually assessed impairment allowances made in respect of the above overdue trade bills 46,538 5,794
Net realisable value of collateral held against the overdue trade bills – –
Covered portion of overdue trade bills – – Uncovered portion of overdue trade bills 137,656 136,048
137,656 136,048
As at December 31, 2015 and 2014, there were no overdue advances to banks.
(c) Rescheduled advances to customers:
2015 2014 % on total % on total advances to advances to customers customers
Rescheduled advances to customers 69,416 0.03 78,844 0.04
Rescheduled advances are those advances which have been restructured or renegotiated because of deterioration in the financial position of the borrower, or the inability of the borrower to meet the original repayment schedule and for which the revised payment terms are non-commercial to the Bank. The rescheduled advances are stated net of any advances that have subsequently become overdue for over three months and reported as overdue advances as above.
As at December 31, 2015 and 2014, there were no rescheduled advances to banks and trade bills.
(d) Other overdue and rescheduled assets As at December 31, 2015 and 2014, there were no other overdue and rescheduled assets.
136 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
2 LIQUIDITY RATIO
(a) Average liquidity coverage ratio (“LCR”)/Average liquidity ratio
Year ended December 31, 2015 2014 % %
Average liquidity coverage ratio – First quarter 165.7 N/A – Second quarter 128.6 N/A – Third quarter 146.1 N/A – Fourth quarter 119.8 N/A Average liquidity ratio for the year N/A 58.5
The average value LCR is for each quarter in 2015 based on the arithmetic mean of its LCR as at each month-end in the quarter for the Bank as required by the Hong Kong Monetary Authority (“HKMA”) for its regulatory purposes.
Other LCR disclosure requirements under the Banking (Disclosure) (Amendment) Rules 2015 are published on the Bank’s website: http://www.asia.ccb.com/hongkong.
The average liquidity ratio for year ended December 31, 2014 is calculated as the simple average of each calendar month’s average liquidity ratio for the Bank as required by the HKMA for its regulatory purposes, in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance.
(b) Liquidity cushion The size and composition of the Bank’s liquidity cushion as of December 31, 2015 and December 31, 2014 was:
2015 2014
Cash & Central Bank reserves 12,360,938 6,713,976
Hong Kong Government Exchange Fund 3,016,302 8,199,290
Other securities which fulfil the High Quality Liquidity Assets definition 37,940,497 30,451,510
This is an additional information disclosed in relation to the requirement of HKMA Supervisory Policy Manual “Sound Systems and Controls for Liquidity Risk Management”.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 137 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT
(a) Capital adequacy ratio
Group 2015 2014
Common Equity Tier 1 capital ratio 13.7% 14.8%
Tier 1 capital ratio 13.7% 14.8%
Total capital ratio 16.6% 18.0%
Capital adequacy ratios were compiled in accordance with the Banking (Capital) Rules (“the Capital Rules”) issued by the HKMA. The ratios as of December 31, 2015 and 2014 were complied in accordance with the amended Capital Rules effective from January 1, 2013 for the implementation of the “Basel III” capital accord.
The capital adequacy ratio (“CAR”) was computed on a consolidated basis, including the Bank and its subsidiaries, CCB Hong Kong Property Management Company Limited and all of its subsidiaries (“CCBP Group”).
In accordance with the thresholds as determined in Part 3 of the Capital Rules, the Bank’s shareholdings in CCB Securities Limited, CCB Nominees Limited and CCB (Asia) Trustee Company Limited were included in the total risk weighted assets of the Group.
In calculating the risk weighted assets, the Group adopted the Standardised (Credit Risk) Approach and the Standardised (Market Risk) Approach for credit risk and market risk respectively. For operational risk, the capital requirement is calculated using the Basic Indicator Approach.
(b) Leverage ratio
2015 2014
Leverage ratio 8.16% N.A.
The disclosure on leverage ratio is effective since March 31, 2015 and is computed on the same consolidated basis as specified in a notice from the HKMA in accordance with section 3C of the Capital Rules. The relevant disclosures pursuant to section 45A of the Banking (Disclosure) Rules can be found on the Bank’s website: http://www.asia.ccb.com/hongkong.
(c) Countercyclical Capital Buffer Ratio There is no information disclosed relating to the Countercyclical capital buffer ratio pursuant to section 45B of the Banking (Disclosure) Rules for 2015 because the applicable JCCyB ratios for Hong Kong and for jurisdiction outside Hong Kong are at 0% before January 1, 2016 according to section 3P and section 3Q of the Capital Rules.
138 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT (continued)
(d) Credit risk The Group uses the following external credit assessment institutions (“ECAIs”) to calculate its capital adequacy requirements under the Standardised (Credit Risk) Approach prescribed in the Capital Rules:
– Moody’s Investors Service
– Standard & Poor’s Ratings Services
The process used to map ECAIs issue specific ratings in the Group’s banking book is consistent with those prescribed in the Capital Rules.
The capital requirements on each class of exposures under the Standardised (Credit Risk) Approach at the reporting date are summarised as follows:
Capital charges 2015 2014
Exposures on the statement of financial position Public sector entity 3,147 2,882 Bank 9,483,672 12,619,322 Securities firm 2,976 5,230 Corporate 8,172,894 5,517,594 Regulatory retail 1,384,999 987,028 Residential mortgage loans 638,123 584,767 Other exposures which are not past due exposures 1,083,383 837,255 Past due exposures 21,819 26,591
Sub-total 20,791,013 20,580,669
Exposures not on the statement of financial position Direct credit substitutes 38,640 38,822 Transaction-related contingencies 54,470 30,512 Trade-related contingencies 12,867 14,014 Other commitments 398,202 238,074 Exchange rate contracts 402,185 105,390 Interest rate contracts 4,980 1,057 Equity contracts 342 376
Sub-total 911,686 428,245
Total capital charge for credit risk 21,702,699 21,008,914
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 139 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT (continued)
(e) The risk weighted assets for each class of credit risk exposures are set out as follows: As at December 31, 2015
Exposures covered Exposures after by recognised credit recognised credit risk mitigation risk mitigation Risk weighted amount Total Class of exposures Exposures* Collateral Guarantees Rated Unrated Rated Unrated Total
On-balance sheet Sovereign 23,358,819 – 191,726 23,550,545 – – – – Public sector entity 93,508 – 103,185 – 196,693 – 39,339 39,339 Bank 250,689,627 – 54,692,619 291,716,202 13,666,044 112,308,218 6,237,679 118,545,897 Securities firm 526,491 452,093 – – 74,398 – 37,199 37,199 Corporate 171,257,491 4,053,348 (54,846,173) 36,300,678 76,057,293 27,544,285 74,528,296 102,072,581 Cash 233,266 – – – 233,266 – – – Regulatory retail 23,446,829 362,011 (1,500) – 23,083,318 – 17,312,489 17,312,489 Residential mortgage loans 19,403,250 – (91,821) – 19,311,429 – 7,976,534 7,976,534 Other exposures which are not past due exposures 13,095,237 285,527 (48,036) – 12,761,674 – 13,542,291 13,542,291 Past due exposures 183,795–––183,795 – 272,742 272,742
Off-balance sheet Off-balance sheet exposures other than OTC derivative transactions or credit derivative contracts 7,091,242 212,555 – 1,638,458 5,240,229 1,075,958 5,226,262 6,302,220 OTC derivative transactions Exchange rate contracts 11,681,397 – – 11,511,500 169,897 4,890,931 136,381 5,027,312 Interest rate contracts 151,631 – – 145,564 6,067 56,187 6,067 62,254 Equity contracts 8,746 – – 8,746 – 4,274 – 4,274
Total 521,221,329 5,365,534 – 364,871,693 150,984,103 145,879,853 125,315,279 271,195,132
* Total exposures represent the principal amount or credit equivalent amount, as applicable, net of individually assessed impairment allowances.
140 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT (continued)
(e) The risk weighted assets for each class of credit risk exposures are set out as follows: (continued) As at December 31, 2014
Exposures covered Exposures after by recognised credit recognised credit risk mitigation risk mitigation Risk weighted amount Total Class of exposures Exposures* Collateral Guarantees Rated Unrated Rated Unrated Total
On-balance sheet Sovereign 17,541,586 – 51,091 17,592,677 –––– Public sector entity 101,620 – 78,515 – 180,135 – 36,027 36,027 Bank 292,325,675 – 65,022,284 347,173,165 10,174,794 152,725,002 5,016,526 157,741,528 Securities firm 661,444 530,694 – – 130,750 – 65,375 65,375 Corporate 142,686,455 4,790,431 (65,015,491) 15,885,397 56,995,136 11,974,785 56,995,136 68,969,921 Cash 238,072–––238,072––– Regulatory retail 16,777,293 325,049 (1,774) – 16,450,470 – 12,337,853 12,337,853 Residential mortgage loans 18,888,938 255,015 (134,625) – 18,499,298 – 7,309,593 7,309,593 Other exposures which are not past due exposures 10,039,286 354,220 – – 9,685,066 – 10,465,683 10,465,683 Past due exposures 221,937–––221,937 – 332,373 332,373
Off-balance sheet Off-balance sheet exposures other than OTC derivative transactions or credit derivative contracts 5,121,766 522,641 – 1,395,000 3,204,125 822,500 3,195,276 4,017,776 OTC derivative transactions Exchange rate contracts 2,987,477 – – 2,814,967 172,510 1,144,870 172,509 1,317,379 Interest Rate contracts 22,997 – – 12,962 10,035 3,174 10,036 13,210 Equity contracts 9,918 – – 9,918 – 4,701 – 4,701
Total 507,624,464 6,778,050 – 384,884,086 115,962,328 166,675,032 95,936,387 262,611,419
* Total exposures represent the principal amount or credit equivalent amount, as applicable, net of individually assessed impairment allowances.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 141 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT (continued)
(e) The risk weighted assets for each class of credit risk exposures are set out as follows: (continued) The aggregate credit risk weighted amounts of the contingent liabilities and commitments are as follows:
2015 2014
Credit risk weighted amounts 6,302,220 4,017,776
The risk weights used in the computation of credit risk weighted amounts range from 0% to 100% (2014: 0% to 100%).
(f) Credit risk mitigation As mentioned in Note 5(a) to the consolidated financial statements on the credit risk management of the Group, the Group has established policies in managing and recognising credit risk mitigation, one of which is the taking of collateral and other credit enhancements. The principal types of collateral taken by the Group are also those of the recognised credit risk mitigation as prescribed in the Capital Rules.
For regulatory capital calculation, the Group adheres to the criteria as stipulated in the Capital Rules when assessing the eligibility of the credit risk mitigation.
Recognised collateral include both financial and physical collateral. Financial collateral include cash deposit, shares and debt securities and mutual fund, whilst physical collateral include commercial real estate and residential real estate. The exposure amount after mitigation is determined by applying the standard supervisory haircut stipulated in the Capital Rules as an adjustment discount to the current collateral value.
Recognised guarantor is any sovereign entities, public sector entities, banks and regulated securities firms with a lower risk weight than the borrower.
On-balance sheet and off-balance sheet recognised netting is not adopted by the Group.
(g) Over-the-counter (“OTC”) derivative transactions In respect of the Group’s counterparty credit risk which arises from OTC derivative transactions, the related credit risk management has set out in Note 5(a) to the consolidated financial statements. In sum, the counterparty credit risk arising from OTC derivatives in the trading book is subject to the same credit risk management framework of the banking book. The Group manages and monitors the risk exposure by determining the current exposure amount of the transactions.
There were neither repo-style transactions nor credit derivative contracts entered into by the Group as at December 31, 2015 and 2014.
142 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT (continued)
(g) Over-the-counter (“OTC”) derivative transactions (continued) (i) Counterparty credit risk exposures
2015 2014
Gross total positive fair value 5,744,526 732,831
Credit equivalent amount 11,841,774 3,020,392
Credit equivalent amount or net credit exposures net of recognised collateral held 11,841,774 3,020,392
Risk weighted amounts 5,093,840 1,335,290
(ii) Major class of exposures by counterparty type
2015 Credit Risk Contract equivalent weighted amount amount amount
Banks 587,249,638 11,729,624 4,981,690 Corporate 4,592,086 109,743 109,743 Others 148,187 2,407 2,407
591,989,911 11,841,774 5,093,840
2014 Credit Risk Contract equivalent weighted amount amount amount
Banks 200,266,045 2,837,768 1,152,667 Corporate 10,621,755 177,092 177,091 Others 428,877 5,532 5,532
211,316,677 3,020,392 1,335,290
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 143 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT (continued)
(h) Asset securitisation There was no asset securitisation for which the Group is an originating institution or an investing institution as at December 31, 2015 and 2014.
(i) Market risk
2015 2014
Interest rate exposures 668,724 176,853 Foreign exchange exposures (including options) 1,786,822 22,817
Capital charge for market risk 2,455,546 199,670
(j) Operational risk
2015 2014
Capital charge for operational risk 775,051 601,401
(k) Equity exposures in banking book Investments in equity shares which are intended to be held on a continuing basis, but which do not comprise investments in associate, jointly controlled entities or subsidiaries, are classified as available-for-sale securities and are reported in the statement of financial position as “Available-for-sale financial assets”.
2015 2014
Cumulative realised gains on disposal – – Unrealised gains – recognised in reserve but not through the statement of comprehensive income 15,894 13,333
144 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
4 SEGMENTAL INFORMATION
(a) Gross advances to customers (i) Gross advances to customers by industry sectors Analysis of gross advances to customers covered by collateral is as follows:
Group 2015 2014 % of % of advances advances Outstanding covered by Outstanding covered by balance collateral balance collateral
Advances for use in Hong Kong Industrial, commercial and financial Property development 13,304,723 34.80 6,806,508 19.75 Property investment 29,059,241 88.06 27,941,571 82.14 Financial concerns 8,315,954 57.61 5,400,081 45.46 Stockbrokers 1,426,825 52.19 1,819,941 35.69 Wholesale and retail trade 14,526,660 67.25 19,902,498 88.30 Manufacturing 8,432,071 53.19 7,728,248 65.47 Transport and transport equipment 11,416,919 71.04 9,363,740 85.96 Recreational activities 26,845 69.14 737,173 99.40 Information technology 1,652,762 2.50 1,417,155 1.80 15,943,675 61.95 Others 26,729,171 83.51 104,105,675 107,846,086
Individuals Loans for the purchase of flats in the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 6,771 100.00 7,776 100.00 Loans for the purchase of other residential properties 14,247,201 99.51 13,813,682 99.57 Credit card advances 6,289,380 0.00 5,794,173 0.00 17,673,137 29.45 Others 9,057,401 53.26 38,216,489 28,673,032
Trade finance 7,146,314 72.89 15,739,594 89.47
Advances for use outside Hong Kong 55,038,556 51.09 26,278,543 50.54
Gross advances to customers 204,507,034 59.06 178,537,255 71.20
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 145 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
4 SEGMENTAL INFORMATION (continued)
(a) Gross advances to customers (continued) (i) Gross advances to customers by industry sectors (continued) Further analysis of gross advances to customers which constitute not less than 10% of gross advances to customers are as follows:
2015 2014
(1) Property investment Impaired advances 68 205 Overdue advances – 205 Individually assessed impairment allowances – – Collectively assessed impairment allowances 14,181 14,638 Impairment allowances (released)/charged during the year (457) 554 Advances written-off during the year 865 –
(ii) Gross advances to customers by geographical areas
2015 2014
Hong Kong 166,841,339 137,315,253 China 32,663,974 31,798,412 Macau 118,999 109,400 Others 5,020,105 9,314,190
204,644,417 178,537,255
(iii) Impaired advances by geographical areas
2015 2014 Individually Individually Gross assessed Gross assessed impaired impairment impaired impairment advances allowances advances allowances
Hong Kong 218,304 108,826 144,953 55,144 China 5,400 5,400 ––
223,704 114,226 144,953 55,144
More than 90% of the collective impairment allowances were allocated to Hong Kong as at December 31, 2015 and 2014 respectively. The geographical analysis is based on location of the customers and has taken account of transfer of risk.
146 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
4 SEGMENTAL INFORMATION (continued)
(b) International claims International claims are exposures recorded on the statement of financial position based on the location of the counterparties after taking into account the transfer of risk. For a claim guaranteed by a party situated in a country different from the counterparty, risk will be transferred to the country of the guarantor. For a claim on the branch of a bank, the risk will be transferred to the country where its head office is situated. Claims on individual countries or areas, after risk transfer, amounting to 10% or more of the aggregate international claims are shown as follows:
As at December 31, 2015
Non-bank private sector Non- Non-bank financial Official financial private Banks sector Institutions sector Total
Developing Asia and Pacific 245,038,427 4,987,373 2,824,775 83,272,981 336,123,556 – of which China 244,335,694 4,987,373 2,824,775 83,153,468 335,301,310
As at December 31, 2014
Public sector Banks entities Others Total
Asia Pacific excluding Hong Kong 290,009,999 2,891,212 73,792,284 366,693,495 – of which China 289,797,874 2,881,233 73,642,224 366,321,331
These are changes of reporting basis and the categorisation on the types of counterparties as required by the HKMA in 2015, hence the disclosures reported during the year of 2014 are not directly comparable.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 147 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 MAINLAND ACTIVITIES EXPOSURES
The table below summarises the Mainland China activities exposure of the Bank, categorised by types of counterparties:
As at December 31, 2015
On-balance Off-balance sheet sheet Types of Counterparties exposure exposure Total
(a) Central government, central government-owned entities and their subsidiaries and joint ventures (“JVs”) 40,864,669 4,846,169 45,710,838 (b) Local governments, local government-owned entities and their subsidiaries and JVs 19,823,937 114,037 19,937,974 (c) Mainland nationals residing in Mainland China or other entities incorporated in Mainland China and their subsidiaries and JVs 38,546,523 1,001,580 39,548,103 (d) Other entities of central government not reported in part (a) above 3,973,905 1,225,459 5,199,364 (e) Other entities of local governments not reported in part (b) above 536,350 – 536,350 (f) Mainland nationals residing outside Mainland China or entities incorporated outside Mainland China where the credit is granted for use in Mainland China 19,663,329 2,405,380 22,068,709 (g) Other counterparties where the exposures are considered by the reporting institution to be Mainland China activities exposures 7,828,818 527 7,829,345
Total 131,237,531 9,593,152 140,830,683
Total assets after provision 505,215,042
On-balance sheet exposures as percentage of total assets 25.97%
148 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
5 MAINLAND ACTIVITIES EXPOSURES (continued)
As at December 31, 2014
On-balance Off-balance sheet sheet Types of Counterparties exposure exposure Total
(a) Central government, central government-owned entities and their subsidiaries and joint ventures (“JVs”) 34,271,681 3,477,344 37,749,025 (b) Local governments, local government-owned entities and their subsidiaries and JVs 15,678,755 635,560 16,314,315 (c) Mainland nationals residing in Mainland China or other entities incorporated in Mainland China and their subsidiaries and JVs 25,310,603 190,018 25,500,621 (d) Other entities of central government not reported in part (a) above 748,325 – 748,325 (e) Other entities of local governments not reported in part (b) above 660,886 – 660,886 (f) Mainland nationals residing outside Mainland China or entities incorporated outside Mainland China where the credit is granted for use in Mainland China 19,790,579 2,559,653 22,350,232 (g) Other counterparties where the exposures are considered by the reporting institution to be Mainland China activities exposures 3,593,194 572 3,593,766
Total 100,054,023 6,863,147 106,917,170
Total assets after provision 497,773,847
On-balance sheet exposures as percentage of total assets 20.10%
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 149 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
6 CURRENCY CONCENTRATIONS
The Group had the following net foreign currency exposures which exceeded 10% of the net foreign currency exposure in all currencies:
As at December 31, 2015
RMB USD Others Total
HKD equivalent Spot assets 94,181,157 197,173,055 11,784,672 303,138,884 Spot liabilities (137,154,260) (145,482,399) (13,620,130) (296,256,789) Forward purchases 250,783,162 276,397,940 21,408,174 548,589,276 Forward sales (235,492,862) (321,724,064) (19,915,125) (577,132,051)
Net long/(short) position (Note) (27,682,803) 6,364,532 (342,409) (21,660,680)
Net structural position ––––
As at December 31, 2014
RMB USD Others Total
HKD equivalent Spot assets 210,562,526 117,301,148 2,820,109 330,683,783 Spot liabilities (171,403,976) (142,930,600) (7,856,088) (322,190,664) Forward purchases 59,879,287 121,581,492 11,627,255 193,088,034 Forward sales (99,452,898) (94,913,588) (7,080,227) (201,446,713)
Net long/(short) position (415,061) 1,038,452 (488,951) 134,440
Net structural position ––––
The net options position is calculated using the Simplified Approach and there was no net options position as at December 31, 2015 and 2014.
Note: The net short position of RMB mainly stemmed from RMB17.6 billion of the RMB capital related assets being converted into Hong Kong dollars during 2015.
150 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE
The Bank has fully complied with the requirements set out on “Corporate Governance of Locally Incorporated Authorised Institutions” under the Supervisory Policy Manual issued by the HKMA in August 2012.
There are four special committees under the Board of Directors, namely Strategy and Corporate Governance Committee, Audit Committee, Nomination and Remuneration Committee and Risk Committee and the five key functional committees, namely Management Committee, Risk Management Committee, Operations Committee, Information Technology Committee and Asset and Liability Committee directly report to Senior Management.
(a) Board of Directors The Board of Directors has the ultimate responsibilities to the shareholders, depositors, creditors, employees and other stakeholders, banking supervisors of the Group in ensuring that the business and operational functions of the Group are managed in a prudent, professional and competent manner and in conformity with relevant laws and regulations. Key specialised committees are established to be responsible to and report to the Board of Directors, and assist the Board of Directors in performing its duties according to the authorization of the Board of Directors. The functional committees are established to ensure that such operational functions, as well as efficient management of the main types of risk arising out of the business, are effectively carried out.
The key functions and powers of the Board of Directors are set out below:
– Determining the Bank’s development strategy, and supervising its implementation;
– Deciding on the business plan, investment plan and risk capital distribution plan of the Bank;
– Preparing annual financial budget and final accounts of the Bank;
– Preparing profit distribution plan and planning for making up losses of the Bank;
– Preparing plans for the increase or reduction of the Bank’s share capital, issuance of the Bank’s convertible bonds, subordinated bonds, corporate bonds or other negotiable securities and listing;
– Preparing plans for the Bank’s major acquisitions;
– Preparing plans for merger, division, dissolution and liquidation of the Bank;
– Deciding on the Bank’s equity investment, bond investment, asset acquisition, asset disposal, asset written-off, asset mortgage, other non-commercial banking business guarantees and external donations;
– Deciding on the setting up of the Bank’s internal management departments;
– Deciding on the setting up of subsidiaries;
– According to the shareholder’s requirements, appointing or removing the chief executive officer of the Bank, senior executive vice president, executive vice president and senior management members and determining their remuneration, reward and penalty;
– Formulating the Bank’s basic management systems, and supervising the implementation of these systems;
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 151 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(a) Board of Directors (continued) – Deciding on risk management policies and internal control policies of the Bank, formulating risk management system and internal control system, and supervising the implementation of such systems;
– Making proposal for the engagement, dismissal or retention of auditors to the Shareholders’ General Meeting;
– Receiving and reviewing work reports of the Bank’s senior management, and supervising, checking and assessing his/her work and adopting accountability system;
– Assessing and evaluating the duty performance of directors and senior management members;
– Regularly evaluating and continuously improving corporate governance of the Bank, and conducting a regular evaluation of the performance of the Board of Directors;
– Formulating the amendments to the Articles of Association of the Bank and the Procedural Rules for Board of Directors of the Bank, and formulating other systems, rules and measures of the Board of Directors;
– Formulating the capital planning and relevant systems on capital adequacy ratio assessment and management, and supervising the implementation of such systems;
– Formulating relevant systems for the management of accounting consolidation of the Bank and its affiliates, and supervising the implementation of such systems;
– Delegating all or any part of the authorities given by the shareholder to the chief executive officer of the Bank and allowing the chief executive officer to further delegate all or part of his/her authority to other personnel of the Bank provided that the aforesaid delegation should be made by way of authorisation document; and
– Exercising other functions and powers vested by laws, regulations, rules, and relevant provisions of the relevant regulatory authorities, and the Articles of Association as well as those authorised by the Bank’s ultimate sole shareholder, China Construction Bank Corporation (“CCBC”), and/or the Shareholders’ General Meeting.
Members of the Board of Directors, who come from a variety of different backgrounds, have a diverse range of business, banking and professional expertise. Currently, the Board of Directors comprises three executive directors and nine non-executive directors. Of the nine non-executive directors, four are independent non- executive directors.
152 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(b) Strategy and Corporate Governance Committee The Strategy and Corporate Governance Committee is responsible to the Board of Directors and the main duties and powers of the Committee are:
– Preparing the Bank’s strategy and development plan, supervising and evaluating the implementation of plan, and providing suggestions to the Board of Directors;
– Examining the Bank’s annual operation plan and fixed asset investment budget, and submitting them to the Board of Directors for consideration;
– Examining the report on implementation of annual operation plan and fixed asset investment budget;
– Evaluating coordinative development of various businesses, and providing suggestions to the Board of Directors;
– Examining significant organisational adjustment and institutional scheme of the Bank, and providing suggestions to the Board of Directors;
– Examining major investment and financing plan of the Bank, and providing suggestions to the Board of Directors;
– Supervising the implementation of the relevant resolutions of the Shareholders’ General Meetings and board meetings;
– Regularly receiving and reviewing the reports of senior management and making suggestions on operation management, as well as formulating rules for implementation to facilitate execution;
– Ensuring that the Bank has committed adequate efforts, time and resources according to compliance requirements;
– Formulating and regularly reviewing whether the Bank is in compliance with the laws, regulations and codes on corporate governance, and making suggestions to the Board of Directors; and
– Other matters authorised by the Board of Directors.
According to the terms of reference of the Committee, the Committee shall be composed of at least three directors. The Chairman of the Committee shall be taken by Chairman of the Board of Directors. Members other than the Chairman of the Committee shall be appointed by the Board of Directors.
(c) Audit Committee The Audit Committee serves as the “eyes and ears” to the Board of Directors in monitoring compliance with the Group’s policies and other internal and statutory regulations. It provides oversight of the Group’s internal and external auditors and thereby assists the Board of Directors in providing independent review of the effectiveness of the financial reporting process and internal control system of the Group.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 153 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(c) Audit Committee (continued) The main duties and powers of the Audit Committee are:
– Supervising financial reports of the Bank, and examining the Bank’s accounting information and disclosure of its major events;
– Supervising and evaluating internal control of the Bank;
– Supervising and evaluating internal and external audit work of the Bank, proposing to the Board of Directors on engagement or replacement of independent audit firm, and responsible for the communication and co-ordination between external auditors and internal auditors;
– Receiving and reviewing the work report of the person in charge of the internal audit department; inspecting, monitoring and assessing the internal audit function;
– Paying attention to improper acts which may occur;
– Appointing the person in charge of the internal audit department;
– Approving the internal audit charter formulated by the internal audit department and its regular updates;
– Reporting to the Board of Directors its work, issues within its authority scope and decisions or suggestions of the Committee; and maintaining communication and co-operation with other special committees;
– Discussing the problems encountered during the financial audit and suggestions, and any matters proposed by the auditor for discussion (without the presence of the management at the meeting);
– Reviewing and approving the scope of audit and its frequency;
– Reviewing the audit report and ensuring that the senior management (together with the monitoring department) take actions as necessary to tackle the internal control weaknesses, areas that do not comply with the laws, regulations and policies, or issues identified by other auditors/internal auditor in a timely manner;
– Reviewing the on-site examination report of HKMA and reporting the significant findings to the Board of Directors;
– Reporting to the Board of Directors significant audit findings, and making relevant suggestions; and
– Other matters authorised by the Board of Directors.
According to the terms of reference of the Committee, the Committee shall consist of at least three directors, shall only be composed of non-executive directors, the majority of whom shall be independent non- executive directors (“independent directors”), and at least one independent director shall have appropriate professional qualifications or expertise in appropriate accounting or relevant financial management. Members of the Committee shall be appointed by the Board of Directors. The Chairman shall be appointed for the Committee to take charge of the work of the Committee. The Chairman shall be an independent director and elected by more than half of the members of the Committee.
154 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued) (d) Nomination and Remuneration Committee The Nomination and Remuneration Committee is responsible to the Board of Directors and the main duties and powers of the Committee are:
– Organising the formulation of standards and procedures for the election of directors and senior management members of the Bank, and submitting the proposed procedures and standards to the Board of Directors for approval;
– Proposing to the Board of Directors on candidates for directors and chief executive officer of the Bank;
– Proposing to the Board of Directors on candidates for members of various special committees of the Board of Directors;
– Examining the candidates for senior management members of the Bank nominated in accordance with rules of shareholder and making suggestions to the Board of Directors;
– Formulating development plans for the senior management members and fostering plans for the key backup talents;
– Reviewing the Bank’s remuneration management system, and proposing to the Board of Directors for decision;
– Organising the preparation of performance evaluation methods and remuneration plan for directors of the Bank, and submitting them to the Board of Directors for review;
– Organising the preparation of performance evaluation methods and remuneration plan for senior management members of the Bank, and submitting them to the Board of Directors for approval;
– Organising performance evaluation on directors, proposing the distribution of remuneration for directors, and submitting it to the Board of Directors for review;
– Organising performance evaluation on the senior management members, proposing the plan for distribution of remuneration for senior management members and key personnel, and submitting it to the Board of Directors for approval;
– Supervising the implementation of the Bank’s performance evaluation system and remuneration system;
– Reviewing corporate level’s remuneration adjustments and performance-based bonus with reference to the corporate goals and objectives resolved by the Board of Directors from time to time, assessing whether such bonus involves any unidentified business interests, and submitting it to the Board of Directors for approval;
– Proposing to the Board of Directors on the appointment or re-appointment of directors and the succession plan of directors;
– Examining and approving relevant compensation to the executive directors and senior management members for loss or termination of office or appointment to ensure such compensation is consistent with provisions of relevant contracts; if it fails to abide by the relevant agreements, relevant compensation shall be proper and reasonable;
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 155 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(d) Nomination and Remuneration Committee (continued) – Examining and approving compensation for dismissing or removing relevant directors due to their misconduct to ensure such arrangement is consistent with provisions of relevant agreement; if it fails to comply with the relevant agreements, relevant compensation shall be reasonable and proper;
– Reporting its decisions or suggestions to the Board of Directors unless such report is not allowed by laws or supervisory regulations;
– Reviewing the structure, size and composition of the Board of Directors (including skills, knowledge and experience) at least once a year, and putting forth recommendations on proposed adjustment of the Board of Directors to implement corporate strategy of the Bank;
– Regularly reviewing the contribution required from a director to perform his/her duties and powers to the Bank, and whether he/she is spending sufficient time performing them; and
– Other matters authorised by the Board of Directors.
According to the terms of reference of the Committee, the Committee shall be composed of at least three directors, majority of whom shall be independent directors. Members of the Committee shall be appointed by the Board of Directors. The Chairman of the Committee shall be taken by an independent director, and shall be elected by all members of the Committee and reported to the Board of Directors for approval.
(e) Risk Committee The Risk Committee is responsible to advise the Board of Directors in carrying out its risk management responsibilities i.e. to ensure an adequate oversight of the Bank’s overall risk management framework and to promote regular and transparent communications within the organisation in respect of bank-wide risk management issues.
The main duties and powers of the Committee are:
– Examining the Bank’s risk management policies according to the overall strategy of the Bank, and supervising and evaluating implementation and effect of these policies;
– Providing guideline to the formulation of risk management system of the Bank;
– Supervising and evaluating the setting, organisation, work procedures and effect of risk management department, and making recommendations for improvement;
– Reviewing the Bank’s risk report including strict compliance with any related due diligence, statutory and regulatory limits and relevant requirements, as well as material risks involved in obtaining the approval from senior management members/Committee members; carrying out regular evaluation on the Bank’s risk; and giving opinions on the improvement of the Bank’s risk management;
– Evaluating relevant work of senior management of the Bank in charge of risk management;
156 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued) (e) Risk Committee (continued) – Supervising the compliance of core businesses, management systems and major operation activities of the Bank;
– Discussing the risk management strategies and risk appetite of the Bank based on the existing laws/ regulations/regulatory requirements with due regard to its own business scale, nature and complexity etc., and making suggestions to the Board of Directors;
– Ensuring that comprehensive and integrated management is adopted with respect to the definition, identification and management of major risks:
• Formulating a set of definitions applicable to the whole entity with respect to different types of risks faced by the Bank;
• Comprehensively monitoring existing risks across the entity where the entity covers all branches under the Group where the Bank has management rights; and
• Ensuring that potential risks involved in the Bank’s existing and new businesses are effectively identified, understood and assessed.
– Approving the risk management framework that is in line with the Bank’s business objectives, risk appetite and profile, and ensuring that the framework is duly implemented and maintained by the senior management members;
• Monitoring and reviewing the risk governance structure of the Bank and approving the risk management policies as a whole; ensuring the sound operation of risk management and various internal control functions; whether in terms of decision-making or reporting structure, maintaining effective independence from the business departments that involve risks; possessing adequate power, resources, professional knowledge and expertise to perform its duties; and
• Ensuring the Bank has a sound stress test system.
– Regularly reviewing the risk management framework to ensure the Bank has a suitable structural system to manage its risks arising in the course of business development and arising from the changes in external market environments;
– Ensuring that the information system and its infrastructure are provided with adequate resources to cope with the Bank’s risk management and reporting needs;
– Receiving and reviewing the report on the implementation of compliance policies to ensure that compliance risks are effectively managed; and
– Other matters authorised by the Board of Directors.
According to the terms of reference of the Risk Committee, membership of the Risk Committee shall be appointed by the Board of Directors. The Committee shall be composed of at least three directors, all or majority of whom shall be non-executive directors. The Chairman of the Committee shall be elected by all members of the Committee and reported to the Board of Directors for approval. Other than members of the Committee, the Chief Risk Officer, the Chief Financial Officer and the Head of Compliance and Internal Control of the Bank shall sit in on meetings of the Committee as ex officio members.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 157 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(f) Management Committee The Management Committee is responsible for implementing the resolutions of the shareholders and the Board of Directors and the requests of the committees directly under the Board of Directors.
The main duties of the Committee are:
– It is responsible for establishing the daily operations management for the Bank, including organising, implementing, completing and approving the Bank’s business objectives and plans;
– It is responsible for approving and deciding upon the important issues within its authority arising in daily operations management;
– In accordance with standards and procedures, it organises all functional committees, working committees and departments within its jurisdiction and ensures they carry out their duties;
– The Management Committee conducts regular meetings, including management meetings and business analysis meetings, at which it discusses reports received;
– The Management Committee holds management meetings on a monthly basis and business analysis meetings would be held every quarter, but also meets on an ad hoc basis as required.
Chief Executive Officer and President & Executive Director act as co-chair. The Management Committee comprises of management members. Head of General Management Office acts as the secretary of the Committee.
(g) Risk Management Committee The Risk Management Committee acts as a central forum for overseeing the Bank’s overall asset quality as well as resolving all important risk related or governance issues on credit risk, operational risk, market risk, liquidity risk, interest rate risk, strategic risk and reputation risk. In addition, three working committees namely Credit Approval Committee, Special Assets Management Committee and Steering Committee on Stress Testing are established under the Risk Management Committee. The major responsibilities of the Risk Management Committee include :
– Oversee overall asset quality of the Bank;
– Ensure a comprehensive and integrated management approach is adopted within the Bank with respect to the definition, identification and management of major risks;
– Ensure the Bank’s risk profile is in line with the risk appetite and strategies under the direction of the Bank’s Senior Management and the Risk Committee;
158 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(g) Risk Management Committee (continued) – Ensure the risk management framework is properly implemented and maintained and is adequate for the scale and complexity of the Bank’s business operation;
– Approve or review new or major changes in risk policies and processes to ensure they adequately accommodate the updated market conditions and economic trends, as well as due compliance of any relevant laws and regulations;
– Approve or review various risk limits, parameters and thresholds, as well as credit programs/products/ risk assessment tools to ensure pertinent risks are addressed/mitigated;
– Approve the delegation of approval authorities to designated committees/individuals;
– Approve or review major risk assessment/monitoring reports;
– Approve or review the results of the stress-testing programme and any necessary remedial actions as reported by the Steering Committee on Stress Testing;
– Approve the Annual Business Continuity Report;
– Review the trends in credit quality and delinquency, the risk positions of the Bank and material issues relating to impairment allowances as reported by the Special Assets Management Committee; and
– Review and approve credit actions or applications.
The Risk Management Committee is chaired by the Deputy Chief Executive overseeing Risk Management, and the other members are the Bank’s President and Executive Director, the Chief Financial Officer, the Head of Risk Management, the Head of Legal and Compliance, the Head of Market Risk and the Head of Operational Risk.
(h) Operations Committee The Operations Committee is charged with the responsibility for:
– Formulating and approving operations policies, procedures and guidelines pertaining to all business activities of the Bank to ensure ongoing operational efficiency, cost-effectiveness and adequate controls, as well as compliance with all applicable regulatory and operational risk requirements and standards;
– Formulating, delegating and announcing operational authorities (through operational policies, procedures and guidelines) to staff of different levels so as to ensure responsible staff will discharge daily duties and responsibilities in a legitimate and adequately controlled manner. Delegation of authorities shall be approved by the Board of Directors and/or the functional committee;
– Reviewing and approving standard service charges and fees in relation to settlement, clearing and account services offered by the Bank to ensure fairness and market competitiveness;
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 159 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(h) Operations Committee (continued) – Defining and approving the Bank’s outsourcing policies, procedures and guidelines, so as to ensure outsourced activities are effectively operated, properly monitored, and applicable regulatory and corporate guidelines/rules fully complied;
– Approving the Bank to open account with a third party financial institution; and
– Approving daily maximum customer transaction limits of various channels of the Bank.
Membership of the Operations Committee is appointed by the Management Committee and ratified by the Board of Directors. The Operations Committee is chaired by Deputy Chief Executive; there are ten other members, namely Corporate Banking Division representative, Commercial Banking Division representative, Consumer Banking Division representative, Head of Operations Division, Finance Division representative, Head of Cross Border Financial Division, Head of Legal & Compliance Division, Head of Operations & Services of Consumer Banking Division, Head of Information Systems Division and Risk Management Division representative.
(i) Information Technology Committee The Information Technology Committee is a functional committee directly reporting to Senior Management under the Board of Directors, and is enacted with the following scope & responsibilities:
– Overseeing the development of the Bank’s long-term and near-term information technology strategic plans, including strategy formulation, risk management and resource planning;
– Ensuring the IT strategy is co-operating and synchronised with CCB;
– Formulating and approving major information technology policies and processes;
– Prioritising and monitoring major information technology projects and allocation of resources, whereby such work may be delegated to designated sub-committee(s);
– Assessing the effectiveness of information technology budgeting, planning and resourcing processes, whereby the areas relating to project may be delegated to designated sub-committee(s);
– Appraising major accomplishments in the application of technology and the overall IT service performance;
– Ensuring an adequate information technology control environment in place, which is in compliance with regulations, guidelines, and governance set by regulatory bodies and CCB; and
– Providing a platform to disseminate information technology related policies and processes to business units, as well as to solicit their inputs and support.
160 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
7 CORPORATE GOVERNANCE (continued)
(i) Information Technology Committee (continued) Membership of the Information Technology Committee is appointed by the Senior Management. Currently, the Committee consists of seventeen members with the President and Executive Director as the Chairperson. Other members are Deputy Chief Executive, Head of Information Systems, Head of Corporate Banking, Head of Commercial Banking, Head of Consumer Banking, Head of Credit Card and Consumer Finance, Head of Treasury, Head of Finance, Head of Risk Management, Head of Operations, Head of Legal & Compliance, Head of eBusiness, Head of Operations & Services of Consumer Banking, Head of Wholesale Products, Head of Cross Border Financial Services, and Head of Institutional Banking. Representative from Audit function and IT related functions of CCB are invited as advisor in the Committee while Information Systems Representative is the secretary to the Committee.
(j) Asset and Liability Committee The Asset and Liability Committee (“ALCO”) is the functional committee delegated by the Senior Management to exercise oversight of the Bank’s assets and liabilities. Its main responsibility is to develop strategies on the asset and liability structure and capital allocation according to the annual business plan, financial budgets, strategic goals and risk appetite approved by the Board, and to determine the measures (including assets and liabilities matching and risk hedging) to ensure that the business is conducted within the risk appetite of the Bank.
ALCO members include Chief Financial Officer as the Chairperson, Chief Executive Officer, Executive Director & Alternate Chief Executive, President & Executive Director, Deputy Chief Executives and the Head of Risk Management Division, Finance Division, Treasury Division, Corporate Banking Division, Institutional Banking Division, Commercial Banking Division and Consumer Banking Division.
8 RISK MANAGEMENT
(a) Operational risk management Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The Board recognises operational risk as a distinct risk category that should be managed with full attention and should be kept up with the best practice of the industry.
The Group has formulated and implemented the Operational Risk Management Policy which provides a bank-wide classification of operational risks and sets out the requirements on identification, assessment, reporting, monitoring and mitigation.
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 161 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
8 RISK MANAGEMENT (continued)
(a) Operational risk management (continued) To ensure operational risks being under proper monitoring and supervision, an effective internal control system has been enforced by means of computer systems and rigorous procedures. The Group has maintained sound risk management systems, well defined procedures and established controls to monitor transactions and positions, documentation of books and records, regulatory compliance reviews, prudent underwriting and reconciliation standards, periodic reviews by internal audit, examiners and external auditors, and continuous maintenance of high employee risk awareness and ethical standards. Business line management is responsible for managing operational risks specific to their business units on a day-to-day basis.
The Group has regularly reviewed and enhanced the Business Continuity Plan of all critical banking services. It has also maintained data processing back-up sites and facilities to support the business operations in the event of any disastrous events. To ensure practicality of the plan, drill on contingency plans on certain critical business functions has been duly performed annually and the result was satisfactory.
Operational Risk Department drives the development of operational risk management process; and coordinates the execution of operational risk management activities, in particular conducting self-assessment exercises and the setting up of key risk indicators. In addition, the Risk Committee assists the Board in managing all types of risk, including operational risk and the Risk Management Committee was designated by the Board to oversee the operational risk of the Group.
The internal control environment is assessed and reviewed by the Internal Audit Division on an on-going basis while the Regional Audit Office of the intermediate holding company, CCB, will also conduct reviews on the Group on a regular basis. The results of their monitoring activities are directly reported to the senior management of the Group, the Board of Directors, as well as to the senior management of the intermediate holding company. They are independent to provide (negative or positive) assurance on the effectiveness of the first and second levels of control on the internal control system of all process owners. Their periodic reviews cover a comprehensive evaluation of all the Group’s business processes and support functions.
Compliance awareness is enhanced through training, regular compliance circulars and issuance of compliance policies and procedures. All officers are required to actively engage in the continuous monitoring process. A Compliance Officer is designated to oversee the overall regulatory compliance matters.
162 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
8 RISK MANAGEMENT (continued)
(b) Market risk management The Group’s market risk management is detailed in Note 5(c) to the consolidated financial statements.
The Group’s foreign exchange risk exposure arises from its foreign exchange trading activities. For the year ended December 31, 2015, the average monthly revenue of the foreign exchange trading activities was negative $15,936 (2014: negative $63,326) and the standard deviation of this monthly revenue was $108,456 (2014: $194,498). An analysis of the frequency distribution of the monthly foreign exchange trading revenue is presented by the following charts. The comparative figures have been updated to conform with the current year’s presentation.
Frequency distribution of monthly FX trading income
2015
5
4
3
2
Number of months 1
0 -200,000 to -149,999 to -99,999 to -49,999 to 1 to 50,001 to 100,001 to 150,001 to -150,000 -100,000 -50,000 0 50,000 100,000 150,000 200,000 Revenues (HK$ Thousand)
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 163 Unaudited Supplementary Financial Informationn For the year ended December 31, 2015 (Expressed in thousands of Hong Kong dollars, unless otherwise stated)
8 RISK MANAGEMENT (continued)
(b) Market risk management (continued)
Frequency distribution of monthly FX trading income
2014 (restated)
5
4
3
2
Number of months 1
0 -400,000 to -299,999 to -199,999 to -99,999 to 1 to 100,001 to 200,001 to 300,001 to -300,000 -200,000 -100,000 0 100,000 200,000 300,000 400,000 Revenues (HK$ Thousand)
164 China Construction Bank (Asia) Corporation Limited • Annual Report 2015 Service Networkk As of March 31, 2016
COMMERCIAL BANKING OFFICES Telephone
Central 3/F, CCB Tower 2903 8366 Kowloon Bay 26/F, CCB Centre 3718 3322 Tsimshatsui 25/F, Tower 6, The Gateway, 9 Canton Road 2903 8366
SME CENTERS Telephone
Kowloon Bay G/F, CCB Centre 3718 3422 Mongkok Room 1017–18, 10/F, Park-in Commercial Centre, 56 Dundas Street 3918 6766 Sheung Shui Units 1103A–06, 11/F, Landmark North, 39 Lung Sum Avenue 3918 6722 Sheung Wan Unit 910, 9/F, Wing On Centre, 111 Connaught Road 3918 6778 Wanchai Unit C, 20/F, China Overseas Building, 139 Hennessy Road 3918 6708
PRIVATE BANKING Telephone
Central 10/F, CCB Tower, 3 Connaught Road Central 3718 3779
CONSUMER BRANCHES Telephone
Aberdeen Shop 7, G/F, Site 4, Aberdeen Centre 3918 6836 Causeway Bay Jardine’s Bazaar 51–53 Jardine’s Bazaar 3718 3520 Causeway Bay Plaza G/F, Causeway Bay Plaza I, 489 Hennessy Road 3718 7680 Chai Wan Shop 301, Level 3, New Jade Shopping Arcade 3718 7678 Central G/F, 6 Des Voeux Road Central 3918 6666 Central CCB Tower 3/F, CCB Tower 3918 6800 Central Des Voeux Road 99 Des Voeux Road Central 3718 7690 Cheung Sha Wan Unit G02, G/F, Cheung Sha Wan Plaza, 833 Cheung Sha Wan Road 3718 3600 Happy Valley G/F, 37 & 39 Sing Woo Road 3918 6600 Hunghom Ma Tau Wai Road G/F, Chasegold Tower, 100 Ma Tau Wai Road 3718 3580 Hunghom Whampoa Shop A3, G/F, Yuen Wah Building, Whampoa Estates 3718 3180 Jordan 316 Nathan Road 3718 3999 Kowloon Bay Amoy Gardens Shop 181, G/F Phase II A, Amoy Gardens 3718 7366 Kowloon Bay CCB Centre G/F, CCB Centre 3718 7900 Kwun Tong Hoi Yuen Road 56 Hoi Yuen Road 3718 7082 Kwun Tong Hip Wo Street 191 Hip Wo Street 3718 7333 Ma On Shan Shop 297, Level 2, Ma On Shan Plaza 3718 3560 Mei Foo Shop N46, G/F, 2 Humbert Street, Mei Foo Sun Chuen 3918 6630 Mongkok Allied Plaza Shop G46, G/F, Allied Plaza, 760 Nathan Road 3918 6620 Mongkok Nathan Road 788–790 Nathan Road 3718 7128 North Point 382–384 King’s Road 3718 3500 Sai Wan 518 Queen’s Road West 3718 3640 Sai Ying Pun 73–78 Des Voeux Road West 3718 3960 Shatin Lucky Plaza Shop 194, Level 3, Shatin Lucky Plaza 3718 7650 Shatin Plaza Shop 5, Level 1, Shatin Plaza 3718 3160
China Construction Bank (Asia) Corporation Limited • Annual Report 2015 165 Service Networkk As of March 31, 2016
CONSUMER BRANCHES (continued) Telephone
Shau Kei Wan 2 Po Man Street 3718 7000 Sheung Shui 67 San Fung Avenue 3718 3620 Sheung Wan Des Voeux Road 237 Des Voeux Road Central 3718 7040 Tai Kok Tsui Olympian City Shop 109, 1/F, Olympian City 2 3718 3920 Taikoo Shing Shop 001, G/F, Cityplaza II 3718 7380 Tai Po Shop 9B, G/F, 1 On Chee Road 3718 7022 Tai Wai 42 Tai Wai Road 3918 6599 Tseung Kwan O Shop 190, Level 1, Metro City 3 3718 3120 Tsimshatsui Hankow Road 17 Hankow Road 3718 3680 Tsimshatsui Humphreys Avenue 3–3A Humphreys Avenue 3718 7166 Tsuen Wan 282–284 Sha Tsui Road 3718 7199 Tuen Mun Shop 9, G/F, Tuen Mun Town Plaza 2 3718 3118 Wanchai Great Eagle Centre Shop 121, 1/F, Great Eagle Centre 3718 3900 Wanchai Hennessy Road Unit C, G/F, China Overseas Building, 139 Hennessy Road 3718 7233 Wanchai Johnston Road 150 Johnston Road 3718 7300 Wanchai Queen’s Road East 72 Queen’s Road East 3718 3668 Yaumati 556 Nathan Road 3718 7200 Yuen Long 68–76 Castle Peak Road 3718 3543
WEALTH MANAGEMENT CENTER Telephone
Sheung Shui G/F, 97 San Fung Avenue 3918 6790
PERSONAL LOAN CENTERS Telephone
Causeway Bay 25/F, Causeway Bay Plaza I, 489 Hennessy Road 3718 7928 Kowloon Bay Shop 181, G/F, Phase IIA, Amoys Gardens 3718 7373 Mongkok 1/F, 788 Nathan Road 3718 7568 Tsimshatsui Unit 1603, 16/F, Carnarvon Plaza, 20 Carnarvon Road 3918 6388 Tsuen Wan Room 945, 9/F, Nan Fung Centre 3718 3940
166 China Construction Bank (Asia) Corporation Limited • Annual Report 2015