HUA XIA BANK CO., LIMITED HUA XIA BANK CO., LIMITED ANNUAL REPORT 2011 ANNUAL REPORT 2011
Customer Service Centre Hotline: Chairman of the Board: Wu Jian
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:27 • 80000 • 00 E_Huaxia_IFC.indd P.1 Elite CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:27 • 80000 • 00 E_Huaxia_IFC.indd P.2 Elite President: Fan Dazhi
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:27 • 80000 • 00 E_Huaxia_IFC.indd P.3 Elite CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:27 • 80000 • 00 E_Huaxia_IFC.indd P.4 Elite Content
Impor tant Notice 2
Cor porate Information 3
Highlights of Accounting and Business Data 4
Details of Changes in Share Capital and Shareholders 10
Basic Information on Directors, Super visors, Senior Management and Employees 16
Cor porate Governance Framework 23
Summary of General Meeting of Shareholders 29
Repor t of the Board of Directors 30
Repor t of the Board of Super visors 61
Significant Events 63
Written Confirmation of the Annual Repor t 2011 by Directors and Senior Management Members 68
Financial Statements 70
Elite CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:41 • 80000 • 01 E_Huaxia_Content.indd P.1 IMPORTANT NOTICE
The Board of Directors, the Board of Supervisors, Directors, Supervisors and Senior Management members of Hua Xia Bank Co., Limited (the “Company”) undertake that the information in this report contains no false record, misleading statement or material omission, and assume joint and several liabilities to the authenticity, accuracy and completeness of the information in this report.
The Annual Report 2011 of Hua Xia Bank Co., Limited and its Summary were considered and approved at the tenth meeting of the sixth Board of Directors of the Company held on 23 March 2012. 17 out of 18 Directors that should attend the meeting were present at the meeting. Vice Chairman Li Ruge entrusted Director Ding Shilong to vote on his behalf. Five Supervisors attended the meeting as observers. No Directors, Supervisors or Senior Management members could not guarantee on or have any objection against the authenticity, accuracy or completeness of the Annual Report 2011.
In this report, the Company refers to Hua Xia Bank Co., Ltd., and the Group refers to Hua Xia Bank Co., Ltd. and its holding institutions.
The 2011 financial statements of the Company have been audited by Grant Thornton China Certified Public Accountants Co., Ltd. and Ernst & Young in accordance with Chinese and international standards on auditing respectively, with standard unqualified audit report being issued.
Wu Jian, Chairman of the Board of Directors of the Company, Fan Dazhi, President of the Company, Song Jiqing, Principal of Financial Affairs of the Company, and Fu Shengfeng, Person-in-charge of the Accounting Department of the Company, hereby warrant that the financial statements contained in the Annual Report are authentic and complete.
2 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 02 E_Huaxia_Important.indd P.2 CORPORATE INFORMATION
I. Legal name in Chinese: 华夏银行股份有限公司 (Name in short: 华夏银行, hereinafter “Company”) Legal name in English: Hua Xia Bank Co., Limited II. Legal representative: Wu Jian III. Secretary of the Board of Directors: Zhao Junxue Securities affairs representative: Jiang Zhenfeng Address: Hua Xia Bank Mansion, 22 Jianguomennei Street, Dongcheng District, Beijing Postal code: 100005 Tel: 010-85238570, 85239938 Fax: 010-85239605 Email: [email protected] IV. Registered address: 22 Jianguomennei Street, Dongcheng District, Beijing Business address: Hua Xia Bank Mansion, 22 Jianguomennei Street, Dongcheng District, Beijing Postal code: 100005 Website: http://www.hxb.com.cn; http://www.95577.com.cn Email: [email protected] V. Newspaper designated for disclosure of information: China Securities Journal, Shanghai Securities News and Securities Times Website designated by China Securities Regulatory Commission for publication of the annual report: http://www.sse.com.cn Location where copies of this annual report are kept: Office of the Board of Directors of the Company VI. Place where shares are listed: Shanghai Stock Exchange Stock name: Hua Xia Bank Stock code: 600015 VII. Other relevant information: Date of initial registration: 18 March 1998 Place of initial registration: State Administration for Industry and Commerce, PRC Date of change of registration: 24 June 2010 Place of change of registration: State Administration for Industry and Commerce, PRC Corporate banking license number: 100000000029676 Tax registration certificate number: J.Z.S.Z. No. 11010210112001X Organizational code: 10112001–X Name of depositary of shares of the Company: Shanghai Branch of China Securities Depositary and Clearing Co., Ltd. Name of domestic accounting firm the Company engaged: Grant Thornton China Certified Public Accountants Co., Ltd. Business address: Level 5, Scitech Plaza, 22 Jianguomenwai Street, Chaoyang District, Beijing Name of international accounting firm the Company engaged: Ernst & Young Business address: 22/F, CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong
Annual Report 2011 3
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 03 E_Huaxia_Corporate.indd P.3 Highlights of Accounting and Business Data
I. Key Profit Indicators
(Unit: RMB1,000)
Item PRC GAAP IFRS
Gross profit 12,527,399 12,527,399
Net profit attributable to shareholders of the listed company 9,221,934 9,221,934
Net profit attributable to equity holders of the listed company after deduction of 9,254,576 9,221,934 extraordinary profit and loss
Operating profit 12,523,511 12,527,399
Investment income -22,049 -22,049
Net income from non-operating activities 3,888 –
Net cash flows from operating activities 79,027,153 75,589,263
Net increase in cash and cash equivalents 47,435,094 47,435,094
Note: The extraordinary profit and loss are identified and calculated in accordance with the Explanatory Notice on Information Disclosure by Companies that Offer Securities to the Public No.1 – Extraordinary Profit and Loss (2008), and the deducted extraordinary profit and loss and concerning amount are as follows:
(Unit: RMB1,000)
Extraordinary profit and loss item Sum in 2011 Notes Sum in 2010 Sum in 2009
(Profit)/loss on disposal of non-current assets -10,610 6,404 -3,698
(Profit)/loss from contingencies irrelevant to the normal operation -6,638 -33,912 -1,377 of the Company
(Profit)/loss on changes in fair value of held-for-trading financial assets and held-for-trading financial liabilities excluding effective -14,023 22,788 -43,869 hedging transaction related to the Company’s normal operation
Investment gains from the disposal of held-for-trading financial assets, held-for-trading financial liabilities and available-for-sale -29,771 -23,181 111,377 financial assets
Reverse of allowance for impairment losses on receivables – 13. 1 8,019 – undergoing impairment test independently
Other operating income and expenses except for the above items 21,137 7,618 21,396
Total extraordinary profit and loss -39,905 -12,264 83,829
Less: Income tax influence of extraordinary profit and loss -7,263 -2,315 21,689
Extraordinary profit and loss, net -32,642 -9,949 62,140
Less: Influence of extraordinary profit and loss attributable to – – – minority shareholders of the Company (after-tax)
Extraordinary profit and loss attributable to common shareholders -32,642 -9,949 62,140 of the Company
4 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 04 E_Huaxia_Business.indd P.4 II. Previous Three-Year Accounting Data and Financial Indicators as at the End of Reporting Period
(Unit: RMB1,000)
2011 Changes compared Main accounting data 2010 2009 PRC GAAP IFRS with last year (%)
Operating income 33,543,795 33,535,389 24,478,895 37.03 17,129,635
Operating profit 12,523,511 12,527,399 8,027,843 56.00 4,811,265
Gross profit 12,527,399 12,527,399 8,007,954 56.44 4,827,586
Net profit attributable to shareholders of listed 9,221,934 9,221,934 5,989,582 53.97 3,760,227 company
Net profit attributable to shareholders of the listed company after deduction of extraordinary profit 9,254,576 9,221,934 5,999,531 54.25 3,698,087 and loss
Net cash flows from operating activities 79,027,153 75,589,263 23,275,343 239.53 -40,071,358
At the end of 2011 Changes At the end of compared At the end of PRC GAAP IFRS 2010 with last year 2009 (%)
Total assets 1,244,141,182 1,244,180,235 1,040,230,442 19.60 845,456,432
Total liabilities 1,180,211,059 1,180,159,554 1,004,734,562 17.46 815,222,247
Owner’s equity attributable to shareholders of the 63,901,085 63,991,643 35,495,880 80.02 30,234,185 listed company
Total share capital 6,849,726 6,849,726 4,990,528 37.25 4,990,528
2011 Changes compared Main financial indicators 2010 2009 PRC GAAP IFRS with last year (%)
Basic earnings per share (in RMB) 1.48 1.48 1.20 23.33 0.75
Diluted earnings per share (in RMB) 1.48 1.48 1.20 23.33 0.75
Earnings per share after deduction of 1.49 1.48 1.20 24.17 0.74 extraordinary profit and loss (in RMB)
down by 0.81 Weighted average return on net assets (%) 17.44 17.41 18.25 percentage 13.04 point
down by 0.79 Weighted average return on net assets after 17.50 17.41 18.29 percentage 12.83 deduction of extraordinary profit and loss (%) point
Net cash flow per share from operating activities 11.54 11.04 4.66 147.64 -8.03 (in RMB)
Annual Report 2011 5
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 04 E_Huaxia_Business.indd P.5 At the end of 2011 Changes At the end of compared At the end of PRC GAAP IFRS 2010 with last year 2009 (%)
Net assets per share attributable to shareholders 9.33 9.34 7.11 31.22 6.06 of the listed company (in RMB)
Down by 1.73 Liability/asset ratio (%) 94.86 94.85 96.59 percentage 96.42 points
Supplementary financial ratios
Item 2011 2010 2009
Net interest spread (%) 2.63 2.35 2.00
Net interest margin (%) 2.81 2.46 2.10
Notes: 1. Relevant indicators are calculated according to the Explanatory Notice on Information Disclosure by Companies that Offer Securities to the Public No.1 – Extraordinary Profit and Loss (2008), the Standards Concerning the Contents and Formats of Information Disclosure by Companies that Offer Securities to the Public No. 2 – Contents and Formats of Annual Reports (Revision 2007), and the Rules for the Compilation and Submission of Information Disclosure by Companies that Offer Securities to the Public No.9 – Computation and Disclosure of Return on Net Assets and Earnings per Share (Revision 2010). 2. Liability/asset ratio = total liabilities/total assets 3. Net interest spread is the spread between yield on average balance of interest-generating assets and cost on average balance of interest-bearing liabilities. 4. Net interest margin is calculated by dividing net interest income by the average balance of interest-generating assets. III. Financial Instruments Measured at Fair Value
(Unit: RMB1,000)
Balance at the Balance at Effects on Changes in Item beginning of the end of the profit for the current period the period period year
Precious metal – 52,962 52,962 -644
Held-for-trading financial instruments 106,446 3,953,743 3,847,297 1,535
Available-for-sale financial assets 14,859,482 28,488,363 13,628,881 –
Derivative financial instruments 24,632 9,718 -14,914 -14,914
Total 14,990,560 32,504,786 17,514,226 -14,023
6 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 04 E_Huaxia_Business.indd P.6 IV. Major Financial Data Audited under PRC GAAP and IFRS and Reconciliation Difference
(Unit: RMB1,000)
Net profit Net assets at Net profit Net assets at in 2011 the end of 2011 in 2010 the end of 2010
Calculated based on PRC GAAP 9,220,972 63,930,123 5,989,582 35,495,880
Adjusted based on IFRS:
Foreign currency translation reserve
Unrealized income of available-for-sale investment – 90,558 – 110,192
Sub-total – 90,558 – 110,192
Prepared under IFRS 9,220,972 64,020,681 5,989,582 35,606,072
Note: Unrealized income difference of available-for-sale investment is the balance of unrealized income of available-for-sale investment that is unamortized under IFRS. As the Company sold held-to-maturity bonds before maturity, all bond investments are incorporated into bond investment category under IFRS. Two full fiscal years have passed since the Interim Measures on the Identification and Measurement of Financial Instruments issued by the Ministry of Finance (“MOF”) was implemented in 2006, therefore all bond investments are reincorporated into held-to-maturity investment category and the original profit or loss accrued into owner’s equity is amortized based on the actual interest rate within the residual maturity of bond investments and accrued into current profit and loss. V. Allowance for Losses on Loans under PRC GAAP and IFRS
(Unit: RMB1,000)
PRC GAAP IFRS
Balance at the beginning of the period 13,073,253 13,073,253
Charge during the reporting period 4,666,246 4,666,246
Reversal of interests on impaired loans 167,597 167,597
Recovery during the reporting period 344,992 344,992
Write-off during the reporting period 643,085 643,085
Transfer-out during the reporting period 14,992 14,992
Balance at the end of the period 17,258,817 17,258,817
Annual Report 2011 7
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 04 E_Huaxia_Business.indd P.7 VI. Appendix to the Income Statement
According to the Rules for the Compilation and Submission of Information Disclosure by Companies that Offer Securities to the Public No.9 – Computation and Disclosure of Return on Net Assets and Earnings per Share (Revision 2010), return on net assets and earnings per share under PRC GAAP and IFRS in 2011 are as follows:
i. PRC GAAP
Weighted average Earnings per share (RMB) Profit of the reporting period return on equity Basic earnings Diluted earnings (%) per share per share
Net profit attributable to ordinary shareholders of the Company 17.44 1.48 1.48
Net profit attributable to ordinary shareholders of the Company 17.50 1.49 1.49 after deducting extraordinary profit/loss
ii. IFRS
Weighted average Earnings per share (RMB) Profit of the reporting period return on equity Basic earnings Diluted earnings (%) per share per share
Net profit attributable to ordinary shareholders of the Company 17.41 1.48 1.48
Net profit attributable to ordinary shareholders of the Company 17.41 1.48 1.48 after deducting extraordinary profit/loss
VII. Changes in Shareholders’ Equity during the Reporting Period
i. PRC GAAP
(Unit: RMB1,000)
Minority Total Share Capital General Surplus Retained Item shareholders’ shareholders’ capital reserve reserve reserve profit equity equity
At the beginning of the period 4,990,528 14,277,521 8,410,014 2,382,657 5,435,160 – 35,495,880
Increase 1,859,198 18,304,005 1,382,926 922,742 9,221,934 29,038 31,719,843
Decrease -18,174 3,303,774 – 3,285,600
At the end of the period 6,849,726 32,599,700 9,792,940 3,305,399 11,353,320 29,038 63,930,123
8 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 04 E_Huaxia_Business.indd P.8 Reasons for changes in shareholders’ equity:
1. The increase in capital reserve refers to the amount (after tax) affected by the changes in fair value of non-public offered shares and equities and available-for-sale financial assets, and the decrease during the period refers to the profit and loss amount (after tax) transferred from the changes in fair value of available-for-sale financial assets during the period.
2. The increase in general reserve is due to the provision of general reserve from the net profit in the reporting period.
3. The increase in surplus reserve is due to the provision of statutory surplus reserves from the net profit in the reporting period.
4. The increase in retained profit is due to the increase of net profit during the reporting period and the decrease is due to the distribution of dividends for 2010, provision of statutory surplus reserves for 2011 and general reserve.
5. The increase in minority shareholders’ equity is due to two non-wholly-funded subsidiaries newly added.
ii. IFRS
(Unit: RMB1,000)
Unrealized profit/(loss) Non- Total Share Capital General Surplus Retained in available- Item controlling shareholders’ capital reserve reserve reserve profit for-sale equity equity investments (after-tax)
At the beginning of the 4,990,528 14,349,123 8,410,014 2,382,657 5,435,160 38,590 – 35,606,072 period
Increase 1,859,198 18,247,443 1,382,926 922,742 9,221,934 36,414 29,038 31,699,695
Decrease 3,303,774 -18,688 – 3,285,086
At the end of the period 6,849,726 32,596,566 9,792,940 3,305,399 11,353,320 93,692 29,038 64,020,681
Reasons for the changes in shareholders’ equity are the same of those under PRC GAAP.
Annual Report 2011 9
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 04 E_Huaxia_Business.indd P.9 Details of Changes in Share Capital and Shareholders I. Changes in Share Capital (Unit: Share)
Before the change After the change Increase/Decrease (+,-) (31 December 2010) (31 December 2011)
Dividend shares from Percentage New Dividend Percentage Number contributed Others Sub-total Number (%) issuance shares (%) capital reserve
I. Shares subject to restrictions on sales
1. State-owned shares
2. Shares held by state-owned 523,154,855 10.48 1,344,510,738 0 0 -523,154,855 821,355,883 1,344,510,738 19.63 corporations
3. Shares held by other domestic investors
Of which: Shares held by domestic non-state-owned corporations
Shares held by domestic natural persons
4. Shares held by foreign investors 683,373,461 13.69 514,686,722 0 0 -683,373,461 -168,686,739 514,686,722 7.51
Of which: Shares held by foreign 683,373,461 13.69 514,686,722 0 0 -683,373,461 -168,686,739 514,686,722 7.51 corporations
Shares held by foreign natural persons
Total number of shares subject to 1,206,528,316 24.18 1,859,197,460 0 0 -1,206,528,316 652,669,144 1,859,197,460 27.14 restrictions on sales
II. Shares not subject to restrictions on sales
1. RMB-denominated ordinary shares 3,784,000,000 75.82 0 0 0 1,206,528,316 1,206,528,316 4,990,528,316 72.86
2. Foreign shares listed domestically
3. Foreign shares listed overseas
4. Others
Total of shares not subject to 3,784,000,000 75.82 0 0 0 1,206,528,316 1,206,528,316 4,990,528,316 72.86 restrictions on sales
III. Total number of shares 4,990,528,316 100.00 1,859,197,460 0 0 0 1,859,197,460 6,849,725,776 100.00
Notes: 1. In April 2011, the Company issued 1,859,197,460 shares subject to restrictions on sales in a non-public manner to Shougang Corporation, Yingda International Holdings Corporation, Ltd. and Deutsche Bank Luxembourg S.A., who subscribed to 691,204,239 shares, 653,306,499 shares and 514,686,722 shares, respectively. The shares that the said investors subscribed to are locked for 60 months from 26 April 2011. The Company will apply to the Shanghai Stock Exchange (“SSE”) for the non-public offering of these shares on 26 April 2016. 2. On 18 May 2011, the Company issued 416 million shares subject to restrictions on sale. 3. On 20 October 2011, the Company issued 790,528,316 shares subject to restrictions on sale.
10 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 05 E_Huaxia_Section IV.indd P.10 Changes in Shares Subject to Restrictions on Sales (Unit: Share) Number of Increase in Number of Number of shares subject the number of shares released shares subject Reason for Date on which to restrictions shares subject Shareholders from restrictions to restrictions restrictions shares become on sales at the to restrictions on sales during on sales at the on sales tradable beginning of on sales during the year end of the year the year the year Shougang Corporation 269,634,462 269,634,462 691,204,239 691,204,239 (Refer to Notes) 20 October 2011 Yingda International 253,520,393 253,520,393 653,306,499 653,306,499 (Refer to Notes) 20 October 2011 Holdings Corporation, Ltd. Deutsche Bank 121,000,000 121,000,000 514,686,722 514,686,722 (Refer to Notes) 18 May 2011 Luxembourg S.A.
Deutsche Bank 295,000,000 18 May 2011 562,373,461 0 0 – Aktiengesellschaft 267,373,461 20 October 2011 Total 1,206,528,316 1,206,528,316 1,859,197,460 1,859,197,460 – –
Notes: In April 2011, the Company issued 1,859,197,460 shares subject to restrictions on sales in a non-public manner to Shougang Corporation, Yingda International Holdings Corporation, Ltd. and Deutsche Bank Luxembourg S.A., who subscribed to 691,204,239 shares, 653,306,499 shares and 514,686,722 shares, respectively. The shares that the said investors subscribed to are locked for 60 months from 26 April 2011. The Company will apply to the Shanghai Stock Exchange (“SSE”) for the non-public offering of these shares on 26 April 2016. II. dETAIls of Share and Bond Issuance and Initial Public Offering i. Share and bond issuance in the previous three years (Unit: share, RMB) Type of shares and Issuing price Volume approved Issuing date Volume Listing date derivative bonds (RMB) to be listed A share 22 April 2011 10.87 1,859,197,460 26 April 2011 0
Notes to the issuance in the previous three years: The Company issued 1,859,197,460 ordinary shares denominated in RMB (A share) to Shougang Corporation, Yingda International Holdings Corporation, Ltd. and Deutsche Bank Luxembourg S.A. at the price of RMB10.87 per share, raising a total of RMB20,209,476,389.00, as reviewed and approved by the first extraordinary general meeting of the Company in 2010, and approved in the Reply of China Banking Regulatory Commission (“CBRC”) on Non-public Offering of RMB Ordinary Shares by Hua Xia Co., Limited and Relevant Shareholders’ Qualifications (Y.J.F. (2010) No. 574) and the Reply of China Securities Regulatory Commission (“CSRC”) on Approving Non-public Offering of Shares by Hua Xia Co., Limited (ZH.J.X.K (2011) No. 207). These shares are locked for 60 months from 26 April 2011. The Company will apply to SSE for the non-public offering of these shares on 26 April 2016. ii. Changes in the total number and structure of shares during the reporting period On 26 April 2011, the total number of shares of the Company increased from 4,990,528,316 to 6,849,725,776 due to the non-public offering, of which the number of tradable shares subject to restrictions on sale increased from 1,206,528,316 to 3,065,725,776, while tradable shares not subjected to restrictions on sales went through no change. On 18 May 2011, the Company issued 416 million tradable shares subject to restrictions on sale, reducing the total number from 3,065,725,776 to 2,649,725,776, while increasing the number of shares not subject to restrictions on sale from 3,784 million to 4.2 billion. On 20 October 2011, the Company issued 790,528,316 tradable shares subject to restrictions on sale, reducing the total number from 2,649,725,776 to 185,919,746, while increasing the number of shares not subject to restrictions on sale from 4.2 billion to 4,990,528,316.
Annual Report 2011 11
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 05 E_Huaxia_Section IV.indd P.11 Dates on which shares subject to restrictions on sales become tradable
(Unit: Share)
Number of shares Remaining number Remaining number of Date tradable released from of shares subject to shares not subject to Remarks restrictions on sale restrictions on sale restrictions on sale
22 April 2016 1,859,197,460 0 6,849,725,776
iii. During the reporting period, the Company did not have any employee shares. III. Particulars of Shareholders
i. Number of shareholders and particulars of shareholding
(Unit: Share)
Total number of shareholders Total number of shareholders one month before 126,774 140,862 as at the end of 2011 the issuing date of this annual report
Particulars of shareholding of the top 10 shareholders
Increase/ Numbers of Number of pledged or Number of Nature of decrease in shareholding shares subject locked-up shares Shareholders shares held by shareholder the reporting (%) to restrictions shareholders period on sale Share status Number
State-owned Shougang Corporation 691,204,239 20.28 1,388,851,181 691,204,239 None legal person
Yingda International Holdings State-owned 653,306,499 18.24 1,249,226,892 653,306,499 None Corporation, Ltd. legal person
Deutsche Bank Luxembourg S.A. Foreign legal person 514,686,722 9.28 635,686,722 514,686,722 None
Deutsche Bank Aktiengesellschaft Foreign legal person 0 8.21 562,373,461 0 None
State-owned legal Hongta Tobacco (Group) Co., Ltd. 0 4.37 299,600,000 0 None person
Domestic non-state- Runhua Group Co., Ltd. -5,538,435 3.48 238,054,265 0 Pledged 237,000,000 owned legal person
Sal. Oppenheim jr. & Cie. Foreign legal person 0 2.50 171,200,000 0 None Kommanditgesellschaft auf Aktien
State-owned Beijing Sanjili Energy Co., Ltd. -8,101,500 1.57 107,841,472 0 Pledged 50,000,000 legal person
Domestic non-state- Shanghai Giant Lifetech Co., Ltd. 1,120,600 1.31 89,568,322 0 Pledged 88,440,000 owned legal person
Boshi Emerging Growth Stock Others 5,602,263 0.96 65,602,280 0 None Securities Investment Fund
12 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 05 E_Huaxia_Section IV.indd P.12 Particulars of shareholding of the top 10 shareholders not subject to restrictions on sales
Number of shares not subject Shareholders Type of shares to restrictions on sales
Shougang Corporation 697,646,942 RMB-denominated ordinary shares
Yingda International Holdings Corporation, Ltd. 595,920,393 RMB-denominated ordinary shares
Deutsche Bank Aktiengesellschaft 562,373,461 RMB-denominated ordinary shares
Hongta Tobacco (Group) Co., Ltd. 299,600,000 RMB-denominated ordinary shares
Runhua Group Co., Ltd. 238,054,265 RMB-denominated ordinary shares
Sal. Oppenheim jr. & Cie. Kommanditgesellschaft auf Aktien 171,200,000 RMB-denominated ordinary shares
Deutsche Bank Luxembourg S.A. 121,000,000 RMB-denominated ordinary shares
Beijing Sanjili Energy Co., Ltd. 107,841,472 RMB-denominated ordinary shares
Shanghai Giant Lifetech Co., Ltd. 89,568,322 RMB-denominated ordinary shares
Boshi Emerging Growth Stock Securities Investment Fund 65,602,280 RMB-denominated ordinary shares
In the reporting period, Deutsche Bank Luxembourg S.A. was a wholly-owned subsidiary of Deutsche Bank Aktiengesellschaft. Deutsche Bank Aktiengesellschaft completed the delivery of Remarks on the connected 100% shares of Sal. Oppenheim jr. & Cie. S.C.A. which holds 100% interests of Sal. Oppenheim relation or concerted action of jr. & Cie. Kommanditgesellschaft auf Aktien on 15 March 2010. For details, please refer to the the above shareholders provisional announcement of the Company on 18 March 2010. The Company has no knowledge of any other connected relations among other shareholders.
ii. Share transfer
1. In September 2009, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) approved the transfer of 595,920,393 shares held by State Grid Corporation of China in the Company to SGCC Asset Management Co., Ltd. (renamed as Yingda International Holdings Corporation, Ltd.). In December 2010, the above-mentioned shareholding transfer was approved by the CBRC. Shareholding ownership transfer registration was processed as at 25 February 2011.
2. In September 2011, Deutsche Bank Aktiengesellschaft, a shareholder of the Company, acquired 171,200,000 shares held by Sal. Oppenheim jr. & Cie. Kommanditgesellschaft auf Aktien in the Company, and the shareholding transfer was approved by the CBRC. As at the end of the reporting period, the shareholding transfer registration was still under progress.
Annual Report 2011 13
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 05 E_Huaxia_Section IV.indd P.13 iii. Number of shares subject to restrictions on sales and restrictions on sales
(Unit: Share)
Particulars of trading of shares subject to Shareholder Numbers of restrictions on sales subject to shares subject No. Date on Restrictions on sales restrictions to restrictions Number which shares on sales on sale of shares become tradable tradable The Company issued 1,859,197,460 ordinary shares subject to restrictions on sales in a non- Shougang public manner. The shares all investors subscribed 1 691,204,239 2016.04.26 691,204,239 Corporation to will be locked for 60 months from 26 April 2011. The Company will apply to SSE for the non-public offering of these shares on 26 April 2016. The Company issued 1,859,197,460 ordinary shares subject to restrictions on sales in a non- Yingda International public manner. The shares all investors subscribed 2 Holdings 653,306,499 2016.04.26 653,306,499 to will be locked for 60 months from 26 April 2011. Corporation, Ltd. The Company will apply to SSE for the non-public offering of these shares on 26 April 2016. The Company issued 1,859,197,460 ordinary shares subject to restrictions on sales in a non- Deutsche Bank public manner. The shares all investors subscribed 3 514,686,722 2016.04.26 514,686,722 Luxembourg S.A. to will be locked for 60 months from 26 April 2011. The Company will apply to SSE for the non-public offering of these shares on 26 April 2016.
iv. Particulars of shareholders holding over 5% shares of the Company
The Company has no controlling shareholders or de facto controller. After the non-public offering of the Company on 26 April 2011, Shougang Corporation has become the largest shareholder of the Company.
As at the end of the reporting period, shareholders holding over 5% shares of the Company were Shougang Corporation (20.28%), Yingda International Holdings Corporation, Ltd. (18.24%), Deutsche Bank Luxembourg S.A. (9.28%) and Deutsche Bank Aktiengesellschaft (8.21%).
1. Shougang Corporation
Founded on 15 October 1992, Shougang Corporation grew out of Shijingshan Steel and Iron Works established in 1919 which was reorganized into Shougang Group in September 1996. As the parent company of Shougang Group, Shougang Corporation operated all the assets of Shougang Group. On 2 August 1999, Shougang Corporation, as a state-owned asset investment entity authorized by the People’s Government of Beijing Municipality, was restructured into a solely state-owned company as approved by the State Economic and Trade Commission and the People’s Government of Beijing Municipality. The registered capital was RMB7,263.94 million and Mr. Zhu Jimin was the legal representative. Shougang Corporation is a large enterprise group with the operation covering different industries, regions and countries. Its core businesses include manufacturing, construction, geologic exploration, transportation, foreign trade, telecommunication, finance and insurance, scientific research and comprehensive technology service, domestic commerce, public catering, material supply, warehouse, real estate, residential service, consultation, leasing, agriculture, forestry, husbandry, fishery (except for those without special license) and authorized state-owned asset management.
14 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 05 E_Huaxia_Section IV.indd P.14 The equity relationship between the Company and Shougang Corporation as the largest shareholder is demonstrated as follows:
State-owned Assets Supervision and Administration Commission of the People’s Government of Beijing Municipality
100% Beijing State-owned Assets Operation and Management Center
100%
Shougang Corporation
20.28% Hua Xia Bank Co., Limited
2. Yingda International Holdings Corporation, Ltd.
Yingda International Holdings Corporation, Ltd. (abbreviated as “Yingda Group Company” and formerly known as SGCC Asset Management Co., Ltd.) is a wholly-owned subsidiary of State Grid Corporation of China with a registered capital of RMB16 billion and Wang Fenghua as its legal representative. It mainly deals with investment and asset operation and management, asset custody; services in corporate restructuring, M&A, strategic placement, start-up business; investment advisory and consultation etc.
3. Deutsche Bank Luxembourg S.A.
Deutsche Bank Luxembourg S.A. was registered in Luxembourg as a limited liability company with Ernst Wilhelm Contzen as its legal representative and a registered capital of EUR2,465 million. It is a wholly-owned company of Deutsche Bank Aktiengesellschaft. The company is responsible for all sorts of banking and economic businesses in Luxembourg and overseas, including account settlement for the company itself and the third party and providing legal insurance agency services and other directly or indirectly related businesses for personal customers. It is authorized to involve in equity participation and set up branches and representative offices in Luxembourg or overseas.
4. Deutsche Bank Aktiengesellschaft
Deutsche Bank Aktiengesellschaft, incorporated in Frankfurt, Germany, is a limited liability company, with Mr. Josef Ackerman as the legal representative and a registered capital of EUR2,379.5 million. It is mainly engaged in various banking business by itself or its subsidiaries or associated companies, and provides services concerning capital, fund management, real estate finance, financing, research and consultation. As long as in compliance with the law, Deutsche Bank Aktiengesellschaft is authorized to deal with various transactions, take all measures helpful to the realization of its objective, especially in respect of the purchase and assignment of real estate, establishment of branches both at home and abroad, purchase, management and sales of its interests in other enterprises and conclusion of agreements with them.
Annual Report 2011 15
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 05 E_Huaxia_Section IV.indd P.15 Basic Information on Directors, Supervisors, Senior Management and Employees I. Basic Information on Directors, Supervisors and Senior Management
i. Change of shares held by Directors, Supervisors and Senior Management members and their remuneration
Remuneration Equity Remuneration (in RMB10,000) Number of Increase/ incentives or allowances Number of (before tax) shares held decrease of granted by paid by shares held paid by the Name Position Gender Year of birth Tenure at the shares during the Company shareholder at the end Company beginning the reporting during institutions of the year during the of the year period the reporting or connected reporting period institutions period Wu Jian Chairman Male 1954 30 October 2010 – 30 October 2013 0 0 0 280 None No Fang Jianyi Vice Chairman Male 1953 30 October 2010 – 30 October 2013 0 0 0 9.6 None Yes Li Ruge Vice Chairman Male 1963 30 October 2010 – 30 October 2013 0 0 0 8.4 None Yes Sun Weiwei Director Female 1955 30 October 2010 – 30 October 2013 0 0 0 9.6 None Yes Ding Shilong Director Male 1963 30 October 2010 – 30 October 2013 0 0 0 9.6 None Yes Robert John Rankin Director Male 1963 30 October 2010 – 30 October 2013 0 0 0 9.0 None Yes Christian Klaus Ricken Director Male 1966 30 October 2010 – 30 October 2013 0 0 0 8.4 None Yes Zhang Meng Director Female 1958 30 October 2010 – 30 October 2013 0 0 0 8.4 None Yes Fan Dazhi Director, President Male 1964 30 October 2010 – 30 October 2013 0 0 0 280 None No Ren Yongguang Director, Vice President Male 1959 30 October 2010 – 30 October 2013 0 0 0 167 None No
Zhao Junxue Director Secretary of the Board Male 1958 30 October 2010 – 30 October 2013 0 0 0 215 None No Sheng Jiemin Independent Director Male 1941 30 October 2010 – 10 October 2012 0 0 0 22.6 None No Luo Xiaoyuan Independent Director Female 1954 30 October 2010 – 10 October 2012 0 0 0 23.2 None No Lu Jianping Independent Director Male 1963 30 October 2010 – 10 October 2012 0 0 0 20.8 None No Xiao Weiqiang Independent Director Male 1954 30 October 2010 – 30 October 2013 0 0 0 20.8 None No Zeng Xiangquan Independent Director Male 1955 30 October 2010 – 30 October 2013 0 0 0 20.2 None No Yu Changchun Independent Director Male 1952 30 October 2010 – 30 October 2013 0 0 0 23.2 None No Pei Changhong Independent Director Male 1954 30 October 2010 – 30 October 2013 0 0 0 22.0 None No Chairperson of the Board of Cheng Yanhong Female 1958 29 October 2010 – 29 October 2013 0 0 0 280 None No Supervisors Li Liangang Supervisor Male 1968 30 October 2010 – 30 October 2013 0 0 0 10.8 None Yes Tian Ying Supervisor Female 1965 30 October 2010 – 30 October 2013 0 0 0 9.6 None Yes Cheng Chen Supervisor Female 1975 30 October 2010 – 30 October 2013 0 0 0 4.2 None Yes Guo Jianrong Supervisor Male 1962 30 October 2010 – 30 October 2013 0 0 0 10.2 None Yes Liu Guolin Supervisor Male 1951 30 October 2010 – 30 October 2013 0 0 0 4.8 None Yes Gao Peiyong External Supervisor Male 1959 30 October 2010 – 30 October 2013 0 0 0 17.2 None No Qi Yudong External Supervisor Male 1966 30 October 2010 – 30 October 2013 0 0 0 17.2 None No Chairman of the Labor Union Starting from 13 October 2007 Li Guopeng Male 1955 0 0 0 215 None No Employee Supervisor 29 October 2010 – 29 October 2013 Li Qi Employee Supervisor Male 1958 29 October 2010 – 29 October 2013 0 0 0 199 None No Zhang Guowei Employee Supervisor Male 1959 29 October 2010 – 29 October 2013 0 0 0 134 None No Wang Yaoting Vice President Male 1963 30 October 2010 – 30 October 2013 0 0 0 215 None No Li Xiang Vice President Male 1957 30 October 2010 – 30 October 2013 0 0 0 215 None No Huang Jinlao Vice President Male 1972 30 October 2010 – 30 October 2013 0 0 0 109 None No Song Jiqing Principal of Financial Affairs Male 1965 30 October 2010 – 30 October 2013 0 0 0 191 None No Total / / / / / / / 2789.8 / /
16 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 06 E_Huaxia_Section V.indd P.16 Notes: 1. According to the Regulations of Hua Xia Bank Co., Limited on Allowance of Directors and Supervisors, Directors and Supervisors who receive remuneration from the Company should not claim the allowance; the allowance of Directors and Supervisors includes compensation for services, functionary allowance of committees, and allowances for meeting, inspection, investigation and training. Compensation for services refers to the basic compensation to Independent Directors and External Supervisors for their work in the Board of Directors and the Board of Supervisors, and is RMB100,000 (before tax) per person per year; functionary allowance of committees refers to the functionary allowance to Directors and Supervisors for their work in the special committees, and is RMB2,000 (before tax) per person per month (RMB24,000 per year). The Directors and Supervisors that work in many special committees will be paid according to the number of committees they work in; allowances for meeting, inspection, investigation and training refer to the allowance to Directors and Supervisors for their attendance in the meetings of the Board of Directors and the Board of Supervisors, work inspections, investigations and trainings, which is RMB6,000 (before tax) for each time. 2. The total remuneration of the Senior Management members in 2011 covers their salary in 2011 as well as their bonus for 2010 paid in 2011, of which salary in 2011 is decided and paid in accordance to the Administrative Measures of Hua Xia Bank Co., Limited on the Remuneration of Senior Management Members at the Head Office Level, bonus for 2010 paid in 2011 is decided and paid in accordance to the Administrative Measures of Hua Xia Bank Co., Limited on the Remuneration of Senior Management Members at the Head Office Level (Trial). 3. The total remuneration of Song Jiqing, Li Qi and Zhang Guowei includes their salary and part of their bonus for 2011 and bonus for 2010 payable in 2011. 4. Vice President Ren Yongguang started receiving his remuneration from 26 March 2010, and Vice President Huang Jinlao started receiving his remuneration from 1 October 2010. Their bonus for 2010 payable in 2011 is calculated since the above date respectively. 5. Li Guopeng, Chairman of the Labor Union, is paid according to the standard of a vice president. ii. Position of Directors and Supervisors in shareholder entities
Name Name of shareholder institution Position Tenure Fang Jianyi Shougang Corporation Director, Chief Accountant June 1998 to now Sun Weiwei Shougang Corporation Deputy General Manager November 2003 to now Yingda International Holdings Deputy General Manager, Member of Ding Shilong December 2010 to now Corporation, Ltd. Leading Party Group Chief Executive Officer of Asia Robert John Deutche Bank Pacific (ex Japan) and director of the June 2009 to now Rankin Group’s Executive Board Member of Private & Business Clients Executive Board, Chief Operating Officer, Global Director Christian Klaus Deutche Bank of Deposit and Payment product October 2008 to now Ricken agency; member of the Management Board of Deutsche Bank Privat-und Geschäftskunden AG Zhang Meng Hongta Tobacco (Group) Co., Ltd. Chief Financial Officer December 2008 to now Li Liangang Runhua Group Co., Ltd. Director July 2009 to now Deputy General Manager, Chief Tian Ying Beijing Sanjili Energy Co., Ltd. December 1999 to now Accountant Guo Jianrong Baotou Huazi Industry Co., Ltd. Assistant to General Manager February 2002 to now Shanghai Construction (Group) Liu Guolin Director, Chief Accountant January 1994 to now Corporation
Annual Report 2011 17
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 06 E_Huaxia_Section V.indd P.17 iii. Professional experiences of Directors, Supervisors and Senior Management members and their positions or concurrent jobs in other institutions Wu Jian, Chairman of the Board of Directors, male, was born in March 1954. He holds a bachelor’s degree and is a senior economist. He previously served as Deputy Head of the Equipment Credit Division of Beijing Branch of Industrial and Commercial Bank of China (“ICBC”), Deputy Head and Head of Chaoyang District Office of Beijing Branch of ICBC, Deputy General Manager and Member of Leading Party Group and then General Manager and Secretary of Leading Party Group of Beijing Branch of Bank of Communications, Member of Leading Party Group, Head of Discipline Inspection Team, Vice President and Member of the Party Committee of Bank of Communications; and Director, President and Deputy Secretary of the Party Committee of Hua Xia Bank Co., Limited (“Hua Xia Bank”). He currently serves as Chairman and Secretary of the Party Committee of Hua Xia Bank. Fang Jianyi, Vice Chairman, male, was born in July 1953. He holds a master’s degree and is a senior accountant and senior engineer. He served as Assistant to General Manager and Manager of the Financial Department of Shougang NEC Electronics Co., Ltd., Deputy Head of the Financial Division of Shougang International Economic and Trade Department, Deputy Head of the Financial Division of the Business Department of China Shougang International Trade & Engineering Corporation (“Shougang International”), Assistant to General Manager of Shougang International, Deputy General Manager of Shougang Shipping Company, Head of the Financing Division of the Finance and Accounting Department of Shougang’s overseas Headquarter and Deputy Head of the Finance and Accounting Department of Shougang overseas Headquarter, Deputy Head of the Development Department, and Financial Assistant to General Manager of Shougang Corporation. He currently serves as Director and Chief Accountant of Shougang Corporation. Li Ruge, Vice Chairman, male, was born in August 1963. He holds a master’s degree and is a senior accountant. He served as Deputy Director, Director and Member of the Party Committee of Shandong Heze Power Plant, General Manager and Member of the Party Committee of Shandong Power Fuel Company, Head of the Financial Department of Shandong Power Supply Bureau, Director and Vice Chairman of Hua Xia Bank Co., Limited, Director of Bank of Communications, Vice Chief Accountant of Shandong Power Group Corporation (Bureau), Vice Chairman of Xiangcai Securities Co., Ltd., Chief Accountant and Director of Shandong Electric Power Group Corporation, Chairman of Yingda International Trust Investment Corporation, Deputy General Manager and Member of the Party Committee of Shandong Electric Power Group Corporation, Chief Accountant of China Guodian Corporation, and Vice Chief Accountant, Head of the Financial Department and Head of the Fund Management Center of State Grid Corporation of China. He currently serves as Member of Leading Party Group and Chief Accountant of State Grid Corporation of China. Sun Weiwei, Director, female, was born in June 1955. She holds a master’s degree and is a senior accountant, certified public accountant and practicing certified tax agent. She served as Deputy Head and Head of the Financial Department, Deputy General Manager and Executive Deputy General Manager of Taiyuan Heavy Machinery Group Co., Ltd., and Assistant to General Manager of Shougang Corporation. She currently serves as Deputy General Manager of Shougang Corporation. Ding Shiling, Director, male, was born in July 1963. He is a PhD in management and senior accountant. He served as Deputy Chief and Chief of the General Financial Section of Henan Power Industry Bureau, Deputy Head of the Financial Division, Assistant Consultant (holding a temporary leading post) of Electric Regulation Division and State-owned Asset Supervision Division of the Electric Power Department and Associate Chief Accountant and Head of the Financial Division of Henan Power Company (Bureau). He later became Chief Accountant of Henan Power company, Chairman of Henan Kaixiang Electric Power Industrial Holding Co., Ltd., Deputy Head of the Financial Asset Management Department of State Grid Corporation of China, Deputy General Manager and Member of Leading Party Group of SGCC Asset Management Co., Ltd. He currently serves as Deputy General Manager and Member of Leading Party Group of Yingda International Holdings Corporation, Ltd. Robert John Rankin, Director, male, Australian, was born in September 1963. He graduated from the University of Sydney and obtained a bachelor’s degree in economics and law. He previously served as securities and M&A lawyer of Blake Dawson, and worked in United Bank of Switzerland AG (UBS) and its predecessor, including as member of UBS Investment Bank Board, Executive Director and Head of Investment Banking Asia Pacific in UBS. He currently serves as Chief Executive Officer and Asia Pacific (excluding Japan) and member of the Group’s Executive Board. Christian Klaus Ricken, Director, German, male, was born in December 1966. He holds a PhD degree. He previously served as Deputy Chief Director of Management Reporting Division, Chief Director of Group Budget Division, Chief Director and Managing Director of Group Planning Division, Chief Director of Strategic and Controlling Division and Investment and Controlling Division, Global Director of PBC Finance Division, and Chief Financial Officer of PBC, as well as member of the Account Committee of Association of German Banks. He currently serves as member of Private & Business Clients Executive Board (PBC), Chief Operating Officer, Global Director of Deposit and Payment Product Agency; and member of the Management Board of Deutsche Bank Privat-und Geschäftskunden AG. Zhang Meng, Director, female, was born in October 1958. She holds a master’s degree, and is an assistant accountant and IPO accountant. She served as Deputy Chief and Chief of the Industrial Finance Section, Associate Chief Accountant and Chief Financial Officer of Yuxi Hongta Tobacco (Group) Co., Ltd. She currently serves as Chief Financial Officer of Hongta Tobacco (Group) Co., Ltd.
18 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 06 E_Huaxia_Section V.indd P.18 Fan Dazhi, Director and President, male, was born in September 1964. He holds a master’s degree, and is a senior accountant. He previously served as a teacher of Dongbei University of Finance and Economics, General Manager of the Head Office of Investment Bank of Beijing International Trust and Investment Co, Ltd., Member of the Leading Party Group and Deputy Head of Beijing Overseas Financing and Investment Management Center, Member of the Leading Party Group, Director and Deputy General Manager of Beijing State-owned Assets Management Co., Ltd., Vice Secretary of the Party Committee, Director and General Manager of Beijing Securities Co., Ltd., Chairman of the Board of Supervisors of UBS Securities Company Limited, and Director, Deputy Secretary of the Party Committee, Vice President and Executive Vice President of Hua Xia Bank Co., Limited (“Hua Xia Bank”). He currently serves as Chairman, President and Deputy Secretary of the Party Committee of Hua Xia Bank. Ren Yongguang, Director, Vice President, male, was born in December 1959. He holds a bachelor’s degree, and is a senior economist. He used to be Deputy Head and Head of Foreign Fund Management Division, Head of Foreign Exchange Management Division, Director of Executive Office and Head of Plan Fund Division of Beijing Branch of the People’s Bank of China (“PBOC”), Head of Credit Management Division of Business Management Department, Deputy Director and Member of Leading Party Group of Business Management Department of the PBOC, member of the Preparation Team for and Deputy Director General and Member of Leading Party Group of CBRC Beijing Office. He currently serves as Director, Vice President and Deputy Secretary of the Party Committee of Hua Xia Bank Co., Limited. Zhao Junxue, Director, Secretary of the Board, male, was born in April 1958. He holds a master’s degree, and is a senior economist. He served as Assistant to General Manager of South Branch of China National Packaging Corporation, Deputy General Manager and General Manager of Yuehai Finance Holding Co., Ltd., and Secretary of Leading Party Group and General Manager of Shenzhen Branch of Hua Xia Bank Co., Limited (“Hua Xia Bank”). He currently holds the position of Director and Secretary of the Board of Hua Xia Bank. Luo Xiaoyuan, Independent Director, female, was born in January 1954. She has a bachelor’s degree, and is a senior economist and (non-practicing) certified public accountant. She served as Associate Editor in Chief and Head of the Editorial Department of the Finance Research, Head of the Editorial Department of the Journal of Accounting Society of China and the Journal of The Chinese Institute of Certified Public Accountants, a member and Head of the General Office of the National Examination Commission of Certified Public Accountants, Chief Accountant and Head of the Registration Center of Chinese Institute of Certified Public Accountants, etc. Lu Jianping, Independent Director, male, was born in December 1963. He is a PhD, tutor to PhD students and professor. He served as a lecturer and associate professor of the Philosophy Department of Zhejiang University, Director of the Foreign Economic Law Research Institute of Zhejiang University, Dean and professor of the International Economic Law Department of Zhejiang University, Dean and professor of the Public Management Department of Zhejiang University, and Executive Head, professor and a tutor to PhD students of the Criminal Law Research Center of Renmin University of China. He currently serves as Deputy Dean, professor and a tutor to PhD students of the Criminal Law Science Research Institute of Beijing Normal University. Sheng Jiemin, Independent Director, male, was born in March 1941. He has a bachelor’s degree and a title of professor. He used to teach in East China University of Politics and Law, Shanghai Fudan University and the Law School of Peking University. He is now Director of the Economic Law Research Institute, professor and tutor to PhD students of Peking University. Xiao Weiqiang, Independent Director, male, was born in April 1954. He holds a bachelor’s degree. He used to be Chief Partner of the Shanghai Office, Beijing Office and North China of KPMG Huazhen Certified Public Accountants. Zeng Xiangquan, Independent Director, male, was born in November 1955. He is a PhD in economics, professor and tutor to PhD students. He has been Dean of the School of Labor and Human Resources of Renmin University of China since 2000. Yu Changchun, Independent Director, male, was born in February 1952. He is a PhD and professor. He used to be associate professor, dean of the teaching-research section and Deputy Dean of the Accounting Department of Jilin Finance and Trade College; Dean, professor and MA student adviser of the Accounting Department of Changchun Taxation College; and Director of Teaching and Research Center, professor and tutor to PhD students of Beijing National Accounting Institute. Pei Changhong, Independent Director, male, was born in May 1954. He is a PhD and researcher. He used to be Director of Beijing Municipal Institute of Rural Economy, Deputy Director, Member of Leading Party Group and senior economist of Beijing Municipal Research Center of Rural Economy, researcher and assistant to Deputy Director General of Institute of Finance and Trade Economics, Deputy Director and Director of Foreign Affairs Bureau, and tutor to PhD students of the Graduate School of the Chinese Academy of Social Sciences (CASS), and Director General of Institute of Finance and Trade Economics of CASS. He once held a temporary leading post of Vice Mayor of the People’s Government of Hangzhou. He now serves as Director General and Secretary of the Party Committee of the Institute of Economics of CASS. Cheng Yanhong, Chairperson of the Board of Supervisors, female, was born in February 1958. She holds a bachelor’s degree and a title of senior accountant. She served as Deputy Head of the General Affairs Division, Deputy Head and Head of the Debt Division, Member of Leading Party Group and Deputy Director General of Beijing Municipal Bureau of Finance, Secretary of the Party Committee and General Manager of Beijing Securities Co., Ltd., Deputy Secretary and Secretary of the Beijing Finance Working Committee, and Head of the Finance Office of Beijing Municipal Government. She currently serves as Chairperson of the Board of Supervisors, Deputy Secretary of the Party Committee and Secretary of the Discipline Inspection Committee of Hua Xia Bank Co., Limited. Li Liangang, Supervisor, male, was born in May 1968. He holds a bachelor’s degree, and is a senior economist. He used to be Deputy General Manager of the Finance Department of Shandong Office, and General Manager of the Shandong Securities Operations Department of China New Technology Venture Capital Company, Head of the Corporate Banking Division of Jinan Branch of Hua Xia Bank Co., Limited, Deputy Director of the Board of Directors’ Office, Director of the Board of Directors’ Office and Director of the President’s Office, Secretary of the Board of Directors and Chief Financial Officer of Runhua Group. He currently serves as Director of Runhua Group and Director and Deputy General Manager of Shandong Synthesis Electronic Technology Co., Ltd.
Annual Report 2011 19
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 06 E_Huaxia_Section V.indd P.19 Tian Ying, Supervisor, female, was born in April 1965. She holds a master’s degree, and is a senior accountant. She served as teacher of Beijing Finance College and Manager of the Fund and Finance Department of Beijing Sanjili Energy Co., Ltd. She currently serves as Deputy General Manager and Chief Accountant of Beijing Sanjili Energy Co., Ltd. Cheng Chen, Supervisor, female, was born in March 1975. She holds an EMBA degree. She previously served as Deputy General Manager of Shanghai Giant Biotech Co., Ltd., and currently takes the positions of Executive General Manager of Giant Investment Co., Ltd. and General Manager of Shanghai Goldpartner Biotech Co., Ltd. Guo Jianrong, Supervisor, male, was born in August 1962. He holds a bachelor’s degree, and is an economist. He served as an accountant of the savings bank, member of the Survey and Research Office, Deputy Chief of the Plan and Survey Section, Deputy Chief of the General Plan Section (in charge of daily operation) etc. of Baotou Branch of the People’s Bank of China, and Principal of the Plan and Credit Department, Principal, Deputy Head and Head of the General Plan Division, Manager of the Savings Deposit Department, Manager of the Business Department etc. of Baotou Branch of Bank of Communications. He currently serves as Assistant to General Manager of Baotou Huazi Industry Co., Ltd. Liu Guolin, Supervisor, male, was born in March 1951. He holds a bachelor’s degree, and is a senior accountant. He served as Deputy Head and Head of the Finance and Accounting Division of Shanghai Construction Engineering Bureau. He currently serves as Director and Chief Accountant of Shanghai Construction (Group) Corporation. Gao Peiyong, External Supervisor, male, was born in January 1959. He is a PhD and professor. He was once a lecturer and associate professor of the Finance Department of Tianjin University of Finance and Economics, Assistant to the President and professor of Renmin University of China, and Secretary of the Party Committee, Deputy Director General and professor of Institute of Finance and Trade Economics of the Chinese Academy of Social Sciences (CASS). He currently serves as Director of Institute of Finance and Trade Economics of CASS. Qi Yudong, External Supervisor, male, was born in September 1966. He is a PhD, professor and tutor to PhD students. He once was a teacher of the Finance Department of Capital University of Economics and Business, Executive Associate Chief Editor and Head of the Editorial Department of Journal of Capital University of Economics and Business, Deputy Head of the Department of Enterprise Management, Executive Deputy Director and Director of the MBA Education Center of Capital University of Economics and Business. He currently serves as Head of the China Center for the Research of Industrial Economics and Dean of the Business Administration College of Capital University of Economics and Business. Li Guopeng, Employee Supervisor, male, was born in February 1955. He holds a master’s degree, and is a senior economist. He served as Deputy Director of the Financial Research Institute and Deputy Head of the Financial System Reform Office, Head of the Survey Information Division of Shandong Branch of the People’s Bank of China (“PBOC”), and Head of Tai’an Branch of PBOC and Director General and Secretary of Leading Party Group of Tai’an Branch of State Administrative of Foreign Exchange. He successively took several positions in Hua Xia Bank Co., Limited (“Hua Xia Bank”), including Secretary of Leading Party Group and General Manager of Ji’nan Branch, Assistant to President, Member of Leading Party Group, Vice President and Secretary of Leading Party Group of the Business Department of the Head Office, General Manager, Vice President and Member of the Party Committee. He currently serves as Employee Supervisor, Chairman of the Trade Union and Member of the Party Committee of Hua Xia Bank. Li Qi, Employee Supervisor, male, was born in August 1958. He holds a bachelor’s degree, and is a senior economist. He once was a teacher of the Law Department of Shandong University, Deputy General Manager of Rural Credit Cooperative of China in Shandong and Deputy General Manager of Shandong Yingtai Group Corporation. He took several positions in Hua Xia Bank Co., Limited (“Hua Xia Bank”), including Head of the Audit and Compliance Department of Ji’nan Branch, Member of the Discipline Inspection Committee, General Manager of the Legal Affairs Department and Special Assets Resolution Department, Secretary of the Party Committee and General Manager of Chongqing Branch. He currently serves as Employee Supervisor and General Manager of the Audit Department of Hua Xia Bank. Zhang Guowei, Employee Supervisor, male, was born in October 1959. He holds a bachelor’s degree, and is a senior political engineer. He was once the Principal of Beijing Office, Deputy Head of the Fund and Credit Division and Head of Beijing Office of China Rural Area Development Trust and Investment Corporation Beihai Representative Office. He took several positions in Hua Xia Bank Co., Limited (“Hua Xia Bank”), including Deputy General Manager (in charge of daily operation) of Dongsi Sub-branch of the Beijing Management Department, Office Director of the Business Department of the Head Office and Head of the Security Department of the Head Office, Member of Leading Party Group, Head of the Discipline Inspection Team of Dalian Sub-branch, Deputy General Manager (in charge of daily operation) and General Manager of the Legal Affairs Department, and General Manager of the Compliance Department. He currently serves as Employee Supervisor, General Manager and Secretary of the Party Committee of Urumqi Branch of Hua Xia Bank. Wang Yaoting, Vice President, male, was born in July 1963. He is a PhD and senior economist. He served as Deputy Head of the Teaching Materials Division of the Education Department of the People’s Bank of China and previously took several positions in Hua Xia Bank Co., Limited (“Hua Xia Bank”), including Head of the Securities Department and General Manager of the Securities Business Department, Assistant to President and General Manager of the Business Department, General Manger and Secretary of the Party Committee of Hangzhou Branch, and Assistant to President of Hua Xia Bank. He currently serves as Vice President, Member of Leading Party Group and General Manager of Information Technology Department and Director of Collective Project Development Office, Hua Xia Bank. Li Xiang, Vice President, male, was born in December 1957. He holds a master’s degree, and is a senior economist. He served as Secretary of deputy division level of General Office of Jiangsu Provincial Government and took several positions in Hua Xia Bank Co., Limited (“Hua Xia Bank”), including Head of the Banking Department, Member of the Leading Party Group, Deputy General Manager, Secretary of the Leading Party Group (the Party Committee) and General Manager of Nanjing Branch, and Assistant to President (concurrently General Manager of the Corporate Banking Department) of Hua Xia Bank. He currently serves as Vice President and Member of the Party Committee of Hua Xia Bank.
20 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 06 E_Huaxia_Section V.indd P.20 Huang Jinlao, Vice President, male, was born in September 1972. He is a PhD and an expert receiving special allowance from the State Council. He previously served as Deputy Director of the Domestic Finance Research Office and Director of Research Office of the International Finance Research Institute of Bank of China (BOC), held a temporary leading post of Assistant to Governor of Yanbian Korean Autonomous Prefecture, Jilin Province, Chief Marketing Supervisor of the Personal Banking Department, Deputy Head of the Executive Office, and Chief Supervisor of Customer Relations Management of the Corporate Banking Unit of BOC. He is now Vice President of Hua Xia Bank Co., Limited. Song Jiqing, Principal of Financial Affairs, male, was born in January 1965. He is a PhD and economist. He served as assistant investigator of Beijing Municipal Bureau of Finance, Member of the Leading Party Group and Deputy Director General of Mentougou Local Taxation Bureau, Secretary of the Leading Party Group and Director General of Mentougou Finance Bureau and Secretary of Leading Party Group and Director General of Mentougou Local Taxation Bureau, Assistant to Head of Mentougou District, Member of Leading Party Group and Deputy Head of Mentougou District, Deputy Director of the Finance & Accounting Department, Deputy Director and Director of the General Office and Director of the Information Research Department of National Council for Social Security Fund, and Deputy Chief Financial Officer, Principal of Financial Affairs, Chief Financial Officer and General Manager of the Plan and Finance Department of Hua Xia Bank Co., Limited (“Hua Xia Bank”). He is now Principal of Financial Affairs, CFO and General Manager of the Development Research Department, Hua Xia Bank.
Name Position or concurrent position in other institutions excluding shareholder institutions Wu Jian None Chairman of Beijing West Industries Co., Ltd.; Director of BAIC Motor Co.; Vice Chairman of Jiang Tai Insurance Fang Jianyi Brokers Limited; Director of Beijing Guoxiang Asset Management Co., Ltd. Li Ruge Member of Leading Party Group and Chief Accountant of State Grid Corporation of China. Chairman of Beijing Shougang Machinery & Electric Co., Ltd.; Vice Chairman of Beijing Internal Audit Association; Sun Weiwei Vice Chairman of Beijing Audit Association Director of Huatai Property Insurance Co., Ltd.; Supervisor of Guotai Junan Securities Co., Ltd.; Director of China Ding Shilong Power Finance Co., Ltd.; Chairman of the Board of Supervisors of Yingda Taihe Property Insurance Co., Ltd.; Director of Yingda Securities Co., Ltd.; Director of Yingda Commercial Service Co., Ltd. Robert John Rankin None Christian Klaus Ricken None Zhang Meng Director of Huatai Property Finance Insurance Co., Ltd. and Director of Yunnan Xinxing Investment Co., Ltd. Fan Dazhi None Ren Yongguang None Zhao Junxue None Director of Institute of Economic Law, Peking University; Independent Director of Sunvim Group Co., Ltd., Hualu Sheng Jiemin Hengsheng Group Co., Ltd., Tongli Cement and Xiangtan Electrical Machine Co., Ltd. Luo Xiaoyuan External Supervisor of China CITIC Bank Executive Deputy Dean of the Criminal Law Science Research Institute, Beijing Normal University; Independent Lu Jianping Director of Zhejiang Xinhu Zhongbao Co., Ltd. Xiao Weiqiang Independent Director of GuocoLand (China) Limited; Independent Director of CITIC Pacific Dean of the School of Labor and Human Resources, Remin University of China; Independent Director of Beijing Zeng Xiangquan Science Park Development (Group) Co., Ltd.; Independent Director of China Film Group Corporation Independent Director of China National Software & Service Co., Ltd.; Independent Director of Shandong Kingenta Yu Changchun Ecological Engineering Co., Ltd. Director General and Secretary of the Party Committee of the Institute of Economics of the Chinese Academy of Pei Changhong Social Sciences; Independent Director of Hangzhou Jiebai Group Co., Ltd. and Hangzhou Silan Microelectronics Co., Ltd. Cheng Yanhong None Li Liangang Director and Deputy General Manager of Shandong Synthesis Electronic Technology Co., Ltd. Tian Ying None Executive General Manager of Giant Investment Co., Ltd.; General Manager of Shanghai Goldpartner Biotech Co., Cheng Chen Ltd.; Director of Guangxi Beibu Gulf Bank Co., Ltd. Guo Jianrong None Liu Guolin None Director General of the Institute of Finance and Trade Economics of the Chinese Academy of Social Sciences; Gao Peiyong Independent Director of Yantai Wanhua Polyurethanes Co., Ltd.; Independent Director of Shougang Co., Ltd. Head of China Industrial Economic Research Center and Dean of the College of Business Administration of Capital Qi Yudong University of Economics and Business; Independent Director of Zhongtong Bus Holding Co., Ltd.; Independent Director of China Garments Co., Ltd. Li Guopeng None Chairman of Board of Supervisors of Beijing Daxing Hua Xia Village Bank Co., Ltd.; Chairman of Board of Li Qi Supervisors of Sichuan Jiangyou Hua Xia Village Bank Co., Ltd.; Chairman of Board of Supervisors of Kunming Chenggong Hua Xia Village Bank Co., Ltd. Zhang Guowei None Wang Yaoting None Li Xiang None Huang Jinlao None Song Jiqing None iv. Changes in Directors, Supervisors and Senior Management Not applicable. Annual Report 2011 21
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 06 E_Huaxia_Section V.indd P.21 II. Employees
As at the end of the reporting period, the Company had 19,169 employees, including 3,132 dispatched from outside.
Total number of employees 19,169
Number of retired employees to whom the Company has to pay pension 149
Professional composition
Type of professional composition Number (person)
Management 3,591
Business 14,549
Security 1,029
Educational background
Type of educational background Number (person)
Junior college and above 18,941
Below Junior college 228
22 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 06 E_Huaxia_Section V.indd P.22 Corporate Governance Framework I. summary of Corporate Governance The Company adequately implements regulatory requirements related to corporate governance, makes continuous improvement in corporate governance framework, brings more discipline to the operation of the General Meeting of Shareholders, the Board of Directors, the Board of Supervisors and Senior Management in accordance with the Company Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, the Guidelines on Corporate Governance of Joint-Stock Commercial Banks and the Guidelines on Due Diligence for Board of Directors of Joint-Stock Commercial Banks and other relevant laws and regulations. The core objectives are to maximize long-term values for shareholders on the premise of respecting and protecting the interests of depositors. During the reporting period, the Company modified its rules and procedures on corporate governance and further improved its corporate governance mechanism. i. Modification of rules and procedures on corporate governance The Company formulated the Registration and Management Procedures for the Persons with Access to Insider Information of Hua Xia Bank Co., Limited to provide rules and regulations about the scope of insider information and persons with access to such information, the registration and recording of persons with access to insider information and confidential management of insider information. It made timely revisions to further regulate the management procedures for insider information and maintain the principle of equal information disclosures according to regulatory requirements. The Company formulated the System of Accountability for Major Errors in Annual Report Disclosures of Hua Xia Bank Co., Limited to provide rules and regulations about the scope of application, principles, forms and classification of accountability for major errors in annual report disclosures, thereby further enhancing the regulated operation and authenticity, accuracy, completeness and timeliness of information disclosures of the Company. The Company formulated the Work Rules for Secretary of the Board of Hua Xia Bank Co., Limited to set out qualification, appointment and dismissal, responsibilities and legal obligations of Secretary of the Board, clarify his or her job duties and ensure he or she acts on rules and regulations. The Company formulated the Measures of Performance Assessment of Directors of Hua Xia Bank Co., Limited (Trail) and the Measures of Performance Assessment of Supervisors of Hua Xia Bank Co., Limited (Trail) to further improve the corporate governance framework of the Company, bring more discipline to Directors and Supervisors and promote the regulated operation of the Board of Directors and the Board of Supervisors. The Company revised the Measures of Hua Xia Bank Co., Limited on the Remuneration of Senior Management Members at the Head Office Level and the Measures of Hua Xia Bank Co., Limited on the Annual Performance Assessment of Senior Management Members at the Head Office Level to further improve the incentive and restraining mechanism for Senior Management members. ii. Shareholders and the General Meeting of Shareholders The Company has no controlling shareholder. During the reporting period, the Company called and held one meeting and adopted 16 resolutions in accordance with the Rules on General Meetings of Shareholders of Listed Companies, the Articles of Association and the rules of procedure of the General Meeting of Shareholders of the Company. The Company established and maintained effective communication with shareholders, increased representation of public shareholders at the General Meeting of Shareholders and ensured equality of shareholders and their full exercise of rights, including the rights to be informed of, participate in and vote on significant matters of the Company. iii. Directors and the Board of Directors 1. Composition of the Board of Directors and its Activities As at the end of the reporting period, the Board of Directors of the Company had 18 Directors, of which seven were Independent Directors and the other four were Executive Directors. The Board of Directors strictly followed applicable laws and regulations and the Articles of Association in respect of decision-making, authorization and voting procedures. During the reporting period, the Board of Directors held 6 meetings and adopted 49 resolutions in accordance with the Articles of Association and the rules of procedure of the Board of Directors. All Directors attended these meetings, reviewed proposals, and exercised their rights and performed their obligations with due diligence.
Annual Report 2011 23
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 07 E_Huaxia_Section VI.indd P.23 Attendance of Directors at Meetings of the Board Absent from Independent Meetings Meetings Meetings Meetings two consecutive Director Director to be attended attended in attended by attended Absence meetings (Yes or no) this year person correspondence by proxy (Yes or no) Wu Jian No 6 6 3 0 0 No Fang Jianyi No 6 5 3 1 0 No Li Ruge No 6 5 3 1 0 No Sun Weiwei No 6 6 3 0 0 No Ding Shilong No 6 6 3 0 0 No Robert John Rankin No 6 6 3 0 0 No Christian Klaus Ricken No 6 5 3 1 0 No Zhang Meng No 6 4 3 2 0 No Fan Dazhi No 6 6 3 0 0 No Ren Yongguang No 6 6 3 0 0 No Zhao Junxue No 6 6 3 0 0 No Luo Xiaoyuan Yes 6 6 3 0 0 No Sheng Jiemin Yes 6 6 3 0 0 No Lu Jianping Yes 6 5 3 1 0 No Xiao Weiqiang Yes 6 6 3 0 0 No Zeng Xiangquan Yes 6 4 3 2 0 No Yu Changchun Yes 6 6 3 0 0 No Pei Changhong Yes 6 5 3 1 0 No Number of meetings of the Board held this year 6 Of which: Number of onsite meetings 3 Number of meetings held by correspondence 3
Number of meetings held onsite and by correspondence 0
24 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 07 E_Huaxia_Section VI.indd P.24 2. Operation of Special Committees of the Board of Directors During the reporting period, all special committees of the Board of Directors operated in a well-disciplined manner and seriously performed their duties. The Strategy Committee held one meeting, and reviewed the annual work plan of the Strategy Committee and the report on the implementation of the Development Program of Hua Xia Bank 2008-2012 etc. The Risk Management Committee held four meetings, and reviewed the annual work plan, the annual risk management report, the annual risk management strategy and quarterly market risk management reports and other proposals. The Related Party Transactions Control Committee held one meeting, and reviewed the annual work plan, the audit report on connected transactions, the reports on compliance with connected transaction management rules and connected transactions, and the proposals on General Credit Facility of Shougang Corporation, State Grid, Deutsche Bank, Hongta Tobacco (Group) Co., Ltd. and other connected enterprises. The Nomination Committee held one meeting and reviewed the report on the appointment of Vice President. The Remuneration and Assessment Committee conducted three meetings, reviewed duty performance of Directors and Senior Management members in 2010, organized mutual appraisal of Independent Directors, revised the measures and procedures of the remuneration and performance assessment of Senior Management members at the Head Office level, and proposed the plan for performance assessment of Senior Management members with respect to each business/field in charge in 2011. The Audit Committee conducted four meetings, reviewed regular reports, the annual final report of 2010, the profit distribution plan of 2010, the budget plan for 2011 and the self-assessment report on internal control of the Company etc. 3. Establishment and Improvement of Work Rules, Major Work Contents and Performance of Independent Directors The Work Rules for Independent Directors of Hua Xia Bank Co., Limited set out qualifications, nomination, election, replacement, duties, obligations and duty performance of Independent Directors, thereby ensuring Independent Directors perform their duties with due diligence. The Work Rules on Annual Report for Independent Directors of Hua Xia Bank Co., Limited set out better-designed procedures of annual report preparation, review and disclosure, providing adequate oversight by Independent Directors during preparation of the annual report. During the reporting period, there were seven Independent Directors on the Board of Directors of the Company, accounting for over one third of its members. During the reporting period, Independent Directors adequately attended meetings and reviewed proposals, performed the role of conveners for the Related Party Transactions Control Committee, the Nomination Committee, the Remuneration and Assessment Committee and the Audit Committee and gave professional opinions on corporate governance and operational management activities in the interest of depositors and minority shareholders pursuant to laws, regulations and the Articles of Association. Disagreements of Independent Directors on relevant issues of the Company: Not applicable. iv. Supervisors and Board of Supervisors 1. Composition of the Board of Supervisors and its activities The Board of Supervisors of the Company consisted of 11 Supervisors as at the end of the reporting period, of which two were External Supervisors and four were Employee Supervisors, being in compliance with laws, regulations and the Articles of Association. During the reporting period, the Board of Supervisors held four meetings and adopted 18 resolutions in accordance with the Articles of Association and the rules of procedure of the Board of Supervisors. All Supervisors adequately attended meetings as required, performed supervisory functions pursuant to laws, regulations and the Articles of Association, and organized and participated in special inspections with due diligence. 2. Operation of Special Committees of the Board of Supervisors The Audit Committee held four meetings and reviewed regular reports, assessment opinions on performance of Directors and Senior Management members as well as special inspection reports and survey reports presented by the inspection group of the Board of Supervisors.
Annual Report 2011 25
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 07 E_Huaxia_Section VI.indd P.25 3. External Supervisor Rules The Board of Supervisors had two Supervisors who adequately attended meetings, reviewed proposals and gave independent opinions with due diligence pursuant to laws, regulations and the Articles of Association. They played the role of convener for special committees and organized and participated in special inspections and surveys of the Board of Supervisors. v. Information disclosure and investor relations management The Company regulated disclosures on a daily basis pursuant to the Rules Governing the Listing of Stocks on Shanghai Stock Exchange and the Information Disclosure Procedures of Hua Xia Bank Co., Limited to ensure quick and smooth communication and effective management of significant information of the Company, laying a sound foundation for the performance of information disclosure obligations. During the reporting period, pursuant to disclosure rules of CSRC and Shanghai Stock Exchange and disclosure policies of the Company, the Company prepared and disclosed four regular reports and 23 interim reports, ensured authenticity, accuracy, completeness and timeliness of the information disclosed, and communicated to investors such significant information as financial data, non-public offering, connected transactions, exchanges in equity and profit distribution plan. During the reporting period, the Company further strengthened the management over relationship with investors. It kept contacts and communication with investors on a daily basis via telephone, fax and e-mail and held such activities as meetings for investors and analysts and special investigations of analysts to make the Company better known by the market and enhance investors’ acceptance of the Company’s values. The Company was honored as “Excellent Chinese Company for Investor Relations Improvement” in the 13th Global Investor Relations Ranking and “2011 Best Listed Company for Public Relations with Investors” on the 9th Financial and Economic List. II. Management Decision-making System of the Company The General Meeting of Shareholders is the ultimate governing body of the Company. The Board of Directors reports to the General Meeting of Shareholders and performs its functions and powers pursuant to laws, regulations and the Articles of Association. The Board of Supervisors is the supervisory body and reports to the General Meeting of Shareholders. President is appointed by the Board of Directors and assumes the overall responsibility for day-to- day management of the Company under the leadership of the Board of Directors. The Company adopts the single legal person system with a head office/branch structure. All branches and sub-branches, as non-independent entities for accounting purposes, report to the Head Office and operate under the authorization of the Head Office. The Company was listed as a whole without any controlling shareholder. The Company is fully independent from shareholders in terms of personnel, assets, accounting, organizations and operations. The Company possesses independent and complete business and the ability of independent operation. The Board of Directors, the Board of Supervisors and internal bodies are capable of operating independently. III. Performance Evaluation and Incentive and Restraining Mechanism for Senior Management Members The Company engages Senior Management members through external recruitment and internal selection. Senior Management members are appointed by the Board of Directors and their qualifications shall be submitted to the CBRC for review. The Company conducts leave audit of Senior Management members. Senior Management members are overseen in respect of any violation of laws, regulations or the Articles of Association or any misconduct against corporate interests. In addition to an order of correction issued, such violations and misconducts will be reported to the General Meeting of Shareholders or competent authorities of the state where necessary. During the reporting period, the Remuneration and Assessment Committee assessed duty performance of Senior Management members in 2010 in accordance with the Measures for Annual Performance Assessment of Senior Management Members of Hua Xia Bank (Trial), including fulfillment of main annual operating indicators of the Company determined by the Board of Directors, performance indicators of Senior Management members by function/area and Directors’ appraisal. Senior Management assessment adhered to the following principles: ensuring realization of planned objectives under the guidance of the development program; combining quantitative and qualitative indicators based on key performance indicators; considering both team and personal performance of the Senior Management. In addition, special committees of the Board of Supervisors evaluated legal and regulatory compliance of Senior Management members during their performance of duties in 2010. Assessment results of the Remuneration and Assessment Committee and appraisals of the Board of Supervisors constitute an important basis for performance assessment of Senior Management members and incentive and restrictive decisions related to Senior Management members.
26 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 07 E_Huaxia_Section VI.indd P.26 IV. Establishment and Improvement of Internal Control System During the reporting period, the Board of Directors actively performed its scientific decision-making and strategic management functions in making uniform arrangements related to the Company’s operation plan, risk management strategy, connected transaction management, institutional establishment plan, implementation of the five-year development plan, assessment of duty performance of Senior Management members, bond issuance and other major matters. The Board of Directors developed scientific development strategy and business objectives on the basis of studying domestic and overseas economic and financial situations, regulatory requirements and the Company’s development plan. It insisted on coordinated balance among business expansion speed, capital base and risk management, enhanced risk management, promoted the “all-staff, omni-directional and full-process” comprehensive risk management, and developed 2011 management strategy concerning credit risk, market risk, operational risk and information technology risk. It built a registration and administration system for persons with access to insider information, an accountability system for major errors in annual report disclosures and an administrative system for outbound equity investments, and revised write-off procedures and policy of bad debts. It also conducted in-depth investigations on the implementation of the five-year development plan and overall assessment on the implementation for the past three years, and urged the management to start making new development plans. Moreover, the Board implemented incentive and restrictive regulations and rules, organized the revision of measures for remuneration and performance assessment of Senior Management members, and conducted duty performance assessment of Directors and Senior Management members in 2010. The Board played a significant role in regulated operation and stable development of the Company. The Company places considerable weight on internal control building, earnestly implemented internal control objectives and requirements set out in the Development Program of Hua Xia Bank 2008-2012, and kept enhancing its internal control management ability. In the reporting period, the Company adhered to scientific development and speeded up the transformation of development mode with a focus on “improving operation compliance, service quality and sustainable profitability”. It continued to improve the performance assessment system, enhance product R&D and promotion and increase its innovation capability. Efforts were made to optimize resources allocation, strengthen dynamic control, continuously enhance channel building and put new core business systems into operation. Moreover, it adopted “all-staff, omni-directional and full-process” risk management to limit credit risk, market risk, operational risk and liquidity risk, enhanced the management over reputational risk and legal risk, strengthened compliance management, continuously deepened compliant operation mechanism building, and optimized business rules and procedures to effectively increase compliant operation efficiency. Meanwhile, the Company worked hard on improving authorization management, strengthening inspection and supervision, enhancing clean operation and talent team development and reinforcing the dissemination of the core values of “integrity, discipline and harmony”. During the reporting period, the Company pushed forward the building of internal control system through developing internal control tools, improving mechanism and system building and conducting post-assessment. First, it developed and improved the internal control information management system and provided uniform internal control platform, data platform and information exchange information, which increased the Company’s internal control efficiency as well as management level and enriched institutional services and tools to serve the front-line staff. Second, it improved mechanisms and systems. Based on the operation of core business systems across the whole Company, it devised and revised over 20 measures on internal control to support these new systems, concerning financial accounting, E-banking and corporate business. These measures satisfied basic operation and administrative requirements for the new core systems, thereby ensuring the completeness of the Company’s internal control system. Third, it conducted post-assessment. According to market changes and administrative needs, it adopted multiple steps for post-assessment on over 570 internal control regulations, resulting in remaining over 260, revising 200 and abolishing 110 regulations. It further simplified some business procedures, improved procedure operation efficiency, enhanced its ability to accommodate the market and customers, improved the effectiveness of internal control regulations and improved requirements for risk control through revising mechanisms and systems and improving functions of business systems. As at the end of the reporting period, the Company had over 800 effective internal control regulations and an overall internal control system that covered all businesses, products and risks, satisfied external supervisory requirements and served its development needs. The Company has established a complete internal control system for financial statements in accordance with the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Accounting Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, the Accounting Standards for Enterprises, the Application Guidelines for Accounting Standards for Enterprises, the Financial Enterprise Finance Rules, the Basic Standard for Enterprise Internal Control, the Measures for Information Disclosures of Commercial Banks, the Guidelines for Internal Control of Commercial Banks, the Guidelines of Shanghai Stock Exchange for Internal Control of Listed Companies and other laws, regulations and supervisory requirements. No material deficiencies were found concerning internal control over financial reporting during the reporting period. To effectively prevent financial risks, ensure financial compliance and improve financial management, the Company timely streamlined and assessed its internal control regulations related with financial accounting, compared them with actual business, and developed standard operation procedures for new business to ensure rules and standards in place for every business in accordance with laws, regulations, supervisory requirements and changes in business growth. Within the reporting period, the Company revised the Regulations on Centralized Housing Management of Hua Xia Bank Co., Limited at the Head Office Level, the Administrative Measures for Purchasing Business Premises of Hua Xia Bank Co., Limited, the Administrative Measures for Financial General Ledger System of the Hua Xia Bank Co., Limited, the Implementation Rules for Managing Start-up Funds for Newly Established Institutions of Hua Xia Bank Co., Limited, the Administrative Measures for Special Invoices for Financial Businesses of Hua Xia Bank Co., Limited at the Head Office Level, the Administrative Measures for Official Vehicles Allocation for Subsidiaries of Hua Xia Bank Co., Limited and other finance-related measures and regulations. It also specified management over business premises and expense accounting. Annual Report 2011 27
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 07 E_Huaxia_Section VI.indd P.27 The Company set up the Audit Department to be responsible for the internal control inspection and supervision. A three-tier vertical internal audit system is adopted, consisting of the Audit Department of the Head Office, audit departments, and field audit offices, of which audit departments and audit offices are assigned by the Audit Department of the Head Office, and their administrative affairs, staff and business are managed by the latter. The Audit Department has five functional units. Under the Audit Department there are six audit divisions and 29 field audit offices. As at the end of the reporting period, the Company had 152 internal auditors, of which 93.42% held a bachelor’s degree or above, and 63.16% had a middle-level professional title. During the reporting period, the Company paid much attention to key areas of external supervision and risks in operational management, aiming at facilitating the Company’s development. It focused on operational risk prevention and control and deepened risk management audit on the basis of compliance audit. First, it conducted 137 special inspections in 25 categories on the implementation of the “Three Measures and One Guidelines”, account and deposit risks, comprehensive internal controls, information technology, basic management and post-lending management, which effectively prevented all sorts of operational risks. Second, in order to strengthen audits on value increase, the Company carried out four thematic audit inspections on its new products, the implementation of new rules concerning loans, the management of the operation of new core systems and SME loans, which effectively disclosed major problems in business expansion. Third, to improve the employees’ performance, it finished 306 audits on members retired, in post, forced to retire and in key posts, focusing on the duty performance of managers at all levels and members in key posts. Emphasis was put on auditing economic responsibilities of members in post, strengthening supervisory evaluation on front-line employees and intensifying inspection and supervision on the duty performance of managerial members in a bid to promote the stable and health development of the Company. In the reporting period, the Company carried out annual internal control assessment for 2011 in the form of combining self-assessment at branch level, professional assessment at Head Office level, audit and supervision assessment and internal control self-assessment across the Company. Through the assessment, it was found that the Company’s internal business environment kept improving, risk assessment could satisfy the business development and internal control requirements, and the internal control system was fairly complete, the control activities were effectively executed, the information exchange was smooth and internal supervision was effective, guaranteeing the realization of the Company’s internal control management and operation objectives. During the reporting period, no material deficiencies were found in the completeness, reasonableness and effectiveness of the Company’s internal control system and regulations. The Company actively corrected deficiencies in internal control. In the reporting period, in response to deficiencies related to risk control, statistic management and information system safety, the Company effectively addressed deficiencies in internal control by improving the error recurrence prevention mechanism and the three- tier rectification mechanism of auditee self-rectification, rectification urging by management departments/offices of the Head Office and rectification supervision by audit departments. In the reporting period, 96.75% of the problems identified in internal audit supervision and inspection were corrected. V. Accountability for Major Errors in Annual Report Disclosures The Company has made no major errors in annual report disclosures, thanks to its consistent emphasis on establishment, improvement and management of the information disclosure system. It developed the System of Accountability for Major Errors in Annual Report Disclosures of Hua Xia Bank Co., Limited, which was reviewed and approved at the third meeting of the sixth Board of Directors. The system specifies the methods and types of accountability for major errors in annual report disclosures. During the reporting period, the Company made no correction to major accounting errors or supplementation to major information omission.
28 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 07 E_Huaxia_Section VI.indd P.28 SUMMARY OF GENERAL MEETING OF SHAREHOLDERS
The Company held one annual general meeting of shareholders during the reporting period, particularized as follows:
The Annual General Meeting for 2010 of the Company was held on 15 April 2011, with resolutions published on China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 16 April 2011.
Annual Report 2011 29
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 08 E_Huaxia_Section VII.indd P.29 Report of the Board of Directors I. Management Discussion and Analysis i. Review of operation during the reporting period 1. Overall operation of the Company In the reporting period, the Company adhered to the scientific outlook on development, held activities to encourage Party members to pursue excellence, and carried out operational management with a focus on improving operation compliance, service quality and sustainable profitability. All the efforts contributed to a stable increase of asset size, continuous improvement of asset quality, dramatic improvement of operational efficiency and accomplishment of all the operational objectives set out by the Board.
(1) stable improvement of overall profitability As at the end of the reporting period, the Group had total assets worth RMB1,244,141 million, an increase of 19.60% or RMB203,911 million compared with the previous year. The net profit attributable to shareholders of listed company reached RMB9,222 million, up by 53.97% or RMB3,232 million, 34.37 percentage points higher than the asset growth rate. The return on assets was recorded 0.81%, 0.17 percentage point higher than that of the previous year. The improvement of profitability should be ascribed to a stable increase of deposits and loans, effective control of capital costs, non-interest income growth, a decrease of costs and expenses and continuous improvement in asset quality. After the capital replenishment through non-public offering in 2011, earnings per share reached RMB1.48, an increase of 23.23%, or RMB0.28 from that of the prior year.
(2) Continuous improvement of business structure The Company saw a continuous improvement in its asset and liability structure with loans to small enterprises representing 20.11%, 0.92 percentage point higher than that of the prior year. Customer deposits increased by 16.73% year on year, 0.91 percentage point higher than the growth of customer loans; saving deposits grew by 25.11%, 9.92 percentage points higher than that of corporate loan growth. The income structure further improved with the fee-based business income representing 11.05%, 2.63 percentage points higher than that of the previous year. The Company made great efforts to develop international banking and investment banking, leading to a yea-on-year growth rate of 79.71% in the fee-based business income.
(3) significant improvement in asset quality While maintaining stable increase in loans, the Company strengthened the management over credit asset quality, resulting in the reduction of the balance of NPLs and the NPL ratio. As at the end of the reporting period, the balance of NPLs stood at RMB5.6 billion, RMB654 million or 10.46% less than that of the previous year; the NPL ratio was 0.92%, 0.26 percentage point lower than that of the prior year; the credit cost was 0.82%, reducing by 0.05 percentage point year on year; the provision coverage ratio was recorded 308.21%, 99.17 percentage points higher than that of the prior year; the loan provisioning ratio arrived at 2.82%, 0.34 percentage point higher from the previous year. All these signaled the stable operation of asset quality.
(4) Rapid increase of operational efficiency The Company reinforced the market-based resources allocation, continued to advance mechanism building, and strengthened dynamic control to bring higher operational efficiency with average deposits per outlet up by 7.90% and average profit per outlet up by 44.70%. The Company stressed reinforcing management over and supports to local outlets to improve their operating efficiency and quality as well as regional competitiveness of some branches.
30 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.30 (5) Enhancement of capital base In April 2011, the Company collected RMB20,107 million through issuing shares in a non-public manner. At the same time, it increased its capital accumulation capacity and capital efficiency through strengthening operational management. As at the end of the reporting period, the net capital reached RMB83,139 million, increasing by RMB28,235 million or 51.43% year on year; CAR was 11.68%, 1.10 percentage points higher than that of the previous year; core CAR was 8.72%, 2.07 percentage points higher than that of the prior year, which were in compliance with regulatory requirements.
(6) Inspiring progress in institutional and channel building First, the Company made inspiring progress in institutional construction. It set up 32 new institutions, bringing the total number of outlets to 426 covering 67 cities of prefecture level and above across China. Second, it accelerated the building of E-banking channel. In addition to a new core system, the Company took the lead to launch a new-generation E-banking, providing cross-region and cross-bank agency payment and collection services. Third, it made great efforts to advance the establishment of personal customer service channels. The cross-bank withdrawal via self-service facilities increased by 31.80% year on year, and the POS cross-bank acquiring business went up by 62.45% on a year-on-year basis. 2. Composition of operating income and profit of the Company In the reporting period, the Group recorded an operating income of RMB33,543,795,000, an increase of 37.03% year on year, and an operating profit of RMB12,523,511,000, an increase of 56.00% year on year. This should be mainly ascribed to the expansion of asset size, enhanced control of capital costs, an increase of net interest income, a significant increase of income from fee-based businesses and an increased percentage and an optimized income structure.
(1) By type of business (Unit: RMB1,000)
Business category Operating income Loans 23,347,398 Inter-bank lending/borrowing 209,315 Due from central banks and other banks -4,533,783 Purchases under resale agreements and sales under repurchase agreements 7,587,829 Bond investments 3,607,343 Fee and commission 2,975,500 Others 350,193 Total 33,543,795
Annual Report 2011 31
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.31 (2) By region (Unit: RMB1,000)
Operating income Operating profit Northern China and Northeastern China 13,279,532 1,665,721 Eastern China 9,275,640 4,871,292 Central China and Southern China 5,879,253 3,139,281 Western China 5,109,370 2,847,217 Total 33,543,795 12,523,511
(3) Explanations on reasons for major changes in profit composition, main business and structure, the profitability of main business from the previous reporting period The Company carried out business activities within the scope of business approved by the PBOC and the CBRC. Main sources of income of the Company included deposit taking and lending, bond investments, inter- bank lending/borrowing, settlement and agency services. No other business activity with a significant impact on profit occurred during the reporting period. The Company increased its capital efficiency to increase interest income through adjusting its asset structure; promoted effective growth in deposits and controlled capital costs through improving its liability structure; reduced the balance of NPLs and the NPL ratio as well as credit costs through reinforcing asset quality management; increased fee-based business income through developing international business and investment banking; and improved the overall profitability through optimizing the income structure. 3. Financial position and operating results of the Company
(1) Changes in major financial indicators and the reasons (Unit: RMB1,000)
Increase/decrease over At the end of the Main financial indicators the end of the Main reasons reporting period previous year (%)
Total assets 1,244,141,182 19.60 Increase of asset-based business such as loans
Total liabilities 1,180,211,059 17.46 Increase of liability-based business such as deposits
Owner’s equity attributable to shareholders of the listed 63,901,085 80.02 Non-public offering and increase of net profit company
Year-on-year increase/ Main financial indicators Reporting period Main reasons decrease (%)
Operating income 33,543,795 37.03 Expansion of business size and income growth
Operating profit 12,523,511 56.00 Expansion of business size and improvement of profitability of assets
Net profit attributable to 9,221,934 53.97 Expansion of business size and improvement of profitability of assets shareholders of listed company
32 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.32 (2) Items with over 30% changes in the comparative accounting statements (Unit: RMB1,000)
Increase/decrease At the end of the Main accounting items over the end of the Main reasons reporting period previous year (%) Due from banks and other Increase of due from banks and other 101,662,126 1,250.12 financial institutions financial institutions The balance as of the end of last year was Precious metal 52,962 – zero. Held-for-trading financial assets 4,004,591 3,662.09 Increase of held-for-trading financial assets Increase of derivative financial asset-based Derivative financial assets 201,841 674.70 business Interest receivable 5,635,045 93.16 Increase of interest receivable Available-for-sale financial assets 28,488,363 91.72 Increase of available-for-sale financial assets Held-to-maturity investments 93,800,842 41.49 Increase of held-to-maturity investments Investments classified as Decrease of investments classified as 3,500,000 -40.17 receivables receivables Investment-oriented real estate 55,039 40.66 Increase of investment-oriented real estate Intangible assets 94,490 – Increase of intangible assets Deferred income tax assets 2,795,192 65.07 Increase of deferred income tax assets Due to banks and other financial Increase of business with banks and other 135,645,158 44.95 institutions financial institutions Placements from banks and other Increase of placements from banks and other 26,958,473 145.43 financial institutions financial institutions The balance as of the end of last year was Held-for-trading financial liabilities 50,848 – zero. Increase of derivative financial liability-based Derivative financial liabilities 192,123 13,420.27 businesses Employees’ remuneration payable 3,092,041 50.45 Increase of employees’ remuneration payable Taxes payable 3,847,302 56.19 Increase of taxes payable Interest payable 7,780,606 59.47 Increase of interest payable Projected liabilities 3,189 -94.98 Decrease of projected liabilities Deferred income tax liabilities 51,505 690.80 Increase of deferred income tax liabilities Other liabilities 6,219,367 -32.35 Decrease of other liabilities Share capital 6,849,726 37.25 Non-public offering of shares Capital reserve 32,599,700 128.33 Premium on non-public offered shares Surplus reserve 3,305,399 38.73 Appropriation to surplus reserve Retained profit 11,353,320 108.89 Profit for the year Total shareholders’ equity Non-public offering and increase of total attributable to shareholders of 63,901,085 80.02 shares the parent company Two new non-wholly-funded subsidiaries were Minority shareholders’ equity 29,038 – included into the consolidated statement for the period.
Annual Report 2011 33
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.33 Year-on-year Main accounting items Reporting period increase/decrease Main reasons (%) Interest income 62,535,964 44.20 Asset size expansion and income growth Growth of liability size and increase of Interest expense 32,243,233 56.46 expenditure Fee-based business growth and income Fee and commission income 3,394,263 89.45 increase Income from changes in fair value -14,023 -161.54 Changes in fair value Business and additional taxes 2,347,591 46.55 Increase of assessable income General and administrative Increase of general and administrative 14,050,051 32.22 expenses expenses Non-operating income 37,651 -36.50 Decrease of non-operating income Non-operating expenses 33,762 -57.36 Decrease of non-operating expenses Income tax expenses 3,306,427 63.82 Increase of gross profit Two new non-wholly-funded subsidiaries were Minority shareholders’ profit/lose -962 – included into the consolidated statement for the period.
4. Analysis on cash flows of the Company During the reporting period, net flow of cash and cash equivalents of the Group was RMB47,435 million of net cash inflows. Business activities generated a net cash inflow of RMB79,027 million, which shall be mainly ascribed to a stable increase in deposits, dynamic control of asset and liability operations to keep an overall asset-liability balance and reasonable structure and keep liquidity on a safe level. Investments resulted in a net cash outflow of RMB47,681 million, which was mainly due to an increase in investments. Money-raising activities brought net cash inflow of RMB16,097 million, which mainly came from the Company’s non-public offering to collect money. 5. Discussion and analysis on non-financial information In face of opportunities and challenges such as the transformation of economic development mode, changes in domestic and overseas economic climates and the implementation of new regulatory rules, the Company focused on improving scientific and effective management, enhancing market-based resources allocation and increasing its market competitiveness. First, the Company started with marketing organizing, customer segmentation and product application to push forward the Customer Multiplication Plan. It enhanced overall cooperation with key customers in business lines, solidified and deepened cooperative partnership through signing contracts with their headquarters, and boosted services to upstream, downstream and connected customers through core customers. The personal banking line adopted classified and graded management, enhanced layered precision marketing services and built a customer-oriented retail banking system that is linked by asset management business on the foundation of traditional banking and aims at bringing added values to customers. The international banking line pushed forward the customer reserve and lead marketing to constantly enhance market influence. Second, it accelerated the development of less capital-intensive business. The Company speeded up such less capital-intensive business as international business, financial market business, wealth management and asset custody, further improved the income structure with 70% income of fee-based business from investment banking, international, personal and credit card businesses while continuing to support traditional business throughout the whole Company. Third, it practiced coordinated risk management to improve its stable operation capability. The Company exercised the “all-staff, omni-directional and full-process” risk management to include credit, market, liquidity, operational, IT and reputational risks into its overall management, combined risk management with internal control and fully leveraged the sense of responsibility and capabilities of the risk management team to promote the coordination between risk control and business growth.
34 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.34 Fourth, it continued to push forward innovation and boost product competitiveness and brand image. The Company continued to promote the “Dragon Boat Program”, a “small, rapid and flexible” SME financial service, and launched “Commercial Bill Express” (Shang Piao Tong) and other product brands. In terms of international business, it continued the building of “World Wise Win” brand; as for personal banking, it made great efforts to promote Wenying, Zengying, Huiying, Chuangying and Jinying series products; regarding financial market business, it launched such innovative products as corporate receivables financing, mining rights and returns guaranteed loans; with regard to credit card business, it released the “Hua Xia SMART Credit Card”; for E-banking, it gave full play to the new-generation Group Internet Banking Settlement Center, Bank-Corporate Express, inter-bank account management and inter-bank transaction and other payment-related products to meet customers’ needs for fund pooling, transfer and transaction. At the same time, it make greater efforts to promote such featured products as “Financing Win-Win Chain”, Business Trip Card, ETC Card, making them an important tool for customers. Moreover, the Company also endeavored to boost product innovation and launch such activities as hiring celebrities as its image representative, thematic marketing, event marketing and thematic interaction to enhance its brand influence as a “SME financial services provider” and boost its brand value. 6. Analysis on operation and performance of major subsidiaries and equity participation companies Beijing Daxing Hua Xia Village Bank Co., Ltd. started operation in December 2010, in which the Company holds a 100% stake. Kunming Chenggong Hua Xia Village Bank Co., Ltd. was put into operation in September 2011, in which the Company holds a 70% stake. Sichuan Jiangyou Hua Xia Village Bank Co., Ltd. started business in December 2011, in which the Company holds a 70% stake. By the end of the reporting period, the above three Village Banks had been running smoothly. As at the end of the reporting period, the Company held a 2.13% stake in China UnionPay, representing RMB81.25 million. China UnionPay had grown steadily since its establishment in March 2002. In March 2008, the restructured VISA International went public at the American Stock Exchange. As at the end of the reporting period, the Company held 1,999 shares in VISA International. 7. Internal controls and items related to fair value measurement During the reporting period, the Company measured held-for-trading financial assets and available-for-sale financial assets at fair value, which were determined by means of quotation, transaction price or yield curve. The yield curve published by China Government Securities Depository Trust & Clearing Co., Ltd. was used as the RMB-denominated bond yield curve, and the yield curve provided by the Bloomberg system was adopted as foreign currency-denominated bond yield curve. Items related to Fair Value Measurement1 Unit2: RMB10,000
Item At the beginning Changes at fair Accumulated Provision for At the end of the of the period value through changes at fair impairment during period profit or loss value through the period during the period equity (1) (2) (3) (4) (5) (6) Financial assets Incl.: 1. Financial assets at fair value 13,249.99 17,687.84 – – 425,939.37 through profit or loss3 Incl.: Derivative financial assets 2,605.36 17,578.74 – – 20,184.10 2. Available-for-sale financial assets 1,485,948.20 – 313.35 – 2,848,836.31 Subtotal of financial assets 1,499,198.19 17,687.84 313.35 – 3,274,775.68 Financial liabilities 142.11 -19,090.14 – – 24,297.09 Investment property – – – – – 4. Others4 – – – – – Total5 1,499,198.19 17,687.84 313.35 – 3,274,775.68
Notes: 1. There is no necessary articulation in the table. 2. All amounts are presented in RMB. 3. Derivative financial assets are included. 4. Significant items in the “Others” may be separately presented in the table. 5. “Total” excludes “financial liabilities”.
Annual Report 2011 35
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.35 8. Special purpose entities controlled by the Company Not applicable. 9. Business review (1) Corporate business During the reporting period, the Company achieved a rapid growth in corporate deposits and appropriate control over corporate loans. As at the end of the reporting period, the Company had a balance of corporate deposits worth RMB753,020 million, up by RMB99.306 million or 15.19% compared with the year beginning; daily corporate deposits reached RMB654,439 million, increasing by RMB102,644 million or 18.60% from the previous year; the increase in daily corporate deposits was 3.14 percentage points higher than that of the balance. The Company had a balance of corporate loans of RMB536,410 million, an increase of 14.66%, or RMB68,582 million. During the reporting period, the Company actively responded to changes in the business operation, strengthened marketing and services to customers, enhanced product innovation and application, accelerated business restructuring and optimization, further enhanced its response to the market, improved services to customers and speeded up the transformation of growth mode, thereby laying down a solid foundation for the Company’s business growth. The Company insisted on customer-oriented operation through consistently enhancing marketing services to customers. The Company strengthened marketing planning and management over business opportunities, carried out well-directed marketing and increased marketing service efficiency. The Company adopted the practice of classified marketing services through offering differentiated service solutions based on customers’ specific needs, expanded and deepened business cooperation with customers to further solidify its customer base. As at the end of the reporting period, the Company had 226,200 corporate customers, 13,900 more than the year beginning. The Company also strengthened R&D and promotion of new products, and further enhanced the applicability and competitiveness of its products. The Company further enriched and optimized the financial products of supply chain and maintained a relatively rapid growth in the supply chain financial business. The “Financing Win-Win Chain” brand won the “2011 Best Supply Chain Financial Services Award” and “2011 Best Supply Chain Financial Innovation Award” with an increased popularity. The Company made great efforts to promote those less capital-intensive products and launched a number of notes and product portfolios, which effectively satisfied customers’ needs for diversified financial services. The Company proactively promoted the “green credit” business featured by energy saving and emission reduction, strengthened the cooperation on government relending business with the French Development Agency and the World Bank, and fulfilled its social responsibilities. International business The international business showed a robust growth momentum. The international settlement volume and income from fee-based businesses increased by over 50%, and the international settlement volume grew at a rate 29 percentage points higher than the national foreign trade volume. The customer base of international business was further enlarged with the number of international settlement customers exceeding 10,000 and that of trade finance customers doubling. The Company boasted high quality of trade finance assets and a presence of over 1,400 agency outlets in over 300 cities in over 100 countries and regions. The Company developed such key products as import L/C, import payment, foreign exchange purchase and sales and domestic L/C, further enriched and improved the international business and product system with the “World Wise Win” better known as an international business and financial service brand. During the reporting period, the Company’s international business was honored the “Best International Business Award” by the Chief Financial Officer, “Best Trade Promotion Bank” by the International Business Daily and the gold & diamond prize of “Best Banking Marketing” by NetEase.com. (2) small enterprise business During the reporting period, the Company insisted on the strategic positioning as “SME financial service provider” and improved the overall services to small enterprises. The Company witnessed a continuous growth in small enterprise business, a rapid increase in small enterprise customers to approach 160,000, and the number of small enterprise loan customers exceeding 10,000. At the end of the reporting period, the Company had a balance of loans to small enterprises worth RMB130.0 billion, which represented over 20% of the Company’s total loan balance, and increased at a rate 5.55 percentage points higher than that of all loans of the Company. The Company insisted on the marketing strategy of “precise marketing, platform interconnection and chained development”, and determined six cooperative platforms to provide wholesale services to small enterprise customers, that is, business districts, industrial parks, core enterprises, e-commerce, financing institutions and social groups. It continued to promote the “Dragon Boat Program”, a “small, rapid and flexible” SME financial service brand, deepen product contents of “Entrepreneurship Pass Boat, Migical Development Boat and Supreme Dragon Boat”, and launched 15 series of financial services and products for small enterprises, including business district-based loans, credit cycle loans and syndicated guaranteed loans.
36 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.36 The Company adhered to the value of mutual development with customers, proactively fulfilled its social responsibilities, and explored diverse non-financial services such as financial advisory, tax planning and management consulting. It also launched such activities as “Gas Station for Growth of Small Enterprises”, “Training Camp for Excellent Small Enterprises”, provided training for small enterprises on team building, financial management, financing and strategic thinking, and advocated support and care for the development of small enterprises from all walks of life. The Company implemented the supervisory regulations through enhancing support for small and micro enterprises with a credit line below 5 million each. As at the end of the reporting period, the balance of loans to small enterprises with a credit line below RMB5 million each increased by 66.30% compared with the end of 2010. The Company took the initiative to build small enterprise-featured branches and explore innovative mechanism. Upon selection, Shaoxing Branch and Changzhou Branch were transformed into small enterprise- featured ones, while sub-branches were turned into marketing platforms for small and micro enterprises and personal banking to enhance the service capacity of local outlets. The Company also guided its branches to build a business structure with specialized advantages. During the reporting period, the Company was honored as the “2011 Best SME Credit Banking” by the Money Weekly, “2011 SME Supportive Bank” by the 21st Century Business Herald, “Best SME Financing Bank” by the First Financial Daily and “Best Financial Brand Marketing Campaign Award” by The Banker for its small enterprise business. Moreover, its business district-based loans, a financial service targeted at small enterprises, received the “Excellent SME Financial Service Product Award” on the 2011 China International Exhibition on Financial Banking Technology & Equipment. (3) Personal banking During the reporting period, the Company saw expansion in its personal banking scale, improvement in business structure and upgrade of service quality. At the end of the reporting period, the Company had RMB142,494 million worth of saving deposits, up by 25.11% or RMB28,599 million compared with that of last year; daily saving deposits reached RMB111,936 million, increasing by RMB16,581 million or 17.39%. The balance of personal loans (excluding personal operating loans and credit cards) was RMB62,048 million, up by 31.65% or RMB14,917 million. Wealth management business During the reporting period, in response to the needs of personal customers for counter inflation and added value, the Company continued to improve the maturity, liquidity, return and other factors of its wealth management products, and ensured the healthy development of personal wealth management business through product innovation, procedure streamlining, system rebuilding, wealth management team building and training. During the reporting period, the Company cumulatively sold RMB144,508 million worth of personal wealth management products. During the reporting period, the Company’s personal wealth management products were granted the “Best Design and Innovation” title of “2010-2011 China Gold Shell Award for Assets Management” by the 21st Century Business Herald, “Best Banking Wealth Management Product Award” by the 2011 4th Annual Most Respected Bank & Best Retail Bank Ranking in China, “Most Profitable Banking Product” title of the 2011 4th Gold Wealth Management Award by the Shanghai Securities News, and “Wise Money Financial Wealth Management Team Award” on the 2011 financial wealth management list by the Wise Money. Debit card business By the end of the reporting period, the Company had cumulatively issued 21,701,400 debit cards with the deposit balance up by 37.38% and the consumption sum up by 55.57% within the reporting period. The Business Trip Card and Sinobeauty Card kept a sound development momentum with the brands further enhanced. The Hua Xia debit card was granted the “2002-2012 Cooperative Win-Win Business Development Award” by China UnionPay, while the ETC Card was honored as the “Most Growing Debit Card for 2011” by the Money Weekly. The Company vigorously developed the bank card acquiring business with an increase of 62.45% in POS inter-bank acquiring business year on year within the reporting period. The number of franchised merchants grew by 68.98%. Credit card business The Company strove to highlight the individualized and differentiated features of its credit card business and enhance product innovation. The first domestic Titanium MasterCard was launched for middle and high-end customers, Titanium Sinobeauty Card for female customers and SMART Credit Card for young office ladies. It also cooperated with a European airline company, Lufthansa to launch the Miles & More Credit Card, and issued the ETC Credit Card in response to the government’s calling for green trips. By the end of the reporting period, the Company had cumulatively issued 1,784,500 credit cards and received the “UnionPay Card Cooperative Innovation Award” from China UnionPay.
Annual Report 2011 37
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.37 (4) Financial market business Treasury operation During the reporting period, the Company continued to remain active in the national inter-bank market, cumulatively completing bond repurchases in RMB worth over RMB640 billion and inter-bank lending transactions in RMB of more than RMB2 trillion. It insisted on a proactive bond investment strategy and enhanced investments, resulting in a balance of bond investments topping RMB120.0 billion, an increase of over 40%, as at the end of the reporting period. At the same time, it also optimized the investment structure, kept the investment speed under reasonable control, and lengthened the duration of new bond portfolio duration in an appropriate manner, resulting in new medium and long-term bonds of at least 5 years representing over 70% and the scale and the size and percentage of bond investments with high yields further improved within the reporting period. As one of the first market makers of China’s inter-bank RMB foreign exchange market, the Company continued to exercise prudent strategies for foreign currency operations, and enhanced its operational capacity with professional analytic researches and market-based operational means. Within the reporting period, the Company completed nearly 17,000 foreign currency fund transactions with a trading volume of over USD260.0 billion, continuously increasing the market share. At the same time, it also focused on tackling such complicated difficulties as aggravated RMB fluctuation in China, slow economic recovery in the world, escalated debt crisis in Europe and making full use of advantages as a market maker to provide customers with inflation-proof and value-added services related with foreign currency assets. Investment banking During the reporting period, the Company focused on “serving communities, serving customers, promoting the development of traditional businesses, boosting business transformation and optimizing income structure”. It vigorously developed such innovative business as investment banking, continuously enhanced product and business innovation, proactively pushed forward business strategic transformation to adapt to such market changes as interest rate liberalization and financial disintermediation. The Company offered investment banking means such as debt financing instruments underwriting and asset management. In this way, it satisfied customers’ individual and diverse financial needs with comprehensive financial services, and at the same time, promoted the development of traditional business, such as deposits and loans, through increasing their added value, and optimized the operating income structure through effectively reducing capital occupation and broadening income sources. The Company mobilized the Head Office and branches to provide customers with comprehensive financial service solutions and deploy all sorts of operating tools, such as debt financing instruments, institutional wealth management, consultation and advisory, factoring, custody and E-banking, to effectively promote its service capability and quality to large quality customers. The Company took the initiative to expand partnership, establish cooperative network and broaden cooperative channels with its peers. In the reporting period, the Company underwrote 26 debt financing instruments projects of over RMB40.0 billion for non-financial enterprises, managed assets worth over RMB70.0 billion and generated more than RMB800 million from fee-based business of investment banking. In 2011, the Company was granted the honorary title of “Best Growing Investment Banking” by the Securities Times. ii. Outlook for future development of the Company 1. Changes in future business environment (1) The domestic and overseas economic and financial environment will continue to be complex and changeable. In terms of the international environment, the sovereign debt crisis in the Euro zone will continue to cast influences, and major economies such as the US will suffer a slow recovery. Within China, the economic and social development will continue the positive tone and upward trend in the long run. But due to multiple factors, the real economic growth is slowing down. In face of the complex and changeable international political and economic climate and new changes to the domestic economy, the Chinese central government demanded sticking to steady development as the basic tone, continuing to implement proactive fiscal polices and prudent monetary policies, and balancing the relationship among rapid but steady economic development, economic restructuring and inflation control. At the same time, the state requested the banking sector to expand its service coverage, enhance financial supports to those disadvantaged fields, build up an overall prudent risk monitoring system for the sector and strengthen protection of customer rights. All these are believed to have profound influences over the future development of commercial banks. Thus, commercial banks should focus on serving customers and real economy, abandon outdated service concepts, improve service functions, enlarge service targets and accelerate financial innovation to provide more quality financial services in favor of economic and social development. (2) Timely and appropriate ex ante and fine adjustments will be made on the monetary policies in a prudent manner. The Central Economic Working Conference held in December 2011 set the key tone of monetary polices as “prudent”, and stressed to carry out “timely and appropriate ex ante and fine adjustment” and to pay more attention to the flexibility and predictability of monetary policies to maintain moderate growth in the aggregate credit and social financing size, thereby keeping reasonable and appropriate liquidity in the banking sector. Thus, commercial banks are required to make concrete efforts to satisfy market needs, bring more values to customers and reduce risks, enhance innovation and precision management and work hard on improving operational management.
38 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.38 (3) Interest rates are becoming increasingly market-based. It is a necessity to liberate interest rates in the deepened reform on the banking sector as well as in the consistent and healthy economic development of China. Market-based interest rates will bring higher requirements for commercial banks in terms of business operation, capital pricing capacity and interest rate risk management capacity. In the light of foreign experience, the process of realizing market-based interest rates is accompanied by the appearance of new financial institutions, financial products and financial service models. This creates more room for banks to explore all sorts of wealth management business, which will bring more non-interest income. It is also beneficial for commercial banks to transform their development mode and explore featured operations. (4) New capital accord will be implemented. It imposes higher requirements on commercial banks in terms of capital adequacy ratio, the weight of risk assets, liquidity ratio and provisioning ratio, and guides the banking sector in development direction and in improving its operational mechanism. At the same time, it will further urge commercial banks to change their operation modes, develop concrete implementation plans and operation rules in accordance with changes in regulatory polices and based on their own operational features and development strategies, and carry out preventive risk intervention towards indicative problems in operation to further enhance their risk management capacity. 2. Operating plan and main measures to be taken in the coming year (1) Business objectives for 2012 – Total assets to reach RMB1,473.8 billion or higher – NPL ratio to be kept below 0.92% at the end of the year (2) Main measures to be taken In 2012, the Company will fully implement the core principles set out by the Central Economic Working Conference and National Financial Working Conference. It will work hard on building up a famous brand as SME financial service provider, inventing new ways of development and working procedures, steadfastly advancing reforms on marketing mechanism, enhancing delicacy management, optimizing resource allocation and strengthening service capacity for real economy and risk control to ensure the fulfillment of all operational targets. a. to further enhance customer base First, the Company will restructure credit customers and make great efforts to develop small enterprise and personal banking. Second, it will enhance services to the existing customers and carry out the practice of project management over key customers. It will conduct in-depth cooperation with key customers through providing emerging business, new products and comprehensive service solutions. b. to strengthen fund arrangement First, the Company will intensify management over money flow. It will adopt the chained marketing to make use of customers’ fund chain, purchase chain, sale chain and interconnection chain around their upstream, downstream and interactive participants. Second, it will try to attract customers and funds through brand promotion. It will continue to promote the “Dragon Boat Program”, “small, rapid and flexible” SME services, “World Wise Win” brand as an international business, “Longying Wealth Management” brand featured by public wealth management, “Financing Win-Win Chain”, Business Trip Card, ETC Card and other featured credit cards. c. to deepen product R&D and promotion First, the Company will optimize the product development, approval, rolling-out and promotion procedures for increasing efficiency. Second, it will advance the pilot program of product innovation center. Third, it will establish input and output evaluation mechanism, enhance analysis on input and output of product R&D, and control the balance between risks and returns to strive for maximum product cost efficiency. d. to carry forward the building of marketing mechanism. First, it will enhance customer segmentation and improve comprehensive service solutions according to customers’ specific needs. Second, it will optimize the business procedure and speed up the procedural integration. Third, it will continue to build featured marketing departments, and set up specialized marketing departments based on features of mainstream economy in each area to gradually make marketing departments more professional in specific industries. e. to optimize institutional layout and channel functions First, it will enhance the institutional building and proactively promote the construction of featured sub- branches. Second, it will optimize the institutional functions of the Head Office, branches and sub-branches, and speed up the operational transformation of its sub-branches and the building of featured outlets. Third, it will enhance the management over location selection of sub-branches through building evaluation system for location standards and post-evaluation system to enhance scientific location selection. Fourth, it will continue to enhance the building, promotion and application of E-banking channels.
Annual Report 2011 39
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.39 f. to continue to forge unique operational features First, it will strengthen featured operation and further improve its uniqueness. Second, it will vigorously develop emerging fee-based businesses, focusing on developing investment banking, trade finance, custody and other less capital-intensive business with high market demands in a bid to increase the income contribution of emerging business to fee-based business. Third, it will continue to reinforce the “Financing Win-Win Chain”, wealth management and other featured brands. g. to intensify delicacy management First, the Company will reinforce its management over operational risk and credit risk. Second, it will improve the establishment of a liquidity risk management mechanism. Third, it will exercise classified management over resources allocation and performance evaluation to ensure maximum effects of resources. Fourth, it will enhance assets and liabilities management to keep asset-based business and liability-based business under reasonable control. Fifth, it will promote the overall cost management to save costs and expenditure. Sixth, it will intensify the risk management over information technologies and increase their support to businesses. Seventh, it will enhance the management over operational compliance of accounting line to advance the building of a long-term effective prevention and control mechanism against accounting frauds. 3. Capital demanded by development strategy and its use plan and sources In recent years, regulatory authorities have been raising CAR requirements. In particular, the progressing implementation of Basel III imposes higher CAR requirement for commercial banks. Moreover, sustainable and healthy development of the Company also needs more adequate and stable capital. The Company will draw up more detailed capital plan according to its development needs, and establish and improve capital replenishment mechanism to meet capital demand and regulatory requirements. First, it will keep replenishing capital through internal accumulation to effectively support business growth; second, it will leverage capital replenishment tools approved by the country to raise fund in a well-timed manner, effectively replenish capital and sustain business development. 4. All risk factors that may adversely affect development strategy and business objectives of the Company In 2012, the overall world economy will continue to be complex and difficult with increased downward risks. China’s economy is facing some new changes, which result in greater difficulties in macro-control. Moreover, regulatory requirements are getting stricter, the interest rate liberalization is speeding up, and social financing is increasingly diversified. All these will bring challenges to the Company. First, the increasing instability and uncertainties of the world economic recovery, pressures of downward domestic economic growth and rising prices as well as some remarkable potential risks in the economic and financial sector put additional weight on the Company’s effective control of operational risks and further improvement in profitability. Second, the regulatory authority is implementing new supervisory rules in an orderly manner and intensifying supervision in accordance with Basel III. This brings new pressure to the Company in terms of capital and liquidity. Third, the Company will encounter increased financing costs and difficulties in fund arrangement along with the national economic restructuring, the transformation of development mode, the acceleration of interest rate liberalization and the rapid development of non-bank intermediation of social investments.
40 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.40 II. Banking Data i. Major financial and accounting data in previous three years (Unit: RMB1,000)
2011 2010 2009 Item PRC GAAP IFRS PRC GAAP PRC GAAP
Total assets 1,244,141,182 1,244,180,235 1,040,230,442 845,456,432
Total liabilities 1,180,211,059 1,180,159,554 1,004,734,562 815,222,247
Total deposits 896,023,654 896,023,654 767,622,249 581,678,388
Incl.: Corporate demand deposits 309,828,177 309,828,177 305,809,054 227,019,393
Corporate time deposits 302,301,603 302,301,603 234,430,295 172,055,771
Savings demand deposits 57,641,397 57,641,397 40,857,653 26,913,207
Savings time deposits 84,968,119 84,968,119 73,038,732 56,621,312
Other deposits 141,284,358 141,284,358 113,486,515 99,068,705
Total loans 611,462,917 611,462,917 527,936,681 430,225,584
Incl.: Pass loans 605,863,230 605,863,230 521,682,644 423,768,319
NPLs 5,599,687 5,599,687 6,254,037 6,457,265
Placements from banks and other financial 26,958,473 26,958,473 10,983,960 6,121,271 institutions
Allowance for impairment losses on loans 17,258,817 17,258,817 13,073,253 10,773,337
ii. Capital composition and its changes (Unit: RMB100 million)
Item 2011 2010 2009
Net capital base 831.39 549.04 440.69
Incl.: Net core capital 620.63 344.80 295.53
Supplementary capital 215.72 204.24 145.16
Deductions 4.96 – –
Risk weighted assets and market risk capital adjustment 7,118.21 5,187.22 4,318.69
Core capital adequacy ratio (%) 8.72 6.65 6.84
Capital adequacy ratio (%) 11.68 10.58 10.20
Annual Report 2011 41
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.41 iii. Supplementary financial indicators of the past three years at the end of the reporting period
2011 2010 2009 Standard Major indicator (%) At At At value the end of Average the end of Average the end of Average the period the period the period Return on assets 0.81 0.74 0.64 0.61 0.48 0.44 Return on capital 14.42 15.69 16.87 16.39 12.44 11.52 Capital adequacy ratio ≥8% 11.68 11.74 10.58 10.54 10.20 10.59 Core capital adequacy ratio 8.72 8.20 6.65 6.64 6.84 7.02 NPL ratio 0.92 1.03 1.18 1.32 1.50 1.61 RMB 66.65 68.03 66.90 69.66 71.28 72.74 Loan-to-deposit ratio Foreign currency 72.24 86.44 73.01 77.42 51.47 43.28 Total ≤75% 66.72 68.26 67.00 69.76 70.97 72.30 RMB 39.39 40.28 38.10 37.30 28.68 38.60 Asset liquidity ratio Foreign currency 51.28 62.01 78.20 72.34 97.61 112.66 Percentage of loans to single largest customer ≤10% 4.69 4.91 5.29 5.22 4.79 4.74 Percentage of loans to top 10 customers ≤50% 25.29 29.36 35.83 34.96 33.99 31.20 Provision coverage ratio 308.21 265.91 209.04 190.21 166.84 156.64 Allowance to total loans ratio 2.82 2.70 2.48 2.49 2.50 2.52 Cost-to-income ratio 41.89 42.53 43.41 44.06 44.88 43.97
Note: NPL ratio is classified by the five-tier criteria. NPL ratio = (sub-standard loans + doubtful loans + loss loans) ÷ balances of various loans × 100%. Statement of migration ratio data:
Item (%) 2011 2010 2009
Loan migration ratio: Pass 1.98 1.97 3.85
Loan migration ratio: Special mention 18.02 34.09 21.04
Loan migration ratio: Sub-standard 55.83 67.42 28.14
Loan migration ratio: Doubtful 22.26 46.75 32.49
Note: Loan migration ratio: pass = Downward migrating amount of pass loans at the beginning of the period/(balance of pass loans at the beginning of the period – decreased amount of pass loans during the period) × 100%; Loan migration ratio: special mention = Downward migrating amount of special mention loans at the beginning of the period/ (balance of special mention loans at the beginning of the period – decreased amount of special mention loans during the period) × 100%; Loan migration ratio: sub-standard = Downward migrating amount of sub-standard loans at the beginning of the period/(balance of sub-standard loans at the beginning of the period – decreased amount of sub-standard loans during the period) × 100%; and Loan migration ratio: doubtful = Downward migrating amount of doubtful loans at the beginning of the period/(balance of doubtful loans at the beginning of the period – decreased amount of doubtful loans during the period) × 100%.
42 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.42 iv. Hierarchical management and number and regional distribution of branches during the reporting period 1. Overview of hierarchical management The Company focuses on economically central cities while radiates to the whole country. It conducts the institution planning and setup, routine operation and internal management in accordance with the three-level organizational management system consisting of the Head Office, branches and sub-branches. As at the end of the reporting period, the Company had 32 tier-one branches and 426 outlets in 67 cities above the prefecture level including Beijing, Nanjing, Hangzhou, Shanghai, Ji’nan, Kunming, Shenzhen, Shenyang, Guangzhou, Wuhan, Chongqing, Chengdu, Xi’an, Urumqi, Dalian, Taiyuan, Qingdao, Wenzhou, Shijiazhuang, Fuzhou, Hohhot, Tianjin, Ningbo, Shaoxing, Nanning, Changzhou, Suzhou, Wuxi, Changsha, Hefei, Xiamen and Changchun. 32 outlets were newly established during the reporting period. The establishment of Zhengzhou Branch and Nanchang Branch of the Company was approved by the CBRC on 29 November 2011 and 22 December 2011 respectively, and is now under preparation. 2. Institutions and branches
Number of Number of Asset size Institution Business address outlets employees (RMB10,000)
Head Office 22 Jianguomennei Street, Dongcheng District, Beijing 1143 27,719,109
Beijing Branch 11 Financial Street, Xicheng District, Beijing 50 2111 15,796,592
Nanjing Branch 81 Zhongshan Road, Nanjing 24 959 5,305,786
Hangzhou Branch 73 Qingchun Road, Hangzhou 25 1014 6,242,190
Shanghai Branch 256 Pudong South Road, Shanghai 25 842 5,508,842
Ji’nan Branch 138 Weier Road, Ji’nan 28 1285 3,720,963
Kunming Branch 98 Weiyuan Road, Kunming 20 623 2,951,434
F1-4, Podium of Nanguangjiejia Mansion, 3037 Shennan Shenzhen Branch 20 660 3,919,312 Middle Road, Futian District, Shenzhen
Shenyang Branch 51 Qingnian Street, Shenhe District, Shenyang 13 565 3,029,625
F1 and F15-19, China Brand Commodity Mansion, 13 Guangzhou Branch 14 653 2,671,051 Huaxia Road, Tianhe District, Guangzhou
Huayin Mansion, 786 Minzhu Road, Wuchang District, Wuhan Branch 16 705 4,797,668 Wuhan
Chongqing Branch 27 Jiangbeichengxi Street, Jiangbei District, Chongqing 15 581 6,013,407
Chengdu Branch Building 1, 1 Hangkong Road, Wuhou District, Chengdu 13 516 2,360,827
Xi’an Branch 111 Chang’an North Road, Xi’an 10 410 2,714,820
Urumqi Branch 15 Dongfeng Road, Urumqi 6 269 1,204,496
Dalian Branch 25 Tongxing Street, Zhongshan District, Dalian 10 460 3,328,746
Qingdao Branch A F1, 5 Donghai West Road, Shinan District, Qingdao 15 708 2,234,314
Taiyuan Branch 113 Yingze Street, Taiyuan 13 640 3,896,478
Annual Report 2011 43
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.43 Number of Number of Asset size Institution Business address outlets employees (RMB10,000)
Wenzhou Branch Shenli Mansion, Chezhan Avenue, Wenzhou 13 544 1,927,894
(F1-5, 1# and 2# Podium) Huaxia Mansion, 1 Gutian Fuzhou Branch 9 397 1,151,197 Access Road, Gulou District, Fuzhou
Capital Plaza, 1 Zhongshan West Road, Huimin District, Hohhot Branch 7 352 1,237,414 Hohhot
Tower E, Huanbohai Development Center, Zeng 9 Binshui Tianjin Branch 12 445 1,639,930 Road, Hexi District, Tianjin
Shijiazhuang Branch 48 Zhongshan West Road, Shixia District, Shijiazhuang 15 715 2,626,133
Ningbo Branch 366 Heyuan Road, Jiangdong District, Ningbo 5 284 2,121,587
Shaoxing Branch 260 Yan’an Road, Shaoxing 5 244 1,323,340
Nanning Branch Nanfeng Mansion, 85 Minzu Avenue, Nanning 7 276 751,616
Changzhou Branch 162 Heping North Road, Changzhou 6 237 1,107,263
Suzhou Branch 188 Xinghai Street, Suzhou Industrial Park 13 510 2,527,977
Wuxi Branch 105 Xinsheng Road, Chongan District, Wuxi 12 462 2,020,667
Huameioui International Mansion, 389 Wuyi Road, Changsha Branch 2 190 1,662,100 Changcha
Hefei Branch Building C, Wealth Plaza, 278 Suixi Road, Hefei 1 134 375,611
F1-8, Jianshe Keji Mansion, 62 Hubin South Road, Siming Xiamen Branch 1 117 202,142 District, Xiamen
Changchun Branch 4888 Renmin Street, Nanguan District, Changchun 1 118 310,525
Total 426 19169 124,401,056
v. Quality of loan assets during the reporting period 1. Quality of loan assets: (Unit: RMB1,000)
Increase/(decrease) compared to the Five-tier classification Amount Percentage (%) same period of previous year (%) Pass loans 596,756,218.79 97.59 16.44 Special mention loans 9,107,011.87 1.49 -0.67 Sub-standard loans 2,355,598.82 0.38 -24.40 Doubtful loans 1,805,478.58 0.30 -12.62 Loss loans 1,438,609.11 0.24 34.19 Total 611,462,917.17 100.00 15.82
During the reporting period, the Group actively implemented the country’s macro-economic policies and regulatory requirements, strengthened credit risk management, continuously optimized credit structure, enhanced credit management throughout the whole process, stepped up recovery and disposal of troubled loans, and kept reinforcing the risk resistance capability. As at the end of the reporting period, the Group had outstanding non- performing loans (NPL) of RMB5,600 million, down RMB654 million over the beginning of the year; the NPL ratio stood at 0.92%, down 0.26 percentage point over the beginning of the year.
44 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.44 2. Restructured loans and overdue loans (Unit: RMB1,000)
Balance at the Balance at the Category beginning of Percentage (%) end of the period the period Renegotiated loans 22,166.87 20,406.01 0.00 Overdue loans 4,045,240.94 4,481,262.78 0.73
As at the end of the reporting period, the balance of the Group’s restructured loans amounted to RMB20 million and decreased by RMB2 million from the beginning of the year, accounting for 0.00% of total loans, remaining the same level as the beginning of the year; the balance of overdue loans was RMB4,481 million and decreased by RMB436 million from the beginning of the year, accounting for 0.73% of total loans, 0.04 percentage point lower than the beginning of the year. vi. Charge and write-off of allowance for impairment losses on loans (Unit: RMB1,000)
PRC GAAP IFRS
Balance at the beginning of the period 13,073,253 13,073,253
Charge during the reporting period 4,666,246 4,666,246
Reversal of interest on impaired loans 167,597 167,597
Recovery during the reporting period 344,992 344,992
Write-off during the reporting period 643,085 643,085
Transfer-out during the reporting period 14,992 14,992
Balance at the end of the period 17,258,817 17,258,817
Methods used in charge of allowance for impairment losses on loans: The Company assessed the impairment losses on all loans at the balance sheet date based on two methods: individual assessment and collective assessment. As to the single loan with a large amount, the Company applied the individual assessment method to test the impairment. If an objective evidence could indicate the loan had impairment loss, the loss amount shall be measured at the difference between the book value of the loan and the discounted value of estimated future cash flows and allowance for impairment loss on loans would be set aside and recognized in the loss of the period; the solvency of the borrower, reasonable value of the collateral, compensatory ability of the guarantor and other factors shall be fully considered in the impairment testing. The single loan with a small amount and unimpaired loan tested by the individual assessment shall be included in the loan portfolio with similar characteristics. Their impairment losses shall be assessed collectively, and corresponding allowance for the impairment losses shall be recognized in the profit or loss.
Annual Report 2011 45
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.45 vii. Interest receivable (Unit: RMB1,000)
Balance at the Increase Recoveries Balance at Item beginning of during the during the the end of the period current period current period the period Interest receivable 2,917,284 726,236,709 723,518,948 5,635,045
Allowance for the bad debts of interest receivable: During the reporting period, as the Group inspected the interest receivable and there was no impairment of it, the allowance for the bad debts was not set aside. Writing-off procedures and policy of bad debts: As for the items in line with the conditions of writing-off, the Company adopted the procedures of declaration by the branches and approval by the Head Office: the related departments of branches organized the declaration and review for the bad debts writing-off, submitted to the general manager meeting of branches for review and approval and then reported to the Head Office; after being reviewed by the related departments of the Head Office and approved by the Asset Risk Disposal Committee, the items were written off. In the process of bad debts writing-off, the Company abided by the principle of strict writing-off conditions, providing definite evidences, seriously investigating responsibilities, reporting, reviewing and approving one by one and level by level, keeping confidential and “maintaining filing after writing-off”. After the bad debts were written off, the management responsibility was strictly put into place and diversified methods were adopted in the continuing recourse.
viii. Income composition (Unit: RMB1,000)
Increase/decrease compared to the Business category Amount Percentage (%) same period of previous year (%) Interest income on loans 38,115,267 57.57 41.12 Interest income on placements with banks 725,961 1.10 275.30 Interest income on due from central banks 2,198,799 3.32 47.19 Interest income on due from banks 1,087,929 1.64 2,690.13 Interest income on bond investments 3,633,934 5.49 32.74 Fee income 3,394,263 5.13 89.45 Others 17,049,639 25.75 40.10 Total 66,205,792 100.00 45.72
46 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.46 ix. Loan extension 1. Loan extension by industry As at the end of the reporting period, the top 10 industries of corporate loans of the Group were as follows: (Unit: RMB1,000)
At the end of the period At the beginning of the year Industry distribution Book balance Percentage (%) Book balance Percentage (%)
Manufacturing 164,732,017.15 26.94 139,459,226.59 26.42
Wholesale and retail 86,692,925.78 14.18 68,524,812.58 12.98
Property development 62,633,703.50 10.24 47,502,314.70 9.00
Leasing and commercial services 54,016,028.43 8.83 61,552,133.04 11.66
Construction 42,617,395.71 6.97 31,707,338.36 6.01
Transportation, storage and postal services 41,011,511.41 6.71 40,983,783.32 7.76
Production and supply of electric power, gas and 25,263,111.74 4.13 24,357,367.20 4.61 water
Mining 22,470,317.49 3.68 21,178,873.36 4.01
Water, environment and public utility management 10,586,509.17 1.73 9,839,150.94 1.86
Lodging and catering services 7,398,416.65 1.21 6,195,802.76 1.17
During the reporting period, the Group actively implemented the national control policies and regulatory requirements, made credit policies more forward-looking, targeted and effective, and enhanced the guiding role of industrial and regional credit policies on business development, structural adjustment and risk control, contributing to constant optimization of the credit structure. 2. Credit distribution by region (Unit: RMB1,000)
At the end of the period At the year-beginning Regional distribution Book balance Percentage (%) Book balance Percentage (%)
Northern and Northeastern China 214,040,781.12 35.01 188,774,432.36 35.76
Eastern China 202,530,315.20 33.12 179,226,699.04 33.95
Southern and Central China 108,184,214.93 17.69 88,378,680.64 16.74
Western China 86,707,605.92 14.18 71,556,869.14 13.55
Total 611,462,917.17 100.00 527,936,681.18 100.00
Annual Report 2011 47
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.47 3. Particulars of top 10 loan customers (Unit: RMB1,000)
Balance Percentage (%)
Top 10 loan customers 21,028,122.60 3.44
During the reporting period, the Group strictly controlled the loan concentration risk. The total balance of top 10 loan customers amounted to RMB21,028 million, accounting for 3.44% of loan balance at the end of the period and 25.29% of net capital respectively, which were controlled within the regulatory requirement. 4. Classification of loan guarantee methods and percentages (Unit: RMB1,000)
2011 2010 Guarantee method Book balance Percentage (%) Book balance Percentage (%)
Unsecured loans 106,197,985.15 17.37 96,002,820.21 18.18
Guaranteed loans 196,637,555.25 32.16 180,686,867.51 34.22
Collateral loans 308,627,376.77 50.47 251,246,993.46 47.60
– Mortgage loans 228,661,808.52 37.39 191,879,597.62 36.35
– Pledged loans 79,965,568.25 13.08 59,367,395.84 11.25
Total 611,462,917.17 100.00 527,936,681.18 100.00
As at the end of the reporting period, the total mortgage and pledged loans of the Group accounted for 50.47% of total loans, up 2.87 percentage points from the beginning of the period; the percentage of unsecured loans increased by 0.81 percentage points to 17.37% compared to the beginning of the period, and that of guaranteed loans decreased by 2.06 percentage points to 32.16%. x. Repossessed assets (Unit: RMB10,000)
At the year-end At the year-beginning
Category Allowance for Allowance for Amount Amount impairment losses impairment losses
Premises 33,184.46 16,121.72 53,756.96 22,371.98
Land use rights
Equity 1,546.39 1,546.39 1,619.11 1,569.13
Automobiles
Others 3,494.17 3,494.17 3,654.05 3,055.86
Total 38,225.02 21,162.28 59,030.12 26,996.97
As at the end of the reporting period, the book balance of repossessed assets was RMB382,250,200, of which, premises amounted to RMB331,844,600, accounting for 86.81% of the total; equity stood at RMB15,463,900, accounting for 4.05% of the total; and others was RMB34,941,700, accounting for 9.14% of the total.
48 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.48 xi. Major deposit and loan structures 1. Major deposits and interest rates (Unit: RMB10,000, %)
Item Average balance Average interest rate
Corporate demand deposits 26,989,644 0.81
Corporate time deposits 38,465,209 2.72
Demand savings deposits 3,568,297 0.49
Time savings deposits 7,626,837 2.57
Total 76,649,987 1.93
2. Major loans and interest rates (Unit: RMB10,000, %)
Item Average balance Average interest rate
Short-term loans with terms less than one year 28,463,911 7.05
Medium and long-term loans 28,877,507 6.19
Total 57,341,418 6.62
Note: Short-term loans with terms less than one year include discounted bills. xii. Financial bonds held (Unit: RMB10,000)
Category Amount
Policy financial bonds 2,880,191
Financial bonds of commercial banks 33,000
Financial bonds of securities companies –
Financial bonds of finance companies 30,000
Financial bonds of international financial companies 5,000
Subordinated bonds of commercial banks 174,689
Subordinated bonds of insurance companies 180,000
Hybrid capital bonds of commercial banks 90,000
Total 3,392,880
Annual Report 2011 49
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.49 Of which, material financial bonds: (Unit: RMB10,000)
Allowance for impairment Annual interest Category Face value Maturity date losses rate (%) (in original currency)
CDB financial bonds Issue 20 of 2008 100,000 3.42 25 November 2018 –
CDB financial bonds Issue 14 of 2005 84,500 3.42 2 August 2015 –
CDB financial bonds Issue 23 of 2011 71,000 R+0.75 14 April 2018 –
CDB financial bonds Issue 05 of 2009 62,000 S+0.3 16 June 2016 –
CDB financial bonds Issue 19 of 2011 62,000 R+0.72 30 March 2016 –
CDB financial bonds Issue 21 of 2011 61,000 S-0.15 8 April 2016 –
Financial Bonds Issue 04 of 2011 of the Export- 60,000 R+0.72 25 March 2018 – Import Bank of China
Note: R: Interest rate of one-year time deposits. S: Five-day average of 3-month SHIBOR. xiii. Development and profit/loss of such businesses as entrusted wealth management, asset securitization, agency and custody services during the reporting period 1. Development and profit/loss of entrusted wealth management During the reporting period, wealth management business of the Company realized sound development and generated fee income of RMB1,000 million, a year-on-year increase of RMB764 million or 323.73%. 2. Development and profit/loss of asset securitization Not applicable. 3. Development and profit/loss of agency services During the reporting period, all agency services of the Company developed smoothly. First, the size of funds and brokerage collection program products sales by proxy of the Company expanded significantly over the previous year. The Company witnessed sales volume of RMB7,259 million, a year-on-year increase of 153.55%, and fee income of sales by proxy of RMB30,291,200. Second, the premium income of the Company’s agency insurance was RMB382 million, and the fee income totaled RMB9,195,300. 389 outlets and 1,729 employees of the Company were qualified for concurrent-business insurance agency service. 4. Development and profit/loss of custody services During the reporting period, the Company’s custody business developed rapidly, and the assets under custody increased dramatically. The Company had 276 products under custody, covering securities investment funds, brokerage collection programs, bank wealth management, trust, insurance and private equity (PE), with a total amount of RMB239,510 million, a year-in-year increase of 137.21%, and realized fee income of RMB133 million, up 71.39% over the previous year.
50 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.50 xiv. Derivative financial instruments held (Unit: RMB1,000)
Contractual/ Fair value Category nominal amount Assets Liabilities
Currency swap 13,468,364 63,168 58,527
Non-delivery spot foreign exchange contract 6,266,856 10,287 10,097
Forward agreement 20,107,701 128,347 123,460
Interest rate swap 200,000 39 39
Total 201,841 192,123
Notes: (1) Nominal amount refers to the unfinished trade volume on the balance sheet date instead of the risk amount. Fair value refers to the amount of asset exchange or liability solvency conducted by the parties concerned that are familiar with the conditions in fair trade. (2) The Company used the financial instruments in the management of assets and liabilities, e.g., as for the structural deposits absorbed, the Company reduced the interest rate risk through interest rate swaps. xv. Off-balance-sheet items that may have material impact on financial position and operating results As at the end of the reporting period, the major off-balance-sheet items that may have material impact on financial position and operating results are as follows: (Unit: RMB1,000)
At the end of At the beginning Item the period of the period
Credit commitments 347,889,954.27 237,630,308.36
Of which:
Irrevocable loan commitment – –
Banker’s acceptances 217,677,170.57 191,863,217.50
L/G issued 11,495,274.88 7,223,573.03
L/C issued 109,590,672.44 25,569,445.75
Undrawn credit card limit 9,126,836.37 12,974,072.08
Lease commitments 3,465,310.29 2,867,841.52
Capital expenditure commitments 272,205.23 172,882.96
The above-mentioned off-balance-sheet items may have impact on the Company’s financial position and operating results, and their final results would be determined by whether the related matters will occur or not in the future. Under certain conditions in the future, they may be converted to the actual obligation of the Group in accordance with the recognition principle of contingencies.
Annual Report 2011 51
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.51 xvi. Various risks and risk management 1. Explanation on credit risk status (1) Principal businesses that incur credit risk. Credit risk refers to the possibility of loss and uncertainty of income caused by customer default or decreased credit standing to a commercial bank, when the bank operates credit, inter-bank lending and investment businesses. The credit risk of the Group mainly exists in the on-balance-sheet and off-balance-sheet businesses including loans, inter-bank lending, bond investments, bill acceptance, L/C, and L/G. (2) Organizational framework and division of responsibilities of credit risk management. The Company has established a mutually restricted credit risk management organizational framework with reasonable work division and definite responsibilities: the Related Party Transactions Control Committee and the Risk Management Committee were established under the Board of Directors of the Company to be responsible for the formulation of connected transactions management and bank-wide risk management strategy respectively; the Credit Policy Committee of the Head Office is responsible for the formulation, organization and implementation of material credit risk management policies; risk management and internal control committees were established in the Head Office and branches to arrange and coordinate risk management and internal control; the Credit Risk Management Department of the Head Office and regional credit risk management departments are respectively responsible for the credit risk management in the whole bank and local branches; according to the authorization system and business risk status, the Company employs the credit approval model of combining the collective approval by the Credit Approval Committee and the authorized approval of specific approver; the Company adjusted, expanded and strengthened functions for each link of credit business, and set up mutually restricted positions with definite responsibilities and smooth operation. (3) Credit risk management measures during the reporting period. During the reporting period, the Company made clear the dialectical relationship between risk and development. Focusing on strengthening the comprehensive risk management, it enhanced its capabilities of risk management, compliant operation and service development, and completed all objectives. By “propelling development under the premise of controlling risks, adjusting structure while accelerating development and improving efficiency during structure optimization”, the Company supported and promoted its sound business development. First, the Company actively responded to national macro policies and market changes, made credit policies more forward-looking, targeted and effective, guided credit extension and structural adjustment, and stepped up efforts in the exit from low-quality customers, hence making the credit structure significantly optimized; second, the Company established a credit authorization and assessment model, improved the credit approval mechanism, optimized the credit institutional process, and enhanced the credit management level; third, the Company accelerated the recovery and disposal of problem loans, intensified the control over newly added loans, and comprehensively improved the quality of credit assets; fourth, the Company reduced existing loans and controlled new loans granted to financing vehicles, optimized the structure of real estate loans, and ensured that risks in key fields were effectively controlled; fifth, the Company applied risk-adjusted capital return tools, guided the allocation of credit resources to low-risk and high-income businesses, and constantly enhanced its risk identification and assessment level; sixth, the Company constantly improved the credit compliance management mechanism, strengthened process management and key point management, and strictly controlled credit-related cases. (4) Classification methods and procedures of credit asset risk. Pursuant to the standards in the Guidelines on Loan Risk Classification by the CBRC, the Company classified the credit assets by considering such non- financial factors as the solvency, willingness to repay, repayment records and guarantee condition of the borrowers and their internal management; the credit asset risk classification of the Company followed the step- by-step classification and identification procedures: preliminary classification by the customer manager, review by the customer manager in charge, and then review, recheck and identification by the regional credit risk management departments. (5) Basic information on credit risk Credit exposure. As at the end of the reporting period, without regard to the available collateral or other credit enhancement, the total on-balance-sheet and off-balance-sheet credit exposure of the Group amounted to RMB1,577,825 million, of which, on-balance-sheet risk exposure stood at RMB1,229,935 million, accounting for 77.95% of the total; off-balance-sheet risk exposure was RMB347,890 million, accounting for 22.05%. Risk concentration. As at the end of the reporting period, the balance of single largest legal-person corporate loans of the Group was RMB3,900 million, accounting for 4.69% of net capital; the balance of top 10 single legal-person corporate loans was RMB21,028 million, accounting for 25.29% of net capital. For details of loan distribution by industry and region, please refer to the “Loan Extension” herein. Non-performing loan distribution by industry and region. As at the end of the reporting period, industries of the Group with the NPL ratio above the average ratio of NPLs (0.92%) were mainly: education (3.40%), real estate (1.92%), manufacturing (1.43%), and wholesale and retail (0.94%). The relatively high NPL ratio for education was mainly due to the industry’s lower total loans. The NPL ratio of Northern and Northeastern China (1.17%) was above the average NPL ratio of the whole bank (0.92%), while those of Southern and Central China, Eastern China and Western China were lower than the overall NPL ratio of the whole bank.
52 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.52 (6) Credit risk management measures in 2012. In 2012, the country will still face arduous tasks in inflation control and structure adjustment, and complicated and severe operating situations will remain in the banking industry. The credit risk in some business fields and regional credit risk may arise, and potential risks are accumulating, hence posing formidable tasks for risk control. The Company will further enhance its risk control ability, deepen the comprehensive risk management mechanism, enhance risk control and operation capability, and ensure the sound development of credit business. First, the Company will step up researches and guidance on credit policies, and further enhance the role of credit policies in guiding and propelling business development; second, the Company will deepen the adjustment of customer structure and industry structure, continue to enhance risk coverage and the proportions of quality customers and industries; third, the Company will take multiple measures to constantly improve the risk identification and rapid response ability, strictly trace risks in key fields such as real estate, government financing vehicles, off- balance-sheet businesses and emerging businesses to prevent systematic risks; fourth, the Company will follow the “three measures and one guidelines”, strengthen the management of truthfulness during credit extension, and prevent process-related risks and cases from happening; fifth, the Company will strengthen the overall control of assets quality, control risks in newly added loans and reducing existing NPLs, assuring the constant improvement of credit assets quality. 2. Explanation on liquidity risk status Liquidity risk means the risk that the Bank could not acquire sufficient fund or could not acquire fund timely at a reasonable cost to cope with the assets growth or pay mature debts in spite of its solvency. The Company’s liquidity risk management aims to reasonably arrange future cash flows, ensure the fund payment needs of various businesses, and reduce excessive liquidity costs as much as possible by identifying, measuring, monitoring and controlling the liquidity risks of various businesses. During the reporting period, facing the complicated economic and financial situations, the Company paid great attention to liquidity risk management. It adopted multiple measures to optimize the structure of assets and liabilities, enhance the liquidity of assets and the stability of liabilities, and reduce the term mismatch risk. The measures included strengthening inter-bank business control and term match management, increasing bond investments with better liquidity as tier-2 reserve, and improving liquidity indicators through medium and long-term funds such as proactive liability supplement negotiated deposits. The Company intensified inter-department cooperation and position provision management, established a monetary policy assessment mechanism, improved the internal funds management mechanism, and took measures in advance to address changes in market liquidity. It conducted regular stress test and emergency drills to enhance its capabilities in resisting potential risks and responding to emergencies, and effectively manage liquidity risks. As at the end of the reporting period, the liquidity ratio of RMB and foreign currency of the Group was 39.39% and 51.28, respectively, and the RMB and foreign currency loan-to-deposit ratio was 66.72%. In 2012, domestic economic and financial development still face complicated situations, and inflationary pressure remains intense. The People’s Bank of China will maintain the prudent monetary policy and use multiple monetary policy tools to manage liquidity and keep the social financing scale and monetary aggregates at a reasonable level. Based on the above expectations and combining the overall operation objectives for 2012, the Company will, based on the principle of gradual optimization of the structure of assets and liabilities, arrange assets growth rate and scale of major asset/liability items in a balanced manner, enhance the ability of centralized funds management and operation, intensify the monitoring of liquidity indicators, and improve the liquidity management. 3. Explanation on market risk status (1) Categories of market risks. The market risks undertaken by the Company include interest rate risk and exchange rate risk. Interest rate risk. The interest rate risk mainly existed in the following services of the Company: deposits, loans, bonds, inter-bank lending/repurchase, interest rate swap, forward foreign exchange transaction and swap exchange transaction, and was mainly reflected in interest rate repricing risk of banking book and interest rate risk of bond assets. Exchange rate risk. The exchange rate risk mainly existed in the following services (assets) of the Company: spot, forward and swap foreign exchange transactions, gold and silver transactions and foreign exchange capital fund items (including foreign exchange profit and provision). It was mainly concentrated on foreign exchange transactions. (2) Market risk status at the end of the reporting period. As at the end of 2011, the total gap of RMB and USD interest rate repricing period of the Company’s banking book was RMB61,199 million; the balance of bond assets (exposure face value) was RMB125,931 million; and the total foreign exchange exposure was RMB2,176 million. (3) Market risk management in 2011. Independent market risk management department of the Company was responsible for the market risk identification, measurement, monitoring and control for the whole bank. During the reporting period, the Company managed market risks mainly from the following three aspects: First, pursuant to the bank-wide operation and development framework and objectives, it formulated market risk management strategies, and followed policies, procedures and requirements on market risk management. Through the interest rate and exchange rate joint meeting mechanism, it strengthened inter-department coordination, and enhanced the guidance of market risk management on business operation. Second, the Company traced changes in the market and macro-economic policies, and gave play to the role of professional services to support decision-making on business operation. It also adopted the policy of strict risk limit management and conducted daily monitoring. Third, in line with external regulatory requirements and based on internal management needs, the Company stepped up efforts in system building, and conducted stricter management on market risk internal control. It also improved market risk measurement techniques and the market risk reporting system, and enhanced its abilities in risk control and compliant operation. Annual Report 2011 53
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.53 (4) Possible market risks in 2012 and response strategies. In 2012, the overall global economic situations will remain severe and complicated, and the world economic recovery faces more destabilizing factors and uncertainties. China will maintain its proactive fiscal policy and prudent monetary policy, and the macro-control methods will be more targeted, flexible and forward-looking. In 2012, the Company will pay close attention to market and policy changes, actively adjust structure, improve the market risk governance mechanism, and control the overall market risk. The strategies include: First, the Company will intensify the interaction between risk management and business operation, enhance the management coordination between market risk and other risks, and strengthen the guidance on businesses. Second, the Company will strengthen the management of the structure of assets and liabilities, and steadily adjust the bank-wide term structure of assets and liabilities to prevent interest rate risk. It will also properly manage exchange settlement and sales, strengthen the quotation, liquidation, exposure and limit management, and control exchange rate risk. Third, the Company will step up the system building, and improve the regular reporting, rapid response and joint consultation mechanism for market risk. It will also optimize the part-time and full-time personnel management system, intensify trainings and communication, and enhance the management level and analysis capability of personnel engaged in risk control. Fourth, the Company will conduct in-depth explorations into the management modes of market risk capital under the guidance of new regulatory standards. 4. Explanation on operational risk status Operational risk status and risk management measures in the reporting period. During the reporting period, major operational risks faced by the Company were accounting risk and IT risk. The Company fully promoted the concept of “three lines of defense” for operational risk management and followed the annual management policy for operational risk. It conducted operational risk assessment centering on its major operating activities and important and hotspot issues, and strengthened risk early warning and response in key areas, thereby providing support and services for realizing the Company’s operating objectives and keeping operational risk within a bearable scope. The major measures were as follows: (1) Deepening the identification, assessment and monitoring of operational risks, promoting the application of tools and methods for operational risk management, and reducing the occurrence rate of operational risks. (2) Strengthening case control, promoting the fulfillment of the CBRC’s “13 requirements on operational risk” in the Company, investigating abnormal behaviors of employees, and preventing hidden operational risks. (3) Strengthening the management of accounting personnel, introducing the compulsory leave policy for the accounting staff of outlets, and further improving the accounting risk control ability. (4) Optimizing information system contingency plans, organizing regular emergency drills, accelerating the building of disaster recovery system, and intensifying the management of IT operation and maintenance, hence enhancing the IT risk management capability. Possible operational risks in 2012 and response strategies. In 2012, considering the increasingly complicated external environment as well as the expanding business scale, increasingly diversified products and launch of new core systems of the Company, it will face prominent operational risks in business operation and more difficulties in management. Based on the overall operating objectives for 2012 and the requirements of the five-year development plan, the Company put forth the operational risk management strategies for 2012: continue the efforts in intensifying bank-wide operational risk management, enhance the business development ability of risk management service, build the database of operational risk points, watch key areas and links of operational risk, step up the operational risk management covering the whole staff and whole process, and ensure that the bank-wide operational risk is effectively controlled. 5. Explanation on country risk status As required by the CBRC’s Guidelines on Country Risk Management of Banking Institutions, the Company launched country risk management across the Bank, established the country risk statement reporting system, and incorporated country risk provisioning into the bank-wide management of assets depreciation reserves. With regard to the degrading of credit ratings of major European and American countries, social unrest in countries in Middle East and North Africa, European sovereign debt crisis, crisis of Korean savings banks and the Japanese earthquake, the Company adopted multiple means such as risk early warning and risk mitigation to strengthen risk monitoring of correspondent banks, and effectively prevented country risk by watching, suspending and terminating credit use by correspondent banks.
54 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.54 III. Investment in the reporting period i. Investment of the Company (Unit: RMB10,000)
Investments during the reporting period 7,000
Changes in investments -3,000
Investments in the previous period 10,000
Growth rate of investments (%) -30
Companies invested
Proportion of Company Major operating activities investment in the Remark company’s equity
Public deposit-taking; granting of short, medium and long-term loans; domestic settlement; bill acceptance and discount; inter-bank lending Kunming Chenggong Hua Xia and borrowing; bank card service; agency Established 70 Village Bank Co., Ltd. issuance, agency redemption and underwriting of by the Company governmental bonds; agency collection & payment and agency insurance; and other businesses approved by the banking regulatory authorities.
Public deposit-taking; granting of short, medium and long-term loans; domestic settlement; bill acceptance and discount; bank card Sichuan Jiangyou Hua Xia service; agency issuance, agency redemption, Established 70 Village Bank Co., Ltd. underwriting and sales of governmental bonds; by the Company guarantee service, agency collection & payment; agency entrusted deposits and loans; and other businesses approved by the CBRC.
ii. Use of the raised capital According to the First Extraordinary General Meeting for 2010, and approved by the [Z.J.X.K.(2011) No. 207] Document issued by CSRC, the Company privately offered 1,859,197,460 shares, and raised RMB20,107 million, all of which were used to supplement the capital. iii. Major investments using non-raised funds and their progress and return During the reporting period, the Company made no major investments using non-raised funds.
Annual Report 2011 55
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.55 IV. Major Changes in Business Environment, Macro Policies, Laws and Regulations and Their Impacts i. Socioeconomic development. The philosophy of “stabilizing economy, adjusting structure, controlling inflation” was determined. 2011 is the first year of the 12th Five-year Plan period. The macro-economic policy became more steady, prudent and flexible, and focused on properly dealing with the relationship between maintenance of stable and rapid economic development, adjustment of economic structure and management of inflation expectation, accelerating the strategic adjustment of economic structure, putting the stabilization of overall price level at a more important position, enhance the coordination, sustainability and internal motive of economic development, and preventing violent economic fluctuations. It will be a long-term and significant issue for commercial banks to maintain sound operation, accelerate strategic transformation and effectively solve the problems of difficult and expensive financing for real economy while pursuing sound development against the background of global economic downturn, slow economic growth at home, increasingly stricter international regulatory requirements and fiercer competition in the financial market. ii. Monetary policy. Following six times of deposit reserve ratio raising and interest rate hike in 2011, the monetary policy was slightly adjusted along with the decline in consumer price index. On 16 November 2011, the PBOC put forward in the Monetary Policy Implementation Report of China for Third Quarter of 2011 to “continue to implement the prudent monetary policy, closely monitor changes in domestic and overseas economic and financial situations, step up efforts in formulating more targeted, flexible and forward-looking policies in due course, adjust them slightly or in advance when necessary based on changes in economic situations, consolidate the sound momentum of stable and rapid economic development, maintain stable overall price level, and strengthen systematic risk prevention.” On 30 November 2011, the PBOC decided to lower the RMB deposit reserve ratio of deposits-taking financial institutions by 0.5 percentage point since 5 December. RMB deposit reserve ratio remained at a record high level at present, which, accompanied by constantly tightening market liquidity, increasingly fierce deposits competition, and higher fund costs and earnings, would test the funds raising and utilization capabilities of commercial banks. iii. Regulatory policies. On 27 April 2011, the CBRC issued the Guiding Opinions on Implementing New Regulatory Standards in the Chinese Banking Industry. In line with the new regulatory standards for bank capital and liquidity set forth in Basel III, and based on overall assessment of the effectiveness of existing prudent regulatory rules, it raised regulatory standards such as capital adequacy ratio, leverage ratio, liquidity and provisions on loan losses, and set reasonable regulatory requirements, which reflected the principle of counter-cyclical prudent supervision and embodied individual risks and systematic risks facing the banking industry. Afterwards, four relevant administrative measures, i.e., the Administrative Measures for Leverage Ratio of Commercial Banks, the Administrative Measures for Loan Losses of Commercial Banks, the Administrative Measures for Capital of Commercial Banks (Exposure Draft), and the Administrative Measures for Liquidity Risk of Commercial Banks (Trial), were distributed in succession. To a certain extent, the increasingly stricter regulatory standards for capital put new and higher demands on corporate governance structure, asset & liability management, dynamic analysis of customer behavior mode and business innovation of commercial banks. iv. Risk policy. In February 2011, the CBRC distributed the Notice on Boosting Reform and Development and Strengthening Risk Prevention, warning six types of risks, namely local financing vehicle risk, real estate credit risk, operational risk, market risk, liquidity risk and agency insurance risk, and exerting strict control over local financing vehicle loans and real estate loans. As per requirements of the CBRC, commercial banks shall strictly control increment in local financing vehicle loans, and only grant moderate loans to government-subsidized housing building with solvency. These measures and policies posed challenges to the risk management ability of commercial banks, particularly the stable operation and management of existing local financing vehicle loans, real estate loans and personal mortgage loans. v. Small enterprise financial services. On 25 May 2011, the CBRC issued the Notice on Supporting Commercial Banks to Further Improve Small Enterprise Financial Services, guiding and supporting commercial banks to further improve financial services for small enterprises. On 25 October 2011, the CBRC stressed in the Supplementary Notice on Supporting Commercial Banks to Further Improve Small and Micro-size Enterprise Financial Services that as for the commercial banks approved to issue special financial debts for small and micro-size enterprise loans, in calculating “adjusted loan-to-deposit ratio of small and micro-size enterprises”, the small and micro-size enterprise loans with the single account credit facility below RMB5 million (inclusive) corresponding to the debts shall be deducted from the numerator. The CBRC’s supporting policies for commercial banks in conducting small enterprise financial services can not only help to optimize the financing environment of small enterprises and boost their sustainable business development, but also improve the traditional credit income structure of commercial banks.
56 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.56 V. Routine Work of the Board of Directors i. Meetings of the Board of Directors during the reporting period 1. On 24 March 2011, the third meeting of the sixth Board of Directors was held in Beijing. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 26 March 2011. 2. On 27 April 2011, the fourth meeting of the sixth Board of Directors was held by correspondence. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 29 April 2011. 3. On 17 May 2011, the fifth meeting of the sixth Board of Directors was held by correspondence. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 19 May 2011. 4. On 10 August 2011, the sixth meeting of the sixth Board of Directors was held in Beijing. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 12 August 2011. 5. On 26 October 2011, the seventh meeting of the sixth Board of Directors was held in Beijing. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 28 October 2011. 6. On 23 December 2011, the eighth meeting of the sixth Board of Directors was held by correspondence. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 27 December 2011. ii. Implementation of resolutions of the General Meeting of Shareholders by the Board of Directors during the reporting period The Board of Directors of the Company distributed cash dividend in accordance with the profit distribution plan for 2010 passed at the Annual General Meeting for 2010; specifically, with 4,990,528,316 shares outstanding as at the end of 2010, a total of RMB998,105,663.20 was distributed in cash to all shareholders at RMB2.00 (before tax) per 10 shares. Relevant announcement was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 16 April 2011. The plan was implemented on 25 April 2011. According to the Proposal of Hua Xia Bank Co., Ltd. on Private Placement of Shares adopted at the First Extraordinary General Meeting of Shareholders of 2010, the Board of Directors initiated the private placement related work. The Company issued 1,859,197,460 shares and raised funds of RMB20,209,476,389.00. iii. Summary of performance of duties of the Audit Committee In 2011, the Audit Committee held four meetings in total, at which it reviewed regular reports, profit distribution plan and the Company’s internal control assessment report. The Audit Committee made considerable review efforts during the preparation of financial report for 2011. The Audit Committee reviewed unaudited annual financial statements of the Company, agreed to have these financial statements audited by external auditors, and raised specific requirements on the auditing of annual financial statements. The Audit Committee reviewed financial statements of the Company again after certified public accountants issued an initial audit opinion, and agreed to prepare the Annual Report 2011 of Hua Xia Bank and its summary based on these financial statements. On 9 March 2012, the Audit Committee held a meeting, at which it reviewed and adopted the Annual Report 2011 of the Company and its summary, agreed to submit them to the Board of Directors for review; listened to the accounting firm’s audit report for the year, and communicated with it on significant audit matters; reviewed and adopted the Proposal on Engagement of the Accounting Firm for 2012 and Its Remuneration, agreed to retain Grant Thornton China Certified Public Accountants Co., Ltd. for domestic audit in 2012, retain Ernst & Young for international audit in 2012 and submit the proposal to the Board of Directors for review.
Annual Report 2011 57
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.57 iv. Summary of performance of duties of the Remuneration and Assessment Committee The Remuneration and Assessment Committee held three meetings. It assessed and reviewed the duty performance of Directors and Senior Management members in 2010, organized mutual assessment of independent directors, amended the assessment measures for remuneration of senior management members at the Head Office level and relevant working procedures, and proposed the plan for performance assessment of senior management members with respect to each business/field in charge in 2011. The Remuneration and Assessment Committee reviewed remuneration data of Directors, Supervisors and Senior Management members disclosed in the Annual Report 2011 of the Company. In the opinion of the committee, the remuneration of Directors, Supervisors and Senior Management members disclosed in the Annual Report 2011 of the Company complied with relevant assessment procedures and remuneration policies of the Company, remuneration distribution was reasonably adjusted with regard to the prevailing economic conditions, macro control policies of the country and particular circumstances of the Company and its peers, and the disclosure met requirements of relevant laws and regulations. v. Establishment and improvement of the outside information user management system To strictly implement requirements on and strengthen the management of information dissemination to outside institutions, the Company formulated the Registration and Management Procedures for the Persons with Access to Insider Information of Hua Xia Bank Co., Limited and amended the Information Disclosure Procedures of Hua Xia Bank Co., Limited to specify requirements on managing outside information users. A confidentiality agreement and stringent confidentiality arrangements shall be made with outside information users including sponsors, securities underwriters, law firms, accounting firms and printers to avoid information leakage before public disclosure. As for information not publicly disclosed and required to be reported by authorities other than securities regulators, the Company is obligated to inform information users of limiting the scope of use, keeping confidential relevant secrets and keeping a record of its use. vi. Statement of the Board of Directors on internal control responsibility The Board of Directors shall be responsible for establishing and maintaining complete regulations on internal control over financial reporting. Internal control over financial reporting aims to assure the information contained in financial reports is true, complete and reliable and prevent material misstatement risk. Due to the inherent limitations of internal control, the Company can only provide reasonable assurance for the objective above. The Board of Directors has assessed internal control over financial reporting according to the requirements of the Basic Standard for Enterprise Internal Control, holding that it took effect on 31 December 2011. The Company did not identify any defect in internal control unrelated to financial reporting during its internal control self- assessment. Grant Thornton China Certified Public Accountants Co., Ltd. engaged by the Company audited the effectiveness of the internal control over financial reporting of the Company, deeming that the Company has maintained effective internal control over financial reporting in all material respects on 31 December 2011 according to the Basic Standard for Enterprise Internal Control and relevant standards. vii. Establishment and improvement of working plan and implementation program for an internal control system Pursuant to requirements set forth in the Basic Standard for Enterprise Internal Control and supporting guidelines, the Company will continue to improve the internal control system and enhance the bank-wide risk management and internal control level. The Risk Management and Internal Control Committee of Hua Xia Bank was established to arrange and coordinate the Company’s risk management and internal control centering on credit risk, market risk and operational risk, formulate working rules of the committee and ensure their effective operation. It shall, in accordance with the supporting guidelines, conduct internal control assessment, improve the internal control assessment and evaluation system, promote continuous improvement in the Company’s internal control management level and efficiency, and build a sound internal control environment. It shall intensify the precision management of regulations, optimize the regulation system by simplifying and integrating business regulations, conduct review, revision and post-assessment of regulations, and hence enhance risk control and operation capabilities. It shall carry out internal audit inspections and line inspections, trace problem rectification, give into full play its function of internal control error detection and correction, and step up the building of a long- acting institutional implementation mechanism. With respect to problems identified in regulatory inspections, audit inspections and line inspections, it shall take effective measures to tackle the internal control deficiencies and gaps and make improvements, specify rectification responsibilities, and establish a long-acting rectification mechanism to assure the completeness and effectiveness of the internal control system. It shall foster the internal control compliance culture, and consolidate the basis for continuous and effective operation of the internal control system. It shall further standardize the staff’s professional behaviors, and provide trainings on professional ethics and compliance management. Besides, it shall also spread the core values of “integrity, discipline and harmony”, enhance the staff’s awareness of active compliance performance, and cultivate the sound compliance culture.
58 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.58 viii. Implementation of the rules governing persons with access to insider information In order to further regulate insider information management, strengthen insider information confidentiality, and ensure the impartiality of information disclosure, the Company formulated the Registration and Management Procedures for the Persons with Access to Insider Information of Hua Xia Bank Co., Limited to provide for the scope of insider information and persons with access to such information and the registration and recording of persons with access to insider information. The Procedures was reviewed and approved at the third meeting of the sixth Board of Directors. Amendments were made to the Registration and Management Procedures for the Persons with Access to Insider Information of Hua Xia Bank Co., Limited in line with CSRC’s Rules on Establishing Registration and Management Procedures for the Persons with Access to Insider Information by Listed Companies, and were reviewed and approved at the eighth meeting of the sixth Board of Directors. The Company registered and recorded persons with access to insider information in strict compliance with the Procedures and pertinent laws and regulations. In the preparation of the Annual Report 2011 and handling of related specific work, the Company registered relevant persons with access to insider information in order to prevent divulgence of insider information before it is disclosed to the public. VI. Formulation of Cash Dividend Policy and Implementation According to the Articles of Association of Hua Xia Co., Limited, the Company can distribute dividends in the form of cash or share, and shall maintain the continuity and stability of profit distribution policy. Total profit distributed in the form of cash in the last three years shall not be less than 30% of the annual average distributable profit realized during the period. The profit distribution plan for 2010 was reviewed and approved at the Annual General Meeting for 2010 and took effect on 25 April 2011. The distribution plan accorded with the Articles of Association, the distribution standard and proportion were definite and clear, and relevant decision-making procedures and mechanism were complete. Independent directors performed their duties and made their due contributions. Minority shareholders were provided with opportunities to fully express their opinions and appeals, and their legal rights and interests were sufficiently safeguarded. Total profit distributed in the form of cash in the last three years was not less than 30% of the annual average distributable profit realized during the period. VII. Profit Distribution Plan for 2011 Cash dividends distributed in the previous three years and their proportions to net profit are shown in the table below. (Unit: RMB1,000)
Dividends Shares distributed Shares Cash dividend Net profit Percentage Year distributed per ten transferred (before tax) of the year (%) per ten shares shares (RMB, per ten shares before tax)
2008 – 1.30 – 648,768 3,070,838 21.13
2009 – 1.30 – 648,768 3,760,227 17.25
2010 – 2.00 – 998,106 5,993,082 16.65
Grant Thornton China Certified Public Accountants Co., Ltd. and Ernst & Young engaged by the Company issued audit reports with unqualified opinions. The Company’s audited net profit for 2011 was RMB9,227,412,889.38.
Annual Report 2011 59
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.59 Pursuant to the FAQ on the Criteria on Information Disclosure by Companies Offering Securities to the Public No. 4 – Differences between Domestic and Overseas Audits and Profit Distribution Standards of Financial Companies (ZH.J.K.J.Z. [2001] No. 58) issued by the CSRC and the Administrative Measures for Bad Debt Provisions of Financial Institutions (C.J. [2005] No. 49) and the Articles of Association of Hua Xia Bank Co., Limited, the Company made statutory surplus reserve based on the net profit audited by the domestic accounting firm, set aside general reserve from net profit at the end of the year to cover unidentified possible losses, and distributed ordinary share dividends to shareholders based on the profit distributable audited by the domestic and overseas accounting firms. The annual profit distribution of the Company for 2011 is planned as follows: (1) RMB922,741,288.94 is set aside as statutory surplus reserve at 10% of the net profit of RMB9,227,412,889.38 for 2011 as audited by the domestic accounting firm; (2) Pursuant to the Administrative Measures for Bad Debt Provisions of Financial Institutions (C.J. [2005] No. 49) released by the MOF, the balance of general reserve shall not be less than 1% of the balance of assets exposed to risks and losses as at the end of the reporting period. RMB1,382,926,503.47 is proposed as general reserve for 2011 in compliance with requirements of the MOF. (3) Distribution of ordinary share dividends to shareholders: With 6,849,725,776 shares outstanding, a total of RMB1,712,431,444.00 will be distributed for 2011 at RMB2.50 (before tax) per 10 shares. Retained profit after profit distribution for 2011 will be carried forward to future years. The foregoing profit distribution plan will be implemented within two months after being reviewed and passed at the Annual General Meeting for 2011. VIII. Fulfillment of Social Responsibilities During the reporting period, the Company actively performed its corporate social responsibilities, pursued coordinated and sustainable development, stuck to the principle of combining corporate efficiency and social responsibility and incorporated it into its development strategy. The Company was committed to supporting the development of small enterprises. Following the “Gathering of Pioneer Excellent Small Enterprises” in 2010, the Company hosted such public-good activities as “Training Camp for Excellent Small Enterprises” and “Gas Station for Growth of Small Enterprises” in 2011, building development platform for small enterprises and enhancing their soft power. While delivering great support to the development of small enterprises, the Company strove for continuous enhancement of the standardized service level and ability across the Bank. The manual acceptance ratio of customer service hotline reached 91%, and the customer satisfaction ratio exceeded 99%. Six outlets were granted the title of “Top 100 Model Institutions of Civilized and Standardized Services in the Chinese Banking Industry”, and the Head Office won the “Outstanding Contribution Award”. The Company introduced green credit and advocated the concept of green development, which contributed to rapid development of e-banking business. It continued its efforts in building a harmonious bank and cultivating the honest, standardized and harmonious corporate culture. It committed itself to the public-good and charity undertakings by carrying out volunteer services and activities regarding financial education and publicity, assistance to students and volunteer teaching, environmental protection, transport, medical services and public health etc. During the reporting period, the Company received the “Award of Top Ten Public-good Enterprises of the Year”.
60 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 18:20 • 80072 • 09 E_Huaxia_Section VIII.indd P.60 Report of the Board of Supervisors I. Meetings of the Board of Supervisors i. On 23 March 2011, the second meeting of the sixth Board of Supervisors was held in Beijing. The meeting reviewed and adopted the Annual Work Report 2010 of the Board of Supervisors of Hua Xia Bank Co., Limited, Examination and Survey Plan 2011 of the Board of Supervisors of Hua Xia Bank Co., Limited, Annual Financial Report 2010 of Hua Xia Bank Co., Limited, Profit Distribution Plan of Hua Xia Bank Co., Limited for 2010, Annual Budget Report 2011 of Hua Xia Bank Co., Limited, Proposal on the Annual Report 2010 of Hua Xia Bank Co., Limited, Result of Mutual Appraisal for Supervisors and Peer Appraisal of External Supervisors, Special Internal Audit Report on Connected Transactions of Hua Xia Bank Co., Limited in 2010, Proposal on the Internal Control Self-assessment Report of the Board of Directors of Hua Xia Bank Co., Limited, and Proposal on the Corporate Social Responsibility Report 2010 of Hua Xia Bank Co., Limited. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 26 March 2011. ii. On 27 April 2011, the third meeting of the sixth Board of Supervisors was held by correspondence. The meeting reviewed and adopted the Proposal on the First Quarterly Report 2011 of Hua Xia Bank Co., Limited and Results of Performance Assessment of Directors and Senior Management Members of Hua Xia Bank in 2010. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 29 April 2011. iii. On 10 August 2011, the fourth meeting of the sixth Board of Supervisors was held in Beijing. The meeting reviewed and adopted the Proposal on Interim Report 2011 of Hua Xia Bank Co., Limited and the Examination Report on Risk of Loans to Local Government Financing Vehicles of Hua Xia Bank Beijing Branch. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 12 August 2011. iv. On 26 October 2011, the fifth meeting of the sixth Board of Supervisors was held in Beijing. The meeting reviewed and adopted the Proposal on the Third Quarterly Report 2011 of Hua Xia Bank Co., Limited, the Special Report on Use of Funds Raised, the Proposal on the Measures on Duty Performance Evaluation of Directors of Hua Xia Bank Co., Limited, and the Proposal on the Measures on Duty Performance Evaluation of Supervisors of Hua Xia Bank Co., Limited, and listened to the Report on Development of Small Enterprise Business of Hua Xia Bank delivered by SME Credit Department of the Head Office. The announcement of resolutions was published on the China Securities Journal, Shanghai Securities News and Securities Times and the website of Shanghai Stock Exchange on 28 October 2011. II. sPECIAl Inspections and Surveys by the Board of Supervisors i. The Board of Supervisors discussed with the Management in March 2011 to get an in-depth understanding of the Company’s operation and financial status in 2010, work arrangement for 2011, and measures to be taken to improve market share, enhance competitive edge and promote branch development. ii. In March 2011, the Board of Supervisors discussed with some directors and senior management members to inspect the duty performance according to laws by the Company’s Directors and Senior Management members in 2010. iii. In May 2011, the Board of Supervisors listened to the report on the Company’s compliance management and work arrangement for the next step by the Compliance Department. iv. In June 2011, the Board of Supervisors conducted an on-site inspection on the risk of loans to local government financial vehicles of Beijing Branch of the Company and formed an inspection report. v. In July 2011, the Board of Supervisors conducted an on-site inspection on customer service of Shenyang Branch of the Company. vi. In September 2011, the Board of Supervisors conducted an on-site inspection on the support to development of Xinjiang by Urumqi Branch of the Company. vii. In October 2011, the Board of Supervisors conducted an on-site inspection on the operational management of Wuxi Branch of the Company in 2011 and its implementation of the Head Office’s credit policy.
Annual Report 2011 61
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:52 • 80072 • 10 E_Huaxia_Section IX.indd P.61 III. Independent Opinions of the Board of Supervisors on Relevant Matters
During the reporting period, the Company held one general meeting of shareholders and six meetings of the Board of Directors. Supervisors were present as non-voting attendees at the General Meetings of Shareholders and meetings of the Board of Directors to exercise supervision over performance of duties of Directors and Senior Management members of the Company.
i. Legal compliance
During the reporting period, the Company operated in compliance with laws, and the decision-making process was legitimate and valid. No Directors or Senior Management members were found to have acted in violation of laws, regulations or the Articles of Association or against interests of the Company and its shareholders when acting in their official capacity.
ii. Authenticity of financial statements
The annual financial statements of the Company reflected the financial status and operating results of the Company truly and fairly. Grant Thornton China Certified Public Accountants Co., Ltd. and Ernst & Young audited financial statements for this year pursuant to domestic and international audit standards respectively and issued audit reports with unqualified opinions.
iii. Use of funds raised
During the reporting period, funds raised were used in accordance with the resolution on non-public offering made at the First Extraordinary General Meeting of Shareholders of the Company in 2010.
iv. Purchase and sale of assets
The Company neither purchased nor sold assets during the reporting period.
v. Connected transactions
During the reporting period, the Company’s connected transactions were conducted fairly and reasonably without any act found that infringed upon the interests of shareholders and the Company.
vi. Internal control system and review of internal control self-assessment report
The Company built a complete, reasonable and effective internal control system. The Board of Supervisors reviewed the internal control self-assessment report and agreed with the internal control self-assessment conducted by the Board of Directors.
vii. Implementation of resolutions of the General Meeting of Shareholders
The Board of Supervisors raised no objection to the reports or proposals submitted by the Board of Directors to the General Meeting of Shareholders and supervised the implementation of resolutions of the General Meeting of Shareholders. The Board of Supervisors deemed that the Board of Directors earnestly implemented resolutions of the General Meeting of Shareholders.
62 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:52 • 80072 • 10 E_Huaxia_Section IX.indd P.62 Signi ficant Events I. Material Legal Proceedings and Arbitrations
During the reporting period, the Company was not involved in legal proceedings or arbitrations with a significant impact on operating activities of the Company. As at the end of the reporting period, the Company had 43 pending lawsuits involving RMB10 million or above individually, totaling RMB1,863,015,000, of which 2 cases that involved RMB201.27 million were brought against the Company. During the reporting period, the Company had made full provisions for anticipated liabilities that may arise from pending lawsuits against the Company. II. Holdings in Other Listed Companies, Commercial Banks, Securities Firms, Insurance Firms, Trust Companies, Futures Companies and Other Financial Companies
i. Holdings in other listed companies
Initial investment Shareholding Book value at the end of Stock code Short name of stock (RMB) proportion (%) the period (RMB)
V Visa Inc. 1,296,655 0.0003 523,844.93
ii. Holdings in non-listed financial companies
Initial investment Number of Shareholding Book value at the end of Name (RMB) shares held proportion (%) the period (RMB)
China UnionPay Co., Ltd. 81,250,000 62,500,000 2.13 81,250,000
Beijing Daxing Hua Xia Village 100,000,000 100,000,000 100 100,000,000 Bank Co., Ltd.
Kunming Chenggong Hua Xia 35,000,000 35,000,000 70 35,000,000 Village Bank Co., Ltd.
Sichuan Jiangyou Hua Xia 35,000,000 35,000,000 70 35,000,000 Village Bank Co., Ltd.
III. Material Asset Acquisition, Disposal and Merger
During the reporting period, the Company did not engage in any material asset acquisition, disposal and merger. IV. Implementation of Share Incentive Scheme and Its Effects
Not applicable.
Annual Report 2011 63
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:29 • 80072 • 11 E_Huaxia_Section X.indd P.63 V. Independent Opinions of Independent Directors on External Guarantees
Pursuant to requirements set forth in the document of the CSRC (Z.J.F.[2003] No. 56), Independent Directors of the Company reviewed the external guarantees of the Company in 2011 on a fair, impartial and objective basis. Specific review opinions are hereby given as follows:
The external guarantee service of the Company is a part of the ordinary banking services within the business scope of the Company as approved by the PBOC and the CBRC. As at the end of the reporting period, the outstanding guarantees of the Company amounted to RMB11,495 million, up RMB4,271 million from the beginning of the year. During the reporting period, no single external guarantee exceeded RMB2 billion or 5% of the audited net assets in the previous year.
The Company enhanced guarantee risk management by including guarantee activities in the scope of centralized credit facility management, conducting stringent credit facility investigation, approval and management, and strengthening risk identification, assessment, monitoring and control, which had effectively controlled guarantee risks. During the reporting period, external guarantee business of the Company was run in a normal course without any advance payments or non-compliances. VI. Material Related-party Transactions
i. Loans to shareholders with a 5% or higher interest
Loans to shareholders with a 5% or higher interest in the Company during the reporting period are shown in the table below:
(Unit: RMB1,000)
Outstanding loans Outstanding loans Shareholder Number of shares held at the end of 2011 at end of 2010
Shougang Corporation 1,388,851,181 3,900,000 900,000
ii. Material related-party transactions
1. Outstanding loans to shareholders with a 5% or higher interest in the Company and their related parties as at the end of the reporting period, with individual amounts of RMB30 million or above, are shown in the table below (with deduction of the amount of margin deposits, pledged deposit receipts and government bonds):
(Unit: RMB1,000)
Outstanding loans Related party % of total loans at end of 2011
Shougang Corporation 3,900,000 0.64
Beijing Shougang Special Steel Co., Ltd. 118,000 0.02
Bazhou Kaihong Mining Co., Ltd. 270,000 0.04
State Grid Energy Development Co., Ltd. 300,000 0.05
Shaanxi Electric Power Corporation 50,000 0.01
64 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:29 • 80072 • 11 E_Huaxia_Section X.indd P.64 2. As at the end of the reporting period, the Company held RMB1.1 billion bonds of State Grid Corporation of China and RMB300 million bonds of China Power Finance Co., Ltd., both of which were related enterprises of Yingda International Holdings Corporation, Ltd.
3. As at the end of the reporting period, the Company issued non-financing performance guarantees worth RMB19,277,700 (deducting margin) to its shareholder Shougang Corporation, banker’s acceptance of RMB80 million (deducting margin) to Shenzhen Longlong International Trade Co., Ltd., a related enterprise of Shougang Corporation, and letters of credit of RMB811 million to State Grid Corporation, a related enterprise of Yingda International Holdings Corporation, Ltd.
4. Pursuant to the Guidelines on Implementation of Connected Transactions by Listed Companies of Shanghai Stock Exchange, legal persons holding 5% or above shares of a listed company within the last 12 months and their related enterprises are deemed as the company’s related parties. Since Hongta Tobacco (Group) Co., Ltd. held 6% shares of the Company as at 26 April 2011, the company and its related enterprises are related legal persons of the Company. As at the end of the reporting period, Hongta Tobacco (Group) Co., Ltd. had loans of RMB300 million from the Company, accounting for 0.05% of the latter’s total loans.
5. As at the end of the reporting period, the Company granted loans of RMB4,938 million to its related enterprises, accounting for 0.81% of the total corporate loans. No overdue loans or interests happened to the Company’s related loans. Considering the quantity, structure and quality of the connected transactions and potential risks, the existing related loans would not exert material impact on the Company’s normal operation.
iii. Management, pricing principle and basis for connected transactions
During the reporting period, pursuant to the Administrative Measures for Related-party Transactions between Commercial Banks and Their Insiders or Shareholders released by the CBRC, the Company further tightened the management and control of connected transaction risks, reasonably controlled limits of connected transactions and proactively adjusted the structure of connected transactions. These moves helped to further improve connected transaction management and effectively control connected transaction risks of the Company. The Company strictly implemented the Administrative Measures for Related-party Transactions between Commercial Banks and Their Insiders or Shareholders, and conducted connected transactions in accordance with the commercial principle and based on the pricing principle and basis that the condition is not lower than that of similar non-connected transactions.
VII. Material Contracts and Performance of Obligations thereunder i. Material custody, contract and lease
During the reporting period, the Company did not take custody of or contract assets of other companies, and no other companies took custody of, contract or rent assets of the Company.
ii. Material guarantees
Except for financial guarantees within the business scope as approved by the CBRC, the Company had no material guarantees that needed to be disclosed during the reporting period.
iii. Other material contracts
No material contract disputes took place during the reporting period.
Annual Report 2011 65
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:29 • 80072 • 11 E_Huaxia_Section X.indd P.65 VIII. Commitments
i. During the reporting period, the Company or its shareholders having a 5% or higher interest in the Company did not make any commitments that may impose any material impact on operating results or financial position of the Company.
ii. Shareholders of the Company, namely Shougang Corporation, Yingda International Holdings Corporation, Ltd. and Deutsche Bank Luxembourg S.A., committed not to transfer the Company’s shares acquired at this offering within five years following the delivery date of the Company’s non-public offering in 2011; share transfer upon maturity and qualifications of the transferee for shareholder shall be subject to the consent of regulators as per relevant laws and regulations.
Shougang Corporation
Shareholder Yingda International Holdings Corporation, Ltd.
Deutsche Bank Luxembourg S.A.
Commitment type Restrictions on sales of shares of re-financing
They committed not to transfer the Company’s shares acquired at this offering within five years following the delivery date of the Company’s non-public offering in 2011; and share transfer upon maturity and Commitment qualifications of the transferee for shareholder shall be subject to the consent of regulators as per relevant laws and regulations.
Commitment date 26 April 2011
Commitment term Five years
Performance status Under performance
IX. Engagement and Removal of Accounting Firms
During the reporting period, the Company engaged Grant Thornton China Certified Public Accountants Co., Ltd. and Ernst & Young to audit statutory and supplementary financial statements for 2011. The Company paid Grant Thornton China Certified Public Accountants Co., Ltd. RMB2.7 million as audit fee for 2011, and paid Ernst & Young RMB2.7 million as audit fee for 2011.
Grant Thornton China Certified Public Accountants Co., Ltd. and Ernst & Young have provided audit services for the Company for 11 years. X. Penalty to the Company, the Board of Directors and Directors
During the reporting period, the Company, the Board of Directors and Directors did not receive any disciplinary inspection, administrative penalty or public criticism by the CSRC or public censure by stock exchanges, or any punishment by other regulatory or judicial authorities. XI. Fund Occupancy and Recovery
During the reporting period, as audited and confirmed by Grant Thornton China Certified Public Accountants Co., Ltd., no funds of the Company were occupied for non-operating purposes by controlling shareholders or other related parties.
66 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:29 • 80072 • 11 E_Huaxia_Section X.indd P.66 XII. Index of Information Disclosures
Released on Date of Released on Event (journals) publication (website)
China Securities Announcement on Obtaining Approval from Public Offering Review Journal, Shanghai Committee of CBRC for the Application for Non-public Offering of 25 January 2011 http://www.sse.com.cn Securities News and A Shares Securities Times
Announcement on Forecasted Performance Growth in 2010 Ditto 27 January 2011 Ditto
Announcement on Obtaining Approval from China Securities Regulatory Commission for the Application for Non-public Offering Ditto 17 February 2011 Ditto of A Shares
Announcement on Equity Change of the Company Ditto 2 March 2011 Ditto
Announcement on Resolutions of the Third Meeting of the Sixth Ditto 26 March 2011 Ditto Board of Directors
Announcement on Resolutions of the Second Meeting of the Sixth Ditto 26 March 2011 Ditto Board of Supervisors
Notice on Holding the Annual General Meeting for 2010 Ditto 26 March 2011 Ditto
Announcement on Connected Transactions Ditto 26 March 2011 Ditto
Annual Report 2010 Ditto 26 March 2011 Ditto
Announcement on Resolutions of Annual General Meeting for 2010 Ditto 16 April 2011 Ditto
Announcement on Implementation of the Annual Profit Distribution Ditto 16 April 2011 Ditto Plan for 2010
Announcement on Result of Non-public Offering of Shares and Ditto 28 April 2011 Ditto Equity Change
Announcement on Signing Deposits Supervision Agreement on Ditto 28 April 2011 Ditto Special Account for Funds Raised
Announcement on Resolutions of the Fourth Meeting of the Sixth Ditto 2011.04.29 Ditto Board of Directors
Announcement on Resolutions of the Third Meeting of the Sixth Ditto 29 April 2011 Ditto Board of Supervisors
First Quarterly Report in 2011 Ditto 29 April 2011 Ditto
Indicative Announcement on Changes in Shareholding Ratios of Ditto 6 May 2011 Ditto Shareholders
Announcement on Release of Restricted Shares for Trading Ditto 12 May 2011 Ditto
Announcement on Resolutions of the Fifth Meeting of the Sixth Ditto 19 May 2011 Ditto Board of Directors
Announcement on Resolutions of the Sixth Meeting of the Sixth Ditto 12 August 2011 Ditto Board of Directors
Announcement on Resolutions of the Fourth Meeting of the Sixth Ditto 12 August 2011 Ditto Board of Supervisors
Interim Report 2011 Ditto 12 August 2011 Ditto
Indicative Announcement on Release of Restricted Shares Offered Ditto 17 October 2011 Ditto Non-publicly for Trading
Announcement on Resolutions of the Sixth Meeting of the Seventh Ditto 28 October 2011 Ditto Board of Directors
Announcement on Resolutions of the Fifth Meeting of the Sixth Ditto 28 October 2011 Ditto Board of Supervisors
Third Quarterly Report in 2011 Ditto 28 October 2011 Ditto
Announcement on Resolutions of the Eighth Meeting of the Sixth Ditto 27 December 2011 Ditto Board of Directors
Annual Report 2011 67
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:29 • 80072 • 11 E_Huaxia_Section X.indd P.67 Written Confirmation of the Annual Report 2011 by Directors and Senior Management Members Pursuant to relevant provisions and requirements of the Securities Law of the People’s Republic of China and the Standards Concerning the Contents and Formats of Information Disclosure by Companies that Offer Securities to the Public No. 2 – Contents and Formats of Annual Reports (revision 2007), we, in the capacity of Directors and Senior Management members of Hua Xia Bank Co., Limited, after a full review of the Annual Report 2011 of the Company and its summary, are in the opinion that: 1. The Company operates in strict compliance with the Accounting Standards for Enterprises and its application guidelines; the Annual Report 2011 of the Company and its summary present the financial position and operating results of the Company during the reporting period in a fair way. 2. The Audit Report 2011 of Hua Xia Bank Co., Limited issued by Grant Thornton China Certified Public Accountants Co., Ltd. and Ernst & Young is true, objective and impartial. We undertake that the information contained in the Annual Report 2011 of the Company and its summary is authentic, accurate and complete without any false record, misleading statement or material omission, and assume individual and joint and several liabilities to the authenticity, accuracy and completeness of the information herein.
23 March 2012
Name Position Signature
Wu Jian Chairman
Fang Jianyi Vice Chairman
Li Ruge Vice Chairman
Sun Weiwei Director
Ding Shilong Director
Robert John Rankin Director
Christian Klaus Ricken Director
Zhang Meng Director
68 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 12 E_Huaxia_Written.indd P.68 Name Position Signature
Fan Dazhi Director, President
Ren Yongguang Director, Vice President
Zhao Junxue Director, Secretary to the Board
Sheng Jiemin Independent Director
Luo Xiaoyuan Independent Director
Lu Jianping Independent Director
Xiao Weiqiang Independent Director
Zeng Xiangquan Independent Director
Yu Changchun Independent Director
Pei Changhong Independent Director
Wang Yaoting Vice President
Li Xiang Vice President
Huang Jinlao Vice President
Song Jiqing Principal of Financial Affairs
Annual Report 2011 69
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 12 E_Huaxia_Written.indd P.69 FINANCIAL STATEMENTS
I. Financial statements of the Company for 2011 were audited by Grant Thornton China Certified Public Accountants Co., Ltd., signed for by CPAs Wei Qiaopin and Li Huiqi, and issued with an audit report (J.D.T.H.S.Z. (2010) No. 0707) with unqualified opinions. Ernst & Young audited supplementary financial statements prepared by the Company for 2011 in accordance with the International Financial Reporting Standards (IFRS) pursuant to the International Standard on Auditing (ISA) and gave an audit report with unqualified opinions.
II. Changes in Accounting Policies and Estimates and Corrections of Errors
During the reporting period, the Company made no changes in accounting policies or estimates and no major corrections of errors in prior periods.
III. Business Combination and Consolidated Financial Statements
i. In September 2011, upon the approval of regulators, the Company, as the sponsor, established and put into operation Kunming Chenggong Hua Xia Village Bank Co., Ltd. in Chenggong County, Kunming City, Yunnan Province. The Company was the first substantial shareholder by investing RMB35 million, accounting for 70% of the registered capital. The enterprise was incorporated into the Company’s consolidated statement this year.
ii. In December 2011, upon the approval of regulators, the Company, as the sponsor, established and put into operation Sichuan Jiangyou Hua Xia Village Bank Co., Ltd. in Jiangyou City, Sichuan Province. The Company was the first substantial shareholder by investing RMB35 million, accounting for 70% of the registered capital. The enterprise was incorporated into the Company’s consolidated statement this year.
70 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 13 E_Huaxia_Financial Statements.indd P.70 ཀࣀࣷऺ๚ခᆶ၌ࠅິۼ ন 22ࡽٷᄞ൶ॺࡔோྔו ዐࡔԛ ෘ༬࠽ׇ5֫!ᆰՊ100004 ࣆ +86 10 8566 5588ۉ ኈ +86 10 8566 5120د www.grantthornton.cn Auditor’s Report J.D.T.H.SH.Z. (2012) No. 0704 To the shareholders of Hua Xia Bank Co., Limited We have audited the financial statements of Hua Xia Bank Co., Limited (the “Bank”), which comprise the consolidated and company balance sheet as at 31 December 2011, the consolidated and company income statement, consolidated and company statement of cash flows and consolidated and company statement of changes in equity for the year then ended and notes to these financial statements. I. Management’s Responsibility for the Financial Statements The Management of the Bank is responsible for the preparation of these financial statements. This responsibility includes (1) preparing the financial statements in accordance with the Accounting Standard for Business Enterprises to ensure fair presentation; and (2) designing, implementing and maintaining necessary internal control to ensure financial statements that are free from material misstatement, whether due to fraud or error. II. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with China’s Auditing Standards for the Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank’s preparation of the financial statements 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 Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. III. Opinion In our opinion, the financial statements of the Bank comply with the requirements of the Accounting Standards for Business Enterprises in all material respects and present fairly the financial position of the consolidated and the company as at 31 December 2011 and the results of operations and the cash flows of the consolidated and the company for the year then ended.
Grant Thornton China Certified Public Accountants Certified Public Accountants Co., Ltd. Registered in China
Beijing, China Certified Public Accountants 23 March 2012 Registered in China
Annual Report 2011 71
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 15 E_Huaxia_Auditor.indd P.71 Consolidated and Company Balance Sheet
31 December 2011
Prepared by: Hua Xia Bank Co., Limited
In RMB
At the end of the period At the beginning of the period
Item Note Consolidated Company Consolidated Company
Assets: Cash on hand and balances with central banks V. 1 172,473,379,378.15 172,391,075,295.95 141,399,550,009.36 141,387,869,599.92 Due from banks and other financial institutions V. 2 101,662,126,216.61 101,603,946,708.71 7,529,858,290.74 7,529,046,690.74 Precious metal 52,961,741.96 52,961,741.96 Placements with banks and other financial institutions V. 3 29,935,629,000.00 29,935,629,000.00 36,485,612,200.00 36,485,612,200.00 Held-for-trading financial assets V. 4 4,004,590,925.61 4,004,590,925.61 106,446,265.00 106,446,265.00 Derivative financial assets V. 5 201,841,023.09 201,841,023.09 26,053,598.57 26,053,598.57 Reverse repurchase agreements V. 6 197,867,971,987.55 197,867,971,987.55 240,084,250,169.41 240,084,250,169.41 Interest receivable V. 7 5,635,045,171.37 5,634,676,486.49 2,917,283,614.95 2,917,283,614.95 Loans and advances to customers V. 8 594,204,100,217.26 594,072,488,093.24 514,863,428,181.77 514,863,428,181.77 Available-for-sale financial assets V. 9 28,488,363,138.35 28,488,363,138.35 14,859,482,016.40 14,859,482,016.40 Held-to-maturity investments V. 10 93,800,841,947.10 93,800,841,947.10 66,295,430,284.80 66,295,430,284.80 Investments classified as receivables V. 11 3,500,000,000.00 3,500,000,000.00 5,850,000,000.00 5,850,000,000.00 Long-term equity investments V. 12 81,773,844.93 251,773,844.93 81,798,511.34 181,798,511.34 Investment-oriented real estate V. 13 55,039,049.41 55,039,049.41 39,129,049.41 39,129,049.41 Fixed assets V. 14 6,745,585,115.56 6,737,661,528.80 5,900,665,595.23 5,897,919,079.70 Intangible assets V. 15 94,489,657.97 94,489,657.97 Deferred income tax assets V. 16 2,795,192,441.15 2,792,434,031.89 1,693,338,001.56 1,692,306,568.94 Other assets V. 17 2,542,250,711.49 2,524,778,978.27 2,098,116,444.86 2,093,657,528.99
Total assets 1,244,141,181,567.56 1,244,010,563,439.32 1,040,230,442,233.40 1,040,309,713,359.94
72 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 16 E_Huaxia_BS.indd P.72 Consolidated and Company Balance Sheet (Continued)
31 December 2011
Prepared by: Hua Xia Bank Co., Limited
In RMB
At the end of the period At the beginning of the period Item Note Consolidated Company Consolidated Company Liabilities: Due to central banks Due to banks and other financial institutions V. 19 135,645,158,236.29 136,048,279,566.35 93,579,712,379.03 93,671,144,224.47 Placements from banks and other financial institutions V. 20 26,958,473,357.29 26,958,473,357.29 10,983,960,411.25 10,983,960,411.25 Held-for-trading financial liabilities V. 21 50,848,200.00 50,848,200.00 Derivative financial liabilities V. 5 192,122,704.88 192,122,704.88 1,421,141.27 1,421,141.27 Repurchase agreements V. 22 78,326,791,849.13 78,326,791,849.13 89,866,546,922.56 89,866,546,922.56 Deposits from customers V. 23 896,023,653,633.62 895,514,042,436.09 767,622,249,016.94 767,609,032,737.43 Employees’ remuneration payable V. 24 3,092,041,218.26 3,090,955,407.24 2,055,211,542.69 2,054,917,695.06 Taxes payable V. 25 3,847,301,926.34 3,847,215,321.97 2,463,161,534.84 2,463,110,420.64 Interest payable V. 26 7,780,606,452.58 7,779,848,684.14 4,879,027,891.34 4,879,484,837.98 Projected liabilities V. 27 3,189,300.00 3,189,300.00 63,518,291.50 63,518,291.50 Bonds payable V. 28 22,020,000,000.00 22,020,000,000.00 24,020,000,000.00 24,020,000,000.00 Deferred income tax liabilities V. 16 51,504,745.43 51,504,745.43 6,513,399.65 6,513,399.65 Other liabilities V. 29 6,219,367,031.95 6,217,228,067.15 9,193,239,536.06 9,190,683,309.87 Total liabilities 1,180,211,058,655.77 1,180,100,499,639.67 1,004,734,562,067.13 1,004,810,333,391.68 Shareholders’ equity: Share capital V. 30 6,849,725,776.00 6,849,725,776.00 4,990,528,316.00 4,990,528,316.00 Capital reserve V. 31 32,599,699,858.71 32,599,699,858.71 14,277,520,713.50 14,277,520,713.50 Less: Shares in stock Surplus reserve V. 32 3,305,398,534.82 3,305,398,534.82 2,382,657,245.88 2,382,657,245.88 General reserve V. 33 9,792,940,285.61 9,792,940,285.61 8,410,013,782.14 8,410,013,782.14 Retained profit V. 34 11,353,320,230.27 11,362,299,344.51 5,435,160,108.75 5,438,659,910.74 Total equity attributable to shareholders of the parent company 63,901,084,685.41 63,910,063,799.65 35,495,880,166.27 35,499,379,968.26 Minority interest 29,038,226.38 Total shareholders’ equity 63,930,122,911.79 63,910,063,799.65 35,495,880,166.27 35,499,379,968.26
Total liabilities and shareholders’ equity 1,244,141,181,567.56 1,244,010,563,439.32 1,040,230,442,233.40 1,040,309,713,359.94
Legal representative: President: Chief Financial Officer:
Annual Report 2011 73
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 16 E_Huaxia_BS.indd P.73 Consolidated and Company Income Statement
For the year ended 31 December 2011
Prepared by: Hua Xia Bank Co., Limited
In RMB
Year ended 31 December 2011 Year ended 31 December 2010
Item Note Consolidated Company Consolidated Company
I. Operating income 33,543,795,435.33 33,534,727,113.32 24,478,894,627.14 24,478,244,504.37 Net interest income V. 35 30,292,730,784.56 30,283,676,190.43 22,760,005,495.95 22,759,355,539.38 Interest income 62,535,964,002.30 62,533,267,471.33 43,368,300,405.22 43,368,256,873.31 Interest expense 32,243,233,217.74 32,249,591,280.90 20,608,294,909.27 20,608,901,333.93 Net fee and commission income V. 36 2,975,500,169.95 2,975,486,532.07 1,444,871,949.51 1,444,871,783.31 Fee and commission income 3,394,263,278.51 3,394,213,136.10 1,791,679,806.36 1,791,679,612.66 Fee and commission expense 418,763,108.56 418,726,604.03 346,807,856.85 346,807,829.35 Investment income V. 37 -22,048,625.17 -22,048,625.17 -19,197,608.49 -19,197,608.49 Of which: Income from investments in associates and joint ventures Income from changes in fair value V. 38 -14,023,074.34 -14,023,074.34 22,788,088.50 22,788,088.50 Foreign exchange gains 167,159,453.04 167,159,453.04 154,813,931.43 154,813,931.43 Other operating income V. 39 144,476,727.29 144,476,637.29 115,612,770.24 115,612,770.24 II. Operating expenses 21,020,284,475.07 21,003,048,090.55 16,451,051,164.15 16,445,869,806.77 Business tax and surcharges V. 40 2,347,591,390.59 2,347,520,894.76 1,601,863,889.18 1,601,863,863.68 General and administrative expenses V. 41 14,050,050,698.66 14,034,214,620.55 10,626,583,757.72 10,621,402,425.84 Impairment losses on assets V. 42 4,610,346,591.08 4,609,016,780.50 4,212,009,489.38 4,212,009,489.38 Other operating costs 12,295,794.74 12,295,794.74 10,594,027.87 10,594,027.87 III. Operating profit 12,523,510,960.26 12,531,679,022.77 8,027,843,462.99 8,032,374,697.60 Add: Non-operating income V. 43 37,650,545.46 37,650,545.46 59,296,037.14 59,296,037.14 Less: Non-operating expenses V. 44 33,762,293.31 33,762,293.31 79,185,531.63 79,185,531.63 IV. gross profit 12,527,399,212.41 12,535,567,274.92 8,007,953,968.50 8,012,485,203.11 Less: Income tax expense V. 45 3,306,427,408.90 3,308,154,385.54 2,018,371,478.77 2,019,402,911.39 V. Net profit 9,220,971,803.51 9,227,412,889.38 5,989,582,489.73 5,993,082,291.72 Net profit attributable to owners of the parent company 9,221,933,577.13 9,227,412,889.38 5,989,582,489.73 5,993,082,291.72 Minority interest -961,773.62 VI. Earnings per share i. Basic earnings per share V. 46 1.4802 1.2002 ii. Diluted earnings per share V. 46 1.4802 1.2002 VII. Other comprehensive income V. 47 74,736,135.96 74,736,135.96 -79,118,857.00 -79,118,857.00 VIII. Total comprehensive income 9,295,707,939.47 9,302,149,025.34 5,910,463,632.73 5,913,963,434.72 Total comprehensive income attributable to shareholders of the parent company 9,296,669,713.09 9,302,149,025.34 5,910,463,632.73 5,913,963,434.72 Total comprehensive income attributable to minority shareholders of the parent company -961,773.62
Legal representative: President: Chief Financial Officer:
74 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 17 E_Huaxia_Income.indd P.74 Consolidated and Company Statement of Cash Flows
For the year ended 31 December 2011 Prepared by: Hua Xia Bank Co., Limited
In RMB
Year ended 31 December 2011 Year ended 31 December 2010 Item Note Consolidated Company Consolidated Company I. Cash flows from operating activities Net increase in deposits from customers and due to banks and other financial institutions 170,466,850,473.94 170,282,145,040.54 197,267,583,413.28 197,345,798,979.21 Net increase in due to central banks Net increase in placements from other financial institutions 46,546,252,567.12 46,454,820,721.68 Interest, fee and commission income received 34,912,462,061.65 34,902,511,294.91 25,579,140,768.92 25,578,947,565.29 Other proceeds received related to operating activities V. 48 393,706,782.45 393,706,692.45 400,155,962.81 400,155,962.81 Sub-total of cash inflows from operating activities 252,319,271,885.16 252,033,183,749.58 223,246,880,145.01 223,324,902,507.31 Net increase in loans and advances to customers 83,828,100,313.95 83,695,158,379.35 99,325,937,783.02 99,325,937,783.02 Net increase in balances with central banks and due from banks and other financial institutions 71,112,451,536.76 70,975,916,628.95 42,537,778,876.32 42,535,812,556.62 Net increase in placements with other financial institutions 43,155,854,447.14 43,155,854,447.14 Interest, fee and commission income paid 418,763,108.56 418,726,604.03 346,807,856.85 346,807,829.35 Cash paid to and for employees 5,853,328,157.45 5,849,313,212.15 4,171,179,736.24 4,170,857,860.66 Taxes and fees paid 5,437,413,841.63 5,437,378,835.97 3,541,881,605.83 3,541,870,119.35 Other cash paid related to operating activities V. 48 6,642,061,858.92 6,629,880,462.79 6,892,096,676.15 6,890,774,057.94 Sub-total of cash outflows from operating activities 173,292,118,817.27 173,006,374,123.24 199,971,536,981.55 199,967,914,654.08 Net cash flows from operating activities V. 48 79,027,153,067.89 79,026,809,626.34 23,275,343,163.46 23,356,987,853.23 II. Cash flows from investing activities Proceeds from disposal of investments 75,071,459,490.66 75,071,459,490.66 226,642,418,833.28 226,642,418,833.28 Investment income received Net proceeds received from disposal of subsidiaries and other operating entities Other proceeds received related to investing activities 47,318,256.89 47,318,256.89 25,192,957.85 25,192,957.85 Sub-total of cash inflows from investing activities 75,118,777,747.55 75,118,777,747.55 226,667,611,791.13 226,667,611,791.13 Acquisition of investments 119,967,596,883.75 120,037,596,883.75 226,422,964,585.64 226,522,964,585.64 Acquisition of fixed assets, intangible assets and other long-term assets 2,832,654,695.29 2,815,199,772.03 2,551,773,202.44 2,543,943,581.95 Net cash paid from acquisition of subsidiaries and other operating entities Other cash paid related to investing activities Sub-total of cash outflows from investing activities 122,800,251,579.04 122,852,796,655.78 228,974,737,788.08 229,066,908,167.59 Net cash flows from investing activities -47,681,473,831.49 -47,734,018,908.23 -2,307,125,996.95 -2,399,296,376.46
Annual Report 2011 75 Consolidated and Company Statement of Cash Flows (continued)
For the year ended 31 December 2011
Prepared by: Hua Xia Bank Co., Limited
In RMB
Year ended 31 December 2011 Year ended 31 December 2010 Item Note Consolidated Company Consolidated Company III. Cash flows from financing activities Proceeds from investors 20,136,640,469.25 20,106,640,469.25 Of which: Proceeds from subsidiaries’ acquisition of minority equity-based investments 30,000,000.00 Proceeds from bonds issued 4,400,000,000.00 4,400,000,000.00 Other proceeds received related to financing activities Sub-total of cash inflows from financing activities 20,136,640,469.25 20,106,640,469.25 4,400,000,000.00 4,400,000,000.00 Repayment of debts 2,000,000,000.00 2,000,000,000.00 4,250,000,000.00 4,250,000,000.00 Dividend, profit or interest paid 998,105,663.20 998,105,663.20 680,468,681.08 680,468,681.08 Of which: Cash dividends paid by subsidiaries to minority shareholders Other cash paid related to financing activities 1,041,650,993.76 1,041,650,993.76 991,611,197.25 991,611,197.25 Of which: Cash dividends paid by subsidiaries to minority shareholders through capital reduction Sub-total of cash outflows from financing activities 4,039,756,656.96 4,039,756,656.96 5,922,079,878.33 5,922,079,878.33 Net cash flows from financing activities 16,096,883,812.29 16,066,883,812.29 -1,522,079,878.33 -1,522,079,878.33 IV. Effect of exchange rate changes on cash -7,468,645.35 -7,468,645.35 -4,001,198.83 -4,001,198.83 V. Net increase in cash and cash equivalents 47,435,094,403.34 47,352,205,885.05 19,442,136,089.35 19,431,610,399.61 Add: Cash and cash equivalents at the beginning of the period 78,431,423,106.30 78,420,897,416.56 58,989,287,016.95 58,989,287,016.95 VI. Cash and cash equivalents at the end of the period V. 49 125,866,517,509.64 125,773,103,301.61 78,431,423,106.30 78,420,897,416.56
Legal representative: President: Chief Financial Officer:
76 Hua Xia Bank Co., Limited Total Total equity In RMB 74,736,135.96 shareholders’ shareholders’ -998,105,663.20 -998,105,663.20 9,220,971,803.51 9,295,707,939.47 63,930,122,911.79 20,136,640,469.25 20,136,640,469.25 35,495,880,166.27 28,434,242,745.52 35,495,880,166.27 interest Minority -961,773.62 -961,773.62 29,038,226.38 30,000,000.00 30,000,000.00 29,038,226.38 Others in Equ it y profit Retained Chief Financial Officer: -998,105,663.20 -922,741,288.94 9,221,933,577.13 9,221,933,577.13 5,918,160,121.52 5,435,160,108.75 5,435,160,108.75 -1,382,926,503.47 -3,303,773,455.61 11,353,320,230.27 reserve G eneral D ecember 2011 of C han g e s 9,792,940,285.61 1,382,926,503.47 1,382,926,503.47 1,382,926,503.47 8,410,013,782.14 8,410,013,782.14 ear ended 31 Y reserve S urplus 922,741,288.94 922,741,288.94 922,741,288.94 3,305,398,534.82 2,382,657,245.88 2,382,657,245.88 hares S hares in stock Statement L ess: Equity attributable to shareholders of the parent company Capital reserve President: 74,736,135.96 74,736,135.96 32,599,699,858.71 18,247,443,009.25 18,247,443,009.25 18,322,179,145.21 14,277,520,713.50 14,277,520,713.50 hare S hare capital 6,849,725,776.00 1,859,197,460.00 1,859,197,460.00 1,859,197,460.00 4,990,528,316.00 4,990,528,316.00 y an d C ompan
Item D ecember 2011 D ecember 2010 J anuary 2011 Changes in accounting policy Correction of previous errors Others Distribution among shareholders Others Internal carry-over of shareholders’ equity Conversion of capital reserve into share capital Conversion of surplus reserve into share capital Surplus reserve making up loss General reserve making up loss Others Others Balance as at 31 Share payment recognized as shareholders’ equity Others Profit distribution Surplus reserve General reserve Capital injection by shareholders Other comprehensive income Capital injection/reduction by shareholders Changes during the year (“-” indicates decrease) Net profit Balance as at 1 Balance as at 31
V . 3. 4. v. 1. 2. 3. 4. 5. vi. I 2. 3. iv. 1. 2. 1. ii. Sub-total of i and ii iii. III. i. Add: II. d C on s o l i d ate For the year ended 31 December 2011 Prepared by: Hua Xia Bank Co., Limited I. Legal representative:
Annual Report 2011 77
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 19 E_Huaxia_Con Equity.indd P.77 Total equity In RMB shareholders’ shareholders’ -79,118,857.00 -648,768,681.08 -648,768,681.08 5,989,582,489.73 5,261,694,951.65 5,910,463,632.73 35,495,880,166.27 30,234,185,214.62 30,234,185,214.62 Equ it y interest Minority in Others profit Retained C han g e s Chief Financial Officer: -648,768,681.08 -599,308,229.17 5,435,160,108.75 5,989,582,489.73 3,320,025,461.86 5,989,582,489.73 2,115,134,646.89 2,115,134,646.89 -1,421,480,117.62 -2,669,557,027.87 of
reserve G eneral D ecember 2010 8,410,013,782.14 1,421,480,117.62 1,421,480,117.62 1,421,480,117.62 6,988,533,664.52 6,988,533,664.52 ear ended 31 Y reserve S urplus 599,308,229.17 599,308,229.17 599,308,229.17 2,382,657,245.88 1,783,349,016.71 1,783,349,016.71 Statement hares S hares in stock L ess: Equity attributable to shareholders of the parent company Capital reserve President: -79,118,857.00 -79,118,857.00 -79,118,857.00 14,277,520,713.50 14,356,639,570.50 14,356,639,570.50 hare S hare capital d an d y C ompan 4,990,528,316.00 4,990,528,316.00 4,990,528,316.00
Item D ecember 2011 D ecember 2010 J anuary 2011 Changes in accounting policy Correction of previous errors Others Other comprehensive income Others Internal carry-over of shareholders’ equity Conversion of capital reserve into share capital Conversion of surplus reserve into share capital Surplus reserve making up loss General reserve making up loss Others Others Balance as at 31 Distribution among shareholders Changes during the year (“-” indicates decrease) Net profit Capital injection/reduction by shareholders Capital injection by shareholders Share payment recognized as shareholders’ equity Others Profit distribution Surplus reserve General reserve Balance as at 1 Balance as at 31 . ii. 4. v. 1. 2. 3. 4. 5. vi. I V 3. III. i. Sub-total of i and ii iii. 1. 2. 3. iv. 1. 2. Add: II. d d C on s o l i d ate For the year ended 31 December 2011 Prepared by: Hua Xia Bank Co., Limited I. Legal representative: ( contin u e d)
78 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 19 E_Huaxia_Con Equity.indd P.78 Total Total equity In RMB 74,736,135.96 shareholders’ shareholders’ -998,105,663.20 -998,105,663.20 9,302,149,025.34 9,227,412,889.38 63,910,063,799.65 20,106,640,469.25 20,106,640,469.25 28,410,683,831.39 35,499,379,968.26 35,499,379,968.26 Others profit Retained -922,741,288.94 -998,105,663.20 9,227,412,889.38 9,227,412,889.38 5,923,639,433.77 5,438,659,910.74 5,438,659,910.74 -1,382,926,503.47 -3,303,773,455.61 11,362,299,344.51 Chief Financial Officer: reserve G eneral D ecember 2011 1,382,926,503.47 9,792,940,285.61 1,382,926,503.47 1,382,926,503.47 8,410,013,782.14 8,410,013,782.14 ear ended 31 Y reserve S urplus 922,741,288.94 922,741,288.94 922,741,288.94 in Equ it y 3,305,398,534.82 2,382,657,245.88 2,382,657,245.88 Capital reserve 74,736,135.96 74,736,135.96 32,599,699,858.71 18,247,443,009.25 18,247,443,009.25 18,322,179,145.21 14,277,520,713.50 14,277,520,713.50 President: hare S hare capital of C han g e s 6,849,725,776.00 1,859,197,460.00 1,859,197,460.00 1,859,197,460.00 4,990,528,316.00 4,990,528,316.00
Statement Item D ecember 2011 D ecember 2010 J anuary 2011 Changes in accounting policy Correction of previous errors Others General reserve Distribution among shareholders Balance as at 31 Share payment recognized as shareholders’ equity Others Profit distribution Surplus reserve Others Internal carry-over of shareholders’ equity Conversion of capital reserve into share capital Conversion of surplus reserve into share capital Surplus reserve making up loss General reserve making up loss Others Others Capital injection by shareholders Net profit Capital injection/reduction by shareholders Other comprehensive income Changes during the year (“-” indicates decrease) Balance as at 1 Balance as at 31 . 2. 3. 2. 3. iv. 1. 4. v. 1. 2. 3. 4. 5. vi. I V 1. i. Sub-total of i and ii iii. ii. III. Add: II. y C ompan For the year ended 31 December 2011 Prepared by: Hua Xia Bank Co., Limited I. Legal representative:
Annual Report 2011 79
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 20 E_Huaxia_Equity.indd P.79 Total Total equity In RMB shareholders’ shareholders’ -79,118,857.00 -648,768,681.08 -648,768,681.08 5,265,194,753.64 5,993,082,291.72 5,913,963,434.72 30,234,185,214.62 35,499,379,968.26 30,234,185,214.62 Others profit Retained -599,308,229.17 -648,768,681.08 3,323,525,263.85 2,115,134,646.89 5,993,082,291.72 5,438,659,910.74 5,993,082,291.72 2,115,134,646.89 -1,421,480,117.62 -2,669,557,027.87 Chief Financial Officer: reserve G eneral D ecember 2010 1,421,480,117.62 6,988,533,664.52 1,421,480,117.62 8,410,013,782.14 1,421,480,117.62 6,988,533,664.52 ear ended 31 Y reserve S urplus 599,308,229.17 599,308,229.17 599,308,229.17 in Equ it y contin u e d) ( 1,783,349,016.71 2,382,657,245.88 1,783,349,016.71 Capital reserve -79,118,857.00 -79,118,857.00 -79,118,857.00 14,356,639,570.50 14,277,520,713.50 14,356,639,570.50 President: hare S hare capital of C han g e s 4,990,528,316.00 4,990,528,316.00 4,990,528,316.00
Statement Item D ecember 2011 D ecember 2010 J anuary 2011 Changes in accounting policy Correction of previous errors Others Changes during the year (“-” indicates decrease) Net profit Balance as at 1 Other comprehensive income General reserve Distribution among shareholders Balance as at 31 Capital injection/reduction by shareholders Capital injection by shareholders Share payment recognized as shareholders’ equity Others Profit distribution Surplus reserve Balance as at 31 Others Internal carry-over of shareholders’ equity Conversion of capital reserve into share capital Conversion of surplus reserve into share capital Surplus reserve making up loss General reserve making up loss Others Others . III. i. Add: II. ii. Sub-total of i and ii 2. 3. iii. 1. 2. 3. iv. 1. y C ompan For the year ended 31 December 2011 Prepared by: Hua Xia Bank Co., Limited I. Legal representative: 4. v. 1. 2. 3. 4. 5. vi. I V
80 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 20 E_Huaxia_Equity.indd P.80 Notes to Financial Statements
For the year of 2011 (Amounts in RMB, unless otherwise stated) I. Basic Information of the Company Hua Xia Bank Co., Limited (hereinafter referred to as the “Company”), formerly known as Hua Xia Bank, was a national commercial bank funded and incorporated by Shougang Corporation on 14 October 1992, under the approval of the People’s Bank of China (“PBOC”) with the Y.F. (1992) No. 391 Document. On 10 April 1996, the PBOC released the Reply on Approving Hua Xia Bank to Change Registered Capital and Ratifying the ‘Articles of Association of Hua Xia Bank Co., Limited’ [Y.F.(1996) No.109], approving Hua Xia Bank to be restructured to limited liability company in the form of sponsorship. On 18 March 1998, the Company obtained the Business License for Enterprises as a Legal Person (Registration No. 100000000029676) issued by the State Administration for Industry and Commerce and the License for Financial Enterprises as a Legal Person (No. B10811000H000) issued by the PBOC. The Company was founded under the co-sponsorship of 33 business entities, with the registered capital of RMB2.5 billion. Jianyin Certified Public Accountants verified the Company’s registered capital on 13 March 1996 with issuing the [J.Y.Y.Z (96) No. 2] Capital Verification Report. On 21 July 2003, under the approval of [Z.J.F.H.Z.(2003) No. 83] Document issued by China Securities Regulatory Commission (“CSRC”), the Company offered 1 billion RMB common shares (A share) to the public, with the par value of RMB1.00 and issue price of RMB5.60 per share. After deducting public offering expenses and adding interest income from financing, RMB5.46 billion of net cash was raised in total. The above shares were listed in the Shanghai Stock Exchange on 12 September 2003. The altered registered capital was RMB3.5 billion, which was verified by Jingdu Certified Public Accountants on 5 September 2003, with issuing the [Beijing Jingdu Y.Z. (2003) No. 0036] Capital Verification Report. According to the provisions in the revised Articles of Association and the resolution of the Company’s Annual General Meeting for 2003 held on 28 April 2004, 700 million shares of capital were converted from capital reserve by the Company pursuant to the ratio of every 10 share converting to 2 shares and based on 3.5 billion shares at the end of 2003. The altered registered capital was RMB4.2 billion, which was verified by Jingdu Certified Public Accountants on 26 May 2004, with issuing the [Beijing Jingdu Y.Z. (2004) No. 0017] Capital Verification Report. On 6 June 2006, the Company completed its equity division reform. In which, the consideration arrangement was that, holders of non-tradable shares would pay shares to all holders of tradable shares who had been registered on the Record Day when the equity plan was executed, and the latter would be paid 3 shares for every 10 tradable shares. The number of shares paid by holders of non-tradable shares was determined by the proportion of non-tradable shares they held. After the consideration arrangement was implemented, the original non-tradable shares held by holders of non-tradable shares were converted to restricted shares, and the total shares paid to holders of tradable shares amounted to 360 million. According to the First Extraordinary General Meeting for 2008, and approved by the [Z.J.X.K. (2008) No. 1042] Document issued by CSRC, the Company privately offered 790,528,316 shares, in which, Shougang Corporation subscribed for 269,634,462 shares, State Grid Corporation of China purchased 253,520,393 shares, and Deutsche Bank acquired 267,373,461 shares. The registered capital was changed to RMB4,990,528,316, which was verified by Jingdu Certified Public Accountants on 16 October 2008, with issuing the [Beijing Jingdu Y.Z. (2008) No. 0085] Capital Verification Report. According to the Extraordinary General Meeting on 2 June 2010, and approved by the [Z.J.X.K. [2011] No. 207] Document issued by CSRC, the Company privately offered 1,859,197,460 shares, in which, Shougang Corporation subscribed for 691,204,239 shares, Yingda International Holdings Corporation, Ltd. subscribed 653,306,499 shares, and Deutsche Bank Luxemburg S.A. subscribed 514,686,722 shares. The registered capital was changed to RMB6,849,725,776, which was verified by Grant Thornton Certified Public Accountants Co., Ltd. on 22 April 2011, with issuing the [Jingdu Tianhua Y.Z. (2011) No. 0044] Capital Verification Report. The Company established a corporate governance structure consisting of the General Meeting of Shareholders, the Board of Directors and the Board of Supervisors, and relevant departments were also set up, including Credit Risk Management Department, SME Credit Department, Asset Custody Department, International Business Department, Corporate Banking Department, Personal Banking Department, Planning and Finance Department, Audit Department and Human Resources Department. As at 31 December 2011, except the Head Office, the company had Beijing Branch, Nanjing Branch, Hangzhou Branch, Shanghai Branch, Jinan Branch, Kunming Branch, Shenzhen Branch, Shenyang Branch, Guangzhou Branch, Wuhan Branch, Chongqing Branch, Chengdu Branch, Xi’an Branch, Urumqi Branch, Taiyuan Branch, Dalian Branch, Qingdao Branch, Wenzhou Branch, Shijiazhuang Branch, Tianjin Branch, Hohhot Branch, Fuzhou Branch, Ningbo Branch, Shaoxing Branch, Nanning Branch, Changzhou Branch, Suzhou Branch, Wuxi Branch, Hefei Branch, Changsha Branch, Xiamen Branch and Changchun Branch. A total of 426 business institutions were subordinate to the Company.
Annual Report 2011 81
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.81 The scope of business of the Company and its subordinates (collectively referred to as the “Group”) includes: public deposit-taking; granting of short, medium and long-term loans; domestic and international settlement; bill acceptance and discount; issuance of financial bonds; issuance, encashment and underwriting of government bonds as an agent; trading of government bonds and financial bonds; inter-bank lending and borrowing; trading of foreign exchange on its own behalf and as an agent; bank card service; provision of letter of credit and letter of guarantee; collection and payment service as an agent; safety box service; foreign exchange settlement and sales; sideline insurance agency; and other services approved by China Banking Regulatory Commission.
II. significant Accounting Policies, Accounting Estimates and Prior-period Errors 1. Basis of preparation of financial statements The financial statements are prepared in accordance with the Accounting Standards for Enterprises – Basic Standards issued by the Ministry of Finance in February 2006, 38 specific accounting standards and corresponding guidelines and interpretation as well as other related regulations (collectively referred to as the “Accounting Standards for Enterprises”). Besides, the Company also discloses relevant financial information in accordance with the Rules for the Compilation and Submission of information Disclosure by Companies that Offer Securities to the Public No. 15 – General Provisions on Financial Report (Revision 2010) issued by CSRC. The financial statements are presented based on going concern. 2. Statement on compliance with accounting standards for enterprises The financial statements for the year ended 31 December 2011 truly and fairly represent the consolidated and company financial position of the Company as at 31 December 2011, the consolidated and company operating results and the consolidated and company cash flows for 2011 in compliance with the Accounting Standards for Business Enterprises. 3. Accounting period The accounting period of the Group begins on 1 January and ends on 31 December of the Gregorian calendar. 4. Bookkeeping base currency The Group uses RMB as its bookkeeping base currency. 5. Accounting treatment on business combination under the same control and not under the same control (1) Business combination under the same control For the business combination under the same control, the Group applies the accounting treatment of pooling of interest method. Assets and liabilities acquired from the acquiree through combination are measured at the original carrying value of the acquiree in the combination date except for the adjustment conducted due to different accounting policies. For margin between the book value of combination consideration (or total amount of face value of issued shares) and the carrying value of net assets acquired in the combination, adjust the capital reserve or adjust retained earnings in the event of insufficient capital reserve for write-off. Directly related expenses in business combination shall be recorded through profit or loss upon occurrence. (2) Business combination not under the same control For the business combination not under the same control, the Group applies the accounting treatment of purchase method. Combination cost is the assets paid and liabilities occurred or assumed by the Group for acquiring the control right of acquiree at the acquisition date as well as the fair value of equity securities. At the acquisition date, assets, liabilities or contingent liabilities of the acquiree acquired by the Group are recognized at fair value. For the margin of recognizable fair value of net assets of acquiree acquired during the combination greater than the combination cost, the Group recognizes it as goodwill and measures it at the amount of costs deducting accumulated allowance for impairment. For the margin of recognizable fair value of net assets of acquiree acquired during the combination less than the combination cost, it shall be recorded through profit or loss after check. Directly related expenses in business combination shall be recorded through profit or loss upon occurrence. If the business combination is realized through multi-transaction step by step, stock rights of the acquiree held before the acquisition date shall be measured again at fair value of the stock rights at the acquisition date, and the margin between the fair value and its carrying value shall be recorded in the current investment income. For stock rights of acquiree held before the acquisition date involving other comprehensive income, other comprehensive income related shall be turned into current investment income at the acquisition date.
82 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.82 Minority interest of the subsidiaries shall be determined separately from the equity of the Group. Minority interest shall be measured initially at their shares in the fair value of recognizable net assets of the acquiree. After acquisition, carrying amount of the minority interest is equal to the initial amount plus their shares of subsequent changes in equity. Total comprehensive income will be amortised to the minority interest, which may lead to negative amount of minority interest. The Group calculates the changes in equity that would not lead to loss of control among subsidiaries as equity transactions. The carrying amount of equity held by the Group and minority interest shall be adjusted to reflect the changes in the relevant equity of subsidiaries. Margin between the adjusted amount of minority interest and the fair value of collected or paid consideration will be directly recorded in the capital reserve. When the Group losses the control upon the subsidiary, the sum of the consideration acquired in the disposal of equity and the fair value of the residual equity minus the margin between the shares of net assets calculated continuously from the acquisition date and shall be enjoyed in the original subsidiary through calculation in accordance with the original holding proportions will be recorded in the investment income in the current period of loss of control. The subsidiary-related amount recorded in the comprehensive income previously shall be carried over to the current investment income upon loss of control. Residual equity is re-measured in accordance with its fair value at the date of loss of control and identified as long-term equity investment or other relevant financial assets. 6. Preparation of consolidated financial statements The consolidated scope of the consolidated financial statements includes the Company and all the subsidiaries. Based on the financial statements of the Company and subsidiaries, the consolidated financial statements of the Group are prepared by the Group after the adjustment of subsidiaries’ long-term equity investment through equity method, in accordance with other relevant materials. For preparation of consolidated financial statements, the accounting policies and accounting period of the Company and subsidiaries are required to maintain the consistency and the inter-company material transactions and current balance shall be offset herein. Part of the shareholder’s equity of the subsidiaries not attributable to the parent company will be separately presented under the shareholder’s equity in the consolidated financial statements as the minority interest. During the reporting period, for a subsidiary added due to business combination under the same control, the Group will incorporate income, expenses and profit of the subsidiary from the beginning of the current consolidation period to the end of the reporting period into the consolidated income statement, and incorporate its cash flows into the consolidated statement of cash flows; for a subsidiary added due to business combination not under the same control, the Group will incorporate income, expenses and profit of the subsidiary from the acquisition date to the end of the reporting period into the consolidated income statement, and incorporate its cash flows into consolidated statement of cash flows. 7. Recognition of cash equivalents Cash equivalents refer to short-term and highly liquid investments held by the Group which are readily convertible to known amounts of cash and subject to an insignificant risk of change in value. 8. Foreign currency transactions The foreign currency transactions of the Group are translated to the amount in its bookkeeping base currency pursuant to the spot exchange rate on the transaction date. Foreign currency monetary items are translated at the spot exchange rate on the balance sheet date at the end of the accounting period. The balance of exchange arising from the difference between the spot exchange rate on the balance sheet date and that in the initial recognition or prior to the balance sheet date is recorded in the profit or loss at the current period; the foreign currency non-monetary items measured at the historical cost are still translated at the spot exchange rate on the transaction date; the foreign currency non-monetary items measured at fair value are translated at the spot exchange rate on the date of determining fair value, and the balance between the translated amounts in the bookkeeping base currency and the amounts in the original bookkeeping base currency is recorded through profit or loss. 9. Financial instruments Financial instruments refer to the contracts under which financial assets of an enterprise are formed and financial liability or equity instruments of any other entity are formed. (1) Recognition and derecognition of financial instruments A financial asset or financial liability is recognized when the Group becomes a party of the financial instrument contract. Where a financial asset meets any of the following conditions, it will be derecognized: A. Where the contractual rights for collecting cash flows of the said financial asset are terminated; or B. Where the said financial asset has been transferred and meets the conditions of derecognizing financial assets for the transfer of financial assets. When all or part of existing obligations of a financial liability is relieved, the all or part of the financial liability will be derecognized.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.83 (2) Classification and measurement of financial assets The Company classifies financial assets into four categories in the initial recognition: financial assets measured at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. Financial assets are measured at fair value in the initial recognition. For financial assets and liabilities measured at fair value through profit or loss, the transaction costs thereof are directly recorded through profit or loss; for other categories of financial assets and liabilities, the transaction expenses thereof are included in the initially recognized value. Financial assets or financial liabilities at fair value through profit or loss Financial assets measured at fair value through profit or loss, include held-for-trading financial assets and those financial assets measured at fair value through profit or loss designated in the initial recognition; Held-for-trading financial assets include acquired financial assets sold in short term and derivative financial instruments. Financial assets measured at fair value through profit or loss are subsequently measured at fair value, and all realized and unrealized profit or loss is recorded through profit or loss. Only when one of the following conditions is met, can financial assets or liabilities in the initial measurement be designated as those measured at fair value through profit or loss: A. The designation can eliminate or obviously reduce the discrepancies in the recognition or measurement of relevant gains or losses arising from different measurement basis of financial assets or liabilities. B. The official written documents on risk management or investment strategies have indicated that the said financial asset portfolio, financial liability portfolio, or the portfolio of said financial assets and liabilities will be managed and evaluated on the basis of fair value and be reported to key management personnel. C. The said financial asset or liability includes embedded derivative instruments that should be split separately. Held-to-maturity investments Held-to-maturity investments refer to non-derivative financial assets that have a fixed maturity, fixed or determinable recoverable amount and the Group has clear intent and ability to hold to maturity. Held-to-maturity financial assets are subsequently measured at amortised cost based on effective interest method, and the gains or losses arising from derecognition, impairment or amortisation is recorded through profit or loss. Loans and receivables Loans and receivables refer to non-derivative financial assets with fixed or determinable recoverable amounts that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost based on effective interest method, and the gains or losses arising from derecognition, impairment or amortisation is recorded through profit or loss. Available-for-sale financial assets Available-for-sale financial assets refer to non-derivative financial assets which are designated for sale in the initial recognition as well as the financial assets other than those as described above. Held-for-sale financial assets are subsequently measured at fair value, and their discounts or premiums are amortised based on effective interest method and recognized as interest income. Except impairment losses and exchange difference of foreign currency monetary financial assets are recognized in current profit or loss, the change of fair value of available-for-sale financial assets is separately recognized as capital reserve. When such financial assets are derecognized or impaired, the accumulated gains or losses recognized in the capital reserve before that are charged to current profit or loss. The dividends or interest income relating to available-for-sale financial assets are recorded through profit or loss. Investments in equity instruments without quotation in an active market which fair value cannot be measured on a reliable basis are measured at cost. (3) Classification and measurement of financial liabilities In the initial recognition, financial liabilities held by the Group are classified into financial liabilities measured at fair value through profit or loss and other financial liabilities. For financial liabilities not classified as the first category, related transaction costs are recorded in the initially recognized value.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.84 Financial liabilities measured at fair value through profit or loss Financial liabilities measured at fair value through profit or loss, include held-for-trading financial liabilities and those designated in the initial recognition as financial liabilities measured at fair value through profit or loss. Financial liabilities measured at fair value through profit or loss are subsequently measured at fair value, and all realized and unrealized profit or loss is recorded through profit or loss. Other financial liabilities Subsequent measurement is made at amortised cost based on effective interest method. (4) Derivative financial instruments The derivative financial instruments used by the Group include adoption of futures contracts to reduce risks arising from operating activities. Derivative financial instruments are initially measured at fair value on the date of execution of derivative transaction contract, and subsequently measured at fair value. A derivative financial instrument with positive fair value is recognized as an asset, and that with negative fair value is recognized as a liability. All gains or losses arising from change of fair value which are inconformity with hedge accounting requirements are directly charged through profit or loss. (5) Fair value of financial instruments As for the financial assets or liabilities exist in the active market, the Group determines their fair value with the current quote or the current offer in the active market. As for the financial instruments do not exist in the active market, the Group adopts valuation techniques to determine their fair value. The result obtained through valuation techniques reflects the transaction price possibly applied in the fair trade at the valuation date. Valuation techniques include reference to the prices recently used in market transactions between knowledgeable and voluntary parties, reference to current fair value of substantially same financial instruments, discounted cash flow method and option pricing model. The Group selects the valuation techniques generally recognized by market participants and verified as reliable by the previous actual transaction price to determine the fair value of financial instruments. While determining the fair value of financial instruments through valuation techniques, the Group applies all the market parameters considered by the market participants in determining the prices of financial instruments and observable transaction prices of the same financial instruments in the current market to the fullest extent to test the effectiveness of the valuation techniques. (6) Impairment losses on financial assets The Group carries out an inspection on the book value of financial assets on the balance sheet date. If there is objective evidence proving that the financial assets are impaired, allowance for impairment will be set aside. Objective evidence proving that financial assets are impaired refers to the actually occurred events which, after the financial assets are initially recognized, have an impact on the estimated future cash flows of the said financial assets that can be reliably measured by the Company. Financial assets measured at amortised cost If there is an objective evidence proving an financial asset is impaired, its book value will be written down to the present value of estimated future cash flows (excluding future credit losses that haven’t incurred), and the reduced amount will be recorded through profit or loss. The present value of estimated future cash flows is determined at a discount rate according to the original actual interest rate of the financial asset, and the value of relevant collaterals is taken into account. Impairment test will be made to the financial assets with significant single amount. If any objective evidence shows that it has been impaired, the impairment loss will be recognized and recorded through profit or loss. With regard to the financial assets with insignificant single amount, impairment test will also be made to financial asset portfolio with similar credit risk features. Where, upon independent test, financial assets (including financial assets with significant or insignificant single amount) have not been impaired, impairment test will also be made to financial asset portfolio with similar credit risk features. For financial assets which have been recognized with impairment loss in single amount, impairment test will not be made to financial asset portfolio with similar credit risk features. After a financial asset measured at amortised cost is recognized with impairment loss by the Group, if there is any objective evidence proving that its value has been recovered, and it is objectively related to the event occurring after such loss is recognized, the impairment loss as originally recognized will be reversed and recorded through profit or loss. However, the reversed book value will not exceed the amortised cost of the financial asset on the date of reverse under the assumption that no allowance for impairment is set aside.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.85 Available-for-sale financial assets If there is evidence proving that such financial assets are impaired, the accumulated losses arising from the decline of fair value that have been directly included in capital reserve will be transferred out and recorded through profit or loss. The transferred out accumulated losses are the balance after the initial acquisition cost of available-for-sale financial assets subtracts recovered principal, amortised amount, current fair value, and impairment loss originally recorded in profit or loss. As for available-for-sale debt instruments which have been recognized with impairment losses, if, within the accounting period thereafter, the fair value rises and is objectively in connection with the subsequent events occurring after the original impairment losses are recognized, the originally recognized impairment losses will be reversed and recorded through profit or loss. The impairment losses on investments in available-for-sale equity instruments will not be reversed from profit or loss. Financial assets measured at cost If there is objective evidence proving that the financial assets have been impaired, the difference between the book value of financial assets and present value determined by discounting future cash flows pursuant to current market rate of return for similar financial assets will be recognized as impairment loss and recorded through profit or loss. The recognized impairment losses will not be reversed. (7) Transfer of financial assets Transfer of financial assets refer to that a financial asset is transferred or delivered to a party other than the issuer of financial asset (the transferee). Where the Group has transferred nearly all of the risks and returns in connection with the ownership of financial assets to transferee, it will derecognize the financial assets. If the Group retains nearly all of the risks and returns in connection with the ownership of financial assets, it will not derecognize the financial assets. Where the Group neither transfer nor retain nearly all of the risks and returns in connection with the ownership of financial assets, the financial assets will be dealt with according to the following circumstances: if the Group gives up its control over the financial assets, it will derecognize the financial assets and recognize the assets and liabilities generated thereof; If the Group retains its control over the financial assets, it will, to the extent of its continuous involvement in the transferred financial assets, recognize related financial assets and liabilities accordingly.
10. Asset transfer with repurchase conditions (1) Reverse repurchase agreements Financial assets which will be resold in a future certain date pursuant to the commitments in the agreement are not recognized in the balance sheet. Cost (interest) paid for the purchase of such assets is presented as reverse repurchase of financial assets in the balance sheet. The difference between purchase price and resale price is recognized as interest income based on effective interest method within the term of agreement. (2) Repurchase agreements Financial assets, which have been sold and will be repurchased in a future certain date pursuant to the commitments in the agreement, are not derecognized in the balance sheet. Proceeds (interest) from the sale of such assets are presented as financial assets sold for repurchase in the balance sheet. The difference between sale price and repurchase price is recognized as interest expense based on effective interest method within the term of agreement.
11. Long-term equity investments (1) Recognition of investment cost The long-term equity investments of the Group are measured at the investment cost in acquisition. Investment cost is usually the fair value of assets paid for acquisition of the investment, liabilities incurred or assumed and issued equity securities, and directly related expenses are also included. However, the investment cost of long-term equity investments generated in the business combination under the same control is the book value share of owner’s equity of acquiree in the combination date.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.86 (2) Subsequent measurement and recognition method for profit or loss For long-term equity investments under control of investee as well as long-term equity investments without joint control or material effect upon investee and without quotation in active market or fair value cannot be reliably measured, the Group applies the cost method to calculate; and for long-term equity investments with joint control or material effect upon investee, the Group applies the equity method to calculate. For long-term equity investments calculated with cost method, distributed cash dividend or profit announced by the investee other than the actually paid amount in acquisition or announced but undistributed cash dividend or profit contained in the consideration is recognized as investment income and recorded through profit or loss. When the Group calculates the long-term equity investments with equity method, for long-term equity investments with investment cost larger than the shares of the fair value of recognizable net assets of the investee attributable during investment, the investment cost of long-term equity investments is not adjusted; and for long-term equity investments with investment cost smaller than the shares of the fair value of recognizable net assets of the investee attributable during investment, the book value of long-term equity investment will be adjusted and its margin will be recorded in the current profit or loss of the investment. When calculating the long-term equity investments with equity method, the Group firstly adjusts the fair value, accounting policies and accounting period of all recognizable assets of investee during the acquisition of investee’s net profit, and then recognizes the current profit or loss of investment in accordance with the attributable or chargeable net profit or loss of the investee. Part of the unrealised profit or loss of internal transactions of the Group with associates and joint ventures attributable to the Group is calculated as the holding proportion, and the investment profit or loss is recognized based on the offset. (3) Basis for recognition of joint control or material effects upon investee Joint control means that any joint party cannot individually control the production and operating activities of the joint venture and decision-making involving basic operating activities of the joint venture require consensus from all parties. Of which, control refers to the right to decide the financial affairs and operating policy of an enterprise and benefit from its operating activities. Material effects refer to the power of decision participation in the financial affairs and operating policy of an enterprise but not control or joint control with other parties of preparation of these policies. When the Group has 20% or above but lower than 50% of voting rights of the investee directly or through subsidiaries, unless there is evidence proving not participating in the decision-making on production and operation of the investee and no material effects under such condition, or material effects upon the investee are recognized; and when the Group has less than 20% of voting rights of the investee, no material effects are recognized upon the investee, unless there is evidence proving participating in the decision-making on production and operation of the investee and having material effects. (4) Impairment test methods and methods of provisioning allowance for impairment For the method of provisioning allowance for impairment losses on investments in subsidiaries, associates and joint ventures the Group applies, please see Notes II. 18. In long-term equity investments held without joint control or material effects upon investee, without quotation in an active market and without fair value reliably measured, for the method of provisioning allowance for impairment the Group applies, please see Notes II. 9 (6). 12. Investment-oriented real estate Investment real estate refers to the real estate held for generating rent and/or capital appreciation. The investment-based real estate of the Group includes leased land use rights, land use rights held for transfer after appreciation and leased buildings. The investment real estate of the Group is initially measured at cost on the acquisition date and subsequently measured based on cost mode. In the meantime, depreciation is set aside on schedule according to relevant regulations on fixed assets. See Notes II. 18 for the provisioning methods of assets impairment. 13. Fixed assets and their accumulated depreciation (1) Recognition of fixed assets The fixed assets of the Group refer to tangible assets held for the production of commodities, rendering of labour service, lease or operating management of which useful life exceeds one accounting year. Only when economic interests in connection with the fixed assets are likely to flow into the Company and the costs of fixed assets can be measured on a reliable basis, can the fixed assets be recognized.
The fixed assets of the Group are initially measured at the actual costs on the acquisition date.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.87 (2) Deprecation methods for various fixed assets The Group sets aside depreciation based on straight-line method. Depreciation starts when a fixed asset reaches its scheduled usable condition, and depreciation ends when a fixed asset is derecognized or classified as held-for-sale non-current assets. Disregarding allowance for impairment, the annual depreciation rates of the Group are determined as follows according to the category of fixed assets, estimated useful life and estimated residual value:
Annual Residual depreciation Category Useful life (year) value rate (%) rate (%)
Buildings and structures 5-40 5 19-2.38 Office supplies 5-12 5 19-7.92 Transportation equipment 5-10 5 19-9.50
If allowance for impairment losses on fixed assets has been set aside, depreciation rates should be calculated and determined by deducting the accumulated allowance for impairment losses on such fixed assets. (3) See Notes II. 18 for impairment test methods and methods of provisioning allowance for impairment losses on fixed assets. (4) Recognition basis and valuation methods for fixed assets under finance lease For fixed assets under finance lease, if the Company can reasonably determine that the ownership of leased assets will be obtained after lease term expires, depreciation will be set aside in the remaining useful life of leased assets, if not, deprecation will be set aside in either the lease term or remaining useful life of leased assets, which is shorter. (5) At the end of every accounting year, the Group reviews the useful life, estimated residual value and depreciation methods for fixed assets. If difference occurs between estimated useful life and previous estimates, the useful life of such fixed assets will be adjusted; and the same will apply to the difference between estimated net residual value and previous estimates.
14. Construction in Progress The costs of construction in process of the Group are recognized pursuant to actual project expenditures, including various necessary project expenditures during the construction, borrowings that should be capitalized before the project reaches scheduled usable condition and other pertinent expenses. Construction in progress is converted into fixed assets when it reaches scheduled usable condition. See Notes II. 18 for the methods of impairment provisioning of construction in progress.
15. Intangible assets The Group initially measures the intangible assets at cost, analyzes and determines their useful life upon acquisition. Intangible assets with limited useful life are amortised through its estimated useful life by means of anticipated realization method that can reflect the economic benefits relating to the assets from their availability. Intangible assets of which realization method cannot be reliably determined shall be amortised on straight-line method. Moreover, intangible assets with uncertain useful life will not be amortised. The Group will check the useful life and amortisation method of intangible assets with limited useful life at the end of the year. For estimation different from the previous, the Group will adjust the original estimation and handle it as the changes in the accounting estimation. If the Group estimates a asset cannot bring economic benefit for the company, the Group will transfer the book value of the intangible asset into the current profit or loss.
See Notes II. 18 for the methods of impairment provisioning of intangible assets.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.88 16. Repossessed assets to be disposed Debt assets are recognized at fair value on the acquisition date by the Group. Unpaid taxes on debt assets for acquiring them, advanced litigation costs and related taxes paid for acquiring debt assets are included in the value of debt assets. When the Group disposes of debt assets, the difference between disposal income and book value of debt assets is recoded in non-operating income provided the former is more than the latter; otherwise, the difference is charged to non-operating expenses. Expenses incurred during the custody are directly included in other business expenses, and those incurred during the process of disposal are offset from disposal income. The Group checks debt assets one by one at the end of accounting period, and valuates them at the lower of book value or recoverable amount. The allowance for impairment losses on debt assets is set aside when recoverable amount is lower than book value.
17. Amortisation of long-term unamortised expenses The long-term unamortised expenses of the Group are measured at actual costs and amortised on an even basis pursuant to estimated benefit period. Amortised values of long-term unamortised expenses that cannot benefit the following accounting periods are included in current profit or loss.
18. Impairment losses on assets The Group recognizes the impairment losses on assets excluding pending debt assets, deferred income tax assets and financial assets according to the following methods: The Group judges whether assets are impaired on the balance sheet date. If impaired, the Group will estimate recoverable amounts and conduct impairment test. Recoverable amounts are determined according to the higher of net value after deducting disposal expenses from fair value of assets or present value of estimated future cash flows of assets. The Group estimates the recoverable amount based on a single asset; if it is hard to estimate recoverable amount of a single asset, that of asset group where the single asset belongs to will be measured. The recognition of an asset group is based on whether major cash inflows generated by the asset group are independent of cash inflows of other assets or asset groups. When the recoverable amount of an asset or asset group is less than its book value, the Group writes down the book value to the recoverable amount. The written-down amount s recorded through profit or loss, and provision for impairment losses on assets is set aside accordingly. The impairment loss of an asset will not be reversed in the subsequent accounting periods once it is recognized.
19. Projected liabilities If an obligation in connection with contingencies meets the following conditions, the Group will recognize it as an estimated liability: A. The obligation is a current obligation of the Group; B. The performance of the obligation is likely to result in economic interest outflows of the Group; and C. The amount of the obligation can be measured on a reliable basis. Where all or part expenses paid for the liquidation of recognized estimated liabilities are expected to be compensated by the third party of other parties, the compensation can only be recognized as an separate asset when it is determined as recoverable. The recognized compensation should not exceed the book value of recognized liabilities.
20. Bonds payable (1) Valuation of bonds payable When bonds are issued by the Group, they are measured at actual total issue price. (2) Amortisation of bond premium or discount The difference between total issue price and total par value of bonds is recognized as bond premium or discount and amortised based on effective interest method when interest is accrued during the period of existence of bonds.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.89 21. Recognition of income The Group recognizes income when the inflows and receipts of relevant economic benefits can be measured on a reliable basis. (1) Interest income Interest income is recognized accordingly based on effective interest method. Effective interest method is the method of calculating amortised cost and interest income/expenses for various periods on the basis of the effective interest rate of the financial assets or financial liabilities. Effective interest refers to the interest rate used when discounting the future cash flows of the financial assets or financial liabilities within the estimated renewal period or applicable shorter period into the current book value of the financial assets or financial liabilities. While recognizing the effective interest rate, the Group estimates the future cash flows based on all the contract clauses of the financial assets or financial liabilities without consideration of future credit losses. All fees, transaction fee and premium or discount paid or collected by the Group and being components of the effective interest rate will be considered in recognition of the effective interest rate. After the impairment losses on financial assets, interest income shall be recognized with discount rate applied in discounting the future cash flows on the basis of recognition of the impairment losses as the interest rate. (2) Fee and commission income Fee and commission income is recognized on an accrual basis when related service is rendered.
22. Recognition of expenses Interest expense and other expenses are recognized on an accrual basis.
23. Income tax Income tax includes current income tax and deferred income tax. Deferred income tax in connection with transactions or events which are directly included in the owners’ equity should be recoded in the owners’ equity, otherwise, they should be recognized as income tax expenses and recorded through profit or loss. Current income tax is the current income tax payable calculated pursuant to current taxable income. Taxable income is calculated after corresponding adjustments are made to profit before tax of the year according to relevant tax regulations. The Group measures income tax liabilities or assets of current and previous periods pursuant to estimated income tax payable or refundable that is calculated according to relevant tax regulations. The Group calculates deferred income tax based on balance sheet liability method pursuant to temporary difference between the book value of assets and liabilities on the balance sheet date and the tax base. Temporary differences of various tax payables are recognized as related deferred income tax liabilities. For deductible temporary difference, deductible losses that could be carried forward to the following years and tax credits, the Group recognizes the deferred income tax assets resulted from and within the limit of future taxable income that is very likely to be obtained by the Group to offset deductible temporary difference, deductible losses and tax credits. On the balance sheet date, the Group measures deferred tax assets and liabilities pursuant to applicable tax rates in the period during which the assets are expected to be recovered or liabilities be liquidated, and in the meantime, the impact of ways of recovering assets or liquidating liabilities on the balance sheet date on income tax is reflected. On the balance sheet date, the Group checks the book value of deferred income tax assets. If the Group is unlikely to obtain enough taxable income to offset the interests of deferred income tax assets in a future period, the book value of deferred income tax assets will be written down. When it is likely to obtain enough taxable income, the written-down amount will be reversed.
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CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.90 24. Lease The Group recognizes the lease that substantially transfers all risks and returns in connection with ownership of assets. Lease other than finance lease is recognized as operating lease. On the commencement date of lease term, the Group recognizes the lower one from fair value of leased assets and present value of minimum lease payment on the commencement date of lease term as recording value of leased assets, the minimum lease payment as recording value of long-term account payable, and the balance between recording value of leased assets and that of long-term account payable as unrecognized financing cost. Rents for operating lease are recorded in related asset costs or current profit or loss in different lease terms based on straight-line method.
25. Held-for-sale assets (1) Held-for-sale fixed assets Fixed assets that meet the following conditions are classified as held-for-sale assets: (1) the Group has made a resolution on disposing of such fixed assets; (2) the Group has signed an irrevocable transfer agreement with transferee; and, (3) the transfer could be completed in one year. Held-for-sale fixed assets include single asset and disposal group. In certain circumstances, disposal group includes goodwill obtained in the business merger. Held-for-sale fixed assets, for which depreciation will not be set aside, are measured at the lower net amount of deducting disposal expenses from book value or fair value. If an asset or disposal group which has been classified as held-for-sale assets cannot meet the recognition conditions for held-for-sale fixed assets on a future date, the Company will remove it from the category of held- for-sale fixed assets and measure it at the lower amount as follows: A. the balance of adjusting the book value of the asset or deposal group before it is classified as held- for-sale fixed assets pursuant to the depreciation, amortisation or impairment that should be recognized on the assumption that the asset or deposal group is not classified as held-for-sale fixed assets; or B. the recovered amount on the date that the Group decides not to sell the asset or disposal group. (2) Other non-current assets including intangible assets that meet the held-for-sale conditions are treated according to the above-mentioned principles.
26. Employees’ compensation Employees’ salary, bonus, allowance, subsidy, welfare benefit, social insurance and housing provident fund are recognized in the accounting period during which employees render services. If employees’ compensation becomes due more than one year after the balance sheet date, and the discounted amount is significant, its present value will be presented. If the Group’s employees participate in the pension insurance program managed by local governments, the pension insurance is recorded through profit or loss upon occurrence.
27. Entrustment business The entrustment business of the Group includes entrusted loans and investments. Entrusted loans refer to that, the principal provides loan funds, and loans are granted, used under supervision and recovered under assistance on commission basis according to prospective borrower, purpose, term and interest rate determined by the principal. Entrusted investments refer to that, the principal provides loan funds, and the Group makes independent investment decisions and invest on behalf of principal within the specified range during the period of entrustment. All risks, profit or loss and liabilities arising from entrustment business are undertaken by the principal, and the Group only charges service fee. The balance between assets and liabilities formed from entrusted loans and investments are presented on the balance sheet.
28. Preparation of consolidated financial statements The consolidated financial statements of the Company are prepared based on the financial statements and other documents of the Head Office, branches and directly affiliated (intercity) sub-branches. In the consolidation, internal significant transactions and balance of the Company have been offset.
Annual Report 2011 91
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.91 29. Segment report The Group determines the operating segments according to the organizational framework, management requirement and internal reporting system, and on this basis, determines the reporting segments. An operating segment refers to the component within the Group meeting the following conditions at the same time: (1) such component can generate income and incur expenses in the daily activities; (2) the management of the enterprise can regularly assess the operating results of the component to determine the resources allocated to it and assess its performance; (3) the enterprise can obtain the accounting information relating to the component’s financial standing, operating results and cash flows. The Group’s reporting segments include: Northern and Northeastern China, Eastern China, Southern and Central China and Western China. Accounting policies of the operating segments maintain the same with the major accounting policies of the Group.
30. Annuity program of the company The enterprise annuity program established by the Company for employees refers to the supplementary pension system established by the Company based on its participation in the basic pension insurance system according to law as well as in accordance with relevant regulations of the state and business development of the Company, to provide a certain degree of income security for its employees after their retirement. The enterprise annuity program is applicable to registered employees who have signed formal labour contracts with the Company after probation period. The expenses incurred by the Company for annuity program are recorded through profit or loss. Except that, the Company has no other major social security commitments to employees.
31. Significant accounting judgments and estimates The Group evaluates significant accounting estimates and key assumptions adopted on an ongoing basis based on historical experience and other factors, including reasonable expectations on future events. Significant accounting estimates and key assumptions which may cause the risk of significant adjustments to book value of assets and liabilities in the next accounting year are presented below: Classification of financial assets The Group is required to make significant judgments on the classification of financial assets, as different classification approaches may affect accounting method and financial position of the Company. Impairment losses on loans and advances If there is objective evidence proving a loan is impaired, its book value will be written down to the present value of estimated future cash flows (excluding future credit losses that haven’t incurred), and the reduced amount will be recorded through profit or loss. The present value of estimated future cash flows is determined at a discount rate according to the original actual interest rate of the loan, and the value of relevant collaterals is taken into account. In the estimation of impairment losses, significant judgments on whether there is objective evidence proving a loan has been impaired should be made, and significant estimates on present value of estimated future cash flows should be conducted. Fair value of financial instruments If a financial instrument does not exist in the active market, the Group will apply valuation techniques to recognize its fair value. Valuation techniques include reference to the prices recently used in market transactions between knowledgeable and voluntary parties, reference to current fair value of other financial instruments which are substantially the same, discounted cash flow method and option pricing model. When market information can not be obtained, the Management will evaluate the credit risk, market fluctuation and relevance of the Group and counterparty. These changes in related assumptions will influence the fair value of the financial instruments. Deferred income tax assets To the limit that it is very likely to have enough taxable income to offset losses, all unused tax losses should be recognized as deferred income tax assets. Therefore, lots of judgments should be used by the Management to estimate the occurrence time and amount of future taxable income, to recognize the amount of deferred income tax assets.
92 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.92 32. Change of significant accounting policies and estimates
(1) Change of accounting policies
Are the major accounting policies in the reporting period changed? No.
(2) Change of accounting estimates
Are the major accounting estimates in the reporting period changed? No.
33. Correction of previous errors
(1) Retrospective restatement method
Are prior-period accounting errors using retrospective restatement method in the reporting period found? No.
(2) Prospective application method
Are prior-period accounting errors using prospective application method in the reporting period found? No.
III. Taxes
1. Major tax items and tax rate
Tax item Tax base Statutory tax rate (%)
Business tax Taxable business income 5 Urban maintenance and construction tax Taxable turnover 5.7 Enterprise income tax Taxable income 25
2. Tax preference and official documents
(1) According to the Circular of the State Council on Implementing Preferential Policies on the Transition of Corporate Income Tax (G.F. [2007] No. 39) issued by the State Council, Shenzhen Branch affiliated to the Company has carried out a plan of transitioning to statutory tax rate in five years step by step since the execution of Corporate Income Tax Law of the People’s Republic of China on 1 January 2008, that is, applying 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012.
(2) According to the Notice on the Taxation Policy regarding Rural Finance (C.Sh. [2010] No. 4) issued by the Ministry of Finance and the State Administration of Taxation, Beijing Daxing Hua Xia Village Bank Co., Ltd., Kunming Chenggong Hua Xia Village Bank Co., Ltd. and Sichuan Jiangyou Hua Xia Village Bank Co., Ltd. enjoy the following tax preference:
a. From 1 January 2009 to 31 December 2013, interest income of financial institutions from small-value loans to peasant households is exempted from business tax.
b. From 1 January 2009 to 31 December 2013, interest income of financial institutions from small-value loans to peasant households is recognized into total income by 90% while calculating taxable income.
c. From 1 January 2009 to 31 December 2011, business tax for financial insurance income of Village banks is levied by the tax rate of 3%.
Annual Report 2011 93
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.93 IV. Business Combination and Consolidated Financial Statements
1. Subsidiaries acquired through establishment or investment
Consolidated Shareholding Voting rights financial Subsidiary Register Registered percentage percentage statements Full name type place capital Business scope (%) (%) or not
Beijing Daxing Wholly-owned No.32-2, Xingye 100,000,000.00 Public deposit-taking; loan granting; 100 100 Yes Hua Xia Village Street (Section III), domestic settlement; bill acceptance Bank Co., Ltd. Daxing District, and discount; inter-bank lending and Beijing borrowing; bank card (debit card) service; issuance, encashment, and underwriting of government bonds as an agent; collection and payment as an agent and agency insurance; and other businesses approved by the banking regulatory authorities. Kunming Stock holding Block F Store, 50,000,000.00 Public deposit-taking; short-term, 70 70 Yes Chenggong Huilan Park, medium-term and long-term loan Hua Xia Village Chunrong Street, granting; domestic settlement; bill Bank Co., Ltd. New District, acceptance and discount; inter-bank Chenggong, lending and borrowing; bank card Kunming service; issuance, encashment, and underwriting of government bonds as an agent; collection and payment as an agent and agency insurance; and other businesses approved by the banking regulatory authorities. Sichuan Stock holding East Building, 50,000,000.00 Public deposit-taking; short-term, 70 70 Yes Jiangyou Hua No. 49 Shicheng medium-term and long-term loan Xia Village Bank Middle Road, granting; domestic settlement; bill Co., Ltd. Jiangyou, Sichuan acceptance and discount; bank card service; issuance, encashment, underwriting and trading of government bonds as an agent; letter of guarantee business, collection and payment as an agent and agency deposits and loans; and other businesses approved by the Chinese Banking Regulatory Commission.
Continued:
Balance of other items Minority interest Actual capital substantially used to write contribution at constituting net off the profit the end investment to or loss of Full name of the period the subsidiary Minority interest minority interest
Beijing Daxing Hua Xia Village Bank Co., Ltd. 100,000,000.00 – – – Kunming Chenggong Hua Xia Village Bank 35,000,000.00 – 14,267,064.04 732,935.96 Co., Ltd. Sichuan Jiangyou Hua Xia Village Bank 35,000,000.00 – 14,771,162.34 228,837.66 Co., Ltd.
94 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.94 2. New subjects incorporated in the consolidation during the current period
Net assets at the Profit for Name end of the period the period
Kunming Chenggong Hua Xia Village Bank Co., Ltd. 47,556,880.14 -2,443,119.86 Sichuan Jiangyou Hua Xia Village Bank Co., Ltd. 49,237,207.80 -762,792.20
V. Notes to Major Items of Consolidated Financial Statements
1. Cash on hand and balances with central banks
At the end At the beginning Item of the period of the period
Cash on hand 3,174,967,852.09 2,499,858,815.95 Statuary reserves deposit with central banks 157,991,986,129.79 106,908,217,393.80 Excess required reserves with central banks 11,152,317,396.27 31,425,848,799.61 Other balances with central banks 154,108,000.00 565,625,000.00 Total 172,473,379,378.15 141,399,550,009.36
(1) The Group deposits legal reserves for general deposits with the People’s Bank of China as regulated. Reserves are made for various deposits including deposits of organizations, ex budgetary deposits, personal deposits and corporate deposits. The percentages for depositing are specified below:
At the end At the beginning Item of the period of the period
RMB: Company 19.00% 16.50% Beijing Daxing Hua Xia Village Bank Co., Ltd. 15.00% 12.50% Kunming Chenggong Hua Xia Village Bank Co., Ltd. 14.00% – Sichuan Jiangyou Hua Xia Village Bank Co., Ltd. 12.00% – Foreign currency 5.00% 5.00%
(2) Excess required reserves with central banks include excess required reserves and other balances and refers to various funds that are deposited by the Group with central banks to guarantee normal withdrawal of deposits and normal operation of business but excluding those special-purpose funds such as required reserves.
2. Due from banks and other financial institutions
At the end At the beginning Item of the period of the period
Due from domestic banks and other financial institutions 99,969,010,664.91 5,636,832,108.19 Due from overseas banks and other financial institutions 1,698,615,551.70 1,898,526,182.55 Less: Allowance for impairment losses on due from banks and other financial institutions 5,500,000.00 5,500,000.00 Book value of due from banks and other financial institutions 101,662,126,216.61 7,529,858,290.74
Annual Report 2011 95
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.95 3. Placements with banks and other financial institutions
At the end At the beginning Item of the period of the period
Placements with domestic banks and other financial institutions 28,266,629,000.00 34,785,114,200.00 Placements with domestic non-banking financial institutions 1,792,462,779.34 816,247,446.55 Placements with overseas banks – 1,011,498,000.00 Placements with overseas non-banking financial institutions – – Less: Allowance for impairment losses on placements with banks and other financial institutions 123,462,779.34 127,247,446.55 Book value of placements 29,935,629,000.00 36,485,612,200.00
4. Held-for-trading financial assets
At the end At the beginning Item of the period of the period
Held-for-trading bond investments 4,004,590,925.61 106,446,265.00
The Management of the Group deems that there is no material limit upon investment of held-for-trading financial assets.
5. Derivative financial instruments Contracted nominal amount and fair value of derivative financial instruments held by the Group are presented below: Non-hedging instruments:
At the end of the period Fair value Item Nominal amount Assets Liabilities
Currency swap 13,468,363,606.34 63,167,871.14 58,527,141.36 Non-delivery spot foreign exchange contract 6,266,855,655.91 10,286,787.79 10,096,305.27 Forward agreement 20,107,701,396.06 128,347,116.83 123,460,010.92 Interest rate swap 200,000,000.00 39,247.33 39,247.33 Total 201,841,023.09 192,122,704.88
Non-hedging instruments (continued):
At the beginning of the period Fair value Item Nominal amount Assets Liabilities
Currency swap 10,126,886,740.45 5,476,826.70 – Non-delivery spot foreign exchange contract 2,816,700,884.95 – 1,421,141.27 Forward agreement 11,334,258,730.12 20,576,771.87 – Total 26,053,598.57 1,421,141.27
96 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.96 Notes: (1) Nominal amount refers to the unfinished trade volume on the balance sheet date instead of the risk amount. Fair value refers to the amount of asset exchange or liability solvency conducted by the parties concerned that are familiar with the conditions in fair trade. (2) The Group uses the financial instruments in the management of assets and liabilities, e.g., as for the structural deposits absorbed, the Group effectively reduces the risk brought by the interest rate fluctuation through interest rate swaps.
6. Reverse repurchase agreements
At the end At the beginning Item of the period of the period
Bonds 8,828,000,000.00 15,585,800,000.00 Of which: Government bonds 3,800,000,000.00 2,003,100,000.00 Central bank bills – 10,570,000,000.00 Financial bonds 5,028,000,000.00 3,012,700,000.00 Bills 189,039,971,987.55 224,498,450,169.41 Of which: Bank acceptances 183,055,910,579.62 212,040,161,422.67 Commercial acceptance bills 5,984,061,407.93 12,458,288,746.74 Less: Allowance for bad debts – – Book value of reverse repurchase agreements 197,867,971,987.55 240,084,250,169.41
7. Interest receivable
(1) By aging
At the end of the period At the beginning of the period Aging Amount Percentage (%) Amount Percentage (%)
Less than 1 year 5,635,045,171.37 100.00 2,917,283,614.95 100.00 1 to 2 years – – – – 2 to 3 years – – – – Over 3 years – – – – Book value of interest receivable 5,635,045,171.37 100.00 2,917,283,614.95 100.00
Annual Report 2011 97
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.97 (2) By content
At the end At the beginning Item of the period of the period
Interest receivable on loans and advances 1,360,684,248.50 758,990,504.41 Interest receivable on deposits and placements with banks and other financial institutions 648,000,864.64 16,205,044.90 Bond interest receivable 1,413,141,681.82 829,402,099.63 Interest receivable on reverse repurchase bills 2,199,222,536.07 1,307,200,084.43 Interest receivable on reverse repurchase bonds 13,995,840.34 5,485,881.58 Book value of interest receivable 5,635,045,171.37 2,917,283,614.95
(3) See [Note VIII, 3] for the interest receivable of shareholder units that hold 5% or above voting shares of the Company.
8. Loans and advances to customers
(1) Distribution by individual and corporate customer
At the end At the beginning Item of the period of the period
Personal loans and advances 74,987,537,319.08 60,108,768,438.23 Of which: Credit card 4,055,751,047.93 1,752,412,868.03 Housing mortgage 55,672,652,345.84 41,378,233,127.89 Others 15,259,133,925.31 16,978,122,442.31 Corporate loans and advances 536,475,379,851.51 467,827,912,745.98 Of which: Loans 529,838,562,608.37 465,449,214,365.52 Discounted bills 3,737,160,373.28 634,686,559.67 Bills of exchange for imports/exports 2,899,656,869.86 1,744,011,820.79 Total loans and advances to customers 611,462,917,170.59 527,936,681,184.21 Less: Allowance for impairment losses on loans 17,258,816,953.33 13,073,253,002.44 Of which: Single provisioning 3,209,717,297.99 3,215,529,339.85 Portfolio provisioning 14,049,099,655.34 9,857,723,662.59 Book value of loans and advances to customers 594,204,100,217.26 514,863,428,181.77
98 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.98 (2) Distribution by industry
At the end of the period At the beginning of the period Industry Book balance Percentage (%) Book balance Percentage (%)
Agriculture, forestry, animal husbandry and fishery 3,022,810,000.00 0.49 1,848,543,944.55 0.35 Mining 22,470,317,490.36 3.68 21,178,873,357.80 4.01 Manufacturing 164,732,017,148.14 26.94 139,459,226,588.50 26.42 Production and supply of electric power, gas and water 25,263,111,741.81 4.13 24,357,367,201.84 4.61 Construction 42,617,395,713.55 6.97 31,707,338,362.15 6.01 Transportation, storage and postal services 41,011,511,413.10 6.71 40,983,783,317.90 7.76 Information transmission, computer services and software industry 3,671,803,072.76 0.60 4,254,888,024.57 0.81 Wholesale and retail 86,692,925,780.19 14.18 68,524,812,584.95 12.98 Lodging and catering services 7,398,416,652.45 1.21 6,195,802,757.25 1.17 Finance 646,108,126.30 0.11 1,309,916,717.32 0.25 Property development 62,633,703,495.25 10.24 47,502,314,704.35 9.00 Leasing and commercial services 54,016,028,430.50 8.83 61,552,133,037.78 11.66 Scientific research, technological services and geographical prospecting 990,500,000.00 0.16 1,234,250,000.00 0.23 Water, environment and public utility management 10,586,509,169.81 1.73 9,839,150,936.52 1.86 Resident services and other services 1,149,961,636.00 0.19 798,900,000.00 0.15 Education 1,752,838,656.00 0.29 2,671,360,000.00 0.51 Health care, social security and social welfare 919,591,829.32 0.15 819,714,650.83 0.16 Culture, sports and entertainment 2,993,030,000.00 0.49 2,928,850,000.00 0.55 Public management and social organization 171,000,000.00 0.03 26,000,000.00 0.00 Discounted bills 3,735,799,495.97 0.61 634,686,559.67 0.12 Personal loans 74,987,537,319.08 12.26 60,108,768,438.23 11.39 Total loans and advances to customers 611,462,917,170.59 100.00 527,936,681,184.21 100.00 Less: Allowance for impairment losses on loans 17,258,816,953.33 13,073,253,002.44 Book value of loans and advances to customers 594,204,100,217.26 514,863,428,181.77
Annual Report 2011 99
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.99 (3) Distribution by geographic region
At the end of the period At the beginning of the period Geographic region Book balance Percentage (%) Book balance Percentage (%)
Northern and Northeastern China 214,040,781,123.69 35.01 188,774,432,357.41 35.76 Eastern China 202,530,315,204.66 33.12 179,226,699,042.37 33.95 Southern and Central China 108,184,214,926.97 17.69 88,378,680,642.67 16.74 Western China 86,707,605,915.27 14.18 71,556,869,141.76 13.55 Total loans and advances to customers 611,462,917,170.59 100.00 527,936,681,184.21 100.00 Less: Allowance for impairment losses on loans 17,258,816,953.33 13,073,253,002.44 Book value of loans and advances to customers 594,204,100,217.26 514,863,428,181.77
Northern and Northeastern China: Beijing, Tianjin, Hebei, Shandong, Liaoning, Inner Mongolia and Jilin;
Eastern China: Jiangsu, Shanghai, Zhejiang and Anhui;
Southern and Central China: Guangdong, Guangxi, Hubei, Hunan, Shanxi and Fujian; and
Western China: Shaanxi, Xinjiang, Sichuan, Chongqing and Yunnan.
(4) Distribution by method of guarantee
At the end At the beginning Item of the period of the period
Unsecured loans 106,197,985,150.91 96,002,820,212.75 Guaranteed loans 196,637,555,252.88 180,686,867,511.52 Loans secured by mortgages 308,627,376,766.80 251,246,993,459.94 Of which: Mortgage loans 228,661,808,516.32 191,879,597,619.44 Pledged loans 79,965,568,250.48 59,367,395,840.50 Less: Allowance for impairment losses on loans 17,258,816,953.33 13,073,253,002.44 Book value of loans and advances to customers 594,204,100,217.26 514,863,428,181.77
100 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.100 (5) Overdue loans
A. Loans with principal overdue for one or more days as a whole or in part
At the end of the period Overdue for Overdue for Overdue for 90 to 360 days Overdue for 1 to 90 days 360 days to 3 years more than Item (included) (included) (included) 3 years Total
Unsecured loans 132,937,136.46 29,319,014.32 – – 162,256,150.78 Guaranteed loans 318,759,098.63 256,577,647.12 446,657,957.61 284,294,724.10 1,306,289,427.46 Mortgage loans 393,536,907.78 1,011,001,951.40 750,859,505.28 258,124,654.79 2,413,523,019.25 Pledged loans 204,950,000.00 145,824,611.33 231,978,723.13 16,440,848.21 599,194,182.67 Total 1,050,183,142.87 1,442,723,224.17 1,429,496,186.02 558,860,227.10 4,481,262,780.16
At the beginning of the period Overdue for Overdue for Overdue for 90 to 360 days Overdue for 1 to 90 days 360 days to 3 years more than Item (included) (included) (included) 3 years Total
Unsecured loans – – – – – Guaranteed loans 175,322,421.24 585,961,548.08 660,021,850.12 185,544,989.15 1,606,850,808.59 Mortgage loans 69,103,247.40 602,730,686.52 1,052,708,446.03 360,918,119.77 2,085,460,499.72 Pledged loans 81,387,725.97 186,037,172.97 77,544,525.53 7,960,209.04 352,929,633.51 Total 325,813,394.61 1,374,729,407.57 1,790,274,821.68 554,423,317.96 4,045,240,941.82
B. Loan with interest overdue for one or more days but principal not overdue
At the end of the period Overdue for Overdue for Overdue for 90 to 360 days Overdue for 1 to 90 days 360 days to 3 years more than Item (included) (included) (included) 3 years Total
Unsecured loans – – – – – Guaranteed loans 272,566,000.00 30,000,000.00 – 27,114,600.00 329,680,600.00 Mortgage loans 96,410,000.00 84,999,938.51 – – 181,409,938.51 Pledged loans – 27,000,000.00 – – 27,000,000.00 Total 368,976,000.00 141,999,938.51 – 27,114,600.00 538,090,538.51
Annual Report 2011 101
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.101 At the beginning of the period Overdue for Overdue for Overdue for 90 to 360 days Overdue for 1 to 90 days 360 days to 3 years more than Item (included) (included) (included) 3 years Total
Unsecured loans – – – – – Guaranteed loans 30,000,000.00 99,197,248.00 27,114,600.00 – 156,311,848.00 Mortgage loans 115,478,577.84 2,002,752.00 – – 117,481,329.84 Pledged loans – – – – – Total 145,478,577.84 101,200,000.00 27,114,600.00 – 273,793,177.84
(6) Allowance for impairment losses on loans
Amounts incurred in the period Amounts incurred in the previous period Single Portfolio Single Portfolio allowance for allowance for allowance for allowance for impairment impairment impairment impairment Item losses losses Total losses losses Total
Beginning balance 3,215,529,339.85 9,857,723,662.59 13,073,253,002.44 3,797,040,015.14 6,976,297,244.13 10,773,337,259.27 Allowance for the current period 474,870,076.36 4,191,375,992.75 4,666,246,069.11 1,292,085,771.23 2,881,426,418.46 4,173,512,189.69 Recoveries for the current period 344,991,719.53 – 344,991,719.53 75,078,562.39 – 75,078,562.39 Reversal of interest on impaired loans 167,596,741.69 – 167,596,741.69 178,784,408.37 – 178,784,408.37 Write-offs for the current period 643,084,875.14 – 643,084,875.14 1,756,693,653.10 – 1,756,693,653.10 Transfer-out for the current period 14,992,220.92 – 14,992,220.92 13,196,947.44 – 13,196,947.44 Ending balance 3,209,717,297.99 14,049,099,655.34 17,258,816,953.33 3,215,529,339.85 9,857,723,662.59 13,073,253,002.44
(7) At the end of the period, the balance of loans to shareholder units that hold 5% or above voting shares of the Company was equivalent to RMB4,638 million.
(8) Loans derecognized
Gains or loses Amount relating to Item derecognized derecognization
Transfer of credit assets 1,121,178,000.00 146,331,300.00
Note: The book balance of loans transferred of the Group amounted to RMB1,121,178,000.00, the allowance for impairment set aside was RMB313,709,300.00, book value was RMB807,468,700.00, and the agreed-upon transfer price by both parties was RMB953,800,000.00. As the Company does not retain any right or obligation after transfer, the Company derecognizes the transferred loan.
102 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.102 9. Available-for-sale financial assets
At the end At the beginning Item of the period of the period
Bonds 28,488,363,138.35 14,859,482,016.40 Of which: Government bonds 725,658,509.34 5,006,657,012.06 Financial bonds 11,514,216,525.00 7,648,164,027.11 Central bank bills – 33,170,552.80 Other bonds 16,248,488,104.01 2,171,490,424.43 Less: Allowance for impairment losses on available-for-sale financial assets – – Book value of available-for-sale financial assets 28,488,363,138.35 14,859,482,016.40
See [Note VIII, 2 (3)] for the information on bonds issued by shareholder units that hold 5% or above voting shares of the Company among available-for-sale financial assets as at the end of the period.
10. Held-to-maturity investments
At the beginning At the end of the period of the period Item Book balance Fair value Book balance
Bonds 93,800,841,947.10 95,164,832,201.08 66,335,107,878.42 Of which: Government bonds 64,667,727,373.43 66,045,518,234.27 47,249,058,996.67 Financial bonds 22,320,167,573.67 22,314,707,336.81 17,021,748,045.66 Central bank bills – – – Other bonds 6,812,947,000.00 6,804,606,630.00 2,064,300,836.09 Less: Allowance for impairment losses on held-to-maturity investments – – 39,677,593.62 Book value of held-to-maturity investments 93,800,841,947.10 95,164,832,201.08 66,295,430,284.80
(1) At the end of the period, bonds in a par value of RMB1,082.16 million among the bonds held by the Group were pledged, of which, the Company under entrustment of Ministry of Finance conducted intermediary credit for French Development Agency and pledged government bonds equivalent to EUR40 million (in a par value of RMB362.16 million) to the Ministry of Finance with the pledge due on 15 June 2020. Besides, the Company under the entrustment of Ministry of Finance disbursed USD100 million World Bank Sub-loans to China Energy Efficiency Financing Project (“CHEEF”) and pledged government bonds in a par value of RMB720 million to the Ministry of Finance with the pledge due on 15 September 2025.
(2) At the end of the period, bonds held by the Group in a par value of RMB69,549.63 million were used to sell repurchased securities and pledged for time deposits of commercial banks under cash management of the central treasury.
(3) During the current period, the amount of held-to-maturity investment that are sold by the Group but not mature yet was RMB217 million, accounting for 0.34% of the investment amount before sales.
(4) See [Note VIII, 2 (3)] for the information on bonds issued by shareholder units that hold 5% or above voting shares of the Company among held-to-maturity investments as at the end of the period.
Annual Report 2011 103
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.103 11. Investments classified as receivables
At the end At the beginning Item of the period of the period
Trust investments receivable 3,500,000,000.00 5,850,000,000.00 Less: Allowance for impairment losses on investments classified as receivables – – Book value of investments classified as receivables 3,500,000,000.00 5,850,000,000.00
Note: Trust investments receivable refer to the principal-guaranteed wealth management products that are issued by the Group or wealth management products issued by other banks. The investment of the principal-guaranteed wealth management products issued by the Group is oriented towards the trust schemes set up by relevant trust companies. Since the Group undertakes the obligation for principal preservation of these wealth management products, trust investments and wealth management funds relevant to them are recognized as the assets and liabilities of the Group respectively.
12. Long-term equity investments
At the end At the beginning Item of the period of the period
China UnionPay Co., Ltd. 81,250,000.00 81,250,000.00 Visa International Service Association 523,844.93 548,511.34 Total 81,773,844.93 81,798,511.34
(1) At the end of the period, the Group held a total of 62.5 million shares in China UnionPay Co. Ltd.
(2) At the end of the period, the Group held a total of 1,999 shares in VISA International. According to decisions of the Board of Directors of VISA International, shares held by the Group can not be sold within three years following VISA International restructuring and listing.
(3) As in the active market, there was no quotation of the equity instrument investments while the fair value could not be reliably measured, they are measured at cost. As at 31 December 2011, there was no impairment in the Group’s long-term equity investments.
13. Investment-oriented real estate
(1) Original cost of investment-oriented real estate
Investment-oriented At the beginning At the end real estate of the period Increase Decrease of the period
Houses and buildings 48,500,000.00 18,000,000.00 – 66,500,000.00
(2) Total of accumulative depreciation and amortisation
Investment-oriented At the beginning At the end real estate of the period Increase Decrease of the period
Houses and buildings 9,370,950.59 2,090,000.00 – 11,460,950.59
(3) Allowance for impairment losses on investment-oriented real estate
Investment-oriented At the beginning At the end real estate of the period Increase Decrease of the period
Houses and buildings – – – –
104 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.104 14. Fixed assets
At the end At the beginning Item of the period of the period
Original value of fixed assets 9,093,250,870.68 7,619,253,676.10 Less: Accumulative depreciation 2,629,680,813.69 2,305,238,821.54 Construction in progress 282,015,058.57 586,650,740.67 Total 6,745,585,115.56 5,900,665,595.23
(1) Fixed assets
At the beginning At the end Item of the period Increase Decrease of the period I. Total original book value 7,619,253,676.10 1,790,776,980.11 316,779,785.53 9,093,250,870.68 Of which: Buildings and structures 4,615,752,059.22 1,120,102,829.91 66,575,355.52 5,669,279,533.61 Office supplies 2,907,680,377.57 655,684,930.76 242,830,105.51 3,320,535,202.82 Transportation facilities 95,821,239.31 14,989,219.44 7,374,324.50 103,436,134.25 Allowance for the Increase current period II. Total accumulative depreciation 2,305,238,821.54 – 566,066,284.01 241,624,291.86 2,629,680,813.69 Of which: Buildings and structures 771,528,161.28 – 143,479,024.35 11,460,950.59 903,546,235.04 Office supplies 1,496,159,880.33 – 413,963,155.38 223,683,408.24 1,686,439,627.47 Transportation facilities 37,550,779.93 – 8,624,104.28 6,479,933.03 39,694,951.18 III. Total book value of fixed assets, net 5,314,014,854.56 – – 6,463,570,056.99 Of which: Buildings and structures 3,844,223,897.94 – – 4,765,733,298.57 Office supplies 1,411,520,497.24 – – 1,634,095,575.35 Transportation facilities 58,270,459.38 – – 63,741,183.07 IV. Total allowance for impairment losses – – – – Of which: Buildings and structures – – – – Office supplies – – – – Transportation facilities – – – – V. Total book value of fixed assets 5,314,014,854.56 – – 6,463,570,056.99 Of which: Buildings and structures 3,844,223,897.94 – – 4,765,733,298.57 Office supplies 1,411,520,497.24 – – 1,634,095,575.35 Transportation facilities 58,270,459.38 – – 63,741,183.07
Notes: (1) Depreciation for the current period is RMB566,066,284.01. (2) The original value of construction in progress transferred into fixed assets for the current period is RMB727,325,945.28.
Annual Report 2011 105
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.105 Fixed assets without certificate of title settled
Reason for Estimated Item unsettlement settlement time
Office building of Guangzhou Branch In progress July 2012 Office building of Fuzhou Branch In progress June 2012 Office building of Chongqing Branch In progress December 2012
(2) Construction in progress
At the end of the period At the beginning of the period Allowance for Allowance for Book impairment Book impairment Item balance losses Net book value balance losses Net book value
Office building of Xi’an Branch 14,963,522.30 – 14,963,522.30 14,963,522.30 – 14,963,522.30 Office building of Suzhou Branch – – – 202,265,047.12 – 202,265,047.12 Premises of Hohhot Branch – – – 1,500,000.00 – 1,500,000.00 Office building of Shenyang Branch – – – 187,833,261.36 – 187,833,261.36 Office building of Chongqing Branch – – – 174,627,032.52 – 174,627,032.52 Office building of Ningbo Branch 155,096,306.00 – 155,096,306.00 – – – Office building of Wenzhou Branch 2,786,000.00 – 2,786,000.00 – – – Office building of Wuxi Branch 91,079,856.00 – 91,079,856.00 – – – Premises of Nanjing Branch 11,660,000.00 – 11,660,000.00 – – – Others 6,429,374.27 – 6,429,374.27 5,461,877.37 – 5,461,877.37 Total 282,015,058.57 – 282,015,058.57 586,650,740.67 – 586,650,740.67
Changes in major construction in progress
At the Transferred beginning of into fixed Other At the end Project Project Budget the period Increase assets transfer-out of the period progress (%)
Office building of Xi’an Branch 40,273,613.00 14,963,522.30 – – – 14,963,522.30 37.15 Office building of Suzhou Branch 217,040,000.00 202,265,047.12 13,121,241.86 215,386,288.98 – – 100.00 Premises of Hohhot Branch 3,000,000.00 1,500,000.00 -1,500,000.00 – – – – Office building of Shenyang Branch 198,640,000.00 187,833,261.36 8,489,430.00 196,322,691.36 – – 100.00 Office building of Chongqing Branch 271,644,803.00 174,627,032.52 124,428,036.42 299,055,068.94 – – 100.00 Office building of Ningbo Branch 188,430,000.00 – 155,096,306.00 – – 155,096,306.00 82.31 Office building of Wenzhou Branch 110,000,000.00 – 2,786,000.00 – – 2,786,000.00 2.53 Office building of Wuxi Branch 152,320,000.00 – 91,079,856.00 – – 91,079,856.00 59.80 Premises of Nanjing Branch 23,328,400.00 – 11,660,000.00 – – 11,660,000.00 49.98 Underground parking garage of Nanjing Branch 28,000,000.00 – 16,126,000.00 16,126,000.00 – – 100.00 Others 5,461,877.37 3,737,285.23 435,896.00 2,333,892.33 6,429,374.27 Total 586,650,740.67 425,024,155.51 727,325,945.28 2,333,892.33 282,015,058.57
Notes: a) The funds for construction in progress of the Group are sourced from self-operation. b) At the end of the period, there was no interest capitalization in the construction in progress of the Group. c) At the end of the period, there was no impairment in the fixed assets of the Group.
106 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.106 15. Intangible assets
At the beginning At the end Item of the period Increase Decrease of the period I. Total original book value – 95,888,025.00 – 95,888,025.00 Land use right – 95,888,025.00 – 95,888,025.00 II. Total accumulative amortisation – 1,398,367.03 – 1,398,367.03 Land use right – 1,398,367.03 – 1,398,367.03 III. Total book value of intangible assets, net – 94,489,657.97 – 94,489,657.97 Land use right – 94,489,657.97 – 94,489,657.97 IV. Total allowance for impairment losses – – – – Land use right – – – – V. Total book value of intangible assets – 94,489,657.97 – 94,489,657.97 Land use right – 94,489,657.97 – 94,489,657.97
16. Deferred income tax assets and liabilities
(1) Deferred income tax assets and liabilities already recognized
At the end At the beginning Item of the period of the period Deferred income tax assets: Allowance for losses on loans 1,793,014,575.85 1,092,100,013.06 Allowance for impairment losses on other assets 173,764,057.51 200,437,478.76 Changes in fair value of held-for-trading financial assets 53,869,706.13 6,702,514.62 Changes in fair value of available-for-sale financial assets – 23,867,555.68 Deductible losses 2,561,025.47 1,031,432.62 Others 771,983,076.19 369,199,006.82 Total 2,795,192,441.15 1,693,338,001.56 Deferred income tax liabilities: Changes in fair value of held-for-trading financial assets 50,460,255.77 6,513,399.65 Changes in fair value of available-for-sale financial assets 1,044,489.66 – Total 51,504,745.43 6,513,399.65
Annual Report 2011 107
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.107 (2) Temporary differences relating to the asset or liability items incurring such differences
Amount of Item temporary difference Taxable differences Changes in fair value of held-for-trading financial assets 201,841,023.09 Changes in fair value of available-for-sale financial assets 4,177,958.64 Sub-total 206,018,981.73 Deductible differences Allowance for losses on loans 7,172,058,303.42 Allowance for impairment losses on other assets 695,056,230.03 Changes in fair value of held-for-trading financial assets 215,478,824.53 Deductible losses 10,244,101.88 Others 3,087,932,304.77 Sub-total 11,180,769,764.63
17. Other assets
At the end At the beginning Item of the period of the period
Other receivables 1,922,778,895.87 1,573,270,973.94 Less: Allowance for bad debts 586,156,102.60 563,086,845.47 Long-term prepaid expenses 1,030,421,427.57 767,600,777.73 Repossessed assets to be disposed 170,627,470.65 320,331,538.66 Other long-term assets 4,579,020.00 – Total 2,542,250,711.49 2,098,116,444.86
108 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.108 (1) Other receivables
A. Disclosure on other receivables by type
At the end of the period Allowance Provisioning Type Amount Percentage (%) for bad debts percentage (%)
Other receivables with significant individual amount and single allowance for impairment losses on bad debts 170,225,339.87 8.85 170,225,339.87 100.00 Other receivables with portfolio allowance for impairment losses on bad debts 70,051,280.79 3.65 45,452,960.14 64.89 Of which: Aging portfolio 70,051,280.79 3.65 45,452,960.14 64.89 Other receivables with insignificant individual amount and single allowance for impairment losses on bad debts 1,682,502,275.21 87.50 370,477,802.59 22.02 Total 1,922,778,895.87 100.00 586,156,102.60 30.48
Disclosure on other receivables by type (continued)
At the beginning of the period Allowance Provisioning Type Amount Percentage (%) for bad debts percentage (%)
Other receivables with significant individual amount and single allowance for impairment losses on bad debts 222,683,161.46 14.15 203,580,738.57 91.42 Other receivables with portfolio allowance for impairment losses on bad debts 70,361,802.65 4.47 46,752,986.79 66.45 Of which: Aging portfolio 70,361,802.65 4.47 46,752,986.79 66.45 Other receivables with insignificant individual amount and single allowance for impairment losses on bad debts 1,280,226,009.83 81.38 312,753,120.11 24.43 Total 1,573,270,973.94 100.00 563,086,845.47 35.79
Notes: a) Other receivables with portfolio allowance for impairment losses on bad debts by aging At the end of the period At the beginning of the period Percentage Allowance Percentage Allowance Aging Amount (%) for bad debts Amount (%) for bad debts
Less than 1 year 23,085,258.11 32.95 4,617,051.62 16,518,211.58 23.48 3,303,642.32 1-2 years 7,611,412.70 10.87 3,044,565.08 14,991,779.16 21.31 5,996,711.66 2-3 years 7,816,332.68 11.16 6,253,066.14 6,995,895.49 9.94 5,596,716.39 Over 3 years 31,538,277.30 45.02 31,538,277.30 31,855,916.42 45.27 31,855,916.42 Total 70,051,280.79 100.00 45,452,960.14 70,361,802.65 100.00 46,752,986.79
Annual Report 2011 109
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.109 b) Other receivables with insignificant individual amount and single allowance for impairment losses on bad debts at the end of the period Allowance Provisioning Grounds for Item of other receivables Book balance for bad debts percentage (%) provisioning
Advance compensation 370,477,802.59 370,477,802.59 100.00 Big risk for not recovery Others 1,312,024,472.62 – – No risk and no allowance for bad debts required Total 1,682,502,275.21 370,477,802.59
B. Actual write-offs of other receivables during the reporting period
Resulted from Nature of related party other Amount transaction Company name receivables written off Reason or not
Other litigation costs Litigation costs 7,479,595.79 Irrecoverable No
C. At the end of the period, there was no arrearage from shareholders that hold 5% ore above voting shares in the Company in other receivables.
(2) Long-term prepaid expenses
At the Original beginning of At the end of Item amount the period Increase Amortisation the period
Decoration costs 721,537,130.59 366,260,042.26 229,118,885.91 134,621,044.20 460,757,883.97 Rent expenses 958,165,345.62 176,283,036.46 625,637,040.11 591,439,389.00 210,480,687.57 Computer and software development expenses 714,060,238.51 183,642,523.86 350,525,204.47 211,684,481.99 322,483,246.34 Others 97,047,943.86 41,415,175.15 45,344,241.80 50,059,807.26 36,699,609.69 Total 2,490,810,658.58 767,600,777.73 1,250,625,372.29 987,804,722.45 1,030,421,427.57
(3) Repossessed assets to be disposed
At the end At the beginning Item of the period of the period
House property 331,844,699.25 537,569,660.43 Equity 15,463,853.10 16,191,101.05 Others 34,941,676.39 36,540,486.74 Total 382,250,228.74 590,301,248.22 Less: Allowance for impairment losses on repossessed assets to be disposed 211,622,758.09 269,969,709.56 Net amount 170,627,470.65 320,331,538.66
110 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.110 18. Allowance for impairment losses
Reverse of At the Allowance Transfer-in Recoveries Transfer-out interests on Write-offs beginning of for the for the for the for the impaired for the At the end Item the period current period current period current period current period assets current period of the period
(1) Allowance for impairment losses on due from banks and other financial institutions 5,500,000.00 – – – – – – 5,500,000.00 (2) Allowance for impairment losses on placements with banks and other financial institutions 127,247,446.55 -3,784,667.21 – – – – – 123,462,779.34 (3) Allowance for bad debts 563,086,845.47 21,468,852.92 8,550,000.00 530,000.00 – – 7,479,595.79 586,156,102.60 (4) Allowance for impairment losses on available-for-sale financial assets – – – – – – – – (5) Allowance for impairment losses on investments classified as receivables – – – – – – – – (6) Allowance for impairment losses on held-to-maturity investments 39,677,593.62 -44,469,941.10 – 5,152,140.74 – 359,793.26 – – (7) Allowance for impairment losses on loans 13,073,253,002.44 4,666,246,069.11 – 344,991,719.53 14,992,220.92 167,596,741.69 643,084,875.14 17,258,816,953.33 (8) Allowance for impairment losses on fixed assets – – – – – – – – (9) Allowance for impairment losses on intangible assets – – – – – – – – (10) Allowance for impairment losses on repossessed assets to be disposed 269,969,709.56 -29,113,722.64 – – 29,233,228.83 – – 211,622,758.09
19. Due from banks and other financial institutions
At the end At the beginning Item of the period of the period
Due from banks 95,647,510,268.01 73,537,047,392.41 Due from other financial institutions 39,997,647,968.28 20,042,664,986.62 Total 135,645,158,236.29 93,579,712,379.03
20. Placements from banks and other financial institutions
At the end At the beginning Item of the period of the period
Placements from domestic banks 24,830,000,000.00 10,210,000,000.00 Placements from overseas banks 2,128,473,357.29 323,960,411.25 Placements from domestic non-banking financial institutions – 450,000,000.00 Placements from overseas non-banking financial institutions – – Total 26,958,473,357.29 10,983,960,411.25
21. Held-for-trading financial liabilities
Fair value at Fair value at the the beginning Item end of the period of the period
Precious metal 50,848,200.00 –
Annual Report 2011 111
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.111 22. Repurchase agreements
At the end At the beginning Item of the period of the period
Bonds 29,457,400,000.00 21,500,000,000.00 Of which: Government bonds 10,221,600,000.00 18,855,000,000.00 Financial bonds 19,235,800,000.00 2,645,000,000.00 Bills 48,869,391,849.13 68,366,546,922.56 Total 78,326,791,849.13 89,866,546,922.56
23. Deposits from customers
(1) By category
At the end At the beginning Item of the period of the period
Demand deposits 309,828,177,138.83 305,809,054,250.03 Current savings deposits 57,641,397,044.52 40,857,652,480.94 Time deposits 302,301,603,294.88 234,430,294,496.23 Time savings deposits 84,968,119,071.27 73,038,732,341.34 Drafts and telegraphic transfers payable and outward remittances 2,017,903,074.33 3,179,964,024.85 Deposits received 139,266,454,009.79 110,106,617,882.00 Structured deposits – 199,933,541.55 Total 896,023,653,633.62 767,622,249,016.94
(2) By geographic region
At the end of the period At the beginning of the period Geographic region Book balance Percentage (%) Book balance Percentage (%)
Northern and Northeastern China 351,231,957,841.09 39.19 288,419,633,340.20 37.58 Eastern China 254,976,457,332.83 28.46 237,923,687,141.55 30.99 Southern and Central China 168,433,686,301.69 18.80 134,593,619,805.91 17.53 Western China 121,381,552,158.01 13.55 106,685,308,729.28 13.90 Total 896,023,653,633.62 100.00 767,622,249,016.94 100.00
112 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.112 24. Employees’ remuneration payable
At the beginning At the end Item of the period Increase Decrease of the period
I. Salaries and bonus 1,992,563,441.42 4,560,989,431.84 3,536,021,088.74 3,017,531,784.52 II. Employees’ welfare – 612,192,053.81 612,192,053.81 – III. Social insurance 17,671,985.94 604,725,391.55 602,615,777.94 19,781,599.55 Of which: 1. Medical insurance 4,533,965.68 145,496,269.30 145,632,832.96 4,397,402.02 2. Basic endowment insurance 9,739,969.45 304,123,504.57 301,462,443.85 12,401,030.17 3. Annuity 622,091.38 106,393,863.77 107,004,832.45 11,122.70 4. Unemployment insurance 1,117,634.13 23,693,599.55 23,643,904.23 1,167,329.45 5. Industrial injury insurance 45,105.46 9,524,665.77 9,490,872.44 78,898.79 6. Maternity insurance 1,613,219.84 15,493,488.59 15,380,892.01 1,725,816.42 IV. Housing provident fund 16,861,421.35 383,851,231.16 383,928,794.00 16,783,858.51 V. Trade union expenditure 13,420,451.21 98,470,875.46 97,919,956.46 13,971,370.21 VI. Employee education expenses 14,694,242.77 107,632,124.32 98,353,761.62 23,972,605.47 VII. Non-monetary welfare – – – – VIII. Compensation for termination of labor service – – – – IX. Others (Note) – 522,296,724.88 522,296,724.88 – Of which: Payment for shares settled in cash – – – – Total 2,055,211,542.69 6,890,157,833.02 5,853,328,157.45 3,092,041,218.26
Note: The 8th Meeting of the 4th Board of Directors of the Company reviewed and approved the Proposal on the Revision of Housing Subsidy Measures, agreeing to continuously formulate and improve standard housing subsidy measures in accordance with the decision of the Board on implementing the monetary reform on allocation of houses. On 19 April 2007, the Company prepared the Supplementary Rules on the Housing Reform of Hua Xia Bank and the Implementing Rules on the Management of Housing Subsidy of Hua Xia Bank, which became effective on 25 April 2007. Some of the employees involved in the housing reform chose the original loan approach. According to the loan agreement executed between the Company and the employees, the predicated loans to be offered by the Company amounted to RMB80,886.9 thousand as at 31 December 2011, which were recorded in profit or loss year by year.
25. Taxes payable
At the end At the beginning Item of the period of the period
Enterprise income tax 2,831,198,717.74 1,833,658,732.29 Business tax 815,112,508.56 497,750,493.34 Real estate tax 2,518,266.18 2,138,811.77 Urban construction tax 55,516,982.74 33,123,879.86 Others 142,955,451.12 96,489,617.58 Total 3,847,301,926.34 2,463,161,534.84
Annual Report 2011 113
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.113 26. Interest payable
At the end At the beginning Item of the period of the period
Deposit interest 5,207,302,172.82 3,582,686,678.90 Bond interest payable 429,342,601.80 414,535,677.19 Sales of repurchased bills interest 325,984,532.78 514,947,119.63 Other interest 1,817,977,145.18 366,858,415.62 Total 7,780,606,452.58 4,879,027,891.34
27. Projected liabilities
At the beginning At the end Item of the period Increase Decrease of the period
Pending legal proceedings 63,518,291.50 5,682,887.50 66,011,879.00 3,189,300.00
28. Bonds payable
Bond name Face value Issue date Term Issued amount
Mixed capital bonds in 2007 4,000,000,000.00 26, 27 June 2007 15-year 4,000,000,000.00 Financial bonds, issue I in 2007 7,620,000,000.00 21-23 August 2007 5-year 7,620,000,000.00 Financial bonds, issue II in 2007 6,000,000,000.00 17-19 October 2007 5-year 6,000,000,000.00 Hua Xia Bank bonds in 2010 4,400,000,000.00 26 February to 2 March 2010 10-year 4,400,000,000.00 Sub-total 22,020,000,000.00 22,020,000,000.00
Bonds payable (continued)
Interest payable Accrued interest Interest payable Interest payable at the beginning for the for the at the end Bond name of the period current period current period of the period Ending balance
Subprime bonds in 2006 10,745,205.48 63,254,794.52 74,000,000.00 – – Mixed capital bonds in 2007 107,834,739.72 217,283,948.80 209,360,000.00 115,758,688.52 4,000,000,000.00 Financial bonds, issue I in 2007 85,268,882.67 351,377,335.84 344,040,993.76 92,605,224.75 7,620,000,000.00 Financial bonds, issue II in 2007 43,396,438.36 224,798,916.84 214,050,000.00 54,145,355.20 6,000,000,000.00 Hua Xia Bank bonds in 2010 167,290,410.96 199,742,922.37 200,200,000.00 166,833,333.33 4,400,000,000.00 Total 414,535,677.19 1,056,457,918.37 1,041,650,993.76 429,342,601.80 22,020,000,000.00
Of which: Bonds payable within 1 year 13,620,000,000.00
114 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.114 Notes: A. Subprime bonds Subprime bonds in 2006 As approved by China Banking Regulatory Commission and the People’s Bank of China, the Company issued RMB2 billion of subordinated bonds in the National Inter-Bank Bond Market from 8 to 9 November 2006. These subordinated bonds have a fixed interest rate with a term of 10-year; at the end of the fifth year, the issuer has the option of redemption; the book interest rate for the first five years is 3.70% and that for the later five years is 6.70%. The Company exercised the redemption right on 9 November 2011 and redeemed the above-mentioned subordinated bonds. Hua Xia Bank bonds in 2010 As approved by China Banking Regulatory Commission and the People’s Bank of China, the Company issued the Hua Xia Bank Co., Ltd. subordinated bonds in 2010 from 26 February to 2 March 2010 and the final issuance volume was RMB4.4 billion. The bonds are fixed interest rate subprime bonds with a term of 10-year and the redemption option will be attached in the fifth year. The coupon rate of the bonds for the first five interest accrual years is 4.55%, which is unchanged during the period; if the issuer does not exercise the redemption option, the coupon rate for the later five interest accrual years will be increased by 300 BPs based on the initial issuing interest rate from the sixth interest accrual year until to the end of the term. The claim for the above-mentioned subordinated bonds follows after the other liabilities of the Company but is prior to the Company’s mixed bond holder and equity capital. In calculating the capital adequacy ratio, it may be included into the supplementary capital of the Company according to the provisions of the regulatory authority. B. Mixed capital bonds As approved by China Banking Regulatory Commission and the People’s Bank of China, the Company issued RMB4 billion of mixed capital bonds from 26 to 27 June 2007. The bonds have a term of 15 years; and the issuer has the one-time option to redeem at the end of the tenth year to the maturity. This issue of the bonds consists of RMB2.4 billion with a fixed interest rate and RMB1.6 billion with floating interest rate; the initial issuing interest rate of the bonds with a fixed interest rate as determined through bookkeeping files is 5.89% and the initial interest margin of the bonds with floating interest rate is 2%. The interest of the bonds with a fixed interest rate is paid on an annual basis. In case that the issuer fails to exercise the advance redemption option on the date of 10 years’ maturity, commencing from the 11th interest accrual year, the interest of the bonds shall increase by 300BPs or 8.89% on the basis of the initial issuing interest rate. The annual interest rate of the bonds with floating interest rate is the sum of the benchmark interest rate and the basic interest margin. This benchmark interest rate is determined based on the interest rate of the one-year time savings deposits for lump-sum withdrawal published by the People’s Bank of China applicable to the first issuing date and the date of value of other interest years. The basic interest margin of the first 10 years is 2%. In case that the issuer fails to exercise the advance redemption option on the date of 10 years’ maturity, commencing from the 11th interest year, the interest of the bonds shall increase by 100BPs or 3% on the basis of the initial issuing interest margin. The value date of the bonds was 27 June 2007. In case that the issuer fails to exercise the redemption option, the interest period of the bonds will be from 27 June 2007 to 26 June 2022. Otherwise, the honoring date of the bonds redeemed shall be the honoring date as determined in the redemption announcement. According to the relevant regulations, the payment order of the mixed capital bonds is after the long-term subordinated bonds but prior to the equity capital. In calculating the capital adequacy ratio, the mixed capital bonds payable may be recorded in the supplementary capital of the Company according to the provisions of the regulatory authority. C. Financial bonds Financial bonds, issue I in 2007 As approved by China Banking Regulatory Commission and the People’s Bank of China, the Company issued RMB7.62 billion of financial bonds (Issue I) in the National Inter-Bank Bond Market from the 21 to 23 August 2007. Type I of this issue of bonds is the bond has a fixed interest rate with a term of 5-year without guarantee and the issuer is not allowed to redeem. At the end of the third year, the investor has the one-time put-back option, i.e. the investor is entitled to sell back all or part of the bonds based on the book value to the issuer. The interest of Type I is calculated annually with simple interest instead of compound interest and the interest is payable on a lump-sum basis upon maturity and no more interest shall be paid for overdue. This issue of bonds with a fixed interest rate amounts to RMB5.06 billion and the issuing interest rate is 4.15% determined through bookkeeping files. Type II of this issue of bonds has floating interest rate with a term of 5-year without guarantee. The issuer is not allowed to redeem and the investor is not allowed to put back. The interest is payable once every three months and the book interest rate is the benchmark interest rate plus the basic interest margin. The benchmark interest rate is the average of the 10-day Shanghai Interbank Offered Rate (“SHIBOR”) for 3 months as published by China Foreign Exchange Trade System (National Interbank Loans Centre). The benchmark interest rate of the first interest period is the average of the 10-day Shibor for 3 months of one business day (i.e. 22 August) before the interest day; the benchmark interest rate adopted for the following each interest period is the average of the 10-day Shibor for 3 months of one business day before the interest payment day. This issue of bonds with floating interest rate amounts to RMB2.56 billion and the basic interest margin determined through bookkeeping files is 76BPs. Financial bonds, issue II in 2007 As approved by China Banking Regulatory Commission and the People’s Bank of China, the Company issued RMB6 billion of financial bonds (Issue II) in the National Inter-Bank Bond Market from 17 to 19 October 2007. Type I of this issue of bonds is the bond has a fixed interest rate with a term of 5-year without guarantee and the issuer is not allowed to redeem. At the end of the third year, the investor has the one-time put-back option, i.e. the investor is entitled to sell back all or part of the bonds based on the book value to the issuer. The interest of Type I is calculated annually with simple interest instead of compound interest and the interest is payable on a lump-sum basis upon maturity and no more interest shall be paid for overdue. This issue of bonds with a fixed interest rate amounts to RMB1.7 billion and the issuing interest rate is 4.75% determined through bookkeeping files. Type II of this issue of bonds has floating interest rate with a term of 5-year without guarantee. The issuer is not allowed to redeem and the investor is not allowed to put back. The interest is paid once a year. The book interest rate is the sum of the benchmark interest rate and the basic interest margin. This benchmark interest rate is determined based on the interest rate of the one-year time savings deposit for lump-sum withdrawal published by the People’s Bank of China applicable to the first issuing date and the date of value of other interest bearing years. The basic interest margin is determined through bookkeeping files. This issue of bonds with floating interest rate amounts to RMB4.3 billion and the basic interest margin determined through bookkeeping files is 85 BPs. Annual Report 2011 115
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.115 29. Other liabilities
At the end At the beginning Item of the period of the period
Other payables 1,035,823,880.37 3,080,013,774.83 On-lending 827,929,904.47 577,565,416.88 Deferred income 47,933,160.42 7,950,744.86 Other current liabilities 4,307,680,086.69 5,527,709,599.49 Total 6,219,367,031.95 9,193,239,536.06
(1) Other payables
A. By aging
At the end of the period At the beginning of the period Aging Amount Percentage (%) Amount Percentage (%)
Less than 1 year 963,687,189.22 93.03 2,849,721,229.47 92.52 1 to 2 years 56,884,977.12 5.49 209,696,804.70 6.81 2 to 3 years 2,546,730.42 0.25 12,193,869.84 0.40 Over 3 years 12,704,983.61 1.23 8,401,870.82 0.27 Total 1,035,823,880.37 100 3,080,013,774.83 100
B. By content
At the end At the beginning Item of the period of the period
Agency honored bonds 155,300.51 34,280.00 Open cashier’s check 199,898,337.08 2,287,575,895.93 Others 835,770,242.78 792,403,598.90 Total 1,035,823,880.37 3,080,013,774.83
Note: At the end of the period, there was none payable to shareholder units that hold 5% or above voting shares in the Company in the other payables. (2) Other current liabilities
At the end At the beginning Item of the period of the period
Agency service 286,630,754.92 26,123,313.91 Wealth management service (Note) 3,938,571,735.04 5,440,923,425.42 Fund under custody/supervision 82,477,596.73 60,662,860.16 Total 4,307,680,086.69 5,527,709,599.49
Note: Amount of wealth management refers to mainly the wealth management funds and unsettled gains concerning the immature principal-guaranteed wealth management products issued by the Group. Since the Group undertakes the principal preservation obligation for such wealth management products, investments and wealth management funds in connection thereto are recognized as assets and liabilities of the Group respectively.
116 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.116 30. Share capital
Increase/decrease during the period Dividend shares At the beginning Newly issued from contributed At the end Type of shares of the period shares Stock bonus capital reserve Others Sub-total of the period
I. Shares subject to restrictions on sales 1. State-owned shares – – – – – – – 2. Shares held by state-owned corporations 523,154,855.00 1,344,510,738.00 – – -523,154,855.00 821,355,883.00 1,344,510,738.00 3. Shares held by other domestic investors – – – – – – – Of which: Shares held by domestic non-state- owned corporations – – – – – – – Shares held by domestic natural persons – – – – – – – 4. Shares held by overseas investors 683,373,461.00 514,686,722.00 – – -683,373,461.00 -168,686,739.00 514,686,722.00 Of which: Shares held by overseas corporations 683,373,461.00 514,686,722.00 – – -683,373,461.00 -168,686,739.00 514,686,722.00 Shares held by overseas natural persons – – – – – – – Total number of shares subject to restrictions on sales 1,206,528,316.00 1,859,197,460.00 – – -1,206,528,316.00 652,669,144.00 1,859,197,460.00 II. Shares not subject to restrictions on sales 1. RMB-denominated ordinary shares 3,784,000,000.00 – – – 1,206,528,316.00 1,206,528,316.00 4,990,528,316.00 2. Foreign shares listed domestically – – – – – – – 3. Foreign shares listed overseas – – – – – – – 4. Others – – – – – – – Total number of shares not subject to restrictions on sales 3,784,000,000.00 – – – 1,206,528,316.00 1,206,528,316.00 4,990,528,316.00 Total number of shares 4,990,528,316.00 1,859,197,460.00 – – – 1,859,197,460.00 6,849,725,776.00
Notes: On 18 May 2011, 416,000,000 tradable shares of the Company subject to restrictions on sales were listed. On 20 October 2011, 790,528,316 tradable shares of the Company subject to restrictions on sales were listed. According to the Extraordinary General Meeting on 2 June 2010, and approved by the [Z.J.X.K. [2011] No. 207] Document issued by CSRC, the Company privately offered 1,859,197,460 shares, of which, Shougang Corporation subscribed for 691,204,239 shares, Yingda International Holdings Corporation, Ltd. subscribed 653,306,499 shares, and Deutsche Bank Luxemburg S.A. subscribed 514,686,722 shares. The registered capital was changed to RMB6,849,725,776, which was verified by Jingdu Tinwha Certified Public Accountants Co., Ltd. on 22 April 2011, with issuing the [Jingdu Tinwha Y.Z. (2011) No. 0044] Capital Verification Report. The net fund raised in this issuance was RMB20,106,640,469.25.
Annual Report 2011 117
CAR1204001 • Huaxia Bank • 1st Proof • 30-5-2012 • 11:54 • 80072 • 21a E_Huaxia_Statement_Notes.indd P.117 31. Capital reserve
At the beginning At the end Item of the period Increase Decrease of the period
Share premium 14,349,123,380.51 18,247,443,009.25 – 32,596,566,389.76 Other capital reserve -71,602,667.01 56,561,880.19 -18,174,255.77 3,133,468.95 Total 14,277,520,713.50 18,304,004,889.44 -18,174,255.77 32,599,699,858.71
Notes: (1) See [Notes V. 30] for the increase of share premium. (2) Other capital reserve refers to the changes in fair value of available-for-sale financial assets through owner’s equity, the increase refers to the amount (after tax) affected by the changes in fair value of available-for-sale financial assets, and the decrease refers to the profit or loss amount (after tax) transferred in during the period.
32. Surplus reserve
At the beginning At the end Item of the period Increase Decrease of the period
Statutory surplus reserve 2,271,686,245.88 922,741,288.94 – 3,194,427,534.82 Free surplus reserve 110,971,000.00 – – 110,971,000.00 Total 2,382,657,245.88 922,741,288.94 – 3,305,398,534.82
33. General risk reserve
At the end At the beginning Item of the period of the period
General risk reserve 9,792,940,285.61 8,410,013,782.14
Note: The Company sets aside general reserve from net profit as the profit distribution to handle and the balance of general reserve shall not be lower than 1% of the balance of assets bearing risk and loss at the end of the period according to related provisions of the Ministry of Finance.
34. Retained profit
Amounts incurred Amounts incurred Item in the period in the previous period
Retained profit before adjustment at the end of the previous period 5,435,160,108.75 2,115,134,646.89 Total adjustment in retained profit at the beginning of the period (For increase +, decrease -) – – Retained profit after adjustment at the beginning of the year 5,435,160,108.75 2,115,134,646.89 Add: Net profit 9,221,933,577.13 5,989,582,489.73 Less: Provision for statuary surplus reserve 922,741,288.94 599,308,229.17 Provision for free surplus reserve – – Provision for general reserve 1,382,926,503.47 1,421,480,117.62 Ordinary shares dividend payable 998,105,663.20 648,768,681.08 Ordinary shares dividend transferred into share capital – – Retained profit at the end of the period 11,353,320,230.27 5,435,160,108.75
118 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.118 Notes: After the review and approval by the 2010 General Meeting of Shareholders on 15 April 2011, the Company set aside RMB599,308,229.17 statuary surplus reserve by the proportion of 10% of audited 2010 net profit worthy of RMB5,993,082,291.72 in accordance with the PRC GAAP and set aside general reserve RMB1,421,480,117.62; the Company distributed divided RMB998,105,663.20 by RMB2.00 (including tax) per 10 shares, on the basis of 4,990,528,316 shares. After the review and approval by the tenth meeting of sixth Board of Directors on 23 March 2012, the Company set aside RMB922,741,288.94 statuary surplus reserve by the proportion of 10% of audited 2011 net profit worthy of RMB9,227,412,889.38 in accordance with the PRC GAAP and set aside general reserve RMB1,382,926,503.47; the Company distributed dividend RMB1,712,431,444.00 by RMB2.50 (including tax) per 10 shares, on the basis of 6,849,725,776.
35. Net interest income
Amounts incurred Amounts incurred Item in the period in the previous period
Interest income 62,535,964,002.30 43,368,300,405.22 Due from banks and other financial institutions 1,087,928,700.32 38,991,718.51 Balances with central banks 2,198,798,763.56 1,493,827,591.39 Placements with banks and other financial institutions 725,960,872.77 193,435,847.32 Loans and advances 38,115,266,620.80 27,009,088,500.93 Of which: Personal loans and advances 3,942,400,791.92 2,691,821,659.56 Corporate loans and advances to customers 32,815,176,292.40 23,695,176,094.14 Discounted bills 1,357,689,536.48 622,090,747.23 Reverse repurchase agreements 16,726,037,303.36 11,895,416,575.77 Bond interest income 3,633,934,384.18 2,737,540,171.30 Interest income from wealth management products 48,037,357.31 Of which: Impaired interest income on financial assets 167,956,534.95 180,334,001.84
Interest expense 32,243,233,217.74 20,608,294,909.27 Deposits from banks and other financial institutions 6,763,626,542.51 2,399,955,632.86 Due to central banks 425,543.43 87,880.33 Placements from banks and other financial institutions 516,646,049.29 267,590,480.67 Deposits from customers 14,767,868,642.22 8,898,753,488.24 Repurchase agreements 9,138,208,521.92 7,965,098,629.72 Bonds issued 1,056,457,918.37 1,076,808,797.45 Net interest income 30,292,730,784.56 22,760,005,495.95
Annual Report 2011 119
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.119 36. Net fee and commission income
Amounts incurred Amounts incurred Item in the period in the previous period
Fee and commission income 3,394,263,278.51 1,791,679,806.36 Settlement and clearing fee 52,572,546.88 45,178,120.04 Agency business fee 388,705,779.51 267,998,632.37 Credit commitment fee and commission 711,881,751.73 423,222,245.09 Bank card fee 478,222,309.13 310,186,823.14 Consultant and advisory fee 430,865,624.03 295,772,914.26 Custody and other entrusted business commission 133,293,188.59 78,657,311.93 Wealth management service fee 1,000,149,542.87 235,569,192.61 Others 198,572,535.77 135,094,566.92 Fee and commission expense 418,763,108.56 346,807,856.85 Fee expense 418,763,108.56 346,807,856.85 Commissions – – Net fee and commission income 2,975,500,169.95 1,444,871,949.51
37. Investment income
(1) Investment income details
Amounts incurred Amounts incurred Item in the period in the previous period
Investment income obtained from the held-for-trading bonds transactions 19,725,280.00 -22,338,514.60 Investment income obtained from the available-for-sale bonds transactions -52,279,633.17 -843,072.29 Investment income obtained from the held-to-maturity investment transactions 5,962,640.29 – Precious metal investment income 2,783,537.14 2,289,890.46 Long-term equity investment income calculated by cost method 1,759,550.57 1,694,087.94 Long-term equity investment income calculated by equity method – – Investment income from the disposal of long-term equity investments – – Total -22,048,625.17 -19,197,608.49
(2) Long-term equity investment income calculated by cost method
Reasons for increase/ Amounts incurred Amounts incurred decrease compared Name of investee in the period in the previous period to the previous period
China UnionPay Co., Ltd. 1,750,000.00 1,687,500.00 Dividend increased Visa International Service Association 9,550.57 6,587.94 Dividend increased Total 1,759,550.57 1,694,087.94
120 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.120 38. Income from changes in fair value
Amounts incurred Amounts incurred Item in the period in the previous period
Held-for-trading financial instruments 1,535,321.43 14,535,709.53 Derivative financial instruments -14,914,139.09 8,253,609.52 Precious metal -644,256.68 -1,230.55 Total -14,023,074.34 22,788,088.50
39. Other operating income
Amounts incurred Amounts incurred Item in the period in the previous period
Rental 14,610,103.00 37,911,464.50 Others 129,866,624.29 77,701,305.74 Total 144,476,727.29 115,612,770.24
40. Business tax and surcharges
Amounts incurred Amounts incurred Item Payment standard in the period in the previous period
Business tax 5% of taxable operating income 2,097,359,114.56 1,444,451,785.20 Urban construction tax 5.7% of taxable turnover tax 146,684,878.45 98,554,596.56 Education fee and surcharges 3% of taxable turnover tax 96,474,588.25 54,005,421.75 Others 7,072,809.33 4,852,085.67 Total 2,347,591,390.59 1,601,863,889.18
41. General and administrative expenses
Amounts incurred Amounts incurred Item in the period in the previous period
Electronic equipment operation fee 389,524,640.40 297,393,976.19 Security and defense fee 93,006,902.48 70,692,775.92 Employee costs 6,890,157,833.02 5,096,496,601.33 Depreciation and amortisation 1,557,359,373.49 1,129,847,773.08 Others 5,120,001,949.27 4,032,152,631.20 Total 14,050,050,698.66 10,626,583,757.72
Annual Report 2011 121
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.121 42. Impairment losses on assets
Amounts incurred Amounts incurred Item in the period in the previous period
Expenses in allowance for bad debts 21,468,852.92 70,259,346.30 Expenses in allowance for losses on loans 4,666,246,069.11 4,173,512,189.69 Expenses in allowance for impairment on placements with banks and other financial institutions -3,784,667.21 -5,664,678.98 Expenses in allowance for impairment on mortgaged assets to be disposed -29,113,722.64 21,879,556.68 Expenses in allowance for impairment on available-for-sale investments – -38,322,365.67 Expenses in allowance for impairment on held-to-maturity investments -44,469,941.10 -9,654,558.64 Total 4,610,346,591.08 4,212,009,489.38
43. Non-operating income
Amounts recorded Amounts incurred in the current Amounts incurred in the previous extraordinary Item in the period period profit or loss
Settlement and fine income 347,210.15 130,694.53 347,210.15 Gains on disposal of fixed assets 581,965.30 10,960,772.98 581,965.30 Gains on disposal of mortgaged assets 8,388,125.08 4,375,655.33 8,388,125.08 Long standing deposits 8,553,097.20 31,689,818.38 8,553,097.20 Subsidy income 10,505,096.04 1,816,000.00 10,505,096.04 Others 9,275,051.69 10,323,095.92 9,275,051.69 Total 37,650,545.46 59,296,037.14 37,650,545.46
44. Non-operating expenses
Amounts recorded in the current Amounts incurred Amounts incurred extraordinary Item in the period in the previous period profit or loss
Donations expense 7,599,000.00 26,477,597.00 7,599,000.00 Loss on disposal of fixed assets 11,192,639.08 4,556,659.09 11,192,639.08 Fine and late fee expenses 1,904,013.49 2,455,901.51 1,904,013.49 Loss on disposal of mortgaged assets – 2,424,864.67 – Lawsuit-related compensation 6,638,530.28 33,911,914.96 6,638,530.28 Others 6,428,110.46 9,358,594.40 6,428,110.46 Total 33,762,293.31 79,185,531.63 33,762,293.31
122 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.122 45. Income tax expense
Amounts incurred Amounts incurred Item in the period in the previous period
Current income tax calculated under the tax law and related provisions 4,388,202,548.04 2,343,871,982.77 Adjustment on deferred income tax -1,081,775,139.14 -325,500,504.00 Total 3,306,427,408.90 2,018,371,478.77
The relationship between income tax expense and total profit is presented as follows:
Amounts incurred Amounts incurred Item in the period in the previous period
Gross profit 12,527,399,212.41 8,007,953,968.50 Income tax expense at the statutory rate 3,131,849,803.10 2,001,988,492.12 Effects of different tax rates applied in some branches -3,188,190.94 -5,266,175.98 Adjustment in respect of current income tax of previous years 20,723,755.03 -398,520,039.23 Profit or loss attributable to joint ventures and associates – – Income not subject to tax -488,615,006.52 -409,613,973.45 Non-deductible expenses 645,657,048.23 829,783,175.31 Effects of tax rate changes on deferred income tax balance at the beginning of the period – – Use of tax losses in previous periods – – Tax losses without recognition of deferred income tax – – Others – – Income tax expense 3,306,427,408.90 2,018,371,478.77
Annual Report 2011 123
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.123 46. Calculation process of basic earnings per share and diluted earnings per share
(1) Basic earnings per share
Amounts incurred Amounts incurred Item Code in the period in the previous period Net profit attributable to ordinary shareholders P1 9,221,933,577.13 5,989,582,489.73 of the Company during the reporting period Extraordinary profit or loss attributable to ordinary shareholders of the Company F -32,642,364.61 -9,948,956.19 during the reporting period Net profit attributable to ordinary shareholders of the Company after deduction of extraordinary P2=P1-F 9,254,575,941.74 5,999,531,445.92 profit or loss during the reporting period Effects of diluted items on net profit attributable to P3 – – ordinary shareholders of the Company Effects of diluted items on net profit attributable to ordinary shareholders of the Company after P4 – – deduction of extraordinary profit or loss Total numbers of shares at the beginning S0 4,990,528,316.00 4,990,528,316.00 of the period Increased numbers of shares due to conversion of capital reserve into share capital or share S1 – – dividend distribution during the reporting period Increased numbers of shares due to new issue of shares or debt-to-equity swap Si 1,859,197,460.00 – during the reporting period Number of months for increased shares from next Mi 8 – month until the end of the reporting period Decreased numbers of shares due to repurchase Sj – – during the reporting period Number of months for decreased shares from Mj – – next month until the end of the reporting period Shrunk numbers of shares during Sk – – the reporting period Number of months of reporting period M0 12 12 Weighted average ordinary shares issued outward S=S0+S1+Si*Mi/ 6,229,993,289.00 4,990,528,316.00 M0-Sj*Mj/M0-Sk Add: Weighted average ordinary shares increased due to assumed conversion of potential diluted X1 – – ordinary shares into issued ordinary shares Weighted average ordinary shares for X2=S+X1 – – calculating diluted earnings per share Of which: Weighted ordinary shares increased – – due to conversion of convertible corporate bonds Weighted ordinary shares increased – – due to exercise of warrants/share options Weighted ordinary shares increased – – due to repurchase commitments fulfillment Basic earnings per share attributable Y1=P1/S 1.4802 1.2002 to the shareholders of the Company Basic earnings per share attributable to the shareholders of the Company after Y2=P2/S 1.4855 1.2022 deduction of extraordinary profit or loss Diluted earnings per share attributable Y3=(P1+P3)/X2 – – to the ordinary shareholders of the Company Diluted earnings per share attributable to the ordinary shareholders of the Company after Y4=(P2+P4)/X2 – – deduction of extraordinary profit or loss
(2) Diluted earnings per share
At the end of the period, the Company has no potential diluted ordinary share.
124 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.124 47. Other comprehensive income
Amounts incurred Amounts incurred Item in the period in the previous period
I. Gains/losses from available-for-sale financial assets 75,415,840.25 -170,639,752.31 Less: Income tax effect from available-for-sale financial assets 18,853,960.06 -42,659,938.08 Add: Net amount recognized in other comprehensive income in earlier stage and transferred into profit or loss 18,174,255.77 48,860,957.23 Sub-total 74,736,135.96 -79,118,857.00 II. Shares enjoyed in other comprehensive income of investees calculated in the equity accounting method – – Less: Income tax effect from shares enjoyed in other comprehensive income of investees calculated in the equity accounting method – – Add: Net amount recognized in other comprehensive income in earlier stage and transferred into profit or loss – – Sub-total – – III. Gains/(losses) from cash flow hedging instruments – – Less: Income tax effect from cash flow hedging instruments – – Add: Net amount recognized in other comprehensive income in earlier stage and transferred into profit or loss – – Add: Adjustment in amount transferred into initially confirmed amount of hedged projects – – Sub-total – – IV. Foreign currency translation reserve – – Less: Net amount on disposal of overseas operation through profit or loss – – V. Others – – Less: Income tax effect from others recognized in other comprehensive income – – Add: Net amount recognized in other comprehensive income in earlier stage and transferred into profit or loss – – Sub-total – – Total 74,736,135.96 -79,118,857.00
48. Notes to items in the Statement of Cash Flows
(1) Proceeds received from other operating activities
Amounts incurred Amounts incurred Item in the period in the previous period
Non-operating income 37,068,580.16 48,335,264.16 Foreign exchange gains 212,161,475.00 236,207,928.41 Others 144,476,727.29 115,612,770.24 Total 393,706,782.45 400,155,962.81
Annual Report 2011 125
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.125 (2) Cash paid for other operating activities
Amounts incurred Amounts incurred Item in the period in the previous period
Current expenses 1,082,913,900.11 2,511,319,088.89 Administrative expenses 5,523,509,072.83 4,327,142,544.50 Non-operating expenses 23,343,091.23 40,716,957.58 Others 12,295,794.75 12,918,085.18 Total 6,642,061,858.92 6,892,096,676.15
49. Supplementary information for the Statement of Cash Flows
(1) Supplementary information for the Statement of Cash Flows
Amounts incurred Amounts incurred Supplementary information in the period in the previous period 1. Net profit adjusted into cash flows from operating activities: Net profit 9,220,971,803.51 5,989,582,489.73 Add: Allowance for impairment losses on assets 4,610,346,591.08 4,245,921,404.34 Depreciation on fixed assets 568,156,284.01 434,902,977.74 Amortisation of intangible assets 1,398,367.03 – Amortisation on long-term prepaid expenses 987,804,722.45 694,944,795.34 Loss on disposal of fixed assets, intangible assets and other long-term assets 9,837,236.78 -6,404,113.89 Loss on retirement of fixed assets – – Loss in changes in fair value 14,023,074.34 -22,788,088.50 Investment losses 22,048,625.17 19,197,608.49 Deferred income tax -1,081,775,139.14 -325,500,504.00 Decrease in operating receivable -113,602,266,992.30 -178,188,631,817.99 Increase in operating payable 178,231,606,473.01 190,352,724,415.23 Unrealized foreign exchange loss 45,002,021.95 81,393,996.97 Others – – Net cash flows from operating activities 79,027,153,067.89 23,275,343,163.46 2. Material investment and financing activities not involving cash receipt and payment: Conversion of debt into capital – – Convertible corporate bonds matured within one year – – Fixed assets financed by leasing – – 3. Changes in cash and cash equivalents, net: Cash at the end of the period 3,174,967,852.09 2,499,858,815.95 Less: Cash at the beginning of the period 2,499,858,815.95 1,823,537,617.54 Add: Cash equivalents at the end of the period 122,691,549,657.55 75,931,564,290.35 Less: Cash equivalents at the beginning of the year 75,931,564,290.35 57,165,749,399.41 Net increase in cash and cash equivalents 47,435,094,403.34 19,442,136,089.35
126 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.126 (2) Composition of cash and cash equivalents
Amounts incurred Amounts incurred Item in the period in the previous period
I. Cash 3,174,967,852.09 2,499,858,815.95 II. Cash equivalents 122,691,549,657.55 75,931,564,290.35 Of which: Balances with central banks 11,306,425,396.27 31,991,473,799.61 Due from banks and other financial institutions matured in three months 111,385,124,261.28 43,940,090,490.74 III. Cash and cash equivalents at the end of the period 125,866,517,509.64 78,431,423,106.30
(3) Adjustment on cash on hand and balances with central banks as well as cash and cash equivalents
Cash and cash equivalents presented in the statement of cash flows include: Amount
Cash on hand and balances with central banks at the end of the period 172,473,379,378.15 Less: Statuary reserves with central banks 157,991,986,129.79 Add: Due from banks and other financial institutions matured in three months 111,385,124,261.28 Cash and cash equivalents at the end of the period 125,866,517,509.64 Less: Cash and cash equivalents at the beginning of the period 78,431,423,106.30 Increase/(decrease) in cash and cash equivalents 47,435,094,403.34
VI. Notes to Major Items in the Financial Statements of Parent Company
1. Cash on hand and balances with central banks
At the end At the beginning Item of the period of the period
Cash on hand 3,169,928,279.45 2,499,438,571.65 Statuary reserves with central banks 157,944,916,747.72 106,906,251,074.10 Excess required reserves with central banks 11,122,122,268.78 31,416,554,954.17 Other balances with central banks 154,108,000.00 565,625,000.00 Total 172,391,075,295.95 141,387,869,599.92
(1) The Company deposits statutory reserves for general deposits with the People’s Bank of China as regulated. Reserves are made for various deposits including deposits of organizations, ex budgetary deposits, personal deposits and corporate deposits. The percentages for depositing are specified below:
At the end At the beginning Item of the period of the period
RMB 19.00% 16.50% Foreign currency 5.00% 5.00%
(2) Excess required reserves with central banks include excess required reserves and other balances and refers to various funds that are deposited by the Company with central banks to guarantee normal withdrawal of deposits and normal operation of businesses but excluding those special-purpose funds such as statutory reserves.
Annual Report 2011 127
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.127 2. Due from banks and other financial institutions
At the end At the beginning Item of the period of the period
Due from domestic banks and other financial institutions 99,910,831,157.01 5,636,020,508.19 Due from overseas banks and other financial institutions 1,698,615,551.70 1,898,526,182.55 Less: Allowance for impairment losses on due from banks and other financial institutions 5,500,000.00 5,500,000.00 Book value of due from banks and other financial institutions 101,603,946,708.71 7,529,046,690.74
3. Interest receivable
(1) By aging
At the end of the period At the beginning of the period Aging Amount Percentage (%) Amount Percentage (%)
Less than 1 year 5,634,676,486.49 100.00 2,917,283,614.95 100.00 1 to 2 years – – – – 2 to 3 years – – – – Over 3 years – – – – Book value of interest receivable 5,634,676,486.49 100.00 2,917,283,614.95 100.00
(2) By content
At the end At the beginning Item of the period of the period
Interest receivable on loans and advances 1,360,315,563.62 758,990,504.41 Interest receivable on placements with banks and other financial institutions 648,000,864.64 16,205,044.90 Bond interest receivable 1,413,141,681.82 829,402,099.63 Interest receivable on reverse repurchase agreements on bills 2,097,773,764.02 1,307,200,084.43 Interest receivable on reverse repurchase agreements on bonds 115,444,612.39 5,485,881.58 Book value of interest receivable 5,634,676,486.49 2,917,283,614.95
(3) See [Note VIII, 3] for the interest receivable of shareholders that hold 5% or above voting shares of the Company.
128 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.128 4. Loans and advances to customers
(1) Distribution by personal and corporate customer
At the end At the beginning Item of the period of the period
Personal loans and advances 74,919,656,261.79 60,108,768,438.23 Of which: Credit card 4,055,751,047.93 1,752,412,868.03 Housing mortgage 55,672,652,345.84 41,378,233,127.89 Others 15,191,252,868.02 16,978,122,442.31 Corporate loans and advances 536,410,318,974.20 467,827,912,745.98 Of which: Loans 529,774,862,608.37 465,449,214,365.52 Discounting 3,735,799,495.97 634,686,559.67 Bills of exchange for imports/exports 2,899,656,869.86 1,744,011,820.79 Total loans and advances to customers 611,329,975,235.99 527,936,681,184.21 Less: Allowance for impairment losses on loans 17,257,487,142.75 13,073,253,002.44 Of which: Single provisioning 3,209,717,297.99 3,215,529,339.85 Portfolio provisioning 14,047,769,844.76 9,857,723,662.59 Book value of loans and advances to customers 594,072,488,093.24 514,863,428,181.77
Annual Report 2011 129
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.129 (2) Distribution by industry
At the end of the period At the beginning of the period Industry Book balance Percentage (%) Book balance Percentage (%)
Agriculture, forestry, animal husbandry and fishery 2,991,310,000.00 0.49 1,848,543,944.55 0.35 Mining 22,470,317,490.36 3.68 21,178,873,357.80 4.01 Manufacturing 164,717,856,270.82 26.93 139,459,226,588.50 26.42 Production and supply of electric power, gas and water 25,263,111,741.81 4.13 24,357,367,201.84 4.61 Construction 42,610,995,713.55 6.97 31,707,338,362.15 6.01 Transportation, storage and postal services 41,011,511,413.10 6.71 40,983,783,317.90 7.76 Information transmission, computer services and software industry 3,671,803,072.76 0.60 4,254,888,024.57 0.81 Wholesale and retail 86,679,925,780.20 14.18 68,524,812,584.95 12.98 Lodging and catering services 7,398,416,652.45 1.21 6,195,802,757.25 1.17 Finance 646,108,126.30 0.11 1,309,916,717.32 0.25 Property development 62,633,703,495.25 10.25 47,502,314,704.35 9.00 Leasing and commercial services 54,016,028,430.50 8.84 61,552,133,037.78 11.66 Scientific research, technological services and geographical prospecting 990,500,000.00 0.16 1,234,250,000.00 0.23 Water, environment and public utility management 10,586,509,169.81 1.73 9,839,150,936.52 1.86 Resident services and other services 1,149,961,636.00 0.19 798,900,000.00 0.15 Education 1,752,838,656.00 0.29 2,671,360,000.00 0.51 Health care, social security and social welfare 919,591,829.32 0.15 819,714,650.83 0.16 Culture, sports and entertainment 2,993,030,000.00 0.49 2,928,850,000.00 0.55 Public management and social organization 171,000,000.00 0.03 26,000,000.00 0.00 Discounted bills 3,735,799,495.97 0.61 634,686,559.67 0.12 Personal loans 74,919,656,261.79 12.25 60,108,768,438.23 11.39 Total loans and advances to customers 611,329,975,235.99 100.00 527,936,681,184.21 100.00 Less: Allowance for impairment losses on loans 17,257,487,142.75 13,073,253,002.44 Book value of loans and advances to customers 594,072,488,093.24 514,863,428,181.77
130 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.130 (3) Distribution by geographic region
At the end of the period At the beginning of the period Geographic region Book balance Percentage (%) Book balance Percentage (%)
Northern and Northeastern China 214,009,356,837.98 35.00 188,774,432,357.41 35.76 Eastern China 202,530,315,204.66 33.13 179,226,699,042.37 33.95 Southern and Central China 108,184,214,926.97 17.70 88,378,680,642.67 16.74 Western China 86,606,088,266.38 14.17 71,556,869,141.76 13.55 Total loans and advances to customers 611,329,975,235.99 100.00 527,936,681,184.21 100.00 Less: Allowance for impairment losses on loans 17,257,487,142.75 13,073,253,002.44 Book value of loans and advances to customers 594,072,488,093.24 514,863,428,181.77
Northern and Northeastern China: Beijing, Tianjin, Hebei, Shandong, Liaoning, Inner Mongolia and Jilin;
Eastern China: Jiangsu, Shanghai, Zhejiang and Anhui;
Southern and Central China: Guangdong, Guangxi, Hubei, Hunan, Shanxi and Fujian; and
Western China: Shaanxi, Xinjiang, Sichuan, Chongqing and Yunnan.
(4) Distribution by method of guarantee
At the end At the beginning Item of the period of the period
Unsecured loans 106,197,985,150.91 96,002,820,212.75 Guaranteed loans 196,552,625,252.88 180,686,867,511.52 Loans secured by mortgages 308,579,364,832.20 251,246,993,459.94 Of which: Mortgage loans 228,620,857,459.03 191,879,597,619.44 Pledged loans 79,958,507,373.17 59,367,395,840.50 Less: Allowance for impairment losses on loans 17,257,487,142.75 13,073,253,002.44 Book value of loans and advances to customers 594,072,488,093.24 514,863,428,181.77
Annual Report 2011 131
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.131 (5) Allowance for impairment losses on loans
Amounts incurred in the period Amounts incurred in the previous period Single Portfolio Single Portfolio allowance for allowance for allowance for allowance for impairment impairment impairment impairment Item losses losses Total losses losses Total
Beginning balance 3,215,529,339.85 9,857,723,662.59 13,073,253,002.44 3,797,040,015.14 6,976,297,244.13 10,773,337,259.27 Allowance for the current period 474,870,076.36 4,190,046,182.17 4,664,916,258.53 1,292,085,771.23 2,881,426,418.46 4,173,512,189.69 Recoveries for the current period 344,991,719.53 – 344,991,719.53 75,078,562.39 – 75,078,562.39 Reversal of interest on impaired loans 167,596,741.69 – 167,596,741.69 178,784,408.37 – 178,784,408.37 Write-offs for the current period 643,084,875.14 – 643,084,875.14 1,756,693,653.10 – 1,756,693,653.10 Transfer-out for the current period 14,992,220.92 – 14,992,220.92 13,196,947.44 – 13,196,947.44 Ending balance 3,209,717,297.99 14,047,769,844.76 17,257,487,142.75 3,215,529,339.85 9,857,723,662.59 13,073,253,002.44
(6) At the end of the period, the balance of loans to shareholders that hold 5% or above voting shares of the Company was equivalent to RMB4,638 million.
5. Long-term equity investments
(1) Classification of long-term equity investments
At the beginning At the end Item of the period Increase Decrease of the period
Investments in subsidiaries 100,000,000.00 70,000,000.00 – 170,000,000.00 Investments in other enterprises 81,798,511.34 4,044.50 28,710.91 81,773,844.93 Sub-total 181,798,511.34 70,004,044.50 28,710.91 251,773,844.93 Allowance for impairment losses on Long-term equity investments – – – – Total 181,798,511.34 70,004,044.50 28,710.91 251,773,844.93
132 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.132 (2) Summary of long-term equity investments
Explanation for inconsistent shareholding Shareholding Voting right percentage and Allowance for percentage percentage voting right Allowance for impairment Cash dividend Calculation Investment Beginning Increase/ Ending in investees in investees percentage impairment losses in the for the Name of investee method cost balance decrease balance (%) (%) in investees losses current period current period
Investments in subsidiaries Beijing Daxing Hua Xia Village Bank Co., Ltd. Cost method 100,000,000.00 100,000,000.00 – 100,000,000.00 100.00 100.00 – – – Kunming Chenggong Hua Xia Village Bank Co., Ltd. Cost method 35,000,000.00 – 35,000,000.00 35,000,000.00 70.00 70.00 – – – Sichuan Jiangyou Hua Xia Village Bank Co., Ltd. Cost method 35,000,000.00 – 35,000,000.00 35,000,000.00 70.00 70.00 – – – Sub-total 170,000,000.00 100,000,000.00 70,000,000.00 170,000,000.00 – – – Investments in other enterprises China UnionPay Co., Ltd. 81,250,000.00 81,250,000.00 – 81,250,000.00 2.81 2.81 – – 1,750,000.00 Visa International Service Association USD87,956.00 548,511.34 -24,666.41 523,844.93 – – 9,550.57 Sub-total 81,798,511.34 -24,666.41 81,773,844.93 – – –
Total 181,798,511.34 69,975,333.59 251,773,844.93 – – –
6. Fixed assets
At the end At the beginning Item of the period of the period
Original value of fixed assets 9,084,336,266.29 7,616,379,419.50 Less: Accumulative depreciation 2,628,689,796.06 2,305,111,080.47 Construction in progress 282,015,058.57 586,650,740.67 Total 6,737,661,528.80 5,897,919,079.70
Annual Report 2011 133
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.133 (1) Fixed assets
At the beginning At the end Item of the period Increase Decrease of the period I. Total original book value 7,616,379,419.50 1,784,736,632.32 316,779,785.53 9,084,336,266.29 Of which: Buildings and structures 4,615,752,059.22 1,119,877,529.91 66,575,355.52 5,669,054,233.61 Office supplies 2,904,806,120.97 649,869,882.97 242,830,105.51 3,311,845,898.43 Transportation facilities 95,821,239.31 14,989,219.44 7,374,324.50 103,436,134.25 Allowance for the Increase current period II. Total accumulative depreciation 2,305,111,080.47 – 565,203,007.45 241,624,291.86 2,628,689,796.06 Of which: Buildings and structures 771,528,161.28 – 143,469,511.71 11,460,950.59 903,536,722.40 Office supplies 1,496,032,139.26 – 413,109,391.46 223,683,408.24 1,685,458,122.48 Transportation facilities 37,550,779.93 – 8,624,104.28 6,479,933.03 39,694,951.18 III. Total book value of fixed assets, net 5,311,268,339.03 – – 6,455,646,470.23 Of which: Buildings and structures 3,844,223,897.94 – – 4,765,517,511.21 Office supplies 1,408,773,981.71 – – 1,626,387,775.95 Transportation facilities 58,270,459.38 – – 63,741,183.07 IV. Total allowance for impairment losses – – – – Of which: Buildings and structures – – – – Office supplies – – – – Transportation facilities – – – – V. Total book value of fixed assets 5,311,268,339.03 – – 6,455,646,470.23 Of which: Buildings and structures 3,844,223,897.94 – – 4,765,517,511.21 Office supplies 1,408,773,981.71 – – 1,626,387,775.95 Transportation facilities 58,270,459.38 – – 63,741,183.07
Notes: a) Depreciation for the period is RMB565,203,007.45. b) The original value of construction in progress transferred into fixed assets for the current period is RMB727,325,945.28. Fixed assets without certificate of title settled
Reason for Estimated Item unsettlement settlement time
Office building of Guangzhou Branch In progress July 2012 Office building of Fuzhou Branch In progress June 2012 Office building of Chongqing Branch In progress December 2012
(2) See [Notes V. 14 (2)] for the details of construction in progress.
134 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.134 7. Other assets
At the end At the beginning Item of the period of the period
Other receivables 1,916,294,372.08 1,573,105,063.94 Less: Allowance for bad debts 586,156,102.60 563,086,845.47 Long-term prepaid expenses 1,019,434,218.14 763,307,771.86 Repossessed assets to be disposed 170,627,470.65 320,331,538.66 Other long-term assets 4,579,020.00 – Total 2,524,778,978.27 2,093,657,528.99
(1) Other receivables
A. Disclosure on other receivables by type
At the end of the period Allowance Provisioning Type Amount Percentage (%) for bad debts percentage (%)
Other receivables with significant individual amount and single allowance for bad debts 170,225,339.87 8.88 170,225,339.87 100.00 Other receivables with portfolio allowance for bad debts 70,051,280.79 3.66 45,452,960.14 64.89 Of which: Aging portfolio 70,051,280.79 3.66 45,452,960.14 64.89 Other receivables with insignificant individual amount and single allowance for bad debts 1,676,017,751.42 87.46 370,477,802.59 22.10 Total 1,916,294,372.08 100.00 586,156,102.60 30.59
Disclosure on other receivables by type (continued)
At the beginning of the period Allowance for Provisioning Type Amount Percentage (%) bad debts percentage (%)
Other receivables with significant individual amount and single allowance for bad debts 222,683,161.46 14.16 203,580,738.57 91.42 Other receivables with portfolio allowance for bad debts 70,361,802.65 4.47 46,752,986.79 66.45 Of which: Aging portfolio 70,361,802.65 4.47 46,752,986.79 66.45 Other receivables with insignificant individual amount and single allowance for bad debts 1,280,060,099.83 81.37 312,753,120.11 24.43 Total 1,573,105,063.94 100.00 563,086,845.47 35.79
Annual Report 2011 135
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.135 Notes: a) Other receivables with portfolio allowance for bad debts by aging
At the end of the period At the beginning of the period Percentage Allowance for Percentage Allowance Aging Amount (%) bad debts Amount (%) for bad debts
Less than 1 year 23,085,258.11 32.95 4,617,051.62 16,518,211.58 23.48 3,303,642.32 1-2 years 7,611,412.70 10.87 3,044,565.08 14,991,779.16 21.31 5,996,711.66 2-3 years 7,816,332.68 11.16 6,253,066.14 6,995,895.49 9.94 5,596,716.39 Over 3 years 31,538,277.30 45.02 31,538,277.30 31,855,916.42 45.27 31,855,916.42 Total 70,051,280.79 100.00 45,452,960.14 70,361,802.65 100.00 46,752,986.79
b) Other receivables with insignificant individual amount and single allowance for bad debts at the end of the period
Allowance Provisioning Grounds for Item of other receivables Book balance for bad debts percentage (%) provisioning
Advance compensation 370,477,802.59 370,477,802.59 100.00 Big risk for not recovery Others 1,305,539,948.83 – – No risk and no allowance for bad debts required Total 1,676,017,751.42 370,477,802.59
B. Actual write-offs of other receivables during the reporting period
Resulted from Nature of related party other Amount transaction Company name receivables written off Reason or not
Other litigation costs Litigation costs 7,479,595.79 Irrecoverable No
C. At the end of the period, there was no arrearage from shareholders that hold 5% ore above voting shares in the Company in other receivables.
(2) Long-term prepaid expenses
At the Original beginning of At the end of Item amount the period Increase Amortisation the period
Decoration costs 711,327,513.11 362,830,396.96 222,583,888.36 133,549,394.60 451,864,890.72 Lease expenses 952,372,607.70 175,499,703.12 621,019,302.19 587,975,785.71 208,543,219.60 Computer and software development expenses 714,008,238.51 183,577,575.94 350,473,204.47 211,683,037.55 322,367,742.86 Others 96,732,359.90 41,400,095.84 45,134,401.80 49,876,132.68 36,658,364.96 Total 2,474,440,719.22 763,307,771.86 1,239,210,796.82 983,084,350.54 1,019,434,218.14
(3) See [Notes V. 17 (3)] for the details of repossessed assets to be disposed.
136 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.136 8. Allowance for impairment losses on assets
Reverse of At the Allowance Transfer-in Recoveries Transfer-out interests on Write-offs beginning of for the for the for the for the impaired for the At the end Item the period current period current period current period current period assets current period of the period
(1) Allowance for impairment losses on due from banks and other financial institutions 5,500,000.00 – – – – – – 5,500,000.00 (2) Allowance for impairment losses on placements with banks and other financial institutions 127,247,446.55 -3,784,667.21 – – – – – 123,462,779.34 (3) Allowance for bad debts 563,086,845.47 21,468,852.92 8,550,000.00 530,000.00 – – 7,479,595.79 586,156,102.60 (4) Allowance for impairment losses on available-for-sale financial assets – – – – – – – – (5) Allowance for impairment losses on investments classified as receivables – – – – – – – – (6) Allowance for impairment losses on held-to- maturity investments 39,677,593.62 -44,469,941.10 – 5,152,140.74 – 359,793.26 – – (7) Allowance for impairment losses on loans 13,073,253,002.44 4,664,916,258.53 – 344,991,719.53 14,992,220.92 167,596,741.69 643,084,875.14 17,257,487,142.75 (8) Allowance for impairment losses on fixed assets – – – – – – – – (9) Allowance for impairment losses on intangible assets – – – – – – – – (10) Allowance for impairment losses on repossessed assets to be disposed 269,969,709.56 -29,113,722.64 – – 29,233,228.83 – – 211,622,758.09
9. Deposits from customers
(1) By category
At the end At the beginning Item of the period of the period
Demand deposits 309,535,333,770.91 305,797,328,751.48 Demand savings deposits 57,579,996,719.48 40,857,227,478.23 Time deposits 302,211,839,294.88 234,430,294,496.23 Time savings deposits 84,913,581,241.71 73,037,666,563.09 Outward remittances and drafts and telegraphic transfers payable 2,017,903,074.33 3,179,964,024.85 Deposits received 139,255,388,334.78 110,106,617,882.00 Structured deposits – 199,933,541.55 Total 895,514,042,436.09 767,609,032,737.43
(2) By geographic region
At the end of the period At the beginning of the period Geographic region Book balance Percentage (%) Book balance Percentage (%)
Northern and Northeastern China 350,948,884,632.51 39.20 288,406,417,060.69 37.57 Eastern China 254,976,457,332.83 28.47 237,923,687,141.55 31.00 Southern and Central China 168,207,148,312.74 18.78 134,593,619,805.91 17.53 Western China 121,381,552,158.01 13.55 106,685,308,729.28 13.90 Total 895,514,042,436.09 100.00 767,609,032,737.43 100.00
Annual Report 2011 137
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.137 10. Employees’ remuneration payable
At the beginning At the end Item of the period Increase Decrease of the period
I. Salaries and bonus 1,992,285,944.40 4,557,794,696.56 3,533,338,391.61 3,016,742,249.35 II. Employees’ welfare – 611,806,656.39 611,806,656.39 – III. Social insurance 17,665,203.93 604,253,311.59 602,272,369.13 19,646,146.39 Of which: 1. Medical insurance 4,532,604.52 145,325,892.45 145,495,902.10 4,362,594.87 2. Basic endowment insurance 9,734,680.81 303,858,649.17 301,284,368.09 12,308,961.89 3. Annuity 622,091.38 106,393,863.77 107,004,832.45 11,122.70 4. Unemployment insurance 1,117,501.92 23,676,544.03 23,629,640.85 1,164,405.10 5. Industrial injury insurance 45,105.46 9,516,584.78 9,485,124.09 76,566.15 6. Maternity insurance 1,613,219.84 15,481,777.39 15,372,501.55 1,722,495.68 IV. Housing provident fund 16,861,421.35 383,565,153.16 383,730,543.32 16,696,031.19 V. Trade union expenditure 13,410,882.61 98,420,583.39 97,919,956.46 13,911,509.54 VI. Employee education expenses 14,694,242.77 107,611,519.62 98,346,291.62 23,959,470.77 VII. Non-monetary welfare – – – – VIII. Compensation for termination of labor service – – – – IX. Others (Note) – 521,899,003.62 521,899,003.62 – Of which: Payment for shares settled in cash – – – – Total 2,054,917,695.06 6,885,350,924.33 5,849,313,212.15 3,090,955,407.24
Note: See Notes V. 24
11. Taxes payable
At the end At the beginning Item of the period of the period
Enterprise income tax 2,831,198,717.74 1,833,658,732.29 Business tax 815,060,500.00 497,750,469.73 Real estate tax 2,518,266.18 2,138,811.77 Urban construction tax 55,513,787.29 33,123,878.68 Others 142,924,050.76 96,438,528.17 Total 3,847,215,321.97 2,463,110,420.64
138 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.138 12. Interest payable
At the end At the beginning Item of the period of the period
Deposit interest 5,206,544,404.38 3,583,143,625.54 Bond interest payable 429,342,601.80 414,535,677.19 Interest of repurchase agreements on bills 325,984,532.78 514,947,119.63 Other interest 1,817,977,145.18 366,858,415.62 Total 7,779,848,684.14 4,879,484,837.98
13. Other liabilities
At the end At the beginning Item of the period of the period
Other payables 1,033,684,915.57 3,077,457,548.64 On-lending 827,929,904.47 577,565,416.88 Deferred income 47,933,160.42 7,950,744.86 Other current liabilities 4,307,680,086.69 5,527,709,599.49 Total 6,217,228,067.15 9,190,683,309.87
(1) Other payables
A. By aging
At the end of the period At the beginning of the period Aging Amount Percentage (%) Amount Percentage (%)
Less than 1 year 961,999,384.72 93.06 2,847,165,003.28 92.52 1 to 2 years 56,433,816.82 5.46 209,696,804.70 6.81 2 to 3 years 2,546,730.42 0.25 12,193,869.84 0.40 Over 3 years 12,704,983.61 1.23 8,401,870.82 0.27 Total 1,033,684,915.57 100.00 3,077,457,548.64 100.00
Annual Report 2011 139
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.139 B. By content
At the end At the beginning Item of the period of the period
Agency honored bonds 155,300.51 34,280.00 Open cashier’s check 199,898,337.08 2,287,575,895.93 Others 833,631,277.98 789,847,372.71 Total 1,033,684,915.57 3,077,457,548.64
Note: At the end of the period, there was none payable to shareholder units that hold 5% or above voting shares in the Company in the other payables. (2) See [Notes V. 29 (2)] for the details of other current liabilities.
14. Net interest income
Amounts Amounts incurred in incurred in Item the period the previous period
Interest income 62,533,267,471.33 43,368,256,873.31 Due from banks and other financial institutions 1,087,661,187.20 38,991,718.51 Balances with central banks 2,198,453,423.13 1,493,784,059.48 Placements with banks and other financial institutions 725,960,872.77 193,435,847.32 Loans and advances 38,113,182,943.38 27,009,088,500.93 Of which: Personal loans and advances 3,941,369,564.86 2,691,821,659.56 Corporate loans and advances to customers 32,814,124,356.81 23,695,176,094.14 Discounted bills 1,357,689,021.71 622,090,747.23 Reverse repurchase agreements 16,726,037,303.36 11,895,416,575.77 Bond interest income 3,633,934,384.18 2,737,540,171.30 Interest income from wealth management products 48,037,357.31 – Of which: Impaired interest income on financial assets 167,956,534.95 180,334,001.84
Interest expense 32,249,591,280.90 20,608,901,333.93 Deposits from banks and other financial institutions 6,772,255,837.10 2,400,567,696.36 Due to central banks 425,543.43 87,880.33 Placements from banks and other financial institutions 516,646,049.29 267,590,480.67 Deposits from customers 14,765,597,410.79 8,898,747,849.40 Repurchase agreements 9,138,208,521.92 7,965,098,629.72 Bonds issued 1,056,457,918.37 1,076,808,797.45 Net interest income 30,283,676,190.43 22,759,355,539.38
140 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.140 15. Net fee and commission income
Amounts Amounts incurred in incurred in Item the period the previous period
Fee and commission income 3,394,213,136.10 1,791,679,612.66 Settlement and clearing fee 52,568,752.53 45,177,944.14 Agency business fee 388,678,279.51 267,998,632.37 Credit commitment fee and commission 711,881,022.93 423,222,245.09 Bank card fee 478,222,309.13 310,186,823.14 Consultant and advisory fee 430,848,736.03 295,772,914.26 Custody and other entrusted business commission 133,293,188.59 78,657,311.93 Wealth management service fee 1,000,149,542.87 235,569,192.61 Others 198,571,304.51 135,094,549.12
Fee and commission expense 418,726,604.03 346,807,829.35 Fee expense 418,726,604.03 346,807,829.35 Commissions – – Net fee and commission income 2,975,486,532.07 1,444,871,783.31
16. Other operating income
Amounts Amounts incurred in incurred in Item the period the previous period
Rental 14,610,103.00 37,911,464.50 Others 129,866,534.29 77,701,305.74 Total 144,476,637.29 115,612,770.24
17. Business tax and surcharges
Amounts Amounts incurred in incurred in Item Payment standard the period the previous period
Business tax 5% of taxable operating income 2,097,294,952.42 1,444,451,761.59 Urban construction tax 7% of taxable turnover tax 146,681,075.32 98,554,595.38 Education fee and surcharges 3% of taxable turnover tax 96,472,057.69 54,005,421.04 Others 7,072,809.33 4,852,085.67 Total 2,347,520,894.76 1,601,863,863.68
Annual Report 2011 141
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.141 18. General and administrative expenses
Amounts Amounts incurred in incurred in Item the period the previous period
Electronic equipment operation fee 389,415,435.40 297,389,326.19 Security and defense fee 92,730,002.48 70,549,825.92 Employee costs 6,885,350,924.33 5,095,880,878.12 Depreciation and amortisation 1,551,775,725.02 1,129,057,673.99 Others 5,114,942,533.32 4,028,524,721.62 Total 14,034,214,620.55 10,621,402,425.84
19. Impairment losses on assets
Amounts Amounts incurred in incurred in Item the period the previous period
Expenses in allowance for bad debts 21,468,852.92 70,259,346.30 Expenses in allowance for losses on loans 4,664,916,258.53 4,173,512,189.69 Expenses in allowance for impairment losses on placements with banks and other financial institutions -3,784,667.21 -5,664,678.98 Expenses in allowance for impairment losses on mortgaged assets to be disposed -29,113,722.64 21,879,556.68 Expenses in allowance for impairment losses on available-for-sale investments – -38,322,365.67 Expenses in allowance for impairment losses on held-to-maturity investments -44,469,941.10 -9,654,558.64 Total 4,609,016,780.50 4,212,009,489.38
20. Income tax expense
Amounts Amounts incurred in incurred in Item the period the previous period
Current income tax calculated under the tax law and related provisions 4,388,202,548.04 2,343,871,982.77 Adjustment on deferred income tax -1,080,048,162.50 -324,469,071.38 Total 3,308,154,385.54 2,019,402,911.39
142 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.142 The relationship between income tax expense and total profit is presented as follows:
Amounts Amounts incurred in incurred in Item the period the previous period
Gross profit 12,535,567,274.92 8,012,485,203.11 Income tax expense at the statutory rate 3,133,891,818.73 2,003,121,300.78 Effects of different tax rates applied in some branches -3,188,190.94 -5,266,175.98 Adjustment in respect of current income tax of previous years 20,723,755.03 -398,520,039.23 Profit or loss attributable to joint ventures and associates – – Income not subject to tax -488,615,006.52 -409,613,973.45 Non-deductible expenses 645,342,009.24 829,681,799.27 Effects of tax rate changes on deferred income tax balance at the beginning of the period – – Use of tax losses in previous periods – – Tax losses without recognition of deferred income tax – – Others – – Income tax expense 3,308,154,385.54 2,019,402,911.39
21. Notes to items in the Statement of Cash Flows
(1) Proceeds received from other operating activities
Amounts Amounts incurred in incurred in Item the period the previous period
Non-operating income 37,068,580.16 48,335,264.16 Foreign exchange gains 212,161,475.00 236,207,928.41 Others 144,476,637.29 115,612,770.24 Total 393,706,692.45 400,155,962.81
(2) Cash paid for other operating activities
Amounts Amounts incurred in incurred in Item the period the previous period
Current expenses 1,082,913,900.11 2,511,319,088.89 Administrative expenses 5,511,327,676.70 4,325,819,926.29 Non-operating expenses 23,343,091.23 40,716,957.58 Others 12,295,794.75 12,918,085.18 Total 6,629,880,462.79 6,890,774,057.94
Annual Report 2011 143
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.143 22. Supplementary information for the Statement of Cash Flows
(1) Supplementary information for the Statement of Cash Flows
Amounts Amounts incurred in incurred in Supplementary information the period the previous period 1. Net profit adjusted into cash flows from operating activities: Net profit 9,227,412,889.38 5,993,082,291.72 Add: Allowance for impairment losses on assets 4,609,016,780.50 4,245,921,404.34 Depreciation on fixed assets 567,293,007.45 434,775,236.67 Amortisation of intangible assets 1,398,367.03 – Amortisation on long-term prepaid expenses 983,084,350.54 694,282,437.32 Loss on disposal of fixed assets, intangible assets and other long-term assets 9,837,236.78 -6,404,113.89 Loss on retirement of fixed assets – – Loss on changes in fair value 14,023,074.34 -22,788,088.50 Investment losses 22,048,625.17 19,197,608.49 Deferred income tax -1,080,048,162.50 -324,469,071.38 Decrease in operating receivable -113,417,534,696.66 -178,186,499,588.29 Increase in operating payable 178,045,276,132.36 190,428,495,739.78 Unrealized foreign exchange loss 45,002,021.95 81,393,996.97 Others – – Net cash flows from operating activities 79,026,809,626.34 23,356,987,853.23 2. Material investment and financing activities not involving cash receipt and payment: Conversion of debt into capital – – Convertible corporate bonds matured within one year – – Fixed assets financed by leasing – – 3. Changes in cash and cash equivalents, net: Cash at the end of the period 3,169,928,279.45 2,499,438,571.65 Less: Cash at the beginning of the period 2,499,438,571.65 1,823,537,617.54 Add: Cash equivalents at the end of the period 122,603,175,022.16 75,921,458,844.91 Less: Cash equivalents at the beginning of the period 75,921,458,844.91 57,165,749,399.41 Net increase in cash and cash equivalents 47,352,205,885.05 19,431,610,399.61
144 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.144 (2) Composition of cash and cash equivalents
Amounts Amounts incurred in incurred in Item the period the previous period
I. Cash 3,169,928,279.45 2,499,438,571.65 II. Cash equivalents 122,603,175,022.16 75,921,458,844.91 Of which: Balances with central banks 11,276,230,268.78 31,982,179,954.17 Due from banks and other financial institutions matured in three months 111,326,944,753.38 43,939,278,890.74 III. Cash and cash equivalents at the end of the period 125,773,103,301.61 78,420,897,416.56
(3) Adjustment on cash on hand and balances with central banks as well as cash and cash equivalents
Cash and cash equivalents presented in the statement of cash flows include: Amount
Cash on hand and balances with central banks at the end of the period 172,391,075,295.95 Less: Statuary reserves with central banks 157,944,916,747.72 Add: Due from banks and other financial institutions matured in three months 111,326,944,753.38 Cash and cash equivalents at the end of the period 125,773,103,301.61 Less: Cash and cash equivalents at the beginning of the period 78,420,897,416.56 Increase/(decrease) in cash and cash equivalents 47,352,205,885.05
VII. Contingencies and commitments
1. Credit commitments
At the end At the beginning Item of the period of the period
Bank acceptances 217,677,170,574.57 191,863,217,497.41 Letters of credit issued 109,590,672,443.79 25,569,445,754.19 Letter of guarantee issued 11,495,274,884.33 7,223,573,029.09 Unused credit card limit 9,126,836,368.42 12,974,072,084.72
The Group has the commitments on loan limit at any time point, including the unused credit limit provided by the Group to the credit card customers and the signed loan limit. Pursuant to the opinions of the Group’s Management, the Group shall not undertake the risk of unused credit limit as the signed loan limit is revocable.
2. Entrusted transaction
(1) Entrusted deposits and loans
At the end At the beginning Item of the period of the period
Entrusted loans 30,951,186,328.04 24,779,892,863.55 Entrusted deposits 30,951,186,328.04 24,779,892,863.55
Annual Report 2011 145
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.145 (2) Entrusted investments
At the end At the beginning Item of the period of the period
Agency business assets 100,881,709,312.98 46,352,414,557.79 Agency business liabilities 100,881,709,312.98 46,352,414,557.79
3. Pending legal proceedings
At the end of the period, there were 2 pending litigation cases with above RMB10 million and the Group as the defendant, involving object RMB201.27 million. As for the possible losses suffered as the defendant of the pending litigation cases, the Group has set aside corresponding provisions.
4. Operating lease commitments
The Group rents the place of business and office buildings, and pays the rental as required. The Group must pay the minimum lease payment during the period as follows:
At the end At the beginning Item of the period of the period
Less than 1 year 684,170,559.69 546,894,657.83 1-5 years 1,875,690,961.68 1,522,399,882.49 Over 5 years 905,448,765.02 798,546,979.35 Total 3,465,310,286.39 2,867,841,519.67
5. Capital commitments
Capital commitments signed but not confirmed At the end At the beginning in the financial statements of the period of the period
Commitment to purchase long-term assets 212,205,228.00 42,882,955.17 External investment commitments 60,000,000.00 130,000,000.00
Notes: (1) Commitment to purchase long-term assets is the unpaid account estimated in constructions in progress of the Company. (2) On 14 October 2010, the 25th meeting of the 5th Board of Directors reviewed and approved the Proposal on Initiating the Setup of Songyang Hua Xia Village Bank in Zhejiang, agreeing to contribute the setup of village bank in Songyang, Zhejiang with registered capital of RMB50 million to RMB100 million, of which the Company held 51% (inclusive) to 60% of shares.
146 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.146 VIII. Related parties and related party transactions
1. Related parties The related parties of the Company included shareholders that could directly, indirectly, jointly hold or control over 5% shares or voting rights of the Company; the key management personnel of the Group and their close relatives, legal person or other organizations that could directly, indirectly, jointly control or cause material impacts. (1) Related shareholders of the Company
Name of related Legal shareholder Related relation Enterprise type Register place representative Business nature Shougang Corporation Shareholder holding Wholly state-owned Beijing Zhu Jimin Industry, construction, geological over 5% shares of exploration, transportation, etc. the Company Yingda International Holdings Shareholder holding Corporate sole Beijing Wang Fenghua Investment and assets operation and Corporation, Ltd. over 5% shares of proprietorship management; assets custody, rendering the Company service for enterprise restructuring, M&A, strategic placement and venture capital investment; investment consultation; and investment advisor DEUTSCHE BANK Shareholder holding Limited liability Luxembourg Ernst Wilhelm Developing all types of banking and LUXEMBOURG S.A. over 5% shares of company Contzen economic business, providing legal the Company insurance agency service and all other directly or indirectly relevant businesses for individuals DEUTSCHE BANK Shareholder holding Limited liability Frankfurt, Federal Josef Ackerman Engaged in various banking business, AKTIENGESELLSCHAFT over 5% shares of company Republic of Germany providing services in terms of capital, the Company fund management, real estate finance, financing, research and advisory, etc.
Continued:
Voting rights Holding percentage percentage of Registered capital of the related party the related party Name of related shareholder (RMB10,000) in the Company % in the Company % Shougang Corporation 726,394.00 20.28 20.28 Yingda International Holdings Corporation, Ltd. 1,600,000.00 18.24 18.24 DEUTSCHE BANK LUXEMBOURG S.A. EUR2,465.00 million 9.28 9.28 DEUTSCHE BANK AKTIENGESELLSCHAFT EUR2,379.50 million 8.21 8.21
In September 2009, the Company received the Reply on Issues Relating to Shareholding Transfer of Hua Xia Bank Co., Ltd (G..Z.Ch.Q [2009] No. 1004) by the State-owned Assets Supervision and Administration Commission of State Council, agreeing that 595,920,393 shares held by the State Grid Corporation of China could be transferred to SGCC Asset Management Co., Ltd. (now is renamed as Yingda International Holdings Corporation, Ltd.). In December 2010, the Company received the Reply of China Banking Regulatory Commission concerning the Non-Public Issue of RMB Ordinary Shares and Qualifications of Relevant Shareholders of Hua Xia Bank (Y.J.F. [2010] No. 574), agreeing the above-mentioned equity transfer in principal. The procedures relating to the equity transfer and registration have been completed on 25 February 2011. In November 2009, the Company got known that DEUTSCHE BANK AKTIENGESELLSCHAFT accepted 171,200,000 shares of the Company held by SAL.OPPENHEIM JR.&CIE.KOMMANDITGESELLSCHAFT AUF AKTIEN through agreement. In September 2011, the Company received the Reply of China Banking Regulatory Commission concerning the Issues relating to Equity Transfer of Hua Xia Bank (Y.J.F. [2011] No. 396), agreeing the above-mentioned equity transfer. As of 31 December 2011, the registration procedures for the above- mentioned equity transfer have not been completed yet.
Annual Report 2011 147
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.147 See [Notes V. 30] for particulars on issue of new shares by the Company and related parties’ increase of shares.
During the reporting period, the changes in registered capital (paid-in capital) of related parties are as follows (Unit: RMB10,000)
Name of related At the beginning At the end shareholder of the period Increase Decrease of the period
Shougang Corporation 726,394.00 – – 726,394.00 Yingda International Holdings Corporation Ltd. 1,600,000.00 – – 1,600,000.00 DEUTSCHE BANK LUXEMBOURG S.A. EUR2,465.00 million – – EUR2,465.00 million DEUTSCHE BANK AKTIENGESELLSCHAFT EUR2,379.50 million – – EUR2,379.50 million
(2) Subsidiaries of the Company
Registered Shareholding Voting rights Subsidiary Enterprise Legal capital percentage percentage Full name type type Register place representative Business nature (RMB10,000) (%) (%)
Beijing Daxing Wholly-owned Limited liability No.32-2, Xingye Street Liu Xifeng Conducting the following RMB businesses: 10,000 100 100 Hua Xia Village company (Section III), Daxing public deposit-taking; loan granting; Bank Co., Ltd. District, Beijing domestic settlement; bill acceptance and discount; inter-bank lending and borrowing; bank card (debit card) service; issuance, encashment, and underwriting of government bonds as an agent; and collection and payment as an agent and agency insurance. Kunming Chenggong Stock holding Limited liability Block F Store, Huilan Liang Guanghui Public deposit-taking; short-term, medium- 5,000 70 70 Hua Xia Village company Park, Chunrong Street, term and long-term loan granting; domestic Bank Co., Ltd. New District, settlement; bill acceptance and discount; Chenggong, Kunming inter-bank lending and borrowing; bank card service; issuance, encashment, and underwriting of government bonds as an agent; collection and payment as an agent and agency insurance; and other businesses approved by the banking regulatory authorities. Sichuan Jiangyou Stock holding Limited liability East Building, No. 49 Wang Bolin Public deposit-taking; short-term, medium- 5,000 70 70 Hua Xia Village company Shicheng Middle Road, term and long-term loan granting; domestic Bank Co., Ltd. Jiangyou, Sichuan settlement; bill acceptance and discount; bank card service; issuance, encashment, underwriting and trading of government bonds as an agent; letter of guarantee business, collection and payment as an agent and agency deposits and loans; and other businesses approved by the Chinese Banking Regulatory Commission.
148 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.148 (3) Other related parties
Name of related party Relation with the Company
State Grid Corporation of China Parent company of the related party of the Company: Yingda International Holdings Corporation, Ltd. Hongta Tobacco (Group) Co., Ltd. Shareholder originally holding over 5% shares of the Company for the year Bodi Investment Co., Ltd With the same key management personnel
2. Related party transactions (Unit: RMB10,000) (1) Balance of credit assets (including loans, discount, bill of draft, acceptance, L/C and L/G) Related shareholders and their related companies
At the end At the beginning Name of related party of the period of the period
Shougang Corporation 438,727.77 101,800.00 (Balance of credit assets (Balance of credit assets after deduction of after deduction of RMB769,081.7 thousand RMB7,416.8 thousand security deposits) security deposits)
Hongta Tobacco (Group) Co., Ltd. 30,000.00 1,250.00 (Balance of credit assets after deduction of RMB2.5 million security deposits)
Yingda International Holdings Corporation, Ltd. 116,078.80 4,000.00
(2) Deposits (including deposits from customers and due to banks and other financial institutions) A. Related shareholders and their related companies
At the end At the beginning Name of related party of the period of the period
Shougang Corporation 86,639.98 94,140.28 Hongta Tobacco (Group) Co., Ltd. 47,417.45 62,987.67 Yingda International Holdings Corporation, Ltd. 166.26 3,469.68
B. Other enterprises of the same key management personnel
At the end At the beginning Name of related party of the period of the period
Bodi Investment Co., Ltd 1,600.81 957.89
(3) Bonds purchase
At the end At the beginning Name of related party of the period of the period
Shougang Corporation – 78,166.88 Yingda International Holdings Corporation, Ltd. 140,108.24 40,000.00
Annual Report 2011 149
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.149 (4) Placements from banks and other financial institutions
At the end At the beginning Name of related party of the period of the period
DEUTSCHE BANK AKTIENGESELLSCHAFT 2,847.34 2,896.04
(5) Derivative financial instruments
Non-hedging instruments as at the end of the period Name of related party Category Nominal amount Fair value Assets Liabilities
DEUTSCHE BANK AKTIENGESELLSCHAFT Forward agreement 12,589.40 – 330.91
Non-hedging instruments as at the beginning of the period Name of related party Category Nominal amount Fair value Assets Liabilities
DEUTSCHE BANK AKTIENGESELLSCHAFT Currency swap 72,502.10 418.79 – DEUTSCHE BANK AKTIENGESELLSCHAFT Non-delivery spot foreign exchange contract 26,364.40 – 123.40 DEUTSCHE BANK AKTIENGESELLSCHAFT Forward agreement 13,182.20 37.18 –
(6) Interest income
Amounts incurred Amounts incurred Name of related party in the period in the previous period
Shougang Corporation 19,157.82 8,152.25 Hongta Tobacco (Group) Co., Ltd. 654.23 15.12 Yingda International Holdings Corporation, Ltd. 2,535.83 1,917.29 DEUTSCHE BANK AKTIENGESELLSCHAFT – 39.92 Total 22,347.88 10,124.58
150 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.150 (7) Interest expense
Amounts incurred Amounts incurred Name of related party in the period in the previous period
Shougang Corporation 2,440.74 686.22 Hongta Tobacco (Group) Co., Ltd. 627.52 953.32 Yingda International Holdings Corporation, Ltd. 7.82 5.19 Bodi Investment Co., Ltd 6.35 4.02 Total 3,082.43 1,648.75
(8) Bond investments income
Amounts incurred Amounts incurred Name of related party in the period in the previous period
Shougang Corporation -1,833.12 – DEUTSCHE BANK AKTIENGESELLSCHAFT – 1.29 Total -1,833.12 1.29
(9) Comprehensive credit
Name of related party Approval resolution Comprehensive credit line Credit validity period
Shougang Corporation Reviewed and approved by the 3rd meeting of 490,000.00 2011/4/15-2012/4/14 the 6th Board of Directors of the Company on 24 March 2011 and approved by the 2010 General Meeting of Shareholders on 15 April 2011. Yingda International Holdings Reviewed and approved by the 3rd meeting of 420,000.00 2011/4/15-2012/4/14 Corporation, Ltd. the 6th Board of Directors of the Company on 24 March 2011 and approved by the 2010 General Meeting of Shareholders on 15 April 2011. DEUTSCHE BANK Reviewed and approved by the 3rd meeting of USD250 million 2011/3/24-2012/3/23 AKTIENGESELLSCHAFT the 6th Board of Directors of the Company on (of which: USD180 million treasury 24 March 2011 operation and USD70 million trade finance). In the above limit, Deutsche Bank (China) Co., Ltd. was granted a single credit of RMB1 billion. Hongta Tobacco (Group) Co., Ltd. Reviewed and approved by the 3rd meeting of the 210,000.00 2011/4/15-2012/4/14 6th Board of Directors of the Company on 24 March 2011 and approved by the 2010 General Meeting of Shareholders on 15 April 2011.
Annual Report 2011 151
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.151 (10) Remuneration paid to key management personnel There were 33 key management personnel in the Group for the period and 38 key management personnel for the previous period, and their remunerations were as follows:
Amounts incurred Amounts incurred Name of related party in the period in the previous period
Key management personnel 2,789.80 2,446.90
3. Unsettled amount of related party transactions (Unit: RMB10,000) (1) Receivable from related party
At the end of the period At the beginning of the period Allowances Allowances Item Name of related party Book balance for bad debts Book balance for bad debts
Interest receivable – Bonds Shougang Corporation – – 1,493.59 – interest receivable Interest receivable – Bonds Yingda International Holdings Corporation, Ltd. 643.10 – 320.05 – interest receivable
(2) Payable to related party
At the end At the beginning Item Name of related party of the period of the period
Interest payable – Deposit Hongta Tobacco (Group) Co., Ltd. 280.87 342.32 interest payable
IX. Risk management
1. Credit risk Credit risk refers to the possibility of loss and uncertainty of income caused by customer default or decreased credit standing to the bank, when commercial bank operates credit, inter-bank lending and investment businesses. The credit risk of the Group mainly exists in the on-balance-sheet and off-balance-sheet businesses including loans, inter-bank lending, bond investments, bill acceptance, L/C, and L/G. Before granting credit to a single customer, the Group will conduct credit appraisal first and regularly inspect the credit limit granted. The means for credit risk management include acquisition of collateral and warranty. As for the off-balance-sheet credit commitment, the Group will charge security deposit to reduce the credit risk in general. (1) Loan centralization Customer centralization: at the end of the period, the balance of loans and allowances to top 10 customers of the Group was RMB21,028,122,600, accounting for 3.44% of the total loans and allowances granted. Sector centralization: refer to [Notes V. 8 (2)] Distribution of granted loans and allowances by sectors. Regional centralization: refer to [Notes V. 8 (3)] Distribution of granted loans and allowances by regions. The loans of the Group mainly focus on Beijing, Jiangsu, Zhejiang and Shandong. First, in recent years, the Group focused on the business development of branches in economically developed regions and achieved apparent results. Second, the Group set up branches in these regions in earlier time and had relatively larger percentage, according to the law of banking development. Thirdly, the economic aggregate of these regions were large and provided sound environment and opportunity for rapid business development of the Group.
152 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.152 (2) Derivative financial instruments
All the derivative financial instruments contracts held by the Company are transacted by the Head Office, credit risk lies on whether the counterparty could pay in time according to the terms of the contract and their fair value is the amount of corresponding assets exchanged or repayment for the liabilities.
To reduce the credit risk brought by the derivative financial instruments, the Company signed major offset contract with some counterparties. As for the evaluation and control standard for credit risk of derivative financial instruments, the Company applied the same risk control standard with the other transactions.
(3) Off-balance-sheet business risk
The Group includes the off-balance-sheet business into unified credit management. As for the off-balance- sheet businesses such as bank acceptance bills, L/C and L/G, the Company requires real trading background, charges security deposit in corresponding proportion based on the credit status of customers and business risk level, and requires the effective guarantee for the other parts. The Group strictly controls the high risk off- balance-sheet business such as the financing category of L/G.
(4) Credit risk exposure
Without regard to the available collateral or other credit enhancement, the amounts best representing the maximum credit exposure on the balance sheet date are presented as follows:
At the end At the beginning Item of the period of the period
Balances with central banks 169,298,411,526.06 138,899,691,193.41 Due from and lending to banks and other financial institutions 131,597,755,216.61 44,015,470,490.74 Held-for-trading financial assets 4,004,590,925.61 106,446,265.00 Reverse repurchase agreements 197,867,971,987.55 240,084,250,169.41 Interest receivable 5,635,045,171.37 2,917,283,614.95 Loans and advances to customers 594,204,100,217.26 514,863,428,181.77 Available-for-sale financial assets 28,488,363,138.35 14,859,482,016.40 Held-to-maturity investments 93,800,841,947.10 66,295,430,284.80 Other assets 5,038,463,816.36 6,886,237,727.04 On-balance-sheet credit risk exposure 1,229,935,543,946.27 1,028,927,719,943.52 Off-balance-sheet credit risk exposure 347,889,954,271.11 237,630,308,365.41 Maximum credit risk exposure 1,577,825,498,217.38 1,266,558,028,308.93
Annual Report 2011 153
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.153 Without regard to the available collateral or other credit enhancement, the amounts best representing the maximum credit exposure on the balance sheet date are presented as follows:
At the end At the beginning Item of the period of the period
Balances with central banks 169,221,147,016.50 138,888,431,028.27 Due from and lending to banks and other financial institutions 131,539,575,708.71 44,014,658,890.74 Held-for-trading financial assets 4,004,590,925.61 106,446,265.00 Reverse repurchase agreements 197,867,971,987.55 240,084,250,169.41 Interest receivable 5,634,676,486.49 2,917,283,614.95 Loans and advances to customers 594,072,488,093.24 514,863,428,181.77 Available-for-sale financial assets 28,488,363,138.35 14,859,482,016.40 Held-to-maturity investments 93,800,841,947.10 66,295,430,284.80 Other assets 5,031,979,292.57 6,886,071,817.04 On-balance-sheet credit risk exposure 1,229,661,634,596.12 1,028,915,482,268.38 Off-balance-sheet credit risk exposure 347,889,096,671.11 237,630,308,365.41 Maximum credit risk exposure 1,577,550,731,267.23 1,266,545,790,633.79
The maximum credit risk exposure of financial assets measured in fair value presented in the above table stands for the current maximum credit risk exposure rather than the one after changes in fair value in the future.
(5) Collateral and other credit enhancement
The type and amount of collateral is determined with regard to the credit risk assessment of the counterparty. The Group takes the acceptable type and its value as the specific implementation standard.
The types of collaterals accepted by the Group are as follows:
a) Reverse repurchase transactions: bills, bonds, and loans, etc;
b) Corporate loans: house property, machinery equipments, land use rights, deposit receipts, and share rights, etc; and
c) Personal loans: house property and certificate of deposit, etc.
The Management regularly inspects the value of collaterals and will require the counterparty to increase the collateral if necessary.
154 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.154 (6) Credit quality information of financial assets
A. Credit quality of various assets with credit risk
At the end of the period (the Group) Not overdue Overdue but and unimpaired unimpaired Impaired Allowance for Item financial assets financial assets financial assets impairment losses Total
Balances with central banks 169,298,411,526.06 – – – 169,298,411,526.06 Due from and placements with banks 131,597,755,216.61 – 128,962,779.34 128,962,779.34 131,597,755,216.61 Held-for-trading financial assets 4,004,590,925.61 – – – 4,004,590,925.61 Reverse repurchase agreements 197,867,971,987.55 – – – 197,867,971,987.55 Interest receivable 5,621,043,119.99 14,002,051.38 – – 5,635,045,171.37 Loans and advances to customers 605,133,554,118.79 729,676,548.59 5,599,686,503.21 17,258,816,953.33 594,204,100,217.26 Available-for-sale financial assets 28,488,363,138.35 – – – 28,488,363,138.35 Held-to-maturity investments 93,800,841,947.10 – – – 93,800,841,947.10 Other assets 5,013,865,495.71 – 610,754,423.25 586,156,102.60 5,038,463,816.36 Total 1,240,826,397,475.77 743,678,599.97 6,339,403,705.80 17,973,935,835.27 1,229,935,543,946.27
At the end of the period (the Company) Not overdue Overdue but and unimpaired unimpaired Impaired Allowance for Item financial assets financial assets financial assets impairment losses Total
Balances with central banks 169,221,147,016.50 – – – 169,221,147,016.50 Due from and placements with banks 131,539,575,708.71 – 128,962,779.34 128,962,779.34 131,539,575,708.71 Held-for-trading financial assets 4,004,590,925.61 – – – 4,004,590,925.61 Reverse repurchase agreements 197,867,971,987.55 – – – 197,867,971,987.55 Interest receivable 5,620,674,435.11 14,002,051.38 – – 5,634,676,486.49 Loans and advances to customers 605,000,612,184.19 729,676,548.59 5,599,686,503.21 17,257,487,142.75 594,072,488,093.24 Available-for-sale financial assets 28,488,363,138.35 – – – 28,488,363,138.35 Held-to-maturity investments 93,800,841,947.10 – – – 93,800,841,947.10 Other assets 5,007,380,971.92 – 610,754,423.25 586,156,102.60 5,031,979,292.57 Total 1,240,551,158,315.04 743,678,599.97 6,339,403,705.80 17,972,606,024.69 1,229,661,634,596.12
Annual Report 2011 155
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.155 At the beginning of the period (the Group) Not overdue Overdue but and unimpaired unimpaired Impaired Allowance for Item financial assets financial assets financial assets impairment losses Total
Balances with central banks 138,899,691,193.41 – – – 138,899,691,193.41 Due from and placements with banks 44,015,470,490.74 – 132,747,446.55 132,747,446.55 44,015,470,490.74 Held-for-trading financial assets 106,446,265.00 – – – 106,446,265.00 Reverse repurchase agreements 240,084,250,169.41 – – – 240,084,250,169.41 Interest receivable 2,909,372,212.20 7,911,402.75 – – 2,917,283,614.95 Loans and advances to customers 521,497,922,700.13 184,721,337.43 6,254,037,146.65 13,073,253,002.44 514,863,428,181.77 Available-for-sale financial assets 14,859,482,016.40 – – – 14,859,482,016.40 Held-to-maturity investments 66,184,075,928.31 – 151,031,950.11 39,677,593.62 66,295,430,284.80 Other assets 6,813,585,129.28 – 635,739,443.23 563,086,845.47 6,886,237,727.04 Total 1,035,370,296,104.88 192,632,740.18 7,173,555,986.54 13,808,764,888.08 1,028,927,719,943.52
At the beginning of the period (the Company) Not overdue Overdue but and unimpaired unimpaired Impaired Allowance for Item financial assets financial assets financial assets impairment losses Total
Balances with central banks 138,888,431,028.27 – – – 138,888,431,028.27 Due from and placements with banks 44,014,658,890.74 – 132,747,446.55 132,747,446.55 44,014,658,890.74 Held-for-trading financial assets 106,446,265.00 – – – 106,446,265.00 Reverse repurchase agreements 240,084,250,169.41 – – – 240,084,250,169.41 Interest receivable 2,909,372,212.20 7,911,402.75 – – 2,917,283,614.95 Loans and advances to customers 521,497,922,700.13 184,721,337.43 6,254,037,146.65 13,073,253,002.44 514,863,428,181.77 Available-for-sale financial assets 14,859,482,016.40 – – – 14,859,482,016.40 Held-to-maturity investments 66,184,075,928.31 – 151,031,950.11 39,677,593.62 66,295,430,284.80 Other assets 6,813,419,219.28 – 635,739,443.23 563,086,845.47 6,886,071,817.04 Total 1,035,358,058,429.74 192,632,740.18 7,173,555,986.54 13,808,764,888.08 1,028,915,482,268.38
The Group has set aside sufficient allowance for impaired loans. Some overdue but unimpaired loans were mainly due to short-term shortage of funds of customers and without objective impairment evidence, so the Group did not classify it into impaired loans.
Overdue financial assets refer to the financial assets with principal or interest overdue for 1 day or above.
156 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.156 B. Analysis on period of overdue but unimpaired loans and advances to customers
At the end of the period Overdue for Overdue for less than Overdue for Overdue for more than Item 1 month 1-2 months 2-3 months 3 months Total Corporate loans 283,944,515.21 65,304,656.55 20,000,000.00 202,041,716.69 571,290,888.45 Personal loans 121,170,538.48 9,059,638.56 17,182,147.55 10,973,335.55 158,385,660.14 Total 405,115,053.69 74,364,295.11 37,182,147.55 213,015,052.24 729,676,548.59
At the beginning of the period Overdue for Overdue for less than Overdue for Overdue for more than Item 1 month 1-2 months 2-3 months 3 months Total Corporate loans 87,125,294.82 – 11,700,000.00 – 98,825,294.82 Personal loans 63,429,002.57 9,833,024.63 10,003,842.41 2,630,173.00 85,896,042.61 Total 150,554,297.39 9,833,024.63 21,703,842.41 2,630,173.00 184,721,337.43
C. Renegotiated financial assets The carrying amount of renegotiated financial assets which were determined to be overdue or impaired is as follows:
At the end At the beginning Item of the period of the period Loans and advances 20,406,011.60 22,166,874.14
(7) Assessment value of collaterals held corresponding with various financial assets during the reporting period At the end of the period, the fair value amount of collaterals of confirmed impaired or overdue loans and allowances held by the Group was RMB9,576,765,200 (at the beginning of the period: RMB9,920,979,100). These collaterals included house property and so on. (8) Increase in mortgaged assets and decrease in mortgaged assets during the reporting period During the reporting period, the Group increased mortgaged assets (house property) worth of RMB4,789,300, and decreased mortgaged assets of RMB212,840,300.
2. Liquidity risk Liquidity risk refers to the risk the bank confronts with, if the bank could not meet the requirements of deposit withdrawal and normal and reasonable loans of customers or other instant cash requirements. If the unbalance of total assets and liabilities or unbalance of period structure occurs, and the bank could not raise the desired fund by reasonable cost, causing insufficient cash payment to the customers, this will lead to the liquidity risk and even possibly the run-on banks risk if seriously. Adverse factors possibly influencing the liquidity of the Group include: large increase in credit demand, large performance of credit commitments, large increase of deposits and difficulty in recovering matured loans. Besides, adjustment of deposit reserve ratio by PBOC, sharp changes in domestic and foreign interest rates, financing difficulty in monetary market and so on will also have negative impact on the liquidity of the Group. The Company set up the Asset & Liabilities Management Committee, responsible for preparation, organizations and implementation of the administrative policies on liquidity risk, established multi-channel of financing mechanism, and designed a series of daily liquidity monitoring indicator system complying with the reality of the Company, in accordance with the indicator system on liquidity risk monitoring by regulatory departments and the applicability principle. Meanwhile, taking into account both the benefits and liquidity, the Company held some government loans and central bank bills in the assets portfolio, which could not only achieve stable investment income, but also sell off or repurchase in the secondary market at any time to fulfill the liquidity requirements.
Annual Report 2011 157
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.157 By residual maturity date
At the end of the period, the analysis on the financial assets and liabilities of the Group by residual maturity date were as follows:
(Unit: RMB10,000)
Timely Less than 3 months- Over Item Overdue repayment 3 months 1 year 1-5 years 5 years Total
Cash on hand and balances with central banks – 17,247,338 – – – – 17,247,338 Due from banks and other financial institutions – 3,448,070 4,716,880 2,001,262 – – 10,166,212 Placements with banks and other financial institutions – – 2,973,563 20,000 – – 2,993,563 Reverse repurchase agreements – – 7,565,147 12,221,650 – – 19,786,797 Loans and advances to customers 130,839 – 8,658,598 28,295,449 11,509,102 10,826,422 59,420,410 Held-for-trading financial assets – 400,459 – – – – 400,459 Available-for-sale financial assets – 2,848,836 – – – – 2,848,836 Held-to-maturity investments – – 287,276 696,059 3,007,769 5,388,980 9,380,084 Other assets – 5,296 628,800 312,849 723,770 499,704 2,170,419 Total assets 130,839 23,949,999 24,830,264 43,547,269 15,240,641 16,715,106 124,414,118 Deposits from customers – 47,157,525 16,393,919 21,635,124 4,415,791 6 89,602,365 Repurchase agreements – – 5,570,824 2,261,855 – – 7,832,679 Due from and placements with banks and other financial institutions – 11,376,532 3,859,550 1,024,281 – – 16,260,363 Bonds payable – – – 1,362,000 440,000 400,000 2,202,000 Other liabilities – 416,535 921,683 545,215 154,556 85,710 2,123,699 Total liabilities – 58,950,592 26,745,976 26,828,475 5,010,347 485,716 118,021,106 On-balance-sheet liquidity, net 130,839 -35,000,593 -1,915,712 16,718,794 10,230,294 16,229,390 6,393,012
158 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.158 At the end of the period, the analysis on the financial assets and liabilities of the Group by residual maturity date were as follows: (Unit: RMB10,000)
Timely Less than 3 months- Over Item Overdue repayment 3 months 1 year 1-5 years 5 years Total Cash on hand and balances with central banks – 17,239,107 – – – – 17,239,107 Due from banks and other financial institutions – 3,442,252 4,716,880 2,001,263 – – 10,160,395 Placements with banks and other financial institutions – – 2,973,563 20,000 – – 2,993,563 Reverse repurchase agreements – – 7,565,147 12,221,650 – – 19,786,797 Loans and advances to customers 130,839 – 8,658,599 28,282,287 11,509,102 10,826,422 59,407,249 Held-for-trading financial assets – 400,459 – – – – 400,459 Available-for-sale financial assets – 2,848,836 – – – – 2,848,836 Held-to-maturity investments – – 287,276 696,059 3,007,769 5,388,980 9,380,084 Other assets – 5,296 628,799 312,164 721,625 516,682 2,184,566 Total assets 130,839 23,935,950 24,830,264 43,533,423 15,238,496 16,732,084 124,401,056 Deposits from customers – 47,157,524 16,393,919 21,584,164 4,415,791 6 89,551,404 Repurchase agreements – – 5,570,824 2,261,855 – – 7,832,679 Due from and placements with banks and other financial institutions – 11,416,844 3,859,550 1,024,281 – – 16,300,675 Bonds payable – – – 1,362,000 440,000 400,000 2,202,000 Other liabilities – 416,704 921,683 544,623 154,572 85,710 2,123,292 Total liabilities – 58,991,072 26,745,976 26,776,923 5,010,363 485,716 118,010,050 On-balance-sheet liquidity, net 130,839 -35,055,122 -1,915,712 16,756,500 10,228,133 16,246,368 6,391,006
At the beginning of the period, the analysis on the financial assets and liabilities of the Group by residual maturity date were as follows: (Unit: RMB10,000)
Timely Less than 3 months- Over Item Overdue repayment 3 months 1 year 1-5 years 5 years Total Cash on hand and balances with central banks – 14,139,955 – – – – 14,139,955 Due from banks and other financial institutions – 709,198 36,250 7,538 – – 752,986 Placements with banks and other financial institutions – – 3,648,561 – – – 3,648,561 Reverse repurchase agreements – – 19,756,408 4,252,017 – – 24,008,425 Loans and advances to customers 106,071 – 6,908,115 22,561,707 13,608,807 8,301,643 51,486,343 Held-for-trading financial assets – 10,645 – – – – 10,645 Available-for-sale financial assets – 1,485,948 – – – – 1,485,948 Held-to-maturity investments – – 418,345 1,282,116 2,017,141 2,911,941 6,629,543 Other assets – 10,314 664,904 241,111 547,794 396,515 1,860,638 Total assets 106,071 16,356,060 31,432,583 28,344,489 16,173,742 11,610,099 104,023,044 Deposits from customers – 41,969,450 17,483,355 15,163,508 2,063,615 82,297 76,762,225 Repurchase agreements – – 7,668,203 1,318,452 – – 8,986,655 Due from and placements with banks and other financial institutions – 2,343,360 6,317,979 1,795,028 – – 10,456,367 Bonds payable – – – 200,000 1,802,000 400,000 2,402,000 Other liabilities – 263,436 1,040,857 469,566 35,286 57,064 1,866,209 Total liabilities – 44,576,246 32,510,394 18,946,554 3,900,901 539,361 100,473,456 On-balance-sheet liquidity, net 106,071 -28,220,186 -1,077,811 9,397,935 12,272,841 11,070,738 3,549,588
Annual Report 2011 159
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.159 At the beginning of the period, the analysis on the financial assets and liabilities of the Group by residual maturity date were as follows:
(Unit: RMB10,000)
Timely Less than 3 months- Over Item Overdue repayment 3 months 1 year 1-5 years 5 years Total
Cash on hand and balances with central banks – 14,138,787 – – – – 14,138,787 Due from banks and other financial institutions – 709,117 36,250 7,538 – – 752,905 Placements with banks and other financial institutions – – 3,648,561 – – – 3,648,561 Reverse repurchase agreements – – 19,756,408 4,252,017 – – 24,008,425 Loans and advances to customers 106,071 – 6,908,115 22,561,707 13,608,807 8,301,643 51,486,343 Held-for-trading financial assets – 10,645 – – – – 10,645 Available-for-sale financial assets – 1,485,948 – – – – 1,485,948 Held-to-maturity investments – – 418,345 1,282,116 2,017,141 2,911,941 6,629,543 Other assets – 10,314 664,887 241,111 546,987 406,515 1,869,814 Total assets 106,071 16,354,811 31,432,566 28,344,489 16,172,935 11,620,099 104,030,971 Deposits from customers – 41,968,234 17,483,355 15,163,402 2,063,615 82,297 76,760,903 Repurchase agreements – – 7,668,203 1,318,452 – – 8,986,655 Due from and placements with banks and other financial institutions – 2,352,503 6,317,979 1,795,028 – – 10,465,510 Bonds payable – – – 200,000 1,802,000 400,000 2,402,000 Other liabilities – 263,436 1,040,613 469,566 35,286 57,064 1,865,965 Total liabilities – 44,584,173 32,510,150 18,946,448 3,900,901 539,361 100,481,033 On-balance-sheet liquidity, net 106,071 -28,229,362 -1,077,584 9,398,041 12,272,034 11,080,738 3,549,938
3. Market risk
(1) Interest rate risk
Interest rate risk refers to the possibility for a bank to suffer decreased benefits or losses caused by the unfavorable changes in interest rate. As the major source of income for the domestic commercial banks is from interest margin between deposits and loans, changes in interest rate has direct impact on the bank’s operation. At the present stage, domestic foreign-currency deposit and loan interest rate is basically represented as market interest rate and obviously affected by the market factors. RMB interest rate marketization progress is speeding up. On 29 October 2004, PBOC increased the benchmark interest rates for deposit and loans, in the meantime further relaxed restrictions on the floating interval of RMB loans interest rate (without upper limit) and allowed the downward floating of RMB deposit interest rate. Along with the enhancement of marketization level of interest rate, the possibility of interest rate fluctuation increases.
The Group intensified the cost control in interest-payment liabilities management, established period and interest rate structure matching with the interest payment liabilities in interest-bearing assets management, optimized assets and liabilities portfolio management, and proactively developed intermediary business and non- interest rate sensitive financial products to reduce the impact of interest rate risk on the Group’s operation.
160 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.160 At the end of the period, the repricing dates or maturity dates (earlier one) of assets and liabilities of the Group are as follows:
(Unit: RMB10,000)
Overdue or interest not Less than 1 to 2 2 to 3 3 to 4 4 to 5 Over 5 Item accrued 1 year years years years years years Total
Cash on hand and balances with central banks 375,108 16,872,230 – – – – – 17,247,338 Due from banks and other financial institutions 38 10,166,174 – – – – – 10,166,212 Placements with banks and other financial institutions – 2,993,563 – – – – – 2,993,563 Reverse repurchase agreements – 19,786,797 – – – – – 19,786,797 Loans and advances to customers 130,839 53,149,893 234,335 124,232 88,945 80,837 5,611,329 59,420,410 Held-for-trading financial assets – 400,459 – – – – – 400,459 Available-for-sale financial assets – 2,848,836 – – – – – 2,848,836 Held-to-maturity investments – 1,281,143 626,144 893,013 340,902 998,709 5,240,173 9,380,084 Other assets 1,820,419 250,000 100,000 – – – – 2,170,419 Total assets 2,326,404 107,749,095 960,479 1,017,245 429,847 1,079,546 10,851,502 124,414,118 Deposits from customers 1,284,785 83,901,783 879,197 619,322 629,621 2,287,651 6 89,602,365 Repurchase agreements – 7,832,679 – – – – – 7,832,679 Due from and placements with banks and other financial institutions 2,847 16,257,516 – – – – – 16,260,363 Bonds payable – 1,522,000 – – 440,000 – 240,000 2,202,000 Other liabilities 1,678,315 262,963 100,376 376 376 376 80,917 2,123,699 Total liabilities 2,965,947 109,776,941 979,573 619,698 1,069,997 2,288,027 320,923 118,021,106 Interest rate exposure -639,543 -2,027,846 -19,094 397,547 -640,150 -1,208,481 10,530,579 6,393,012
Annual Report 2011 161
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.161 At the end of the period, the repricing dates or maturity dates (earlier one) of assets and liabilities of the Group are as follows:
(Unit: RMB10,000)
Overdue or interest not Less than 1 to 2 2 to 3 3 to 4 4 to 5 Over 5 Item accrued 1 year years years years years years Total
Cash on hand and balances with central banks 374,604 16,864,503 – – – – – 17,239,107 Due from banks and other financial institutions 38 10,160,357 – – – – – 10,160,395 Placements with banks and other financial institutions – 2,993,563 – – – – – 2,993,563 Reverse repurchase agreements – 19,786,797 – – – – – 19,786,797 Loans and advances to customers 130,839 53,136,735 234,335 124,232 88,945 80,837 5,611,326 59,407,249 Held-for-trading financial assets – 400,459 – – – – – 400,459 Available-for-sale financial assets – 2,848,836 – – – – – 2,848,836 Held-to-maturity investments – 1,281,143 626,144 893,013 340,902 998,709 5,240,173 9,380,084 Other assets 1,834,566 250,000 100,000 – – – – 2,184,566 Total assets 2,340,047 107,722,393 960,479 1,017,245 429,847 1,079,546 10,851,499 124,401,056 Deposits from customers 1,284,785 83,850,822 879,197 619,322 629,621 2,287,651 6 89,551,404 Repurchase agreements – 7,832,679 – – – – – 7,832,679 Due from and placements with banks and other financial institutions 2,847 16,297,828 – – – – – 16,300,675 Bonds payable – 1,522,000 – – 440,000 – 240,000 2,202,000 Other liabilities 1,677,909 262,962 100,376 376 376 376 80,917 2,123,292 Total liabilities 2,965,541 109,766,291 979,573 619,698 1,069,997 2,288,027 320,923 118,010,050 Interest rate exposure -625,494 -2,043,898 -19,094 397,547 -640,150 -1,208,481 10,530,576 6,391,006
162 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.162 At the beginning of the period, the repricing dates or maturity dates (earlier one) of assets and liabilities of the Group are as follows:
(Unit: RMB10,000)
Overdue or interest not Less than 1 to 2 2 to 3 3 to 4 4 to 5 Over 5 Item accrued 1 year years years years years years Total
Cash on hand and balances with central banks 383,430 13,756,525 – – – – – 14,139,955 Due from banks and other financial institutions 38 752,948 – – – – – 752,986 Placements with banks and other financial institutions – 3,648,561 – – – – – 3,648,561 Reverse repurchase agreements – 24,008,425 – – – – – 24,008,425 Loans and advances to customers 106,071 46,549,028 433,147 87,315 129,579 104,247 4,076,956 51,486,343 Held-for-trading financial assets – 10,645 – – – – – 10,645 Available-for-sale financial assets – 1,485,948 – – – – – 1,485,948 Held-to-maturity investments – 1,935,152 712,022 542,360 265,011 338,081 2,836,917 6,629,543 Other assets 1,275,638 585,000 – – – – – 1,860,638 Total assets 1,765,177 92,732,232 1,145,169 629,675 394,590 442,328 6,913,873 104,023,044 Deposits from customers 352,424 74,547,931 655,988 304,519 314,933 554,933 31,497 76,762,225 Repurchase agreements – 8,986,655 – – – – – 8,986,655 Due from and placements with banks and other financial institutions 2,896 10,453,471 – – – – – 10,456,367 Bonds payable – 1,046,000 676,000 – – 440,000 240,000 2,402,000 Other liabilities 1,264,357 544,437 376 407 376 376 55,880 1,866,209 Total liabilities 1,619,677 95,578,494 1,332,364 304,926 315,309 995,309 327,377 100,473,456 Interest rate exposure 145,500 -2,846,262 -187,195 324,749 79,281 -552,981 6,586,496 3,549,588
Annual Report 2011 163
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.163 At the beginning of the period, the repricing dates or maturity dates (earlier one) of assets and liabilities of the Group are as follows:
(Unit: RMB10,000)
Overdue or interest not Less than 1 to 2 2 to 3 3 to 4 4 to 5 Over 5 Item accrued 1 year years years years years years Total
Cash on hand and balances with central banks 383,430 13,755,357 – – – – – 14,138,787 Due from banks and other financial institutions 38 752,867 – – – – – 752,905 Placements with banks and other financial institutions – 3,648,561 – – – – – 3,648,561 Reverse repurchase agreements – 24,008,425 – – – – – 24,008,425 Loans and advances to customers 106,071 46,549,028 433,147 87,315 129,579 104,247 4,076,956 51,486,343 Held-for-trading financial assets – 10,645 – – – – – 10,645 Available-for-sale financial assets – 1,485,948 – – – – – 1,485,948 Held-to-maturity investments – 1,935,152 712,022 542,360 265,011 338,081 2,836,917 6,629,543 Other assets 1,284,814 585,000 – – – – – 1,869,814 Total assets 1,774,353 92,730,983 1,145,169 629,675 394,590 442,328 6,913,873 104,030,971 Deposits from customers 352,424 74,546,609 655,988 304,519 314,933 554,933 31,497 76,760,903 Repurchase agreements – 8,986,655 – – – – – 8,986,655 Due from and placements with banks and other financial institutions 2,896 10,462,614 – – – – – 10,465,510 Bonds payable – 1,046,000 676,000 – – 440,000 240,000 2,402,000 Other liabilities 1,264,114 544,436 376 407 376 376 55,880 1,865,965 Total liabilities 1,619,434 95,586,314 1,332,364 304,926 315,309 995,309 327,377 100,481,033 Interest rate exposure 154,919 -2,855,331 -187,195 324,749 79,281 -552,981 6,586,496 3,549,938
The Group uses sensibility analysis to measure the possible impact of changes in interest rate on net interest income of the Company. The sensibility analysis of net interest income is calculated based on the above interest rate risk exposure of related assets and liabilities. The following table presents the interest rate sensibility analysis result based on the assets and liabilities on the balance sheet date.
(Unit: RMB10,000)
Sensibility of net interest income For the For previous Changes in basis points of interest rate current period period
Up 100 basis points 70,325.55 34,040.88 Down 100 basis points -70,325.55 -34,040.88
Sensibility analysis of equity is to predict the impact of changes in interest rate on changes in its corresponding equity, through revaluation on available-for-sale financial assets held at the end of the period. The Group mainly applied present value of basis points to measure the interest rate risk of available-for-sale financial assets, and the present value of basis point on 31 December 2011 was RMB7,215,900.
164 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.164 (2) Foreign exchange risk The Group mainly operates RMB business and foreign-currency business focuses on USD. Since 21 July 2005, China began to implement the managed floating exchange rate based on market supply and demand and adjusted referring to a basket of currencies, forming a more flexible RMB exchange rate mechanism. The impacts of exchange rate risk on the Group’s operation are mainly represented in: A. The Group may hold unliquidated foreign exchange position so as to undertake the exchange rate risk; B. The major source of foreign exchange fund of the Group is USD, and to meet the requirement of customers about small amount of foreign-currencies other than USD exchange purchase payment, the Group may need to purchase some foreign currencies in advance to guarantee the payment so as to expose to the exchange risk; C. When the assets, liabilities and income booked in foreign-currency are converted into the bookkeeping base currency of the Group (RMB), the Group is faced with exchange rate translation risk. As for the business varieties involving exchange risk, the Group strictly manages various links of development, launching and operation, and formulates necessary risk control system in terms of business authorization, exposure limits and process monitoring. As for the foreign exchange trading business, the Company divides into bank account and transaction account and the foreign exchange exposure of the whole bank is managed by the Head Office in an unified manner. At the end of the period, assets and liabilities of the Group presented by currency type are as follows: (Unit: RMB10,000)
RMB RMB RMB equivalent equivalent equivalent of other Item RMB of USD of HKD currency types Total
Cash on hand and balances with central banks 17,169,465 66,326 5,841 5,706 17,247,338 Due from banks and other financial institutions 9,917,366 176,247 12,236 60,363 10,166,212 Placements with banks and other financial institutions 2,949,500 44,063 – – 2,993,563 Reverse repurchase agreements 19,786,797 – – – 19,786,797 Loans and advances to customers 58,547,792 849,831 12,578 10,209 59,420,410 Held-for-trading financial assets 390,201 10,258 – – 400,459 Available-for-sale financial assets 2,842,541 6,295 – – 2,848,836 Held-to-maturity investments 9,358,053 22,031 – – 9,380,084 Other assets 2,131,404 38,709 233 73 2,170,419 Total assets 123,093,119 1,213,760 30,888 76,351 124,414,118 Deposits from customers 88,375,017 1,080,446 45,833 101,069 89,602,365 Repurchase agreements 7,832,679 – – – 7,832,679 Due from and placements with banks and other financial institutions 16,191,865 66,915 1,583 – 16,260,363 Bonds payable 2,202,000 – – – 2,202,000 Other liabilities 2,000,855 75,766 610 46,468 2,123,699 Total liabilities 116,602,416 1,223,127 48,026 147,537 118,021,106 On-balance-sheet net position 6,490,703 -9,367 -17,138 -71,186 6,393,012
Annual Report 2011 165
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.165 At the end of the period, assets and liabilities of the Group presented by currency type are as follows:
(Unit: RMB10,000)
RMB RMB RMB equivalent equivalent equivalent of other Item RMB of USD of HKD currency types Total
Cash on hand and balances with central banks 17,161,234 66,326 5,841 5,706 17,239,107 Due from banks and other financial institutions 9,911,549 176,247 12,236 60,363 10,160,395 Placements with banks and other financial institutions 2,949,500 44,063 – – 2,993,563 Reverse repurchase agreements 19,786,797 – – – 19,786,797 Loans and advances to customers 58,534,631 849,831 12,578 10,209 59,407,249 Held-for-trading financial assets 390,201 10,258 – – 400,459 Available-for-sale financial assets 2,842,541 6,295 – – 2,848,836 Held-to-maturity investments 9,358,053 22,031 – – 9,380,084 Other assets 2,145,551 38,709 233 73 2,184,566 Total assets 123,080,057 1,213,760 30,888 76,351 124,401,056 Deposits from customers 88,324,056 1,080,446 45,833 101,069 89,551,404 Repurchase agreements 7,832,679 – – – 7,832,679 Due from and placements with banks and other financial institutions 16,232,177 66,915 1,583 – 16,300,675 Bonds payable 2,202,000 – – – 2,202,000 Other liabilities 2,000,448 75,766 610 46,468 2,123,292 Total liabilities 116,591,360 1,223,127 48,026 147,537 118,010,050 On-balance-sheet net position 6,488,697 -9,367 -17,138 -71,186 6,391,006
166 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.166 At the beginning of the period, assets and liabilities of the Group presented by currency type are as follows:
(Unit: RMB10,000)
RMB RMB RMB equivalent equivalent equivalent of other Item RMB of USD of HKD currency types Total
Cash on hand and balances with central banks 14,053,218 69,019 9,396 8,322 14,139,955 Due from banks and other financial institutions 431,871 151,701 98,020 71,394 752,986 Placements with banks and other financial institutions 3,576,732 71,829 – – 3,648,561 Reverse repurchase agreements 24,008,425 – – – 24,008,425 Loans and advances to customers 50,559,342 897,507 11,591 17,903 51,486,343 Held-for-trading financial assets – 10,645 – – 10,645 Available-for-sale financial assets 1,479,357 6,591 – – 1,485,948 Held-to-maturity investments 6,570,616 54,083 1,695 3,149 6,629,543 Other assets 1,843,874 15,829 877 58 1,860,638 Total assets 102,523,435 1,277,204 121,579 100,826 104,023,044 Deposits from customers 75,469,834 1,077,888 118,493 96,010 76,762,225 Repurchase agreements 8,986,655 – – – 8,986,655 Due from and placements with banks and other financial institutions 10,437,858 13,782 2,085 2,642 10,456,367 Bonds payable 2,402,000 – – – 2,402,000 Other liabilities 1,790,741 35,374 558 39,536 1,866,209 Total liabilities 99,087,088 1,127,044 121,136 138,188 100,473,456 On-balance-sheet net position 3,436,347 150,160 443 -37,362 3,549,588
Annual Report 2011 167
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.167 At the beginning of the period, assets and liabilities of the Group presented by currency type are as follows:
(Unit: RMB10,000)
RMB RMB RMB equivalent equivalent equivalent of other Item RMB of USD of HKD currency types Total
Cash on hand and balances with central banks 14,052,051 69,019 9,396 8,321 14,138,787 Due from banks and other financial institutions 431,790 151,701 98,020 71,394 752,905 Placements with banks and other financial institutions 3,576,732 71,829 – – 3,648,561 Reverse repurchase agreements 24,008,425 – – – 24,008,425 Loans and advances to customers 50,559,342 897,507 11,591 17,903 51,486,343 Held-for-trading financial assets – 10,645 – – 10,645 Available-for-sale financial assets 1,479,357 6,591 – – 1,485,948 Held-to-maturity investments 6,570,616 54,083 1,695 3,149 6,629,543 Other assets 1,853,049 15,829 877 59 1,869,814 Total assets 102,531,362 1,277,204 121,579 100,826 104,030,971 Deposits from customers 75,468,512 1,077,887 118,493 96,011 76,760,903 Repurchase agreements 8,986,655 – – – 8,986,655 Due from and placements with banks and other financial institutions 10,447,002 13,782 2,085 2,641 10,465,510 Bonds payable 2,402,000 – – – 2,402,000 Other liabilities 1,790,496 35,375 558 39,536 1,865,965 Total liabilities 99,094,665 1,127,044 121,136 138,188 100,481,033 On-balance-sheet net position 3,436,697 150,160 443 -37,362 3,549,938
The Group uses sensibility analysis to measure the possible impact of changes in exchange rate on net profit or loss from foreign exchange. The following table presents the exchange rate sensibility analysis result based on the assets and liabilities on the balance sheet date.
(Unit: RMB10,000)
Changes in Impact on profit before tax foreign-currency For the For previous Currency exchange rate current period period
USD +/-5% –/+468.37 +/-7,507.96 HKD +/-5% –/+856.89 +/-22.17
The above impact of changes in exchange rate on profit before tax is calculated based on the foreign exchange risk exposure of related assets and liabilities.
168 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.168 4. Fair value of financial instruments The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction. As for the financial assets or liabilities having active market, the Group determines their fair value with the quote in the active market. As for the financial instruments without active market, the Group determines their fair value with valuation techniques, including price used in recent market transaction by knowledgeable, willing parties, referring to the current fair value of other financial instruments sharing similar nature, discounted cash flow method, option pricing model and other techniques. As for the primarily acquired or connate financial assets or undertaken financial liabilities, the Group takes the market trading price as the basis to determine their fair value. When market information can not be obtained, the Management will evaluate the credit risk, market fluctuation and relevance of the Group and counterparty. These changes in related assumptions will influence the fair value of the financial instruments. Financial instruments measured in fair value are divided into the following three levels with regard to valuation: The first level is that the Group acquires the same assets or liabilities with quote in the active market at the measurement date and the quote shall be the basis for determining the fair value; The second level is that the Group acquires the similar assets or liabilities with quote in the active market at the measurement date or the same or similar assets or liabilities with quote in inactive market, and the quote shall be the basis for adjustment to determine the fair value; The third level is that if the Group could not obtain the market transaction price of the same or similar assets, it will take other parameters used by market participants to determine the price of the assets or liabilities as the basis for determining the fair value. (1) The method and assumptions for fair value evaluation used by the Group regarding the various financial assets and liabilities are as follows: A. Financial assets or financial liabilities at fair value through profit or loss These include held-for-trading financial assets and financial assets at fair value and its changes recognized through profit or loss designated at the initial determination. Held-for-trading financial assets include acquired financial assets sold in short term and derivative financial instruments. Financial assets measured at fair value through profit or loss are subsequently measured at fair value, and all realized and unrealized profit or loss is recorded through profit or loss, and fair value is equal to its book value. B. Loans and advances to customers Fair value of loans with fixed rates is estimated by comparing the market interest rate when the loans were granted and the prevailing market interest rate of similar loans. Interest rate of majority loans will be repriced in accordance with the changes in benchmark interest rate of PBOC every year, therefore its book value is its fair value. Credit quality changes of loans in the loan portfolio are not considered in determining the overall fair value, as credit risk impact has been represented in the allowance for losses on loans and deducted from the book value and fair value. C. Held-to-maturity investments As for the held-to-maturity investments in the active market, the Group adopts the quote in the active market to determine their fair value. If no active markets exist for them, the Group adopts valuation techniques to determine their fair value. D. Due to customers Fixed or floating interest rate is used for due to customers by their categories. Fair value of demand deposits and savings account with no designated due date is the amount payable at request of customers. As most time deposits are in short-term nature, its fair value is the same with the book value. E. Other financial assets and liabilities As for the other financial assets and liabilities matured within 12 months, assume that their book values are the fair values. The above-mentioned methods and assumptions for fair value evaluation provide consistent calculation standard for the financial assets and liabilities of the Group. However, as other institutions may adopt different methods and assumptions, the fair value disclosed by various financial institutions does not have the absolute comparability.
Annual Report 2011 169
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.169 (2) Fair value of all levels as of 31 December 2011
Financial assets Level 1 Level 2 Level 3 Total
Derivative financial assets – 201,841,023.09 – 201,841,023.09 Held-for-trading financial assets 61,125,338.39 3,996,427,329.18 – 4,057,552,667.57 Available-for-sale financial assets – 28,488,363,138.35 – 28,488,363,138.35
Financial liabilities Level 1 Level 2 Level 3 Total
Derivative financial liabilities – 192,122,704.88 – 192,122,704.88 Held-for-trading financial liabilities 50,848,200.00 – – 50,848,200.00
(3) Assets and liabilities at fair value
Changes in fair Accumulated value through changes Provision for At the beginning profit or loss in fair value impairment At the end Item of the period during the period through equity during the period of the period
Financial assets I. Financial assets at fair value through profit or loss (excluding derivative financial assets) 106,446,265.00 1,090,937.26 – – 4,057,552,667.57 II. Derivative financial assets 26,053,598.57 175,787,424.52 – – 201,841,023.09 III. Available-for-sale financial assets 14,859,482,016.40 – 3,133,468.95 – 28,488,363,138.35 Subtotal of financial assets 14,991,981,879.97 176,878,361.78 3,133,468.95 – 32,747,756,829.01 Investment-oriented real estate – – – – – Productive biological assets – – – – – Others – – – – – Total 14,991,981,879.97 176,878,361.78 3,133,468.95 – 32,747,756,829.01 Financial liabilities 1,421,141.27 -190,901,436.12 – – 242,970,904.88
170 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.170 (4) Foreign-currency financial assets and financial liabilities
Changes in fair Accumulated value through changes Provision for At the beginning profit or loss in fair value impairment At the end Item of the period during the period through equity during the period of the period
Financial assets I. Financial assets at fair value through profit or loss (excluding derivative financial assets) 106,446,265.00 924,691.43 – – 102,584,096.43 II. Derivative financial assets 26,053,598.57 175,787,424.52 – – 201,841,023.09 III. Loans and receivables 9,347,770,104.38 – – -1,171,831.39 8,809,979,058.02 IV. Available-for-sale financial assets 65,911,000.00 – – – 62,947,000.00 V. Held-to-maturity investments 589,270,744.31 – – -44,469,941.10 220,314,500.00 VI. Other financial assets 4,796,798,373.38 – – -3,784,667.21 3,707,818,883.74 Subtotal of financial assets 14,932,250,085.64 176,712,115.95 – -49,426,439.70 13,105,484,561.28 Financial liabilities I. Financial liabilities at fair value through profit or loss (excluding derivative financial liabilities) – – – – – II. Derivative financial liabilities 1,421,141.27 -190,701,563.61 – – 192,122,704.88 III. Other financial liabilities 13,856,534,303.67 – – – 14,328,562,585.48 Subtotal of Financial liabilities 13,857,955,444.94 -190,701,563.61 – – 14,520,685,290.36
(5) Investments receivable not reflected or disclosed in fair value, carrying values and fair values of held-to- maturity investments and subordinated bonds payable
At the end of the period At the beginning of the period Carrying value Fair value Carrying value Fair value
Held-to-maturity investments 93,800,841,947.10 95,164,832,201.08 66,295,430,284.80 65,846,647,370.51 Bonds payable 22,020,000,000.00 21,598,343,440.00 24,020,000,000.00 24,244,532,680.00
5. Capital management
To ensure the capital adequacy ratio meeting the regulatory requirement and support reasonable and sound development of various businesses on this basis, the Group proactively expanded the capital supplementary channel to promote the capital strength, reasonably controlled the growth speed of risk assets, vigorously optimized the structure of risk assets and strived to enhance the service efficiency of risk assets.
Pursuant to the Administrative Measures on Capital Adequacy Ratio of Commercial Banks (China Banking Regulatory Commission Order 2004 No. 2) and other regulatory provisions, the Group calculated the capital adequacy ratio. Core capital includes share capital, capital reserve, surplus reserve and retained profit. Supplementary capital includes general reserve, mixed capital bonds and long-term subordinated bonds.
Annual Report 2011 171
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.171 Capital adequacy ratios of the Group are as follows: (Unit: RMB10,000)
At the end At the beginning Item of the period of the period Net capital 8,313,870.49 5,490,351.91 Net core capital 6,206,317.72 3,447,930.02 Supplementary capital 2,157,164.45 2,042,421.89 Deductions 49,611.68 – Net risk weighted assets and market risk capital adjustments 71,182,130.64 51,872,182.96 Core capital adequacy ratio 8.72% 6.65% Capital adequacy ratio 11.68% 10.58%
X. segment report (1) Regional segment (Unit: RMB10,000) When presenting information by operating segment, operating income is divided on the basis of location of branches generating income. Segment assets and capital expenditure are divided by the location of the related assets.
Northern and Central and For the period or at Northeastern Eastern Southern Western Offset among the end of the period China China China China segments Total I. Operating income 1,327,954 927,564 587,925 510,937 – 3,354,380 Net interest income 1,199,221 833,289 533,982 462,781 – 3,029,273 Of which: Net interest income among segments -57,351 15,560 37,263 4,528 – – Net fee and commission income 120,455 84,716 48,065 44,314 – 297,550 Of which: Net fees and commission income among segments – – – – – – II. Operating expenses 704,181 315,031 224,550 161,243 – 1,405,005 III. Operating profit/(loss) 166,572 487,129 313,928 284,722 – 1,252,351 IV. Total assets 73,010,846 33,727,502 22,576,794 18,082,014 -22,983,038 124,414,118 V. Total liabilities 67,645,129 33,270,409 22,279,428 17,809,178 -22,983,038 118,021,106 VI. Supplementary information 1. Depreciation and amortisation expenses 89,344 32,885 18,562 14,945 – 155,736 2. Capital expenditures 141,848 79,681 28,249 33,487 – 283,265 3. Non-cash expenses other than depreciation and amortisation – – – – – – For the previous period or at the beginning of the period I. Operating income 939,495 748,251 403,495 356,648 – 2,447,889 Net interest income 870,987 693,416 375,183 336,415 – 2,276,001 Of which: Net interest income among segments -104,424 19,501 68,489 16,434 – – Net fee and commission income 60,507 45,451 22,068 16,461 – 144,487 Of which: Net fees and commission income among segments – – – – – – II. Operating expenses 511,336 267,274 159,183 124,865 – 1,062,658 III. Operating profit/(loss) 78,931 360,599 167,107 196,147 – 802,784 IV. Total assets 59,476,458 29,641,002 19,416,954 14,953,003 -19,464,373 104,023,044 V. Total liabilities 56,611,879 29,298,849 19,260,865 14,766,236 -19,464,373 100,473,456 VI. Supplementary information 1. Depreciation and amortisation expenses 60,989 27,039 13,039 11,918 – 112,985 2. Capital expenditures 108,254 59,295 54,453 33,260 – 255,262 3. Non-cash expenses other than depreciation and amortisation – – – – – –
172 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.172 (2) Other segment information
The primary business of the Group is commercial loans and taking in public deposits and current personal and corporate loan funds are mainly from customers’ deposits. For the trading income of operating products of the Group, please see [Notes V. 35].
XI. Post balance sheet date events
1. Explanation on profit distribution after the balance sheet date
Dividend to be distributed RMB1,712,431,444.00 Dividend announced to be issued after approval –
2. Explanation on other post balance sheet date events
On 22 February 2012, the 9th meeting of the 6th Board of Directors of the Company reviewed and approved the Proposal on the Establishment of a Financial Leasing Company and Follow-up Authorization. The Company will establish a financial leasing company by the contribution in cash not exceeding RMB3 billion, and hold shares not lower than 82% with the register place in Kunming, Yunnan.
XII. Other significant events
As of 31 December 2011, the Group has no other significant events to be disclosed.
XIII. Supplementary information
1. Detailed list of current extraordinary profit or loss
Amounts incurred Item in the period Notes
(Profit)/loss on disposal of non-current assets -10,610,673.78 (Profit)/loss from contingencies irrelevant to the normal operation of the Company -6,638,530.28 (Profit)/loss on changes in fair value of held-for-trading financial assets and held-for-trading financial liabilities excluding effective hedging transaction related to the Company’s normal operation -14,023,074.34 Investment gains from the disposal of held-for-trading financial assets, held-for-trading financial liabilities and available-for-sale financial assets -29,770,816.03 Reverse of allowance for impairment losses on receivables undergoing impairment test independently – Other operating income and expenses except the above items 21,137,456.21 Total extraordinary profit or loss -39,905,638.22 Less: Income tax influence of extraordinary profit or loss -7,263,273.61 Extraordinary profit or loss, net -32,642,364.61 Less: Net effect of extraordinary profit or loss attributable to minority interest (after tax) – Extraordinary profit or loss attributable to ordinary shareholders of the Company -32,642,364.61
Annual Report 2011 173
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.173 2. Return on net assets and earnings per share
Earnings per share Weighted Diluted average return Basic earnings earnings Profit of the reporting period on equity (%) per share per share
Net profit attributable to ordinary shareholders of the Company 17.44 1.4802 1.4802 Net profit attributable to ordinary shareholders of the Company after deduction of extraordinary profit/loss 17.50 1.4855 1.4855
Calculation process of return on weighted average net assets is as follows:
Item Code Reporting period
Net profit attributable to ordinary shareholders of the Company P1 9,221,933,577.13 during the reporting period Extraordinary profit or loss attributable to ordinary shareholders F -32,642,364.61 of the Company during the reporting period Net profit attributable to ordinary shareholders of the Company after P2=P1-F 9,254,575,941.74 deduction of extraordinary profit or loss during the reporting period Net assets at the beginning of the period attributable to ordinary E0 35,495,880,166.27 shareholders of the Company Increased net assets including new shares issued or debt-to-equity swap, Ei 20,106,640,469.25 etc. attributable to ordinary shareholders of the Company during the reporting period Number of months for increased net assets from next month Mi 8 until the end of the reporting period Decreased net assets including repurchase or cash dividend, etc. Ej 998,105,663.20 attributable to ordinary shareholders of the Company during the reporting period Number of months for decreased net assets from next month Mj 8 until the end of the reporting period (Increase)/decrease in net assets caused by other matters Ek 74,736,135.96 Number of months for changes in other net assets from next moth Mk 6 until the end of the reporting period Number of months of reporting period M0 12 Net assets at the end of the period attributable to ordinary E1 63,901,084,685.41 shareholders of the Company Weighted average net assets attributable to ordinary E2=E0+P1/2+Ei*Mi/M0- 52,883,238,226.85 shareholders of the Company Ej*Mj/M0+Ek*Mk/M0 Return on weighted average net assets attributable to Y1=P1/E2 17.44 ordinary shareholders of the Company Return on weighted average net assets attributable to Y2=P2/E2 17.50 ordinary shareholders of the Company after deduction of extraordinary profit and loss
174 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.174 3. Accounting data differences under PRC GAAP and IFRS
(1) Differences of net profit and net assets in the financial reports disclosed under IFRS and PRC GAAP
Net profit Net assets Amounts Amounts incurred incurred in the previous At the end At the beginning in the period period of the period of the period
PRC GAAP 9,220,971,803.51 5,989,582,489.73 63,930,122,911.79 35,495,880,166.27 Item and amount adjusted under IFRS: – – – – Unrealized profit/(loss) in available-for-sale investments (Note) – – 90,558,613.39 110,192,616.20 IFRS 9,220,971,803.51 5,989,582,489.73 64,020,681,525.18 35,606,072,782.47
Note: Unrealized profit/(loss) in available-for-sale investments is unamortised balance of unrealized profit/loss in available-for-sale investments under IFRS. (2) The financial report under IFRS has been audited by overseas audit institution: Ernst & Young.
XIV. Approval of financial statements
The financial statements and the notes to financial statements have been approved by the 10th meeting of the 6th Board of Directors of the Company on 24 March 2012.
Hua Xia Bank Co., Limited
23 March 2012
Annual Report 2011 175
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 11:59 • 80072 • 21b E_Huaxia_Statement_Notes.indd P.175 Independent Auditors’ Report To the Management of Hua Xia Bank Co., Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated financial statements of Hua Xia Bank Co., Limited (the “Company”) and its subsidiaries (together, the “Group”), which comprise the consolidated and company statements of financial position as at 31 December 2011, and the consolidated income statement, 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 notes. Management’s Responsibility for the Consolidated Financial Statements The Management of the Company is responsible for the preparation of these consolidated financial statements that give a true and fair view in accordance with the International Financial Reporting Standards promulgated by the International Accounting Standards Board, and for such internal control as the Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. In accordance with the agreement between the Company and us, our report is made solely to the Management of the Company, 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 International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ 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 auditors consider internal control relevant to the entity’s preparation of the 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 Management, 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. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and of the Group as at 31 December 2011, and of the Group’s financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards.
Practising Certified Public Accountants Hong Kong 23 March 2012
176 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 29-5-2012 • 16:40 • 80072 • 22 C_Huaxia Bank_INT_Auditors.indd P.176 Hua Xia Bank Co., Limited Consolidated Income Statement Accounting Year Ended 31 December 2011 (In RMB thousands, unless otherwise stated)
Note 2011 2010
Interest income 4 62,537,724 43,360,615 Interest expense 4 ( 32,243,233) ( 20,608,295)
Net interest income 4 30,294,491 22,752,320
Net fee and commission income 5 2,975,500 1,444,872 Net gain on held-for-trading financial assets and liabilities 6 8,486 2,739 Other operating income, net 7 256,912 248,480
Operating income 33,535,389 24,448,411
Staff costs 8 ( 6,818,185) ( 5,050,064) General & administrative expenses 9 ( 6,359,233) ( 4,878,218) Depreciation and amortisation ( 872,634) ( 698,302) Business tax and surcharges ( 2,347,591) ( 1,601,864) Allowance for impairment losses on loans and advances to customers 16b ( 4,666,246) ( 4,173,512) Allowance for impairment losses on other assets 10 55,899 ( 38,497)
Profit before tax 12,527,399 8,007,954
Income tax expense 11 ( 3,306,427) ( 2,018,372)
Profit for the year 9,220,972 5,989,582
Attributable to: Equity holders of the parent company 9,221,934 5,989,582 Non-controlling interests ( 962) –
9,220,972 5,989,582
Earnings per share attributable to equity holders of the parent company Basic and diluted earnings per share (RMB yuan) 12 1.48 1.20
The accompanying notes to the financial statements form an integral part of the accounts.
Annual Report 2011 177
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 23 E_Huaxia_Bank_TNT_Con Income.indd P.177 Hua Xia Bank Co., Limited Consolidated Statement of Comprehensive Income Accounting Year Ended 31 December 2011 (In RMB thousands, unless otherwise stated)
Note 2011 2010
Profit for the year 9,220,972 5,989,582
Other comprehensive income (after-tax): 29 Net gain/(loss) on available-for-sale financial assets 55,102 ( 115,765)
Subtotal of other comprehensive income for the year 55,102 ( 115,765)
Total comprehensive income for the year 9,276,074 5,873,817
Total comprehensive income attributable to: Equity holders of the parent company 9,277,036 5,873,817 Non-controlling interests ( 962) –
9,276,074 5,873,817
The accompanying notes to the financial statements form an integral part of the accounts.
178 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 24 E_Huaxia_Bank_TNT_Income.indd P.178 Hua Xia Bank Co., Limited Consolidated Statement of Financial Position 31 December 2011 (In RMB thousands, unless otherwise stated)
Note 31 December 2011 31 December 2010 Assets Cash and balances with central banks 13 172,473,379 141,399,550 Due from banks and other financial institutions 14 131,597,755 44,015,470 Reverse repurchase agreements 15 197,867,972 240,084,250 Loans and advances to customers 16 594,204,100 514,863,428 Held-for-trading financial assets 17 4,004,591 106,446 Investments 18 125,991,724 87,233,635 Derivative financial assets 20 201,841 26,054 Property and equipment 21 7,261,382 6,302,624 Deferred income tax 11 2,713,501 1,650,094 Other assets 22 7,863,990 4,652,570
Total assets 1,244,180,235 1,040,334,121
Liabilities Due to banks and other financial institutions 23 162,603,632 104,563,673 Held-for-trading financial liabilities 50,848 – Repurchase agreements 24 78,326,792 89,866,547 Due to customers 25 896,023,654 767,622,249 Derivative financial liabilities 20 192,123 1,421 Bonds issued 26 22,020,000 24,020,000 Income tax payable 2,831,199 1,833,659 Other liabilities 27 18,111,306 16,820,500
Total liabilities 1,180,159,554 1,004,728,049
EQUITY Equity attributable to equity holders of the parent company Share capital 28a 6,849,726 4,990,528 Capital reserve 28b 32,596,566 14,349,123 Statutory surplus reserve 28c 3,194,428 2,271,686 Discretionary surplus reserve 28c 110,971 110,971 General reserve 28e 9,792,940 8,410,014 Retained profits 28e 11,353,320 5,435,160 Changes in fair value of investments, after-tax 93,692 38,590
63,991,643 35,606,072 Non-controlling interests 29,038 –
Total equity 64,020,681 35,606,072
Total liabilities and equity 1,244,180,235 1,040,334,121
Chairman President Chief Financial Officer Seal of Hua Xia Bank
The accompanying notes to the financial statements form an integral part of the accounts.
Annual Report 2011 179
CAR1204001 • Huaxia Bank • 1st Proof • 25-5-2012 • 10:10 • 80072 • 25 E_Huaxia_Bank_TNT_Position.indd P.179 Hua Xia Bank Co., Limited Consolidated Statement of Changes in Equity Accounting Year Ended 31 December 2011 (In RMB thousands, unless otherwise stated)
Equity attributable to equity holders of the parent company Changes in Statutory Discretionary fair value of Non- Share Capital surplus surplus General Retained investments, controlling Total capital reserve reserve reserve reserve profits after tax Total interests equity
Balance as at 1 January 2010 4,990,528 14,349,123 1,672,378 110,971 6,988,533 2,115,135 154,355 30,381,023 – 30,381,023 Profit for the year – – – – – 5,989,582 – 5,989,582 – 5,989,582 Other comprehensive income (Note 29) – – – – – – ( 115,765) ( 115,765) – ( 115,765) Total comprehensive income – – – – – 5,989,582 ( 115,765) 5,873,817 – 5,873,817 Appropriation to surplus reserve – – 599,308 – – (599,308) – – – – Appropriation to general reserve (Note 28e) – – – – 1,421,481 ( 1,421,481) – – – – Dividend (Note 28d) – – – – – ( 648,768) – ( 648,768) – ( 648,768) Balance as at 31 December 2010 and 1 January 2011 4,990,528 14,349,123 2,271,686 110,971 8,410,014 5,435,160 38,590 35,606,072 – 35,606,072
Profit for the year – – – – – 9,221,934 – 9,221,934 (962) 9,220,972 Other comprehensive income (Note 29) – – – – – – 55,102 55,102 – 55,102 Total comprehensive income – – – – – 9,221,934 55,102 9,277,036 ( 962) 9,276,074 Capital injection by shareholders (Note 28a, b) 1,859,198 18,247,443 – – – – – 20,106,641 – 20,106,641 Appropriation to surplus reserve – – 922,742 – – ( 922,742) – – – – Appropriation to general reserve (Note 28e) – – – – 1,382,926 ( 1,382,926) – – – – Capital injection by non-controlling shareholders – – – – – – – – 30,000 30,000 Dividend (Note 28d) – – – – – ( 998,106) – ( 998,106) – ( 998,106)
Balance as at 31 December 2011 6,849,726 32,596,566 3,194,428 110,971 9,792,940 11,353,320 93,692 63,991,643 29,038 64,020,681
The accompanying notes to the financial statements form an integral part of the accounts.
180 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 26 E_Huaxia_Bank_TNT_Equity.indd P.180 Hua Xia Bank Co., Limited Consolidated Statement of Cash Flows Accounting Year Ended 31 December 2011 (In RMB thousands, unless otherwise stated)
2011 2010 Cash flows from operating activities
Profit before tax 12,527,399 8,007,954 Adjustments for: Depreciation and amortisation 872,634 698,302 Impairment losses on assets 4,610,347 4,212,009 Net gain/loss on disposal of property and equipment 10,611 ( 4,047) Net gain/loss on sale of bonds investment 46,317 (8,536) Interest expense on bonds issued 1,056,458 1,076,809 Accreted interest on impaired loans ( 167,597) ( 178,784) 6,428,770 5,795,753 Net increase/(decrease) in operating assets: Restricted balances with central banks ( 51,083,769) ( 42,462,399) Due from banks and other financial institutions ( 20,133,467) ( 69,715) Reverse repurchase agreements 42,216,278 ( 30,132,246) Loans and advances to customers ( 83,839,321) ( 99,571,496) Other assets ( 4,551,570) ( 1,697,205) (117,391,849) (173,933,061)
Net increase/(decrease) in operating liabilities: Due to banks and other financial institutions 58,039,959 16,186,411 Repurchase agreements ( 11,539,755) ( 17,891,962) Due to customers 128,401,405 185,943,861 Other liabilities 2,513,996 4,640,125 177,415,605 188,878,435
Net cash inflow from operating activities before income tax 78,979,925 28,749,081 Income tax paid ( 3,390,662) ( 1,999,248)
Net cash inflow from operating activities 75,589,263 26,749,833
The accompanying notes to the financial statements form an integral part of the accounts.
Annual Report 2011 181
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 27 E_Huaxia_Bank_TNT_Cash Flows.indd P.181 Hua Xia Bank Co., Limited Consolidated Statement of Cash Flows Accounting Year Ended 31 December 2011 (In RMB thousands, unless otherwise stated)
2011 2010 Cash flows from investing activities Proceeds from disposal of investments 80,803,076 228,517,278 Proceeds from disposal of property and equipment 64,544 234,453 Acquisition of property and equipment ( 1,762,842) ( 2,160,383) Acquisition of investments (123,348,362) (232,372,965) Net cash inflow/(outflow) from investing activities ( 44,243,584) ( 5,781,617)
Cash flows from financing activities Proceeds from stocks issue 20,106,641 – Capital injection by non-controlling shareholders 30,000 – Dividends paid ( 998,106) ( 680,468) Proceeds from bonds issued – 4,400,000 Redemption of bonds at their maturity ( 2,000,000) ( 4,250,000) Interest paid on bonds issued ( 1,041,651) ( 991,611) Net cash inflow/(outflow) from financing activities 16,096,884 ( 1,522,079)
Effect of exchange rate changes on cash and cash equivalents ( 7,469) ( 4,001)
Net increase/(decrease) in cash and cash equivalents 47,435,094 19,442,136 Cash and cash equivalents at beginning of the year 78,431,423 58,989,287
Cash and cash equivalents at end of the year 125,866,517 78,431,423
Net cash inflow/(outflow) from operating activities includes: Interest received 59,652,006 41,837,321 Interest paid ( 29,341,655) ( 19,072,891)
Cash and cash equivalents at end of the year: Cash 3,174,968 2,499,859 Cash equivalents: Due within three months – Balances with central banks 11,306,425 31,991,474 – Due to banks and other financial institutions 111,385,124 43,940,090
125,866,517 78,431,423
The accompanying notes to the financial statements form an integral part of the accounts.
182 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 24-5-2012 • 13:53 • 80072 • 27 E_Huaxia_Bank_TNT_Cash Flows.indd P.182 Hua Xia Bank Co., Limited Company Statement of Financial Position 31 December 2011 (In RMB thousands, unless otherwise stated)
Note 31 December 2011 31 December 2010 Assets Cash and balances with central banks 13 172,391,075 141,387,870 Due from banks and other financial institutions 14 131,539,576 44,014,659 Reverse repurchase agreements 15 197,867,972 240,084,250 Loans and advances to customers 16 594,072,488 514,863,428 Held-for-trading financial assets 17 4,004,591 106,446 Investments 18 125,991,724 87,233,635 Investments in subsidiaries 19 170,000 100,000 Derivative financial assets 20 201,841 26,054 Property and equipment 21 7,244,565 6,299,878 Deferred income tax 11 2,710,743 1,649,062 Other assets 22 7,855,042 4,648,111
Total assets 1,244,049,617 1,040,413,393
Liabilities Due to banks and other financial institutions 23 163,006,753 104,655,105 Held-for-trading financial liabilities 50,848 – Repurchase agreements 24 78,326,792 89,866,547 Due to customers 25 895,514,042 767,609,033 Derivative financial liabilities 20 192,123 1,421 Bonds issued 26 22,020,000 24,020,000 Income tax payable 2,831,199 1,833,659 Other liabilities 27 18,107,238 16,818,056
Total liabilities 1,180,048,995 1,004,803,821
EQUITY Share capital 28a 6,849,726 4,990,528 Capital reserve 28b 32,596,566 14,349,123 Statutory surplus reserve 28c 3,194,428 2,271,686 Discretionary surplus reserve 28c 110,971 110,971 General reserve 28e 9,792,940 8,410,014 Retained profits 28e 11,362,299 5,438,660 Changes in fair value of investments, after-tax 93,692 38,590
Total equity 64,000,622 35,609,572
Total liabilities and equity 1,244,049,617 1,040,413,393
Chairman President Chief Financial Officer Seal of Hua Xia Bank
The accompanying notes to the financial statements form an integral part of the accounts.
Annual Report 2011 183
CAR1204001 • Huaxia Bank • 1st Proof • 25-5-2012 • 10:13 • 80072 • 28 E_Huaxia_Bank_TNT_Financial Position.indd P.183 Hua Xia Bank Co., Limited Notes to the Financial Statements 31 December 2011 (In RMB thousands, unless otherwise stated)
1. CORPORATE INFORMATION Hua Xia Bank Co., Limited (the “Company”) was established as a nationwide commercial bank on 14 October 1992 with the approval of the People’s Bank of China (“PBOC”). On 10 April 1996, Hua Xia Bank was approved to be restructured as a joint-stock limited company by promoter incorporation according to the PBOC document (Y.F. [1996] No. 109), and then renamed as Hua Xia Bank Co., Limited. On 21 July 2003, the Company obtained approval from China Securities Regulatory Commission (“CSRC”) for offering of A shares. On 12 September 2003, the Company was listed. On 21 May 2004, the Company converted the capital reserve of RMB700,000,000 into share capital at a ratio of 2 for 10 shares on the basis of 3.5 billion of shares as at 31 December 2003. After the conversion, the registered capital reached RMB4,200,000,000, which has been verified by Beijing Jingdu Certified Public Accountants, with the capital verification report (B.J.J.D.Y.Z. (2004) No. 0017) being issued on 26 May 2004. On 15 October 2008, with approval of CSRC, the Company issued 790,528,316 RMB-denominated ordinary shares (A shares) in a non-public way to three designated investors, namely Shougang Corporation, State Grid Corporation of China and DEUTSCHE BANK AKTIENGESELLSCHAFT. After the additional offering, the registered capital of the Company amounted to RMB4,990,528,316, which has been verified by Beijing Jingdu Certified Public Accountants, with the capital verification report (B.J.J.D.Y.Z. (2008) No. 085) being issued on 16 October 2008. On 22 April 2011, with approval of CSRC, the Company issued 1,859,197,460 RMB-denominated ordinary shares in a non-public way to three designated investors, namely Shougang Corporation, Yingda International Holdings Corporation, Ltd. (formerly SGCC Asset Management Co., Ltd.) and DEUTSCHE BANK LUXEMBOURG S.A. After the additional offering, the registered capital of the Company amounted to RMB6,849,725,776, which has been verified by Beijing Jingdu Certified Public Accountants, with the capital verification report (J.D.T.H.Y.Z. (2011) No. 0044) being issued on 22 April 2011. The Company and its subsidiaries (collectively referred to as the “Group”) provide commercial banking services. The business scope specified in the Incorporated Enterprise Business License of the Company covers: deposits-taking; granting of short, medium and long-term loans; domestic and international settlement; bill acceptance and discounting; issuance of financial bonds; commissioned issuance, encashment and underwriting of government bonds; trading of government bonds and financial bonds; inter-bank lending and borrowing; trading of foreign exchange on its own behalf and as an agent; bank card service; letter of credit and guarantee; collection and payment service as an agent; safety box service; settlement and sale of foreign exchange; sideline insurance agency; and other services approved by China Banking Regulatory Commission (“CBRC”). The registered office address of the Company is 22 Jianguomen Inner Street, Dongcheng District, Beijing, the People’s Republic of China (the “PRC”). The Company operates within the territory of the PRC. 2.1 BASIS OF PREPARATION These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations promulgated by the International Accounting Standards Board (“IASB”). They have been prepared under the historical cost convention, except for derivative financial instruments, financial assets and liabilities designated at fair value through profit or loss and available-for-sale financial assets that have been measured at fair value. These financial statements are presented in RMB. All values are rounded to the nearest thousand except when otherwise indicated. The Group enters records and prepares statutory financial statements in accordance with relevant financial regulations and accounting principles formulated by the Ministry of Finance of the PRC (the “MOF”) (“PRC GAAP”). As the accounting policies and basis for the preparation of statutory financial statements are different from the IFRS with regard to several items, these financial statements differ from the statutory financial statements. Significant differences in operating results and financial position under IFRS have been reconciled in the preparation of these financial statements, which are not presented in accounts of the Company.
184 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.184 Basis of Consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. The financial statements of subsidiaries, for the purpose of preparation of these consolidated financial statements, are prepared for the same reporting period as the Company, using consistent accounting policies. Subsidiaries Subsidiaries are fully consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control is achieved where the Company has the power to decide on the financial and operating policies of an entity and to obtain benefits from its activities. Where there is a loss of control in a subsidiary, the consolidated income statement includes the results of that subsidiary for the part of the reporting period during which the Company has control. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in the consolidated income statement, and within equity in the consolidated statement of financial position separately from the equity attributable to equity holders of the parent company. An acquisition of non-controlling interests is accounted for as an equity transaction. 2.2 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (a) Accounting Judgments In the process of applying the Group’s accounting policies, the Management has used its judgments and made assumptions of the effects of uncertain future events on the financial statements. In the process of applying the Group’s accounting policies, the Management has used its judgments and made assumptions of the effects of uncertain future events on the financial statements. The most significant use of judgments and key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are described below. Classification of investments Significant management judgment is required to classify investments into the following four categories: financial assets measured at fair value through profit or loss; held-to-maturity investments; loans and receivables; and available-for-sale financial assets. The classification affects accounting approaches to be adopted and financial position of the Company. If the Group fails to make a correct judgment, a reclassification of the overall investments may be needed. (b) Uncertain Estimates The most significant use of judgments and key assumptions concerning the future and other key sources of uncertainty at the end of the reporting period, which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities of the Group within the next financial period, are described below. Impairment losses on loans and advances to customers The Group determines periodically whether there is any objective evidence that impairment losses have occurred on loans and advances to customers. If any such evidence exists, the Group assesses the amount of impairment losses. The amount of impairment losses is measured as the difference between the carrying amount and the present value of estimated future cash flows. Assessing the amount of impairment losses requires significant judgment on whether the objective evidence for impairment exists and also significant estimates when determining the present value of the expected future cash flows. Impairment losses on available-for-sale and held-to-maturity investments In determining whether there is any objective evidence that impairment losses have occurred on available-for-sale and held-to-maturity investments, the Group assesses periodically whether there has been a significant or prolonged decline in the fair value below its cost or carrying amount, or whether other objective evidence of impairment exists based on the investee’s financial conditions and business prospects, including industry environment, change of technology as well as operating and financing cash flows. This requires a significant level of judgment of the Management, which would affect the amount of impairment losses.
Annual Report 2011 185
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.185 Income tax
Determining income tax provisions requires the Group to estimate the future tax treatment of certain transactions. The Group carefully evaluates tax implications of transactions in accordance with prevailing tax regulations of the PRC and makes tax provisions accordingly.
In addition, deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. This requires significant estimation on the tax treatments of certain transactions and also significant assessment on the probability that adequate future taxable profits will be available for the deferred income tax assets to be recovered.
Fair value of financial instruments
If the market for a financial instrument is not active, the Group establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable and willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. To the extent practicable, valuation technique makes maximum use of market inputs. However, where market inputs are not available, the Management needs to make estimates on such unobservable market inputs. 2.3 NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS THAT ARE EFFECTIVE IN 2011 AND RELEVANT TO THE GROUP The IASB has issued the following new and revised International Financial Reporting Standards (IFRS) (including International Accounting Standards (“IAS”)) and International Financial Reporting Interpretations Committee (IFRIC) interpretations that are effective in 2011 and relevant to the Group’s operation.
IAS 24 Amendment Related Party Disclosures IAS 32 Amendment IAS 32 Financial Instruments: Presentation – Classification of Rights Issues IFRIC 14 Amendments IFRIC 14 Prepayments of a Minimum Funding Requirement IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments The adoption of the above new and revised IFRS and IFRIC interpretations does not affect the financial position or operating result of the Group.
Apart from the above, in May 2010, the IASB issued its third omnibus of amendments to its standards*, which set out amendments to a number of IFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 34 and IFRIC 13 were applied from 1 January 2011 by the Group. None of these amendments had a significant impact on the financial position or operating result of the Group.
* Improvements to IFRS (2010) contain amendments to IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34 and IFRIC 13.
186 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.186 2.4 SIGNIFICANT ACCOUNTING POLICIES (a) Foreign Currency Transaction The consolidated financial statements are presented in RMB, being the functional and presentation currency of the Group’s operations in Mainland China. Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB at the applicable exchange rates prevailing at the end of the reporting period. Exchange differences arising on the settlement of monetary items or on translating monetary items at period end rates are recognized in the income statement. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates ruling at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates ruling at the date when the fair value was determined, of which translation differences of equity investments at fair value through profit or loss are recognized in the income statement as a part of fair value gain or loss, while translation of available-for-sale equity investments are recorded in changes in fair value of investments under equity. (b) Classification and Measurement of Financial Assets The financial assets held by the Group are classified into four categories: financial assets measured at fair value through profit or loss; held-to-maturity financial assets; loans and receivables; and available-for-sale financial assets. A financial asset is measured initially at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. 1) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets initially designated at fair value through profit or loss. The financial assets acquired principally for the purpose of selling them in the near term and derivative financial instruments not designated as effective hedge instruments are classified as held-for-trading financial assets. Financial assets or financial liabilities held for trading are measured at fair value in the statement of financial position, and changes in fair value are recognized as net gain or loss of trading. A financial asset not held for trading may be designated as a financial asset or financial liability at fair value through profit or loss upon initial recognition, if it meets any of the criteria set out below, and is so designated by the Management. • It eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the financial asset or financial liability or from recognising the gains and losses on them on different bases; • It applies to a group of financial assets, financial liabilities or both which is managed and its performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and where information about that group of financial instruments is provided internally on that basis to key management personnel; or • The financial instrument contains one or more embedded derivative, unless the embedded derivative(s) does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded. These financial assets and liabilities are measured at fair value after initial recognition. Realised or unrealised income or expenses is recognised in the income statement.
Annual Report 2011 187
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.187 2) Held-to-maturity financial investments
Held-to-maturity financial investments are non-derivative financial assets with fixed or determinable payments and a fixed maturity and which the Management has the positive intention and ability to hold to maturity. Held-to-maturity financial assets are measured at amortised cost using the effective interest rate method, less any allowance for impairment. Gains and losses are recognised in the income statement when these financial assets are derecognised or impaired, as well as through the amortisation process. The Group shall not classify the financial assets as held-to-maturity if it has sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity during the current financial year or during the two preceding financial years (more than insignificant in relation to the total amount of held-to-maturity investments) except for sale or reclassification that:
(i) is so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value;
(ii) occurs after the entity has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments; or
(iii) is attributable to an isolated event that is beyond the Group’s control, is non-recurring and could not have been reasonably anticipated by the Group.
If fair value could not be measured reliably due to changes in intention or ability or in quite few circumstances, or as “two preceding financial years” pass, measurement by cost or amortised cost rather than fair value is much more proper, the carrying value of the financial instrument measured at fair value should be taken as new cost or new amortised cost. Gains and losses previously recognised in equity should be accounted for as follows:
• Gains and losses of financial assets with fixed maturity dates should be amortised over the remaining period of the asset using effective interest rate method and recognised in equity. The difference between new amortised cost and amount at maturity should be amortised over the remaining period. If financial assets are impaired, gains and losses directly recognised in equity should be recognised in income statement.
• Gains and losses of financial assets without fixed maturity date should be recorded in equity until the assets are sold or disposed. If financial assets are impaired, gains and losses directly recognised in equity should be recognised in income statement.
3) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and the management has no intention of trading the assets immediately or in the near term. Such assets are measured at amortised cost using the effective interest rate method, less any allowance for impairment. Gains and losses are recognised in the income statement when such assets are derecognised or impaired, as well as through the amortisation process.
Discounted bills are granted by the Group to its customers based on the bank acceptance held which has not matured. Discounted bills are carried at face value less unrealised interest income, and the interest income of the discounted bills is recognised using the effective interest rate method.
188 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.188 4) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets which are designated as such or are not classified in any of the three categories including loans and receivables, held-to-maturity financial assets and financial assets measured at fair value through profit or loss. After initial recognition, available-for-sale financial assets are subsequently measured at fair value. Premiums and discounts on available-for-sale financial assets are amortised using the effective interest rate method and are taken as interest income. Unrealised income brought by changes in fair value of available-for-sale financial assets is separately presented in other comprehensive income before the financial assets are derecognized or impaired. Such changes in fair value previously recognised in other comprehensive income should be transferred to the income statement when the financial assets are derecognized or impaired. Available-for-sale financial assets are presented by their cost minus allowance for impairment losses when their fair value could not be reliably measured in circumstances where (a) proper estimates of fair value have a large range of change, or (b) probability of estimates in the range could not be properly measured and could not be used as an estimate of fair value. The Group assesses whether the holding of available-for-sale financial assets and the intention of selling such assets in short time is proper. As the market is not active or the intention of the Management has material changes, such financial assets may be reclassified in few circumstances. When the conditions of loans and receivables are satisfied and the Company has the ability and intention to hold the financial assets till the foreseeable future or their maturity, such assets are permitted to be reclassified as loans and receivables. Only when the Company has the ability and clear intention to hold the assets to maturity, such assets can be reclassified into held-to-maturity investments. Where available-for-sale financial assets are reclassified to other financial assets, gains and losses of previously years recognised in other comprehensive income should be amortised over the remaining period of these assets using effective interest rate method and recognised in income statement. The difference between amortised cost and amount at maturity date should also be amortised over the remaining period and recognised in income statement. Where such assets are impaired subsequently, gains and losses directly recognised in equity should be transferred out of equity. 5) Determination of fair value The fair value of a financial instrument traded in active markets is based on its quoted market price. If the market for a financial instrument is not active, the Group establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable and willing parties, reference to current fair value of other financial instruments which are substantially the same, discounted cash flow method and option pricing model. (c) Impairment of Financial Assets An assessment on carrying amount of financial assets is made at the end of each reporting period to find whether there is objective evidence of impairment of financial assets, i.e., one or more events that occur after the initial recognition of those assets and have an impact on the estimated future cash flows of the financial assets or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower is experiencing significant financial difficulty, default or delinquency in interest or principal payments, they would probably enter into bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows. 1) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through the use of an impairment provision account and the amount of the loss is recognised in the income statement.
Annual Report 2011 189
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.189 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 it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed 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. Future cash flows of a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the impact of current conditions that did not affect the period on which the historical loss experience is based and to eliminate the impact of historical conditions that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed and adjusted regularly by the Group. If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be attributed objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and recorded in the income statement. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the assets does not exceed its amortised cost at the reversal date. When an item of loans is uncollectible, it is written off against the related allowance for impairment losses. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of the amounts previously written off decrease the amount of the provision for loan impairment in the income statement. 2) Financial assets carried at cost If there is objective evidence that an impairment loss has incurred on the unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of impairment loss is measured as the difference between the carrying amount of that financial asset and the present value of estimated future cash flows. Impairment losses on these assets are not reversed. 3) Available-for-sale financial assets The Group reviews available-for-sale financial assets at the end of each quarter to determine whether there is any objective evidence for impairment loss on any investment or investment portfolio. If there is objective evidence that the asset is impaired, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement, is removed from other comprehensive income and recognised in the income statement. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised as other comprehensive income. In the case of debt instruments classified as available-for-sale, if, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impaired loss is reversed through the income statement. 4) Renegotiated loans If the Group chooses to restructure loans, this may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. The Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to individual or collective impairment assessment, calculated using the loan’s original effective interest rate.
190 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.190 (d) Financial Liabilities
Financial liabilities held by the Group are classified in to financial liabilities measured at fair value through profit or loss and other financial liabilities.
1) Financial liabilities measured at fair value through profit or loss
Financial liabilities measured at fair value through profit or loss are classified as financial liabilities held for trading and financial liabilities measured at fair value through profit or loss designated by the Management at initial recognition based on conditions set out in Note 2.4(b)1). Change in fair value is recognised in the income statement.
2) Other financial liabilities
Except for financial liabilities held for trading and financial liabilities measured at fair value through profit or loss, deposits, bonds issued and other financial liabilities are measured at amortised cost using the effective interest rate method.
(e) Recognition of Financial Instruments
A financial asset or financial liability is recognised when the Group becomes a party of the financial instrument contract.
(f) Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
• The rights to receive cash flows from the assets have expired; or
• The Group has retained its rights to receive cash flows from the assets, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
• The Group has transferred its rights to receive cash flows from the assets, and (i) has transferred substantially all the risks and rewards of ownership of the financial asset; or (ii) has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.
Annual Report 2011 191
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.191 (g) Derivative Financial Instruments Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. If there is an active market, fair value is determined according to market quotation, including recent arm’s length market transactions; otherwise, proper valuation techniques such as discounted cash flow analysis and option pricing models are adopted. Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with the changes in fair value recognised in the income statement. (h) Offset Financial assets and liabilities are offset if the Group has a legally enforceable right to offset such amounts with the same counterparty and an intention to settle on a net basis. (i) Repurchase and Reverse Repurchase Transactions Assets sold under agreements to repurchase at a specified future date (“repos”) are recognised on the statement of financial position. The corresponding cash received, including accrued interest, is recognised on the statement of financial position as a “repurchase agreement”, reflecting its economic substance as a loan to the Group. The difference between the sale and repurchase prices is treated as an interest expense and is accrued over the life of the agreement using the effective interest rate method. Conversely, assets purchased under agreements to resell at a specified future date (“reverse repos”) are not recognised on the statement of financial position. The corresponding cash paid, including accrued interest, is recognised on the statement of financial position as a “reverse repurchase agreement”. The difference between the purchase and resale prices is treated as an interest income and is accrued over the life of the agreement using the effective interest rate method. (j) Property and Equipment Property and equipment is stated at cost or determined value. The cost of an item of property and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after items of property and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. The expenditure which could create an increase in future economic benefits is capitalised in the carrying amount of the asset. Property and equipment is reviewed item by item at the end of reporting period, and the difference between the recoverable amount and carrying value is recognized as allowance for impairment losses on property and equipment in the income statement. Depreciation of property and equipment is calculated on the straight-line basis according to the cost, estimated residual value (5% of cost) and estimated useful life. The estimated useful life and the annual depreciation rate of each item of property and equipment are as follows: Estimated Annual useful life depreciation rate Properties and buildings 5-40 years 2.38%-19% Improvements of property and equipment 5-10 years 9.5%-19% Office equipment and computers 5-12 years 7.92%-19% Motor vehicles 5-10 years 9.5%-19% Investment property is property held to earn rentals or for capital appreciation or both, including land use right under a lease, land use right held and to be transferred after appreciation, and buildings under a lease.
192 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.192 An investment property is measured initially at its cost. Any subsequent expenditures related to the investment property is recognised as cost of investment property when and only when the future economic benefits associated with the investment property will probably flow to the entity and the cost of the investment property can be measured reliably; otherwise the expenditure is recognised in the income statement. After initial measurement, investment property is measured using cost model with reference to the estimated residual value, depreciation rate and depreciation method of properties and buildings, that is, a residual rate of 5% and useful life of 35 years on a straight-line basis. Construction in progress comprises the direct costs of construction during the period of construction and is not depreciated. Construction in progress is reclassified to the appropriate category of property and equipment when completed and ready for use. Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, on a regular basis. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. (k) Repossessed Assets Collateral assets or other effective assets for loans and advances are repossessed by the Group when the borrowers are unable to honour their repayments, and would be realised in settlement of the related outstanding debts. Repossessed assets are recognised when the Group has the right to dispose of such assets. Repossessed assets are initially recognised at fair value, and are reviewed by the Management of the Group at the end of each reporting period. Any impairment loss, being the difference between the estimated net recoverable amount and the carrying value, is charged to the income statement. (l) Impairment of Non-financial Assets other than Deferred Tax Assets The Group assesses at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, or when impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined on an individual basis, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. In assessing value in use of an asset, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement. An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of any depreciation/ amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement, unless the asset is presented at its reassessed value, in which case, the reversal is recognised as reassessment appreciation. After such a reversal, the depreciation/amortisation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Annual Report 2011 193
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.193 (m) Cash and Cash Equivalents Cash and cash equivalents comprise cash, unrestricted balances with central banks with original maturity of less than three months, amounts due from and due to banks and other financial institutions with original maturity of less than three months and short-term investments which are short term highly liquid, readily convertible into known amounts of cash and subject to an insignificant risk of changes in value and become due within three months from the date of purchase. (n) Operating Leases Leases where substantially all the rewards and risks of the assets remain with the lessor are accounted for as operating leases. Rental payments applicable to operating leases are charged to the income statement on the straight-line basis over the lease terms. (o) Related Parties A party is considered to be related to the Group if: (i) The party, directly or indirectly through one or more intermediaries, (a) controls, is controlled by, or is under common control with, the Group; (b) has an interest in the Group that gives it significant influence over the Group; or (c) has joint control over the Group; (ii) The party is an associate of the Group; (iii) The party is a joint venture in which the Group is a venturer; (iv) The party is a member of the key management personnel of the Company or its parent company; (v) The party is a close member of the family of any individual referred to in (i) or (iv); (vi) The party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or (vii) The party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group. (p) Recognition of Income Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and when the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: 1) For all financial instruments measured at amortised cost and interest-generating financial instruments classified as available-for-sale financial assets, interest income is recorded at the effective interest rate, which is the rate that exactly discounts estimated future net cash inflow through the expected life of the financial instrument. Once a financial asset or a group of similar financial assets has been impaired, interest income is recognised using the original interest rate and carrying value after impairment. 2) Rentals of investment property is recognised on an accrual basis. 3) Fee and commission income is recognised when relevant service is provided and the amount to be received can be properly estimated. 4) Dividend income is recognised when the Group’s right to receive payment has been established. 5) Results arising from trading activities include all gains and losses from changes in fair value for financial assets and financial liabilities that are held for trading. This includes gains and losses from changes in fair value relating to the ineffective portion of the hedging arrangements, and gains and losses realised in buying and selling.
194 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.194 (q) Income Tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement as income tax income or expense, expect that it relates to transactions or events directly recognised in equity, in which case it is recognised in equity.
Current tax
Current income tax is the current income tax payable calculated pursuant to current taxable income. Taxable income is calculated after corresponding adjustments are made to profit before tax for the year according to relevant tax regulations. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts.
Deferred income tax liabilities are recognised for all taxable temporary differences, except:
• Where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable income; and
• In respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not be reversed in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:
• Where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable income; and
• In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will be reversed in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period. When it is unlikely that sufficient taxable income will be available to allow all or part of the deferred income tax asset to be utilised, the carrying amount of the deferred income tax asset will be written down. The amount of unrecognised deferred income tax assets is reassessed by the Group at the end of each reporting period. When it is virtually probable that sufficient taxable income will be available, the previously unrecognised income tax assets will be recognised.
Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of each reporting period.
Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Annual Report 2011 195
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.195 (r) Employee Retirement Benefits In accordance with the relevant laws and regulations of the PRC, the Group is required to provide employees with retirement benefits. The Group is responsible for contributing a certain percentage of the employees’ salaries to a defined contribution plan under management of the government. Such contributions are recognised in the income statement as incurred. In addition, the Company also establishes enterprise annuity plans managed by insurance companies. According to these plans, the Company contributes a certain amount on a regular basis. The contribution is charged to the income statement when it incurs. The Company pays a fixed contribution into the annuity plan and has no obligation to pay further contributions if the annuity plan does not hold sufficient assets to pay all employees benefits. (s) Fiduciary Activities Where the Group acts in a fiduciary capacity such as appointed, custodian or agent, assets arising thereon together with related undertakings to return such assets to customers are excluded from the statement of financial position. The Group grants entrusted loans on behalf of third-party lenders, which are recorded off-balance sheet. The Group, as an agent, grants such entrusted loans to borrowers under the direction of those third-party lenders who fund these loans. The Group has been contracted by those third-party lenders to manage the administration and collection of these loans on their behalf. Those third-party lenders determine both the underwriting criteria for and the terms of all entrusted loans including their purposes, amounts, interest rates, and repayment schedules. The Group charges a commission related to its activities in connection with entrusted loans which are recognised over the period in which the service is provided. The risk of loss is borne by those third-party lenders. Entrusted wealth management services refer to such activities that the Group entrusts third parties to invest by and manage funds from customers of the Group and pays investment income to the customers according to agreed terms and conditions and actual return. The Group does not guarantee the payment of principal and return at maturity. (t) Financial Guarantee Contracts The Group issues letters of credit, letters of guarantee and acceptance. These financial guarantee contracts provide for specified payments to be made to reimburse the holders for the losses they incur when a guaranteed party defaults under the original or modified terms of a debt instrument, loan or any other obligation. The Group initially measures all financial contracts at fair value, in other liabilities, being the premium received. This amount is recognised ratably over the period of the contract as fee and commission income. Subsequently, the liabilities are measured at the higher of the initial fair value less cumulative amortisation and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. (u) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset; but only when the reimbursement is virtually certain, the expenses relating to any provision is presented in the income statement net of any reimbursement. If time value of money has significant effects, provisions are estimated using pre-tax discounting of future cash flows. Such discounting rate reflects risk assessment specific to the liability. As time passes, carrying amount increases and the increase is recognised as interest expense.
196 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.196 (v) Contingent Liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. Contingent liabilities are disclosed in the notes to the financial statements.
When a change in the probability of an outflow occurs so that outflow is probable and can be reliably estimated, it will then be recognised as a provision. 3. IMPACT OF ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective, in these financial statements.
IFRS 1 Amendments Amendments to IFRS 1 – First-time Adoption of International Financial Reporting Standards – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters 1 IFRS 7 Amendments Amendments to IFRS 7 Financial Instruments: Disclosures – Transfers of Financial Assets 1 IFRS 9 Financial Instruments 5 IFRS 10 Consolidated Financial Statements 4 IFRS 11 Joint Arrangements 4 IFRS 12 Disclosure of Interests in Other Entities 4 IFRS 13 Fair value measurement 4 IAS 1 Amendment Amendments to IAS1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income 3 IAS 12 Amendment Amendment to IAS 12 Income tax – Deferred Tax – Recovery of Underlying Assets 2 IAS 19 Amendment Employee benefits 4 IAS 27 (Revised) Separate Financial Statements 4 IAS 28 (Revised) Investments in Associates and Joint Ventures 4 1 Effective for annual periods beginning on or after 1 July 2011
2 Effective for annual periods beginning on or after 1 January 2012
3 Effective for annual periods beginning on or after 1 July 2012
4 Effective for annual periods beginning on or after 1 January 2013
5 Effective for annual periods beginning on or after 1 January 2015
The Group is in the process of making an assessment on the impact of these new and revised IFRSs upon initial application. Further information about those changes that are expected to affect the Group is as follows:
IFRS 7 Financial Instruments: Disclosures – Enhanced Derecognition Disclosure Requirements (Amendment)
The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of and risks associated with the entity’s continuing involvement in those derecognised assets. The amendment becomes effective for annual periods beginning on or after 1 July 2011. The amendment affects disclosure only and has no impact on the Group’s financial position or performance.
Annual Report 2011 197
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.197 IFRS 9 Financial Instruments: Classification and Measurement (Amendment)
IFRS 9 reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subsequent phases, the IASB will address impairment of hedge accounting and financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
IFRS 10 Consolidated Financial Statements
IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12 Consolidation – Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements in IAS 27. The Group is currently assessing the impact of this standard on its financial position or performance.
IFRS 12 Disclosure of Involvement with Other Entities
IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new requirements are also required. The Group is currently assessing the impact of this standard on its financial position or performance.
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact of this standard on its financial position or performance.
IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income (Amendment)
The amendments to IAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation of items only and has no impact on the Group’s financial position or performance.
198 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.198 Amendment to IAS 12 Income tax: Deferred Tax – Recovery of Underlying Assets (Amendment)
The amendment clarifies the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 should always be measured on a sale basis of the asset. The amendments will have no impact on the financial statements of the Group.
IAS 27 Separate Financial Statements (as revised in 2011)
As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly-controlled entities, and associates in separate financial statements. 4. NET INTEREST INCOME 2011 2010
Interest income Corporate loans 32,767,723 23,575,921 Personal loans 3,941,369 2,646,667 Discounted bills and reverse repurchase agreements 18,083,727 12,517,021 Bonds 3,683,731 2,729,855 Balances with central banks 2,198,799 1,493,828 Due from banks and other financial institutions 1,862,375 397,323
62,537,724 43,360,615
Interest expense Demand deposits ( 2,362,061) ( 2,144,729) Time deposits ( 12,405,808) ( 6,771,128) Due to banks and other financial institutions and repurchase agreements ( 16,418,481) ( 10,615,541) Bonds issued and others ( 1,056,883) ( 1,076,897)
( 32,243,233) ( 20,608,295)
Net interest income 30,294,491 22,752,320
The above interest income includes RMB167,597 thousand (2010: RMB178,784 thousand) interest income on impaired loans (Note 16b) and RMB360 thousand (2010: RMB1,550 thousand) interest income on impaired bonds.
Annual Report 2011 199
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.199 5. NET FEE AND COMMISSION INCOME
2011 2010
Fee income from wealth management service 1,037,377 284,550 Fee income from bank card business 478,286 310,334 Fee income from financial advisory service 309,314 188,919 Fee income from bank acceptance bills 225,173 183,992 Fee income from letters of credit 181,902 132,074 Fee income from fiduciary business 133,293 78,657 Fee income from financing notes underwriting 132,530 99,174 Fee income from refinance service 111,295 56,327 Fee income from government bonds underwriting 37,673 24,508 Fee income from fund distribution 30,290 30,539 Others 717,130 402,606
Fee and commission income 3,394,263 1,791,680 Fee and commission expense ( 418,763) ( 346,808)
Net fee and commission income 2,975,500 1,444,872
6. NET GAIN ON HELD-FOR-TRADING FINANCIAL ASSETS AND LIABILITIES
2011 2010
Financial assets 7,075 2,628 Financial liabilities 1,411 111
Total 8,486 2,739
The above amounts include gains and losses arising from the buying and selling of, interest income and expense on, and changes in the fair value of financial assets and liabilities held for trading. 7. OTHER OPERATING INCOME, NET
2011 2010
Net gain on foreign exchange 167,160 154,814 Net gain/(loss) on disposal of property and equipment ( 10,611) 4,047 Net gain/(loss) on bond investments ( 46,317) 8,536 Other operating gain, net 146,680 81,083
Total 256,912 248,480
200 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.200 8. STAFF COSTS 2011 2010
Salaries, bonuses and allowances 4,862,566 3,582,569 Staff benefits 1,849,225 1,387,654 Enterprise annuity plan (i) 106,394 79,841
Total 6,818,185 5,050,064
(i) The Company contributes to the enterprise annuity plan by a certain percentage as prescribed in the Financial Enterprise Finance Rules – Guidance for Implementation formulated by the MOF, and entrusts qualified agencies to manage annuity fund pursuant to relevant regulations of the Ministry of Human Resources and Social Security. 9. GENERAL & ADMINISTRATIVE EXPENSES 2011 2010
Business trip expenses 1,763,255 1,377,716 Printing and stationery expenses 1,483,727 1,142,126 Rent expenses 852,633 649,569 Publicity expenses 808,286 713,713 Utility expenses 336,408 264,145 Credit card marketing expenses 164,960 86,518 Building expenditures 97,135 73,718 Taxes 90,744 77,086 Banknotes transportation expenses 74,460 57,774 Regulatory fees 67,725 58,261 Maintenance expenses 54,928 40,058 Others 564,972 337,534
Total 6,359,233 4,878,218
10. ALLOWANCE FOR IMPAIRMENT LOSSES ON OTHER ASSETS 2011 2010
Charge/(reversal) of impairment losses on: Due from and placements with banks and other financial institutions (note 14) ( 3,784) ( 5,665) Repossessed assets ( 29,114) 21,879 Investments in bonds (Notes 18a and 18b) ( 44,470) ( 47,976) Other assets 21,469 70,259
Total ( 55,899) 38,497
Annual Report 2011 201
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.201 11. INCOME TAX Income tax is calculated at the statutory rate of 25% (2010: 25%) of taxable income in accordance with relevant income tax law of Mainland China.
Income tax includes:
The Group 2011 2010
Current income tax expense 4,364,196 2,605,653 Adjustment in respect of current income tax of prior years 24,006 ( 261,782) Deferred income tax expense (1,081,775) ( 325,499)
Total 3,306,427 2,018,372
Current deferred income tax recognised in equity
The Group and the Company 2011 2010
Changes in fair value of investments 18,368 ( 38,590)
A reconciliation of the income tax expense applicable to profit before tax at the PRC statutory income tax rate of 25% (2010: 25%) to income tax expense at the Group’s effective income tax rate is as follows:
The Group 2011 2010
Profit before tax 12,527,399 8,007,954
Tax at the PRC statutory income tax rate 3,131,850 2,001,988 Non-deductible expenses: Allowance for impairment losses 228,717 453,088 Other (i) 410,469 234,692 639,186 687,780
Non-taxable income: Non-taxable income on bonds (ii) ( 488,615) ( 409,614)
Adjustment in respect of current income tax of prior years (iii) 24,006 ( 261,782)
Actual tax expense of the Group 3,306,427 2,018,372
(i) Other non-deductible expenses mainly include staff costs in excess of the deductible part as regulated by the taxation authority, non-deductible entertainment expense, depreciation and amortisation. (ii) Non-taxable income on bonds mainly represents interest income on PRC government bonds which is exempted from income tax. (iii) Adjustment in respect of current income tax of prior years represents the difference between the tax actually paid by the Company in 2010 and the estimated tax for 2010.
202 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.202 Deferred Income Tax The composition of deferred income tax asset and liability is as follows: The Group 31 December 2011 31 December 2010
Deferred income tax assets – Allowance for impairment losses 1,966,778 1,280,628 – Others 828,414 388,842 2,795,192 1,669,470
Deferred income tax liabilities – Changes in fair value of available-for-sale investments 31,230 12,862 – Others 50,461 6,514 81,691 19,376
Net deferred income tax 2,713,501 1,650,094
The Company 31 December 2011 31 December 2010
Deferred income tax assets – Allowance for impairment losses 1,966,779 1,280,628 – Others 825,655 387,810 2,792,434 1,668,438
Deferred income tax liabilities – Changes in fair value of available-for-sale investments 31,230 12,862 – Others 50,461 6,514 81,691 19,376
Net deferred income tax 2,710,743 1,649,062
12. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY 2011 2010
Calculation of earnings per share: Profit for the year attributable to equity holders of the parent company (RMB thousand) 9,221,934 5,989,582 Number of ordinary shares in issue (1,000 shares) 6,849,726 4,990,528 Weighted average number of ordinary shares in issue (1,000 shares) 6,229,993 4,990,528 Basic and diluted earnings per share (RMB yuan) 1.48 1.20
Basic earnings per share was calculated as profit for the year attributable to ordinary equity holders of the parent company divided by the weighted average number of ordinary shares in issue. There were no dilutive events during the year ended 31 December 2010 and 31 December 2011, therefore, there was no difference between basic earnings per share and diluted earnings per share.
Annual Report 2011 203
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.203 13. CASH AND BALANCES WITH CENTRAL BANKS The Group 31 December 2011 31 December 2010
Cash 3,174,968 2,499,859 Unrestricted balances with central banks 11,306,425 31,991,474 Cash and unrestricted balances with central banks 14,481,393 34,491,333 Mandatory reserves 157,991,986 106,908,217
Total 172,473,379 141,399,550
The Company 31 December 2011 31 December 2010
Cash 3,169,928 2,499,439 Unrestricted balances with central banks 11,276,230 31,982,180 Cash and unrestricted balances with central banks 14,446,158 34,481,619 Mandatory reserves 157,944,917 106,906,251
Total 172,391,075 141,387,870
The Group is required to place mandatory reserve deposits with the PBOC, which are not available for use in daily operations. 14. DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS The Group 31 December 2011 31 December 2010
Nostro accounts: Banks operating in Mainland China 99,969,010 5,636,832 Banks operating outside Mainland China 1,698,616 1,898,526 101,667,626 7,535,358 Less: Allowance for impairment losses ( 5,500) ( 5,500) 101,662,126 7,529,858
Placements with banks and other financial institutions: Banks operating in Mainland China 28,266,629 34,785,114 Banks operating outside Mainland China – 1,011,498 Financial companies 1,792,463 816,247 30,059,092 36,612,859 Less: Allowance for impairment losses ( 123,463) ( 127,247)
29,935,629 36,485,612
Total 131,597,755 44,015,470
204 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.204 Movements of the allowance for impairment losses
The Group Placements with banks and Nostro other financial accounts institutions Total
1 January 2010 5,500 132,912 138,412
Reversal for the year (Note 10) – ( 5,665) ( 5,665)
At 31 December 2010 and 1 January 2011 5,500 127,247 132,747
Reversal for the year (Note 10) – ( 3,784) ( 3,784)
31 December 2011 5,500 123,463 128,963
The Company 31 December 2011 31 December 2010
Nostro accounts: Banks operating in Mainland China 99,910,831 5,636,021 Banks operating outside Mainland China 1,698,616 1,898,526 101,609,447 7,534,547 Less: Allowance for impairment losses ( 5,500) ( 5,500) 101,603,947 7,529,047
Placements with banks and other financial institutions: Banks operating in Mainland China 28,266,629 34,785,114 Banks operating outside Mainland China – 1,011,498 Financial companies 1,792,463 816,247 30,059,092 36,612,859 Less: Allowance for impairment losses ( 123,463) ( 127,247) 29,935,629 36,485,612
Total 131,539,576 44,014,659
Movements of the allowance for impairment losses
The Company Placements with banks and Nostro other financial accounts institutions Total
1 January 2010 5,500 132,912 138,412
Reversal for the year – ( 5,665) ( 5,665)
At 31 December 2010 and 1 January 2011 5,500 127,247 132,747
Reversal for the year – ( 3,784) ( 3,784)
31 December 2011 5,500 123,463 128,963
Annual Report 2011 205
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.205 15. REVERSE REPURCHASE AGREEMENTS The Group and the Company 31 December 2011 31 December 2010
Analyzed by counterparty: Banks 197,534,972 238,984,250 Other financial institutions 333,000 1,100,000
Total 197,867,972 240,084,250
Analyzed by collateral: Bonds 8,828,000 15,585,800 Bills 189,039,972 224,498,450
Total 197,867,972 240,084,250
16. LOANS AND ADVANCES TO CUSTOMERS The Group The Company 31 December 31 December 31 December 31 December 2011 2010 2011 2010
Corporate loans 532,738,219 467,193,226 532,674,520 467,193,226 Discounted bills 3,737,160 634,687 3,735,799 634,687 Personal loans 74,987,538 60,108,768 74,919,656 60,108,768 611,462,917 527,936,681 611,329,975 527,936,681 Less: Allowance for impairment losses on loans and advances to customers (Note 16b) ( 17,258,817) ( 13,073,253) ( 17,257,487) ( 13,073,253)
Total 594,204,100 514,863,428 594,072,488 514,863,428
At 31 December 2011, the balance of bills rediscounted yet undue was RMB8,467,313 thousand (at 31 December 2010: RMB65,006,272 thousand).
16a. Distribution of Loans and Advances by Collateral: The Group The Company 31 December 31 December 31 December 31 December 2011 2010 2011 2010
Loans secured by mortgages 228,661,809 191,879,598 228,620,858 191,879,598 Pledged loans 79,965,568 59,367,396 79,958,507 59,367,396 Guaranteed loans 196,637,555 180,686,867 196,552,625 180,686,867 Unsecured loans 106,197,985 96,002,820 106,197,985 96,002,820
Total 611,462,917 527,936,681 611,329,975 527,936,681
206 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.206 16b. Allowance for Impairment Losses on Loans and Advances to Customers The Group Year ended 31 December 2011 Year ended 31 December 2010 Individually Collectively Individually Collectively assessed assessed Total assessed assessed Total
At 1 January 3,215,529 9,857,724 13,073,253 3,797,040 6,976,297 10,773,337 Charge for the year 474,870 4,191,376 4,666,246 1,292,085 2,881,427 4,173,512 Reversal of interest on impaired loans (Note 4) ( 167,597) – ( 167,597) ( 178,784) – ( 178,784) Recoveries of loans and advances previously written off 344,992 – 344,992 75,079 – 75,079 Transfer out ( 14,992) – ( 14,992) ( 13,197) – ( 13,197) Write-offs ( 643,085) – ( 643,085) ( 1,756,694) – ( 1,756,694)
At 31 December 3,209,717 14,049,100 17,258,817 3,215,529 9,857,724 13,073,253
The Group Year ended 31 December 2011 Year ended 31 December 2010 Corporate Personal Corporate Personal loans loans Total loans loans Total
At 1 January 12,282,036 791,217 13,073,253 10,120,503 652,834 10,773,337 Charge for the year 4,526,606 139,640 4,666,246 4,035,129 138,383 4,173,512 Reversal of interest on impaired loans (Note 4) ( 167,597) – ( 167,597) ( 178,784) – ( 178,784) Recoveries of loans and advances previously written off 344,992 – 344,992 75,079 – 75,079 Transfer out ( 14,992) – ( 14,992) ( 13,197) – ( 13,197) Write-offs ( 643,085) – ( 643,085) ( 1,756,694) – ( 1,756,694)
At 31 December 16,327,960 930,857 17,258,817 12,282,036 791,217 13,073,253
The Group 31 December 2011 31 December 2010
Gross loans and advances for which allowance for impairment losses are: – Individually assessed 5,217,161 5,799,529 – Collectively assessed 606,245,756 522,137,152 611,462,917 527,936,681
Allowance for impairment losses: – Individually assessed 3,209,717 3,215,529 – Collectively assessed 14,049,100 9,857,724 17,258,817 13,073,253
Net loans and advances for which allowance for impairment losses are: – Individually assessed 2,007,444 2,584,000 – Collectively assessed 592,196,656 512,279,428 594,204,100 514,863,428
Identified impaired loans and advances (i) 5,599,687 6,254,037
Percentage of impaired loans and advances 0.92% 1.18%
Annual Report 2011 207
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.207 The Company Year ended 31 December 2011 Year ended 31 December 2010 Individually Collectively Individually Collectively assessed assessed Total assessed assessed Total
At 1 January 3,215,529 9,857,724 13,073,253 3,797,040 6,976,297 10,773,337 Charge for the year 474,870 4,190,046 4,664,916 1,292,085 2,881,427 4,173,512 Reversal of interest on impaired loans ( 167,597) – ( 167,597) ( 178,784) – ( 178,784) Recoveries of loans and advances previously written off 344,992 – 344,992 75,079 – 75,079 Transfer out ( 14,992) – ( 14,992) ( 13,197) – ( 13,197) Write-offs ( 643,085) – ( 643,085) ( 1,756,694) – ( 1,756,694)
At 31 December 3,209,717 14,047,770 17,257,487 3,215,529 9,857,724 13,073,253
The Company Year ended 31 December 2011 Year ended 31 December 2010 Corporate Personal Corporate Personal loans loans Total loans loans Total
At 1 January 12,282,036 791,217 13,073,253 10,120,503 652,834 10,773,337 Charge for the year 4,525,955 138,961 4,664,916 4,035,129 138,383 4,173,512 Reversal of interest on impaired loans ( 167,597) – ( 167,597) ( 178,784) – ( 178,784) Recoveries of loans and advances previously written off 344,992 – 344,992 75,079 – 75,079 Transfer out ( 14,992) – ( 14,992) ( 13,197) – ( 13,197) Write-offs ( 643,085) – ( 643,085) ( 1,756,694) – ( 1,756,694)
At 31 December 16,327,309 930,178 17,257,487 12,282,036 791,217 13,073,253
The Company 31 December 2011 31 December 2010
Gross loans and advances for which allowance for impairment losses are: – Individually assessed 5,217,161 5,799,529 – Collectively assessed 606,112,814 522,137,152 611,329,975 527,936,681
Allowance for impairment losses: – Individually assessed 3,209,717 3,215,529 – Collectively assessed 14,047,770 9,857,724 17,257,487 13,073,253
Net loans and advances for which allowance for impairment losses are: – Individually assessed 2,007,444 2,584,000 – Collectively assessed 592,065,044 512,279,428 594,072,488 514,863,428
Identified impaired loans and advances (i) 5,599,687 6,254,037
Percentage of impaired loans and advances 0.92% 1.18%
(I) Identified impaired loans and advances are those on which there is objective evidence that impairment losses have occurred. Where individual or several loss events occurred on loans and advances after initial recognition and the effects of such events on future cash flows generated from the loans and advances can be reliably measured, then there is objective evidence that the loans have impaired.
208 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.208 16c. At 31 December 2011, RMB48,869,392 thousand of bills held by the Group were taken as collateral under repurchase agreements (at 31 December 2010: RMB68,366,547 thousand).
At 31 December 2011 and 31 December 2010, none of loans and advances held by the Group were taken as collateral under repurchase agreements. 17. HELD-FOR-TRADING FINANCIAL ASSETS The Group and the Company 31 December 2011 31 December 2010
Investments in bonds: – Financial bonds 102,584 106,446 – Corporate bonds 3,902,007 – Total 4,004,591 106,446
Listed 4,004,591 106,446
18. INVESTMENTS The Group and the Company 31 December 2011 31 December 2010
Held-to-maturity investments (Notes 18a and 18d) 93,921,587 66,442,354 Available-for-sale investments (Notes 18b and 18d) 28,570,137 14,941,281 Loans and receivables (Note 18c) 3,500,000 5,850,000 125,991,724 87,233,635
18a. Held-to-maturity investments The Group and the Company 31 December 2011 31 December 2010
Investments in bonds, measured at amortised cost: – Government bonds 64,791,361 47,409,188 – Financial bonds 22,317,279 17,009,460 – Corporate bonds and others 6,812,947 2,063,384 93,921,587 66,482,032 Allowance for impairment losses – ( 39,678) 93,921,587 66,442,354
Annual Report 2011 209
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.209 The Group and the Company 2011 2010
Balance at 1 January 39,678 50,526 Reversal for the year ( 44,470) ( 9,654) Recovery for the year 5,152 – Reversal of interest on impaired bonds ( 360) ( 1,194) Balance at 31 December – 39,678
The Company sold a significant amount of held-to-maturity investments in 2003, and had to reclassify the remaining held-to-maturity into available-for-sale investments. On 1 January 2006, investments in those bonds were reclassified and recognised as held-to-maturity investments with their carrying amount of RMB51,439,548 thousand measured at fair value as new amortised cost.
At 31 December 2011, the amount of unrealised gain/loss on those investments which has been recognised in equity was RMB120,745 thousand (at 31 December 2010: RMB146,924 thousand). Such unrealised gain/loss is amortised over the remaining tenor of those investments using effective interest rate method. In 2011, such amortisation was RMB thousand (2010: RMB48,861 thousand).
The difference between the new amortised cost and the amount at maturity continues to be amortised over the remaining tenor of such investment using effective interest rate method.
18b. Available-for-sale Investments The Group and the Company 31 December 2011 31 December 2010
Investments in bonds, measured at fair value (i): – Government bonds 725,659 5,006,657 – Financial bonds 11,514,216 7,648,164 – Central bank bills – 33,171 – Corporate bonds and others 16,248,488 2,171,490 28,488,363 14,859,482
Equity investments, measured at cost: – China UnionPay Co., Ltd. (ii) 81,250 81,250 – Visa International Service Association 524 549 81,774 81,799
Total 28,570,137 14,941,281
(i) Available-for-sale bond investments are presented at fair value, and any identified impairment losses are deducted from carrying value. Where the impairment losses decreased subsequently as a result of increase in fair value, such impairment losses are reversed through equity. None of impairment losses on available-for-sale bond investments was reversed or charged in 2011 (reversal of impairment losses in 2010: RMB38,322 thousand). (ii) As unlisted equity investments among available-for-sale investments have no quotation at active market and their fair value could not be properly measured, they are measured at cost.
18c. Investment classified as loans and receivables mainly comprise principal-protected wealth management products issued by the Company and used to invest in trust schemes established by relevant trust companies.
210 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.210 18d. At 31 December 2011, RMB69,549,630 thousand of above bonds were taken as collateral under repurchase agreements and commercial bank time deposits agreement of central treasury cash management (at 31 December 2010: RMB28,216,020 thousand).
At 31 December 2011, RMB thousand of the bonds held by the Company were taken as collateral under foreign exchange on-lending business with the MOF (at 31 December 2010: RMB1,082,160 thousand). 19. INVESTMENTS IN SUBSIDIARIES 31 December 2011 31 December 2010
Investments in unlisted subsidiaries, at cost 170,000 100,000
At the end of the reporting period, the Company’s investments in major subsidiaries were as follows: % of equity directly attributable Paid-up Registered Name to the Company capital office Primary business 2011 2010
Beijing Daxing Hua Xia Village 100% 100% 100,000 No.32-2, Conducting the following RMB Bank Co., Ltd. Xingye Street businesses: public deposit-taking; (Section III), loan granting; domestic settlement; Daxing District, bill acceptance and discount; Beijing inter-bank lending and borrowing; bank card (debit card) service; issuance, encashment, and underwriting of government bonds as an agent; collection and payment as an agent and agency insurance; and other businesses approved by the banking regulatory authorities.
Kunming Chenggong Hua Xia 70% Not 50,000 Area F Conducting the following RMB Village Bank Co., Ltd. applicable. Huilanyuan, businesses: public deposit-taking; Chunrong short, medium and long-term loan Street, granting; domestic settlement; Chenggong bill acceptance and discount; New District, inter-bank lending and borrowing; Kunming bank card service; issuance, encashment, and underwriting of government bonds as an agent; collection and payment as an agent and agency insurance; and other businesses approved by the banking regulatory authorities.
Sichuan Jiangyou Hua Xia 70% Not 50,000 East building, Conducting the following RMB Village Bank Co., Ltd. applicable. 49 Shicheng businesses: public deposit-taking; Middle Road, short, medium and long-term loan Jiangyou City, granting; domestic settlement; Sichuan bill acceptance and discount; bank card service; issuance, encashment, and underwriting of government bonds as an agent; letter of guarantee; collection and payment as an agent; entrusted deposits and loans; and other businesses approved by the banking regulatory authorities.
Annual Report 2011 211
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.211 20. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instrument is a financial product whose value is determined by movements of specific financial instrument price, index or other variables. Specific financial instrument includes stock price, commodity price, bond price, price index, exchange rate and interest rate.
Notional amount of derivative financial instruments provides a basis for comparison with assets or liabilities measured at fair value in balance sheet, which indicates the volume of business transacted by the Company but does not reflect credit risk or market risk of the Company.
The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction.
At the end of the reporting period, the Group and the Company had derivative financial instruments as follows:
The Group and the Company 31 December 2011 Notional amounts with remaining life of Fair value Over three Over Within months one year three but within but within Over months one year five years five years Total Assets Liabilities
Exchange trading contracts 6,266,856 – – – 6,266,856 10,287 10,097 Exchange forward contracts 13,256,631 6,834,286 16,784 – 20,107,701 128,347 123,460 Currency swap contracts 11,450,267 2,018,096 – – 13,468,363 63,168 58,527 Interest rate swap contracts – 200,000 – – 200,000 39 39
Total 30,973,754 9,052,382 16,784 – 40,042,920 201,841 192,123
The Group and the Company 31 December 2010 Notional amounts with remaining life of Fair value Over three Over Within months one year three but within but within Over five months one year five years years Total Assets Liabilities
Exchange trading contracts 2,816,701 – – – 2,816,701 – 1,421 Exchange forward contracts 7,332,073 4,002,186 – – 11,334,259 20,577 – Currency swap contracts 6,963,580 3,163,307 – – 10,126,887 5,477 –
Total 17,112,354 7,165,493 – – 24,277,847 26,054 1,421
212 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.212 21. PROPERTY AND EQUIPMENT The Group Office Properties Property and equipment and equipment and Motor Construction Investment buildings improvements computer vehicles in progress property Total
Cost 1 January 2010 3,500,840 595,984 2,191,193 83,808 643,666 311,000 7,326,491 Additions 44,574 226,886 837,321 21,584 767,518 – 1,897,883 Transfers-in/(out) 1,081,886 5,147 – – (824,533) (262,500) – Disposals ( 11,548) – ( 120,833) ( 9,571) – – ( 141,952) At 31 December 2010 and 1 January 2011 4,615,752 828,017 2,907,681 95,821 586,651 48,500 9,082,422 Additions 411,212 256,368 655,249 14,989 425,024 – 1,762,842 Transfers-in/(out) 708,890 2,334 436 – ( 729,660) 18,000 – Disposals ( 66,575) – ( 242,830) ( 7,374) – – ( 316,779) 31 December 2011 5,669,279 1,086,719 3,320,536 103,436 282,015 66,500 10,528,485
Accumulative depreciation 1 January 2010 622,172 359,590 1,289,529 38,678 – 51,649 2,361,618 Charge for the year 153,092 105,599 316,582 7,506 – 8,441 591,220 Decrease ( 3,736) – ( 109,951) ( 8,634) – ( 50,719) ( 173,040) At 31 December 2010 and 1 January 2011 771,528 465,189 1,496,160 37,550 – 9,371 2,779,798 Charge for the year 143,479 160,773 413,963 8,624 – 2,090 728,929 Decrease ( 11,461) – ( 223,683) ( 6,480) – – ( 241,624) 31 December 2011 903,546 625,962 1,686,440 39,694 – 11,461 3,267,103
Net carrying amount: 31 December 2011 4,765,733 460,757 1,634,096 63,742 282,015 55,039 7,261,382
31 December 2010 3,844,224 362,828 1,411,521 58,271 586,651 39,129 6,302,624
All the properties and buildings held by the Group are located in the PRC. At 31 December 2011, the process of obtaining the titleship for the Group’s properties and buildings with a value of RMB704,469 thousand (31 December 2010: RMB390,038 thousand) was still in progress.
The Management of the Group is of the view that properties and buildings were not impaired as at the end of the reporting period.
Investment property of the Group refers to part of the Head Office building under lease or to be leased. The rent for 2011 was RMB7,225 thousand (2010: RMB23,392 thousand).
Annual Report 2011 213
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.213 The Company Office Properties Property and equipment and equipment and Transport Construction Investment buildings improvements computer equipment in progress property Total
Cost 1 January 2010 3,500,840 595,984 2,191,193 83,808 643,666 311,000 7,326,491 Additions 44,574 226,886 833,604 21,584 767,518 – 1,894,166 Transfers-in/(out) 1,081,886 5,147 – – (824,533) (262,500) – Disposals ( 11,548) – ( 119,990) ( 9,571) – – ( 141,109) At 31 December 2010 and 1 January 2011 4,615,752 828,017 2,904,807 95,821 586,651 48,500 9,079,548 Additions 410,987 235,971 649,433 14,989 425,024 – 1,736,404 Transfers-in/(out) 708,890 2,334 436 – ( 729,660) 18,000 – Disposals ( 66,575) – ( 242,830) ( 7,374) – – ( 316,779) 31 December 2011 5,669,054 1,066,322 3,311,846 103,436 282,015 66,500 10,499,173
Accumulative depreciation 1 January 2010 622,172 359,590 1,289,529 38,678 – 51,649 2,361,618 Charge for the year 153,092 105,599 316,454 7,506 – 8,441 591,092 Decrease ( 3,736) – ( 109,951) ( 8,634) – ( 50,719) ( 173,040)
At 31 December 2010 and 1 January 2011 771,528 465,189 1,496,032 37,550 – 9,371 2,779,670 Charge for the year 143,469 149,270 413,109 8,624 – 2,090 716,562 Decrease ( 11,461) – ( 223,683) ( 6,480) – – ( 241,624) 31 December 2011 903,536 614,459 1,685,458 39,694 – 11,461 3,254,608
Net carrying amount: 31 December 2011 4,765,518 451,863 1,626,388 63,742 282,015 55,039 7,244,565
31 December 2010 3,844,224 362,828 1,408,775 58,271 586,651 39,129 6,299,878
214 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.214 22. OTHER ASSETS The Group 31 December 2011 31 December 2010
Interest receivable 5,635,045 2,917,284 Other receivables 1,336,623 1,010,184 Long-term prepaid expenses 569,664 404,770 Repossessed assets 170,627 320,332 Intangible assets 94,490 – Others 57,541 –
Total 7,863,990 4,652,570
The Company 31 December 2011 31 December 2010
Interest receivable 5,634,676 2,917,284 Other receivables 1,330,138 1,010,018 Long-term prepaid expenses 567,569 400,477 Repossessed assets 170,627 320,332 Intangible assets 94,490 – Others 57,542 –
Total 7,855,042 4,648,111
23. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS The Group 31 December 2011 31 December 2010
Deposits from banks and other financial institutions: Deposits from banks 95,647,511 73,537,047 Deposits from other financial institutions 39,997,648 20,042,665
135,645,159 93,579,712
Money market takings from banks and other financial institutions: Money market takings from banks and other financial institutions operating in Mainland China 24,830,000 10,660,000 Money market takings from banks and other financial institutions operating outside Mainland China 2,128,473 323,961 26,958,473 10,983,961
Total 162,603,632 104,563,673
Annual Report 2011 215
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.215 The Company 31 December 2011 31 December 2010
Deposits from banks and other financial institutions: Deposits from banks 96,050,632 73,628,479 Deposits from other financial institutions 39,997,648 20,042,665 136,048,280 93,671,144
Money market takings from banks and other financial institutions: Money market takings from banks and other financial institutions operating in Mainland China 26,930,000 10,660,000 Money market takings from banks and other financial institutions operating outside Mainland China 28,473 323,961 26,958,473 10,983,961
Total 163,006,753 104,655,105
24. REPURCHASE AGREEMENTS The Group and the Company 31 December 2011 31 December 2010
Analyzed by counterparty: Banks 76,706,792 88,866,547 Other financial institutions 1,620,000 1,000,000
Total 78,326,792 89,866,547
Analyzed by collateral: Bonds 29,457,400 21,500,000 Bills 48,869,392 68,366,547
Total 78,326,792 89,866,547
25. DUE TO CUSTOMERS The Group 31 December 2011 31 December 2010
Demand deposits Corporate customers 309,828,177 305,809,054 Personal customers 57,641,397 40,857,653 367,469,574 346,666,707 Time deposits Corporate customers 302,301,603 234,430,295 Personal customers 84,968,119 73,038,732 387,269,722 307,469,027
Margin deposits 139,266,454 110,106,618 Remittance payable and outward remittances 2,017,904 3,179,963 Structured deposits – 199,934
Total 896,023,654 767,622,249
216 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.216 The Company 31 December 2011 31 December 2010
Demand deposits Corporate customers 309,535,334 305,797,329 Personal customers 57,579,997 40,857,227 367,115,331 346,654,556 Time deposits Corporate customers 302,211,839 234,430,295 Personal customers 84,913,581 73,037,667 387,125,420 307,467,962
Margin deposits 139,255,388 110,106,618 Remittance payable and outward remittances 2,017,903 3,179,963 Structured deposits – 199,934
Total 895,514,042 767,609,033
26. BONDS ISSUED The Group and the Company 31 December 2011 31 December 2010
Financial bonds issued (i) 13,620,000 13,620,000 Hybrid capital bonds issued (ii) 4,000,000 4,000,000 Subordinated bonds issued (iii) 4,400,000 6,400,000
Total 22,020,000 24,020,000
(i) As approved by the PBOC and the CBRC, the Company issued non-callable financial bonds of RMB7.62 billion and RMB6.0 billion on 21-23 August 2007 and 17-19 October 2007 respectively, including:
(a) Five-year fixed-rate financial bonds of RMB5.06 billion issued on 21-23 August 2007, unsecured, with a coupon rate of 4.15%; the investor has the option to sell all or part of bonds to the issuer at face value at the end of the third year.
(b) Five-year floating-rate financial bonds of RMB2.56 billion issued on 21-23 August 2007, unsecured, with a coupon rate of base rate plus 0.76%; the base rate is 10-day average of three-month Shanghai Inter-bank Offered Rate as announced by China Foreign Exchange Trade System & National Interbank Funding Center.
(c) Five-year fixed-rate financial bonds of RMB1.7 billion issued on 17-19 October 2007, unsecured, with a coupon rate of 4.75%; the investor has the option to sell all or part of bonds to the issuer at face value at the end of the third year.
(d) Five-year floating-rate financial bonds of RMB4.3 billion issued on 17-19 October 2007, unsecured, with a coupon rate of base rate plus 0.85%; the base rate is determined in accordance with interest rate of one-year time deposit with lump-sum deposit and withdrawal as announced by the PBOC.
Annual Report 2011 217
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.217 (ii) As approved by the PBOC and the CBRC, the Company issued callable hybrid capital bonds of RMB4.0 billion on 26-27 June 2007, including:
(a) 15-year fixed-rate capital bonds of RMB2.4 billion, with a coupon rate of 5.89% and maturity date in 2022; as approved by regulatory authorities, the Company has the option to redeem all or part of the bonds at face value on the tenth year from issue date till the maturity. If the Company does not exercise this option, the coupon rate will increase by 3 percentage points thereafter.
(b) 15-year floating-rate capital bonds of RMB1.6 billion, with a coupon rate of base rate plus 2% and maturity date in 2022; the base rate is determined in accordance with interest rate of one-year time deposit with lump-sum deposit and withdrawal as announced by the PBOC. As approved by regulatory authorities, the Company has the option to redeem all or part of the bonds at face value on the tenth year from issue date till the maturity. If the Company does not exercise this option, the coupon rate will increase by 1 percentage point thereafter.
(iii) As approved by the PBOC and the CBRC, the Company issued subordinated bonds in 2006 and 2010 respectively, including:
(a) 10-year fixed-rate callable subordinated bonds of RMB2.0 billion issued on 8-9 November 2006, with a coupon rate of 3.7% in the first five years and 6.7% for the last five years; the issuer has the option of redemption at the end of the fifth year. As approved by regulatory authorities, the Company redeemed the above subordinated bonds at face value on 9 November 2011.
(b) 10-year fixed-rate callable subordinated bonds of RMB4.4 billion issued in 2010, with a coupon rate of 4.55%; as approved by regulatory authorities, the Company has the option to redeem all or part of the bonds at face value on 2 March 2015. If the Company does not exercise this option, the coupon rate will increase by 3 percentage points thereafter to 7.55%. 27. OTHER LIABILITIES The Group 31 December 2011 31 December 2010
Interest payable 7,780,606 4,879,028 Wealth management product account payable 3,938,572 5,440,923 Salaries and benefits payables 3,092,041 2,055,212 Sundry tax payables 1,016,103 629,503 On-lending 827,930 577,565 Agency distribution of funds 258,717 51,000 Bank drafts 199,898 2,287,576 Others 997,439 899,693
Total 18,111,306 16,820,500
The Company 31 December 2011 31 December 2010
Interest payable 7,779,849 4,879,485 Wealth management product account payable 3,938,572 5,440,923 Salaries and benefits payables 3,090,955 2,054,918 Sundry tax payables 1,016,017 629,452 On-lending 827,930 577,565 Agency distribution of funds 258,717 51,000 Bank drafts 199,898 2,287,576 Others 995,300 897,137
Total 18,107,238 16,818,056
218 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.218 28. EQUITY 28a. Share Capital 31 December 2011 31 December 2010
Registered capital (par value per share: RMB1) 6,849,726 4,990,528
Paid-up capital (par value per share: RMB1) 6,849,726 4,990,528
On 22 April 2011, the Company issued 1,859,197,460 RMB-denominated ordinary shares in a non-public way to Shougang Corporation, Yingda International Holdings Corporation, Ltd. (formerly SGCC Asset Management Co., Ltd.) and DEUTSCHE BANK LUXEMBOURG S.A. As a result, total shares of the Company increased to 6,849,725,776 shares from 4,990,528,316 shares.
28b. Capital Reserve
Change in capital reserve represent RMB18.25 billion of share capital premium arising from the non-pubic issuance of new shares in April 2011.
28c. Surplus Reserve
According to the Articles of Association of the Company and generally accepted accounting principles in the PRC (“PRC GAAP”), the Company should appropriate a certain percentage of profit for the year to the statutory reserve, including statutory surplus reserve and discretionary surplus reserve. The statutory surplus reserve appropriated should be at least 10% of net profit under PRC GAAP until the reserve balance reaches 50% of the Company’s registered capital or paid-up share capital. The amount of discretionary surplus reserve is determined by the shareholders. Subject to the approval of the shareholders, the statutory surplus reserve may be used to offset accumulated losses of the Company.
28d. Dividends
In 2011, the Company distributed dividend for 2010. Based on the total of 4.99 billion shares after listing, the Company paid to shareholders a cash dividend of RMB2 per ten shares (pre-tax), totaling RMB998,106 thousand. This profit distribution plan was reviewed and approved at the annual general meeting for 2010 held on 15 April 2011.
According to the profit distribution plan reviewed at the meeting of the Board of Directors dated 23 March 2012, the Company proposed to, based on the total of 6.85 billion shares after listing, distribute to shareholders a cash dividend of RMB2.5 per ten shares (pre-tax) for 2011, totaling RMB1,712,431 thousand. This distribution plan will be subject to approval of the general meeting of shareholders.
Annual Report 2011 219
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.219 28e. Retained Profits According to the Articles of Association of the Company, the Company may distribute to shareholder the profit prepared under PRC GAAP provided that the profit has (1) satisfied all tax liabilities; (2) offset losses of previous years; and (3) been appropriated to surplus reserve and general reserve.
As set out in Note 2.1, these financial statements prepared in accordance with IFRS and its interpretations are not statutory financial statements of the Company. The Company appropriates statutory surplus reserve based on net profit audited by Chinese Certified Public Accountants.
According to relevant regulations of the MOF, the Company maintains a general reserve through the appropriation of profit to compensate possible losses related to risk assets which have not been identified yet. The general reserve, as a component of equity, should be less than 1% of the year-end balance of risk assets. With a transition period of five years at most, the general reserve should be in place on a yearly basis and get adequate within three years from 1 July 2005. Pursuant to the resolution of the Board of Directors, an appropriation to the general reserve amounting to RMB1,383 million (2010: RMB1,421 million) was approved.
Distribution of profit is determined by the general meeting of shareholders of the Company, with reference to operating results, financial position and other factors the Board of Directors deems relevant.
Changes in reserve and retained profit for the year are set out below: Reserve Changes in Statutory Discretionary fair value of Capital surplus surplus General investments, Retained reserve reserve reserve reserve after-tax Total profits
1 January 2010 14,349,123 1,672,378 110,971 6,988,533 154,355 23,275,360 2,115,135 Profit for the year – – – – – – 5,993,082 Changes in fair value of available-for-sale financial assets – – – – ( 115,765) ( 115,765) – Dividend at the end of 2009 – – – – – – ( 648,768) Appropriation to surplus reserve – 599,308 – – – 599,308 ( 599,308) Appropriation to general reserve – – – 1,421,481 – 1,421,481 ( 1,421,481) 31 December 2010 and 1 January 2011 14,349,123 2,271,686 110,971 8,410,014 38,590 25,180,384 5,438,660 Profit for the year – – – – – – 9,227,413 Increase in share capital after new shares issue 18,247,443 – – – – 18,247,443 – Changes in fair value of available-for-sale financial assets – – – – 55,102 55,102 – Dividend at the end of 2010 – – – – – – ( 998,106) Appropriation to surplus reserve – 922,742 – – – 922,742 ( 922,742) Appropriation to general reserve – – – 1,382,926 – 1,382,926 ( 1,382,926)
31 December 2011 32,596,566 3,194,428 110,971 9,792,940 93,692 45,788,597 11,362,299
220 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.220 29. OTHER COMPREHENSIVE INCOME 2011 2010
Other comprehensive income: Available-for-sale financial assets: Changes in fair value recorded in other comprehensive income 48,552 ( 123,564) Income tax effect ( 12,138) 30,891 36,414 ( 92,673) Transfer to income statement arising from disposal/impairment 24,918 ( 30,789) Income tax effect ( 6,230) 7,697 18,688 ( 23,092)
Total 55,102 ( 115,765)
30. COMMITMENTS 30a. Operating Lease Commitments
At the end of the reporting period, the total future minimum lease payments of the Group and the Company in respect of non-cancelable operating leases were as follows: The Group 31 December 2011 31 December 2010
Within one year 684,171 546,895 Over one year but not more than five years 1,875,691 1,522,400 Over five years 905,448 798,547
Total 3,465,310 2,867,842
The Company 31 December 2011 31 December 2010
Within one year 679,389 544,440 Over one year but not more than five years 1,857,219 1,514,246 Over five years 894,543 798,547
Total 3,431,151 2,857,233
Annual Report 2011 221
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.221 30b. Capital Expenditure Commitments
At the end of the reporting period, capital expenditure commitments of the Group and the Company were as follows: The Group and the Company 31 December 2011 31 December 2010
Contracted but not appropriated 212,205 42,883
31. OFF-BALANCE-SHEET ITEMS The Group The Company 31 December 31 December 31 December 31 December 2011 2010 2011 2010
Letters of credit issued 36,474,397 17,619,891 36,474,397 17,619,891 Inter-bank refinance 73,116,275 7,949,555 73,116,275 7,949,555 Guarantees issued 11,495,275 7,223,573 11,495,275 7,223,573 Bank acceptances 217,677,171 191,863,217 217,676,313 191,863,217 Undrawn credit card limit 9,126,836 12,974,072 9,126,836 12,974,072
Off-balance-sheet credit commitments of the Group include bank acceptance bill, undrawn credit card limit and letters of credit and guarantees issued to a third party at the request of customers.
Bank acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be settled simultaneously with the reimbursement from the customers.
Inter-bank refinance refers to the service that the Company, at the request of customers, applies to the payment bank which provides customers with proceeds required under trade.
Undrawn credit card limit excludes limit of credit card accounts which have not been activated.
The Group provides designated customers with loan commitments. According the Management, the Group does not undertake such commitments as they are conditional and revocable.
222 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.222 32. FUNDS UNDER MANAGEMENT The Group and the Company 31 December 2011 31 December 2010
Entrusted loans 30,951,186 24,779,893 Entrusted deposits 30,951,186 24,779,893
Entrusted wealth management assets 100,881,709 46,352,415 Entrusted wealth management funds 100,881,709 46,352,415
Entrusted deposits represent funds that depositors have instructed the Group to use to make loans to third parties as designated by them. The credit risk remains with the depositors.
Entrusted wealth management services refer to such activities that the Group invest by and manage funds from customers of the Group and pays investment income to the customers according to agreed terms and conditions and actual return. The Group does not guarantee the payment of principal and return at maturity. 33. CONTINGENT LIABILITIES 33a. Pending Legal Proceedings
As at 31 December 2011, the claimed amount of legal proceedings outstanding against the Group totaled RMB228,516 thousand (at 31 December 2010: RMB103,643 thousand). In the opinion of the Management, the Group has made adequate allowance for any probable losses based on the current facts and circumstances.
33b. Redemption and Undertaking Commitments of Government Bonds
As an underwriting agent of the MOF, the Company underwrites certain government bonds and sells the bonds to the general public, in which the Company is obliged to redeem these bonds at the discretion of the holders at any time prior to maturity. The redemption price for the bonds is based on the nominal value of the bonds plus any interest accrued up to the redemption date. As at 31 December 2011, the Company had underwritten and sold bonds with an accumulated amount of 2,639 million (31 December 2010: RMB3,401 million) to the general public, and these government bonds have not yet matured nor been redeemed. The Management expects that the amount of redemption of these government bonds through the Company prior to maturity will not be material.
The MOF will not provide funding for the early redemption of these government bonds on a back-to-back basis but is obliged to repay the principal and the respective interest upon maturity.
At the end of the reporting period, the Company had no unexpired underwriting obligations.
Annual Report 2011 223
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.223 34. RELATED PARTY DISCLOSURES 34a. Shareholders and their Affiliates
Transactions with shareholders holding 5% and above shares in the Group and their affiliates are set out below: 31 December 2011 31 December 2010
Loans and advances to customers 4,938,000 1,063,000 Bond investments 1,401,082 1,181,669 Interest receivable 6,431 18,136 Deposits 1,340,660 1,605,976 Due from banks and financial institutions 1,577 1,568 Placements from banks and other financial institutions 28,473 28,960 Margin 769,082 30,743 Interest payable 2,809 3,423 Credit commitments 1,679,147 17,417
2011 2010
Interest income 223,479 101,246 Interest expense 30,761 16,447 Other net gain/(loss) ( 18,331) 13
31 December 2011 Nominal amount Fair value Assets Liabilities
Exchange forward contracts 125,894 – 3,309
31 December 2010 Nominal amount Fair value Assets Liabilities
Exchange trading contracts 263,644 – 1,234 Exchange forward contracts 131,822 372 – Currency swap contracts 725,021 4,188 –
Related party transactions between the Company and its subsidiaries are as follows: 31 December 2011 31 December 2010
Due from banks and financial institutions 403,121 91,432 Interest payable 446 461
2011 2010
Interest expense 8,652 612 Fee expense 7 –
224 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.224 34b. Related Party Transactions with Other Enterprises with the Same Key Management Personnel 31 December 2011 31 December 2010
Deposits 16,008 9,579
2011 2010
Interest expense 63 40
Loans to shareholders, other affiliates, minority shareholders (holding less than 5% shares) and other enterprises with the same key management personnel are carried out under normal commercial terms.
34c. Key Management Personnel
The key management personnel are those persons who have the authority and responsibility to plan, direct and control the activities of the Company, directly or indirectly, including directors, supervisors and senior management members. Directors of the Company are of the view that above related party transactions between key management personnel and the Company are carried out under normal commercial terms as the same of those with non-related parties.
Emoluments of directors, supervisors and key senior management members received from the Company are set out below: 2011 2010
Emoluments 27,898 24,469
35. SEGMENT INFORMATION Operating Segments
The Group principally operates in Mainland China, with a nationwide presence of branches and offices. The Group determines operating segments according to the organizational framework, management requirement and internal reporting regulations, and on this basis, determines reporting segments as follows:
(i) Northern and Northeastern China: Beijing, Tianjin, Hebei, Shandong, Liaoning, Inner Mongolia and Jilin;
(ii) Eastern China: Jiangsu, Shanghai, Zhejiang and Anhui;
(iii) Southern and Central China: Fujian, Guangdong, Guangxi, Hunan, Hubei and Shanxi; and
(iv) Western China: Shaanxi, Xinjiang, Sichuan, Chongqing and Yunnan.
The Management monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Group.
The operating income and expense by geographic segment are prepared based on the place where branches and offices generating income and expense are located. The assets and capital expenditures by segment are based on the place of assets.
Annual Report 2011 225
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.225 Information of Products and Services
Income from external customers generated by provision of products and services or similar products and services combination are detailed in Note 4 NET INTEREST INCOME and Note 5 NET FEE AND COMMISSION INCOME. North China and Central Northeastern China and Western China East China South China China Offset Total
2011 Net interest income 11,946,786 8,346,445 5,362,746 4,638,514 – 30,294,491
Of which: External income 12,520,291 8,190,844 4,990,119 4,593,237 – 30,294,491 Internal income/(expense) ( 573,505) 155,601 372,627 45,277 – – Net fee and commission income 1,204,551 847,161 480,646 443,142 – 2,975,500 Net gain on held-for-trading financial assets 8,486 – – – – 8,486 Other operating income, net 126,364 77,542 26,798 26,208 – 256,912
Operating income 13,286,187 9,271,148 5,870,190 5,107,864 – 33,535,389
Staff costs ( 3,633,872) ( 1,391,784) ( 1,011,978) ( 780,551) – ( 6,818,185) General & administrative expenses ( 2,849,274) ( 1,637,654) ( 1,128,028) ( 744,277) – ( 6,359,233) Depreciation and amortisation ( 558,664) ( 120,867) ( 105,496) ( 87,607) – ( 872,634) Business tax and surcharges ( 821,219) ( 785,140) ( 394,649) ( 346,583) – ( 2,347,591) Allowance for impairment losses on loans and advances to customers ( 1,591,615) ( 1,386,390) ( 995,638) ( 692,603) – ( 4,666,246) Allowance for impairment losses on other assets 61,520 ( 1,211) ( 921) ( 3,489) – 55,899
Profit before tax 3,893,063 3,948,102 2,233,480 2,452,754 – 12,527,399 Income tax ( 3,306,427) Profit for the year 9,220,972
Other segment information Capital expenditures 774,908 633,133 170,200 242,867 – 1,821,108
31 December 2011 Segment assets 727,435,056 337,275,016 225,767,939 180,819,102 ( 229,830,379) 1,241,466,734 Of which: Property and equipment 3,691,956 1,703,865 1,026,001 839,560 – 7,261,382 Other non-current assets (i) 886,106 74,375 134,267 68,790 – 1,163,538 Undistributed assets 2,713,501 Total assets 1,244,180,235
Segment liabilities ( 676,399,772) ( 332,704,095) ( 222,794,283) ( 178,091,783) 229,830,379 ( 1,180,159,554) Undistributed liabilities – Total liabilities ( 1,180,159,554)
Other segment information Credit commitments 116,215,343 122,455,250 68,457,214 40,762,147 – 347,889,954
(i) Including long-term prepaid expenses and other long-term assets.
226 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.226 North China and Central Northeastern China and Western China East China South China China Offset Total
2010 Net interest income 8,331,900 7,014,217 3,866,595 3,539,608 – 22,752,320 Of which: External income 9,378,965 6,816,087 3,206,014 3,351,254 – 22,752,320 Internal income/(expense) ( 1,047,065) 198,130 660,581 188,354 – –
Net fee and commission income 605,068 454,514 220,683 164,607 – 1,444,872 Net gain on held-for-trading financial assets 2,739 – – – – 2,739 Other operating income, net 60,789 116,700 40,576 30,415 – 248,480
Operating income 9,000,496 7,585,431 4,127,854 3,734,630 – 24,448,411
Staff costs ( 2,464,840) ( 1,256,326) ( 718,479) ( 610,419) – ( 5,050,064) General & administrative expenses ( 2,232,831) ( 1,295,782) ( 785,080) ( 564,525) – ( 4,878,218) Depreciation and amortisation ( 410,263) ( 124,043) ( 89,985) ( 74,011) – ( 698,302) Business tax and surcharges ( 578,165) ( 552,155) ( 248,139) ( 223,405) – ( 1,601,864) Allowance for impairment losses on loans and advances to customers ( 1,394,307) ( 1,345,541) ( 921,664) ( 512,000) – ( 4,173,512) Allowance for impairment losses on other assets 1,273 ( 3,797) ( 20,761) ( 15,212) – ( 38,497)
Profit before tax 1,921,363 3,007,787 1,343,746 1,735,058 – 8,007,954 Income tax ( 2,018,372) Profit for the year 5,989,582
Other segment information Capital expenditures 723,037 429,210 482,910 265,044 – 1,900,201
31 December 2010 Segment assets 593,292,336 296,425,214 194,171,505 149,530,600 ( 194,735,628) 1,038,684,027 Of which: Property and equipment 3,357,899 1,342,603 939,312 662,810 – 6,302,624 Other non-current assets (i) 583,562 47,823 34,513 59,205 – 725,103
Undistributed assets 1,650,094 Total assets 1,040,334,121
Segment liabilities ( 564,379,068) ( 292,979,944) ( 192,608,649) ( 147,662,357) 194,735,628 (1,002,894,390) Undistributed liabilities ( 1,833,659) Total liabilities (1,004,728,049)
Other segment information Credit commitments 92,145,317 85,860,227 32,873,481 26,751,283 – 237,630,308
(i) Including long-term prepaid expenses and other long-term assets.
Annual Report 2011 227
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.227 36. FINANCIAL INSTRUMENTS RISK PROFILE A description and an analysis of the major risks faced by the Group are as follows: 36a. Credit Risk Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. Credit risk can also arise from operational failures that result in an unauthorized or inappropriate advances, commitment or investment of funds. The Group is exposed to credit risk primarily due to loans, investments, guarantees and other credit related commitments. The Group has established a set of credit quality assessment systems, under which lines of credit and collateral value or security level required are established according to risk status of the borrower or counterparty. Relevant risk assessment process comprises customer due diligence, risk rating, approval of credit line, review of loans and post-lending monitoring. Risk assessment is carried out on a regular basis to enable the Group to promptly monitor potential risks and adopt appropriate measures of mitigation. To enhance the credit risk management practices, the Group also launches ongoing training programs for credit officers at different levels. In addition to the credit risk exposures on credit-related assets, investments and amounts due from banks and other financial institutions, credit risk also arises in other areas. For instance, credit risk exposure also arises from derivative financial instruments which are, however, limited to derivative financial assets, as recorded in the statement of financial position. In addition, the Group also makes available to its customers guarantees which may require the Group to make payments on their behalf. Such payments are collected from customers based on the terms of the agreements signed. They expose the Group to similar risks as loans and these are mitigated by the same control processes and policies. Risk concentrations Credit risk is often greater when counterparties are concentrated in one single industry or geographical location or have comparable economic characteristics. Financial instrument portfolio of the Group is classified by industry and region. Loan impairment assessment The main considerations for the loan impairment assessment include whether any payments of principal or interest are overdue or whether there are any liquidity problems of counterparties, credit rating downgrades, or infringement of the original terms of the contract. The Group addresses impairment assessment in two areas: individually assessed impairment and collectively assessed impairment. Individually assessed All corporate loans and discounted bills are individually reviewed for objective evidence of impairment and classified based on a five-tier classification system. Corporate loans that are classified as substandard, doubtful or loss are assessed individually for impairment. If there is objective evidence that an impairment loss on a loan or advance has been incurred on an individual basis, the amount of the loss 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. The impairment loss is recognised in the income statement. In determining allowances on an individual basis, the following factors are considered: the sustainability of the borrower’s business plan; the borrower’s ability to improve performance once a financial difficulty has arisen; projected receipts and the expected payout should bankruptcy ensue; the availability of other financial support and the realisable value of collateral; and the timing of the expected cash flows. It may not be possible to identify a single, discrete event that caused the impairment, but it may be possible to identify impairment through the combined effect of several events. The impairment losses are evaluated at the end of each reporting period, unless unforeseen circumstances occur.
228 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.228 Collectively assessed Loans that are assessed for impairment losses on a collective basis include all loans for which no impairment can be identified individually, either due to the absence of any loss events or due to an inability to measure reliably the impact of potential loss events on future cash flows. For the purpose of collective assessment, assets are grouped on the basis of similar credit risk characteristics that are indicative of the debtors’ ability to pay all amounts due according to the contractual terms. Objective evidence of impairment losses on a collective basis consists of observable data indicating a measurable decrease in the estimated future cash flows from a portfolio of loans since the initial recognition of those loans, including adverse changes in the payment status of borrowers in the group of loans; and national or local economic conditions that correlate with defaults on assets in the portfolio of loans. Homogenous Groups of Loans Not Considered Individually Significant For homogeneous groups of loans, the Group uses a collective assessment approach for impairment losses. The approach analyses historical trends of probability of default and the amount of the consequential loss, as well as evaluates current economic conditions that may have a consequential impact on inherent losses in the portfolio. Individually Assessed Loans with No Objective Evidence of Impairment When no impairment can be identified for individual loans, either due to the absence of any loss events or due to an inability to measure reliably the impact of potential loss events on future cash flows, these loans are grouped together in portfolios of similar credit risk characteristics for the purpose of assessing a collective impairment loss. This loss covers those loans that were impaired at the end of the reporting period but which would not be individually identified as impaired until sometime in the future. The collective impairment loss is assessed after taking into account historical loss experience in portfolios of similar risk characteristics; and the current economic and credit environment and, whether these, in management’s experience, indicate that the actual level of incurred but not yet identified losses is likely to be greater or less than that suggested by historical experience. As soon as information that specifically identifies objective evidence of impairment on individual assets in a pool is available, those assets are excluded and individually from the portfolio. 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 for impairment. Collateral The amount and type of collateral required depend on the assessment of the credit risk of the counterparty. Guidelines are in place specifying the types of collateral and valuation parameters which can be accepted. The main types of collateral obtained are as follows: • Reverse repurchase transactions are mainly collateralised by bills, loans or investment securities; • Commercial lending is mainly collateralised by properties and other assets of the borrowers; and • Retail lending is mainly collateralised by residential properties. The Management monitors the market value of collateral periodically and requests additional collateral in accordance with the underlying agreement when it is considered necessary. It is the Group’s policy to dispose of repossessed assets in an orderly manner. In general, the Group does not occupy repossessed assets for business use.
Annual Report 2011 229
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.229 (i) Maximum exposure to credit risk without taking account of any collateral and other credit enhancements
As at the end of the reporting period, the maximum credit risk exposure without taking account of any collateral and other credit enhancements is set out below: The Group 31 December 2011 31 December 2010
On-balance sheet: Balances with central banks 169,298,411 138,899,691 Due from banks and other financial institutions 131,597,755 44,015,470 Reverse repurchase agreements 197,867,972 240,084,250 Loans and advances to customers 594,204,100 514,863,428 Financial investments – Held-to-maturity bond investments 93,921,587 66,442,354 – Available-for-sale bond investments 28,488,363 14,859,482 – Investments classified as loans and receivables 3,500,000 5,850,000 – Held-for-trading financial assets 4,004,591 106,446 Derivative financial assets 201,841 26,054 Other assets 6,971,668 3,927,468
1,230,056,288 1,029,074,643 Off-balance sheet: Credit commitments 347,889,954 237,630,308
Total credit risk exposure 1,577,946,242 1,266,704,951
The Company 31 December 2011 31 December 2010
On-balance sheet: Balances with central banks 169,221,147 138,888,431 Due from banks and other financial institutions 131,539,576 44,014,659 Reverse repurchase agreements 197,867,972 240,084,250 Loans and advances to customers 594,072,488 514,863,428 Financial investments – Held-to-maturity bond investments 93,921,587 66,442,354 – Available-for-sale bond investments 28,488,363 14,859,482 – Investments classified as loans and receivables 3,500,000 5,850,000 – Held-for-trading financial assets 4,004,591 106,446 Derivative financial assets 201,841 26,054 Other assets 6,964,814 3,927,302
1,229,782,379 1,029,062,406 Off-balance sheet: Credit commitments 347,889,096 237,630,308
Total credit risk exposure 1,577,671,475 1,266,692,714
230 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.230 (ii) Credit Quality
Risk concentrations
The Group principally provides loans and credit commitments to customers in Mainland China. Different geographic areas and industrial sectors have their unique characteristics in terms of economic development, and could present a different credit risk. The distribution of loans and advances to customers by industry is as follows:
In RMB millions The Group 31 December 2011 31 December 2010
Manufacturing 164,732 27% 139,459 26% Wholesale and retail 86,693 14% 68,525 13% Real estate 62,634 10% 47,502 9% Leasing and commercial services 54,016 9% 61,552 12% Construction 42,617 7% 31,707 6% Transportation, storage and postal services 41,012 7% 40,984 8% Production and supply of electric power, gas and water 25,263 4% 24,357 5% Others 134,496 22% 113,851 21%
Total 611,463 100% 527,937 100%
In RMB millions The Company 31 December 2011 31 December 2010
Manufacturing 164,718 27% 139,459 26% Wholesale and retail 86,680 14% 68,525 13% Real estate 62,634 10% 47,502 9% Leasing and commercial services 54,016 9% 61,552 12% Construction 42,611 7% 31,707 6% Transportation, storage and postal services 41,012 7% 40,984 8% Production and supply of electric power, gas and water 25,263 4% 24,357 5% Others 134,396 22% 113,851 21%
Total 611,330 100% 527,937 100%
Annual Report 2011 231
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.231 The Group principally disburses loans to non-banking customers operating in Mainland China. The distribution of loans by geographic region is set out below: In RMB millions The Group 31 December 2011 31 December 2010
North China and Northeastern China 214,041 188,774 East China 202,530 179,227 Central China and South China 108,184 88,379 Western China 86,708 71,557
Total 611,463 527,937
In RMB millions The Company 31 December 2011 31 December 2010
North China and Northeastern China 214,010 188,774 East China 202,530 179,227 Central China and South China 108,184 88,379 Western China 86,606 71,557
Total 611,330 527,937
Credit quality of major assets exposed to credit risk is set out below: The Group Neither past Past due Allowance for due nor but not impairment 31 December 2011 impaired impaired Impaired losses Total
Due from banks and other financial institutions 131,597,755 – 128,963 ( 128,963) 131,597,755 Reverse repurchase agreements 197,867,972 – – – 197,867,972 Loans and advances to customers 605,133,553 729,677 5,599,687 ( 17,258,817) 594,204,100 Investments classified as loans and receivables 3,500,000 – – – 3,500,000 Bond Investments 126,414,541 – – – 126,414,541 The Company Neither past Past due Allowance for due nor but not impairment 31 December 2011 impaired impaired Impaired losses Total
Due from banks and other financial institutions 131,539,576 – 128,963 ( 128,963) 131,539,576 Reverse repurchase agreements 197,867,972 – – – 197,867,972 Loans and advances to customers 605,000,611 729,677 5,599,687 ( 17,257,487) 594,072,488 Investments classified as loans and receivables 3,500,000 – – – 3,500,000 Bond Investments 126,414,541 – – – 126,414,541
232 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.232 The Group Neither past Past due Allowance for due nor but not impairment 31 December 2010 impaired impaired Impaired losses Total
Due from banks and other financial institutions 44,015,470 – 132,747 ( 132,747) 44,015,470 Reverse repurchase agreements 240,084,250 – – – 240,084,250 Loans and advances to customers 521,497,923 184,721 6,254,037 ( 13,073,253) 514,863,428 Investments classified as loans and receivables 5,850,000 – – – 5,850,000 Bond Investments 81,296,928 – 151,032 ( 39,678) 81,408,282
The Company Neither past Past due Allowance for due nor but not impairment 31 December 2010 impaired impaired Impaired losses Total
Due from banks and other financial institutions 44,014,659 – 132,747 ( 132,747) 44,014,659 Reverse repurchase agreements 240,084,250 – – – 240,084,250 Loans and advances to customers 521,497,923 184,721 6,254,037 ( 13,073,253) 514,863,428 Investments classified as loans and receivables 5,850,000 – – – 5,850,000 Bond Investments 81,296,928 – 151,032 ( 39,678) 81,408,282
Impaired loans are those on which there is objective evidence that impairment losses have occurred. Where individual or several loss events occurred on loans and advances after initial recognition and the effects of such events on future cash flows generated from the loans and advances can be reliably measured, then there is objective evidence that the loans have impaired. At 31 December 2011, fair value of collateral for loans past due but not impaired was RMB1,132,496 thousand (at 31 December 2010: RMB384,140 thousand). The collateral mainly consists of land, properties, equipment, equity and also others. At 31 December 2011, fair value of collateral for impaired loans was RMB8,444,270 thousand (at 31 December 2010: RMB9,536,839 thousand). The collateral mainly consists of land, properties, equipment, equity and also others. Loans and advances to customers The following table presents collateral analysis of loans and advances to customers which are neither past due nor impaired: The Group The Company 31 December 31 December 31 December 31 December 2011 2010 2011 2010
Loans secured by mortgages 225,021,962 188,440,936 224,981,010 188,440,936 Pledged loans 79,304,224 58,678,415 79,297,163 58,678,415 Guaranteed loans 194,907,866 178,617,847 194,822,937 178,617,847 Unsecured loans 105,899,501 95,760,725 105,899,501 95,760,725
Total 605,133,553 521,497,923 605,000,611 521,497,923
Among loans neither past due nor impaired, most borrowers are able to perform contracts. Management of the Group considers that these loans are exposed to normal business risk and there was no identifiable objective evidence of impairment for these loans which may incur losses to the Group at the end of the reporting period.
Annual Report 2011 233
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.233 Bond Investments
The following table presents issuers and types of bond investments which are neither past due nor impaired:
The Group and the Company 31 December 2011 Held-to- Available- maturity for-sale Trading investments investments investments Total
Government and central bank 64,791,361 725,659 – 65,517,020 Policy banks 17,451,163 11,514,216 94,420 29,059,799 Banks and other financial institutions 4,866,116 – 8,164 4,874,280 Enterprises 6,812,947 16,248,488 3,902,007 26,963,442
Total 93,921,587 28,488,363 4,004,591 126,414,541
The Group and the Company
31 December 2010 Held-to- Available- maturity for-sale Trading investments investments investments Total
Government and central bank 48,119,189 5,041,828 – 53,161,017 Policy banks 12,438,457 7,647,106 98,866 20,184,429 Banks and other financial institutions 4,419,971 1,058 7,580 4,428,609 Enterprises 1,353,383 2,169,490 – 3,522,873
Total 66,331,000 14,859,482 106,446 81,296,928
Ageing analysis of financial assets past due but not impaired
The following tables present the ageing analysis of financial assets exposed to credit risk which are past due but not impaired as at 31 December 2011 and 31 December 2010:
The Group and the Company Corporate loans Personal loans Total 31 December 31 December 31 December 31 December 31 December 31 December 2011 2010 2011 2010 2011 2010
Less than one month 283,944 87,125 121,171 63,429 405,115 150,554 One to two months 65,305 – 9,060 9,833 74,365 9,833 Two to three months 20,000 11,700 17,182 10,004 37,182 21,704 Over three months 202,042 – 10,973 2,630 213,015 2,630
Total 571,291 98,825 158,386 85,896 729,677 184,721
234 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.234 Renegotiated financial assets
The carrying amount of renegotiated financial assets which were determined to be past due or impaired is as follows: The Group and the Company 31 December 2011 31 December 2010
Loans and advances to customers 20,406 22,167
Credit quality of other assets
At 31 December 2011, adequate allowance was in place for impaired loans, and partial loans past due but not impaired as a result of short-term financial difficulty of borrowers were not classified as impaired loans as there was no objective evidence of impairment.
The Group regularly monitors relevant loans and adjusts the classification according to specific situation. For impaired loans, the Group sets aside allowance considering the historical default rate and loss rate of overall loans.
(iii) Collateral
During the year, the Group took possession of collateral held as security with a carrying amount of RMB4,789 thousand (2010: RMB22,499 thousand). Such collateral mainly comprises land and properties and equipment.
36b. Liquidity Risk
Liquidity risk is the risk that funds will not be available to meet liabilities as they fall due. The Group manages its liquidity risk through the asset and liability management department and aims at optimizing the structure of assets and liabilities, maintaining the stability of the deposit base, projecting cash flows and evaluating the level of current assets.
On behalf of the Group, the asset and liability management department monitors liquidity risk to ensure effective management. The department is responsible for reviewing and deciding policies concerning liquidity risk management; reviewing and deciding liquidity risk monitoring indicators and warning value; listening to and discussing report on liquidity risk on a regular basis; and reviewing and deciding liquidity risk management measures.
Major measures of liquidity risk management include analysis of liquidity risk exposure based on asset and liability maturity analysis, and bridging the liquidity gap.
Annual Report 2011 235
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.235 Analysis of the remaining maturity of the Group’s and the Company’s assets and liabilities as at the end of the reporting period is set out below:
The Group
In RMB millions 31 December 2011 Overdue/ Less than Three repayable three months to One to Over on demand months one year five years five years Total
Assets: Cash and balances with central banks 172,473 – – – – 172,473 Due from banks and other financial institutions account of the Company 34,481 76,904 20,213 – – 131,598 Reverse repurchase agreements – 75,651 122,217 – – 197,868 Loans and advances to customers 1,308 86,586 282,955 115,091 108,264 594,204 Held-for-trading financial assets – 40 2,789 1,176 – 4,005 Investments – 4,129 12,411 47,920 61,532 125,992 Derivative financial assets – 148 54 – – 202 Property and equipment – – – 1,979 5,282 7,261 Other assets 53 3,427 3,052 3,951 94 10,577 Total assets 208,315 246,885 443,691 170,117 175,172 1,244,180
Liabilities: Due to banks and other financial institutions 113,765 38,596 10,243 – – 162,604 Held-for-trading financial liabilities 51 – – – – 51 Repurchase agreements – 55,708 22,619 – – 78,327 Due to customers 471,575 163,939 216,351 44,159 – 896,024 Derivative financial liabilities – 152 40 – – 192 Bonds issued – – 13,620 4,400 4,000 22,020 Income tax payable – 1,982 849 – – 2,831 Other liabilities 4,164 9,405 3,317 418 807 18,111 Total liabilities 589,555 269,782 267,039 48,977 4,807 1,180,160
Net liquidity ( 381,240) ( 22,897) 176,652 121,140 170,365 64,020
236 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.236 The Company
In RMB millions 31 December 2011 Overdue/ Less than Three repayable three months to One to Over on demand months one year five years five years Total
Assets: Cash and balances with central banks 172,391 – – – – 172,391 Due from banks and other financial institutions 34,423 76,904 20,213 – – 131,540 Reverse repurchase agreements – 75,651 122,217 – – 197,868 Loans and advances to customers 1,308 86,586 282,823 115,091 108,264 594,072 Held-for-trading financial assets – 40 2,789 1,176 – 4,005 Investments – 4,129 12,411 47,922 61,700 126,162 Derivative financial assets – 148 54 – – 202 Property and equipment – – – 1,973 5,272 7,245 Other assets 53 3,420 3,052 3,946 94 10,565 Total assets 208,175 246,878 443,559 170,108 175,330 1,244,050
Liabilities: Due to banks and other financial institutions 114,168 38,596 10,243 – – 163,007 Held-for-trading financial liabilities 51 – – – – 51 Repurchase agreements – 55,708 22,619 – – 78,327 Due to customers 471,575 163,939 215,842 44,158 – 895,514 Derivative financial liabilities – 152 40 – – 192 Bonds issued – – 13,620 4,400 4,000 22,020 Income tax payable – 1,982 849 – – 2,831 Other liabilities 4,164 9,404 3,314 418 807 18,107 Total liabilities 589,958 269,781 266,527 48,976 4,807 1,180,049
Net liquidity ( 381,783) ( 22,903) 177,032 121,132 170,523 64,001
Annual Report 2011 237
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.237 The Group
In RMB millions 31 December 2010 Overdue/ Less than Three repayable three months to One to Over on demand months one year five years five years Total
Assets: Cash and balances with central banks 141,400 – – – – 141,400 Due from banks and other financial institutions account of the Company 7,092 36,848 75 – – 44,015 Reverse repurchase agreements – 197,564 42,520 – – 240,084 Loans and advances to customers 1,061 69,081 225,617 136,088 83,016 514,863 Held-for-trading financial assets – – – 106 – 106 Investments – 12,160 17,412 24,380 33,282 87,234 Derivative financial assets – – 26 – – 26 Property and equipment – – – 2,419 3,884 6,303 Other assets – 1,558 1,743 3,002 – 6,303 Total assets 149,553 317,211 287,393 165,995 120,182 1,040,334
Liabilities: Due to banks and other financial institutions 23,434 63,180 17,950 – – 104,564 Repurchase agreements – 76,682 13,185 – – 89,867 Due to customers 419,695 174,834 151,634 20,636 823 767,622 Derivative financial liabilities – 1 – – – 1 Bonds issued – – 2,000 18,020 4,000 24,020 Income tax payable – 1,284 550 – – 1,834 Other liabilities 2,238 11,159 2,540 294 589 16,820 Total liabilities 445,367 327,140 187,859 38,950 5,412 1,004,728
Net liquidity ( 295,814) ( 9,929) 99,534 127,045 114,770 35,606
238 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.238 The Company
In RMB millions 31 December 2010 Overdue/ Less than Three repayable three months to One to Over on demand months one year five years five years Total
Assets: Cash and balances with central banks 141,388 – – – – 141,388 Due from banks and other financial institutions 7,091 36,849 75 – – 44,015 Reverse repurchase agreements – 197,564 42,520 – – 240,084 Loans and advances to customers 1,061 69,081 225,617 136,088 83,016 514,863 Held-for-trading financial assets – – – 106 – 106 Investments – 12,160 17,412 24,380 33,382 87,334 Derivative financial assets – – 26 – – 26 Property and equipment – – – 2,417 3,883 6,300 Other assets – 1,558 1,743 2,996 – 6,297 Total assets 149,540 317,212 287,393 165,987 120,281 1,040,413
Liabilities: Due to banks and other financial institutions 23,525 63,180 17,950 – – 104,655 Repurchase agreements – 76,682 13,185 – – 89,867 Due to customers 419,682 174,834 151,634 20,636 823 767,609 Derivative financial liabilities – 1 – – – 1 Bonds issued – – 2,000 18,020 4,000 24,020 Income tax payable – 1,284 550 – – 1,834 Other liabilities 2,239 11,156 2,540 294 589 16,818 Total liabilities 445,446 327,137 187,859 38,950 5,412 1,004,804
Net liquidity ( 295,906) ( 9,925) 99,534 127,037 114,869 35,609
Annual Report 2011 239
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.239 The tables below sets out the maturity profile of the Group’s and the Company’s liabilities based on the contractual undiscounted cash flows. The balances of some items incorporate estimated interest expense to be paid at maturity. The Group In RMB millions 31 December 2011 Less than Three Repayable three months to One to Over on demand months one year five years five years Total
Due to banks and other financial institutions 113,767 38,878 10,395 – – 163,040 Held-for-trading financial liabilities 51 – – – – 51 Repurchase agreements – 56,162 23,141 – – 79,303 Due to customers 474,384 164,943 217,474 44,428 – 901,229 Bonds issued – – 14,077 6,862 7,056 27,995 Income tax payable – 1,982 849 – – 2,831 Other liabilities 4,164 9,405 3,317 418 807 18,111 Total 592,366 271,370 269,253 51,708 7,863 1,192,560
Derivative cash flows: Derivative financial instruments settled on net basis – – – – – –
Derivative financial instruments settled on gross basis Of which: Cash inflows – 42,759 16,936 – – 59,695 Cash outflows – ( 42,763) ( 16,922) – – ( 59,685)
The Company 31 December 2011 Less than Three Repayable three months to One to Over on demand months one year five years five years Total
Due to banks and other financial institutions 114,171 38,878 10,395 – – 163,444 Held-for-trading financial liabilities 51 – – – – 51 Repurchase agreements – 56,162 23,141 – – 79,303 Due to customers 474,384 164,943 216,965 44,428 – 900,720 Bonds issued – – 14,077 6,862 7,056 27,995 Income tax payable – 1,982 849 – – 2,831 Other liabilities 4,164 9,404 3,314 418 807 18,107 Total 592,770 271,369 268,741 51,708 7,863 1,192,451
Derivative cash flows: Derivative financial instruments settled on net basis – – – – – –
Derivative financial instruments settled on gross basis Of which: Cash inflows – 42,759 16,936 – – 59,695 Cash outflows – ( 42,763) ( 16,922) – – ( 59,685)
240 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.240 The Group
In RMB millions 31 December 2010 Less than Three Repayable three months to One to Over on demand months one year five years five years Total
Due to banks and other financial institutions 23,438 63,181 17,962 – – 104,581 Repurchase agreements – 76,868 13,384 – – 90,252 Due to customers 419,695 175,207 153,512 22,363 971 771,748 Bonds issued – – 2,733 18,860 9,967 31,560 Income tax payable – 1,284 550 – – 1,834 Other liabilities 2,238 11,159 2,540 294 589 16,820 Total 445,371 327,699 190,681 41,517 11,527 1,016,795
Derivative cash flows: Derivative financial instruments settled on net basis – – – – – –
Derivative financial instruments settled on gross basis Of which: Cash inflows – 17,207 7,198 – – 24,405 Cash outflows – ( 17,208) ( 7,172) – – ( 24,380)
The Company 31 December 2010 Less than Three Repayable three months to One to Over on demand months one year five years five years Total
Due to banks and other financial institutions 23,438 63,181 17,962 – – 104,581 Repurchase agreements – 76,868 13,384 – – 90,252 Due to customers 419,694 175,207 153,512 22,363 971 771,747 Bonds issued – – 2,733 18,860 9,967 31,560 Income tax payable – 1,284 550 – – 1,834 Other liabilities 2,239 11,156 2,540 294 589 16,818 Total 445,371 327,696 190,681 41,517 11,527 1,016,792
Derivative cash flows: Derivative financial instruments settled on net basis – – – – – –
Derivative financial instruments settled on gross basis Of which: Cash inflows – 17,207 7,198 – – 24,405 Cash outflows – ( 17,208) ( 7,172) – – ( 24,380)
Annual Report 2011 241
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.241 Analysis of credit commitments by contractual expiry date: The Group In RMB millions 31 December 2011 Less than Three Repayable three months to One to Over on demand months one year five years five years Total
Credit commitments 238,537 20,654 82,897 5,462 340 347,890
The Company 31 December 2011 Less than Three Repayable three months to One to Over on demand months one year five years five years Total
Credit commitments 238,536 20,654 82,897 5,462 340 347,889
The Group and the Company 31 December 2010 Less than Three Repayable three months to One to Over on demand months one year five years five years Total
Credit commitments 213,717 6,887 14,185 2,841 – 237,630
36c. Market Risk Market risk is the risk of loss, in respect of the Group’s on- and off-balance sheet activities, arising from adverse movements in market rates including interest rates, foreign exchange rates, commodity prices and stock prices. The objective of market risk management is to maximize risk return through management and control of market risk exposure. Market risk arises from both the Group’s trading and non-trading business. The Group is primarily exposed to structural interest rate risk arising from commercial banking and position risk arising from treasury transactions. Interest rate risk is inherent in many of its businesses and largely arises from mismatches between the repricing dates of interest-generating assets and interest-bearing liabilities. The Group’s currency risk mainly results from foreign currency investment portfolio in proprietary treasury operation. The Group considers the market risk arising from commodity or stock prices fluctuations in respect of its investment portfolios as immaterial. The risk management department of the Group is responsible for formulating market risk management policies. In accordance with risk management policies of the Group, the planning and finance department is responsible for managing the scale and structure of items in the statement of financial position and related interest rate risk and exchange rate risk. The treasury department is responsible for managing RMB and foreign currency denominated investment portfolio of the Head Office, carrying out proprietary transactions and agency transactions, and implementing rules and regulations of market risk management. The Group monitors market risk of trading bonds, available-for-sale bonds and other non-trading investment portfolios separately. Trading investment portfolios include exchange rate and interest rate derivative instruments apart from trading bonds. The Group employs basis point present value to measure and monitor market risk of trading businesses and available-for-sale bond investments, and uses net interest income sensitivity analysis, spread analysis and exchange rate concentration to analyze market risk of all businesses.
242 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.242 (i) Currency risk
The Group conducts it businesses mainly in RMB, with certain transactions denominated in USD, HKD and, to a lesser extent, other currencies. Transactions in foreign currencies mainly arise from the Group’s treasury operations.
The exchange rate of RMB to USD is managed under a floating exchange rate system. The HKD exchange rate has been pegged to the USD and therefore the exchange rate of RMB to HKD has fluctuated in line with the changes in the exchange rate of RMB to USD.
The Group manages its currency risk through various methods, including regularly performing currency risk exposure of assets and liabilities to keep currency risk controllable and using exchange rate derivatives available.
The table below indicates a sensitivity analysis of exchange rate changes of the currencies to which the Group and the Company had significant exposure on their monetary assets and liabilities and their forecast cash flows. The analysis calculates the effect of a reasonably possible movement in the currency rates against the RMB, with all other variables of income statement held constant, on profit before tax. A negative amount in the table reflects a potential net reduction in profit before tax, while a positive amount reflects a potential net increase. This effect, however, is based on the assumption that the Group’s and the Company’s foreign exchange exposures as at the year end are kept unchanged and, therefore, have not incorporated actions that would be taken by the Group and the Company to mitigate the adverse impact of this foreign exchange risk.
The Group and the Company, at 31 December 2011 (in RMB millions) Change in Effect on profit Currency currency rate before tax
USD +/- 5% –/+ 5 HKD +/- 5% –/+ 9 The Group and the Company at 31 December 2010 (in RMB millions) Change in Effect on profit Currency currency rate before tax
USD +/- 5% +/- 75 HKD +/- 5% +/- 0
The above effects on profit before tax are based on currency risk exposure analyzed by the Management.
The Group holds no foreign currency equity; therefore, changes in exchange rate do not affect equity.
Annual Report 2011 243
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.243 A breakdown of the assets, liabilities and off-balance-sheet credit commitments analysed by currency is as follows:
The Group 31 December 2011 (in RMB millions) RMB USD HKD Others Total
Assets: Cash and balances with central banks 171,695 663 58 57 172,473 Due from banks and other financial institutions 128,669 2,203 122 604 131,598 Reverse repurchase agreements 197,868 – – – 197,868 Loans and advances to customers 585,478 8,498 126 102 594,204 Held-for-trading financial assets 3,902 103 – – 4,005 Investments 125,708 284 – 125,992 Derivative financial assets – 202 – – 202 Property and equipment 7,261 – – – 7,261 Other assets 10,440 134 2 1 10,577
Total assets 1,231,021 12,087 308 764 1,244,180
Liabilities: Due to banks and other financial institutions 161,919 669 16 – 162,604 Held-for-trading financial liabilities 51 – – – 51 Repurchase agreements 78,327 – – – 78,327 Due to customers 883,751 10,804 458 1,011 896,024 Derivative financial liabilities – 192 – – 192 Bonds issued 22,020 – – – 22,020 Income tax payable 2,831 – – – 2,831 Other liabilities 17,125 515 6 465 18,111
Total liabilities 1,166,024 12,180 480 1,476 1,180,160
Net long position 64,997 ( 93) ( 172) ( 712) 64,020
Off-balance sheet credit commitments 305,567 6,309 82 35,932 347,890
244 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.244 The Company 31 December 2011 (in RMB millions) RMB USD HKD Others Total
Assets: Cash and balances with central banks 171,613 663 58 57 172,391 Due from banks and other financial institutions 128,611 2,203 122 604 131,540 Reverse repurchase agreements 197,868 – – – 197,868 Loans and advances to customers 585,346 8,498 126 102 594,072 Held-for-trading financial assets 3,902 103 – – 4,005 Investments 125,878 284 – – 126,162 Derivative financial assets – 202 – – 202 Property and equipment 7,245 – – – 7,245 Other assets 10,428 134 2 1 10,565
Total assets 1,230,891 12,087 308 764 1,244,050
Liabilities: Due to banks and other financial institutions 162,322 669 16 – 163,007 Held-for-trading financial liabilities 51 – – – 51 Repurchase agreements 78,327 – – – 78,327 Due to customers 883,241 10,804 458 1,011 895,514 Derivative financial liabilities – 192 – – 192 Bonds issued 22,020 – – – 22,020 Income tax payable 2,831 – – – 2,831 Other liabilities 17,121 515 6 465 18,107
Total liabilities 1,165,913 12,180 480 1,476 1,180,049
Net long position 64,978 ( 93) ( 172) ( 712) 64,001
Off-balance sheet credit commitments 305,566 6,309 82 35,932 347,889
Annual Report 2011 245
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.245 The Group 31 December 2010 (in RMB millions) RMB USD HKD Others Total
Assets: Cash and balances with central banks 140,533 690 94 83 141,400 Due from banks and other financial institutions 40,086 2,235 980 714 44,015 Reverse repurchase agreements 240,084 – – – 240,084 Loans and advances to customers 505,593 8,975 116 179 514,863 Held-for-trading financial assets – 106 – – 106 Investments 86,581 605 17 31 87,234 Derivative financial assets 2 23 – 1 26 Property and equipment 6,303 – – – 6,303 Other assets 6,158 136 9 – 6,303
Total assets 1,025,340 12,770 1,216 1,008 1,040,334
Liabilities: Due to banks and other financial institutions 104,379 138 21 26 104,564 Repurchase agreements 89,867 – – – 89,867 Due to customers 754,698 10,779 1,185 960 767,622 Derivative financial liabilities – 1 – – 1 Bonds issued 24,020 – – – 24,020 Income tax payable 1,834 – – – 1,834 Other liabilities 16,064 352 6 398 16,820
Total liabilities 990,862 11,270 1,212 1,384 1,004,728
Net long position 34,478 1,500 4 ( 376) 35,606
Off-balance sheet credit commitments 212,472 23,404 57 1,697 237,630
246 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.246 The Company 31 December 2010 (in RMB millions) RMB USD HKD Others Total
Assets: Cash and balances with central banks 140,521 690 94 83 141,388 Due from banks and other financial institutions 40,086 2,235 980 714 44,015 Reverse repurchase agreements 240,084 – – – 240,084 Loans and advances to customers 505,593 8,975 116 179 514,863 Held-for-trading financial assets – 106 – – 106 Investments 86,681 605 17 31 87,334 Derivative financial assets 2 23 – 1 26 Property and equipment 6,300 – – – 6,300 Other assets 6,152 136 9 – 6,297
Total assets 1,025,419 12,770 1,216 1,008 1,040,413
Liabilities: Due to banks and other financial institutions 104,470 138 21 26 104,655 Repurchase agreements 89,867 – – – 89,867 Due to customers 754,685 10,779 1,185 960 767,609 Derivative financial liabilities – 1 – – 1 Bonds issued 24,020 – – – 24,020 Income tax payable 1,834 – – – 1,834 Other liabilities 16,062 352 6 398 16,818
Total liabilities 990,938 11,270 1,212 1,384 1,004,804
Net long position 34,481 1,500 4 ( 376) 35,609
Off-balance sheet credit commitments 212,472 23,404 57 1,697 237,630
Annual Report 2011 247
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.247 (ii) Interest rate risk
The Group’s interest rate risk arises from the mismatches between the repricing dates of interest-generating assets and interest-bearing liabilities. The Group’s interest-generating assets and interest-bearing liabilities are mainly denominated in RMB. The PBOC establishes RMB benchmark interest rates which include a cap for RMB deposit rates and a floor for RMB loan rates.
The Group manages its interest rate risk by: monthly monitoring the macroeconomic factors that may have impact on the PBOC benchmark interest rates; optimizing the differences in timing between contractual maturities and repricing of interest-generating assets and interest-bearing liabilities; and managing the deviation of the pricing of interest-generating assets and interest-bearing liabilities from the PBOC benchmark interest rates.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s net interest income and equity.
The sensitivity of net interest income is the effect of the assumed changes in interest rates on net interest income for the year, based on non-trading floating-rate financial assets and financial liabilities held at year end.
The Group (in RMB millions) Change in Sensitivity of basis points net interest income
2011 +/-25BP –/+365 +/-50BP –/+731
2010 +/-25BP +/-221 +/-50BP +/-441
The Company (in RMB millions) Change in Sensitivity of basis points net interest income
2011 +/-25BP –/+366 +/-50BP –/+733
2010 +/-25BP +/-220 +/-50BP +/-441
The above effects on net interest income are based on interest risk exposure of assets and liabilities analysed by the Management.
The sensitivity of equity is the effect of the assumed changes of one basis point in interest rates on equity, calculated by revaluing available-for-sale financial assets held at year end.
248 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.248 The Group and the Company (RMB thousand) Basis point present value
31 December 2011 7,216
31 December 2010 2,351
The tables below summarise the contractual repricing or maturity date, whichever is earlier, of the Group’s and the Company’s assets and liabilities as at the end of the reporting period:
The Group 31 December 2011 (In RMB millions) Over three Over Within months one year Non- three but within but within Over interest- months one year five years five years generating Total
Assets: Cash and balances with central banks 168,722 – – – 3,751 172,473 Due from banks and other financial institutions 111,385 20,213 – – – 131,598 Reverse repurchase agreements 75,651 122,217 – – – 197,868 Loans and advances to customers 161,927 432,277 – – – 594,204 Held-for-trading financial assets 103 2,726 1,176 – – 4,005 Investments 9,842 18,599 41,064 56,405 82 125,992 Derivative financial assets – – – – 202 202 Property and equipment – – – – 7,261 7,261 Other assets – – – – 10,577 10,577
Total assets 527,630 596,032 42,240 56,405 21,873 1,244,180
Liabilities: Due to banks and other financial institutions 152,333 10,243 – – 28 162,604 Held-for-trading financial liabilities – – – – 51 51 Repurchase agreements 55,708 22,619 – – – 78,327 Due to customers 622,666 216,351 44,159 – 12,848 896,024 Derivative financial liabilities – – – – 192 192 Bonds issued 8,460 6,760 4,400 2,400 – 22,020 Income tax payable – – – – 2,831 2,831 Other liabilities – 3 17 807 17,284 18,111
Total liabilities 839,167 255,976 48,576 3,207 33,234 1,180,160
Interest rate exposure (311,537) 340,056 ( 6,336) 53,198 Not applicable. Not applicable.
Annual Report 2011 249
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.249 The Company 31 December 2011 (in RMB millions) Over three Over Within months one year Non- three but within but within Over interest- months one year five years five years generating Total
Assets: Cash and balances with central banks 168,645 – – – 3,746 172,391 Due from banks and other financial institutions 111,327 20,213 – – – 131,540 Reverse repurchase agreements 75,651 122,217 – – – 197,868 Loans and advances to customers 161,891 432,181 – – – 594,072 Held-for-trading financial assets 103 2,726 1,176 – – 4,005 Investments 9,842 18,599 41,064 56,405 252 126,162 Derivative financial assets – – – – 202 202 Property and equipment – – – – 7,245 7,245 Other assets – – – – 10,565 10,565
Total assets 527,459 595,936 42,240 56,405 22,010 1,244,050
Liabilities: Due to banks and other financial institutions 152,735 10,243 – – 29 163,007 Held-for-trading financial liabilities – – – – 51 51 Repurchase agreements 55,708 22,619 – – – 78,327 Due to customers 622,667 215,842 44,158 – 12,847 895,514 Derivative financial liabilities – – – – 192 192 Bonds issued 8,460 6,760 4,400 2,400 – 22,020 Income tax payable – – – – 2,831 2,831 Other liabilities – 3 17 807 17,280 18,107
Total liabilities 839,570 255,467 48,575 3,207 33,230 1,180,049
Interest rate exposure ( 312,111) 340,469 ( 6,335) 53,198 Not applicable. Not applicable.
250 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.250 The Group 31 December 2010 (in RMB millions) Over three Over Within months one year Non- three but within but within Over interest- months one year five years five years generating Total
Assets: Cash and balances with central banks 137,565 – – – 3,835 141,400 Due from banks and other financial institutions 43,940 75 – – – 44,015 Reverse repurchase agreements 197,564 42,520 – – – 240,084 Loans and advances to customers 140,306 374,557 – – – 514,863 Held-for-trading financial assets – – 106 – – 106 Investments 7,959 20,228 25,934 33,031 82 87,234 Derivative financial assets – – – – 26 26 Property and equipment – – – – 6,303 6,303 Other assets – – – – 6,303 6,303
Total assets 527,334 437,380 26,040 33,031 16,549 1,040,334
Liabilities: Due to banks and other financial institutions 103,965 570 – – 29 104,564 Repurchase agreements 76,682 13,185 – – – 89,867 Due to customers 178,359 567,120 18,304 315 3,524 767,622 Derivative financial liabilities – – – – 1 1 Bonds issued 2,560 7,900 11,160 2,400 – 24,020 Income tax payable – – – – 1,834 1,834 Other liabilities – 4 15 559 16,242 16,820
Total liabilities 361,566 588,779 29,479 3,274 21,630 1,004,728
Interest rate exposure 165,768 ( 151,399) ( 3,439) 29,757 Not applicable. Not applicable.
Annual Report 2011 251
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.251 The Company 31 December 2010 (in RMB millions) Over three Over Within months one year Non- three but within but within Over interest- months one year five years five years generating Total
Assets: Cash and balances with central banks 137,554 – – – 3,834 141,388 Due from banks and other financial institutions 43,940 75 – – – 44,015 Reverse repurchase agreements 197,564 42,520 – – – 240,084 Loans and advances to customers 140,306 374,557 – – – 514,863 Held-for-trading financial assets – – 106 – – 106 Investments 7,959 20,228 25,934 33,031 182 87,334 Derivative financial assets – – – – 26 26 Property and equipment – – – – 6,300 6,300 Other assets – – – – 6,297 6,297
Total assets 527,323 437,380 26,040 33,031 16,639 1,040,413
Liabilities: Due to banks and other financial institutions 104,056 570 – – 29 104,655 Repurchase agreements 76,682 13,185 – – – 89,867 Due to customers 178,346 567,120 18,304 315 3,524 767,609 Derivative financial liabilities – – – – 1 1 Bonds issued 2,560 7,900 11,160 2,400 – 24,020 Income tax payable – – – – 1,834 1,834 Other liabilities – 4 15 559 16,240 16,818
Total liabilities 361,644 588,779 29,479 3,274 21,628 1,004,804
Interest rate exposure 165,679 ( 151,399) ( 3,439) 29,757 Not applicable. Not applicable.
37. Fair value of financial instruments Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction. If there is an active market, such as authorized stock exchange, market prices of financial instruments are the best representatives of their fair value. As market prices of some financial assets or liabilities held or issued by the Group are not available, the Group uses discounted cash flow analysis or other valuation techniques to determine fair value of such financial instruments. In this case, fair value is affected by future cash flow amount, timing assumption and discount rate adopted.
Financial assets
Financial assets of the Group include balances with central banks, due from banks and other financial institutions, reverse repurchase agreements, loans and advances to customers and investments.
Balances with central banks, and due from banks and other financial institutions
Balances with central banks and due from banks and other financial institutions are priced at market interest rate, and mainly get due within one year, therefore, their carrying value and fair value have no big difference.
252 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.252 Loans and advances to customers
Loans and advances to customers are priced at a floating rate close to interest rate prescribed by PBOC, therefore, their carrying value and fair value have no big difference.
Reverse repurchase agreements
Reverse repurchase agreements are priced at market interest rate, and mainly get due within one year, therefore, their carrying value and fair value have no big difference.
Investments
Except partial equity investments measured at cost, available-for-sale investments and bond investments measured at fair value through profit or loss are measured at fair value in the statement of financial position.
Financial liabilities
Financial liabilities of the Group include due to banks and other financial institutions, repurchase agreements, due to customers and subordinated bonds issued.
Due to banks and other financial institutions
Due to banks and other financial institutions are priced at market interest rate, and mainly get due within one year, therefore, their carrying value and fair value have no big difference.
Repurchase agreements
Repurchase agreements are priced at market interest rate, and mainly get due within one year, therefore, their carrying value and fair value have no big difference.
The table below sets out carrying value and fair value of held-to-maturity bond investments, subordinated bonds issued, hybrid capital bonds and financial bonds whose fair value is not reflected or disclosed:
The Group and the Company Carrying value Fair value
31 December 2011 Held-to-maturity bond investments 93,921,587 95,164,832 Bonds issued Subordinated bonds issued 4,400,000 4,272,937 Hybrid capital bonds issued 4,000,000 3,723,975 Financial bonds issued 13,620,000 13,601,431
31 December 2010 Held-to-maturity bond investments 66,442,354 65,994,618 Bonds issued Subordinated bonds issued 6,400,000 6,263,489 Hybrid capital bonds issued 4,000,000 3,908,559 Financial bonds issued 13,620,000 13,641,342
Annual Report 2011 253
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.253 The assumptions and technique used to estimate fair value are as follows:
(a) Fair value of financial assets measured at fair value through profit or loss and of available-for-sale financial assets are determined with reference to market price available. In the event of unavailable market price, pricing model or discounted cash flow analysis is employed. Carrying value of such assets is their fair value.
(b) Fair value of held-to-maturity financial assets, subordinated bonds, hybrid capital bonds and financial bonds are determined with reference to market price available. In the event of unavailable market price, pricing model or discounted cash flow analysis is employed.
(c) Fair value of loans with fixed rates is estimated by comparing the market interest rate when the loans were granted and the prevailing market interest rate of similar loans. Interest rates of most loans are repriced yearly in response to changes in benchmark interest rate announced by the PBOC, therefore, their carrying value and fair value have no big difference. Credit quality changes of loans in the loan portfolio are not considered in determining the overall fair value, as credit risk impact has been represented in the allowances for losses on loans and deducted from the carrying value and fair value.
(d) Applicable interest rate of deposits is determined based on specific product, which could be fixed or floating. Fair value of demand deposits and savings account with no designated due date is the amount payable at request of customers. As most time deposits are short-term, their carrying value and fair value have no big difference.
The above assumptions and methods provide unified basis for estimating fair value of the Group’s assets and liabilities. However, as other institutions may adopt different methods and assumptions, the fair value disclosed by various financial institutions does not have the absolute comparability.
Determination of fair value and fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: valuation techniques, all inputs that have material effect on valuation results adopt observable market information, either directly or indirectly; and
Level 3: valuation techniques, some inputs for the asset or liability that are not based on observable market data. The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
254 Hua Xia Bank Co., Limited
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.254 The Group and the Company 31 December 2011 Level 1 Level 2 Level 3 Total
Financial assets: Derivative financial assets Exchange trading contracts – 10,287 – 10,287 Exchange forward contracts – 128,347 – 128,347 Currency swap contracts – 63,168 – 63,168 Interest rate swap contracts – 39 – 39
– 201,841 – 201,841
Held-for-trading financial assets 8,164 3,996,427 – 4,004,591
Available-for-sale bond investments – 28,488,363 – 28,488,363 Precious metals 52,962 – – 52,962
61,126 32,686,631 – 32,747,757
Financial liabilities: Derivative financial liabilities Exchange trading contracts – 10,097 – 10,097 Exchange forward contracts – 123,460 – 123,460 Currency swap contracts – 58,527 – 58,527 Interest rate swap contracts – 39 – 39
– 192,123 – 192,123
Held-for-trading financial liabilities 50,848 – – 50,848 50,848 192,123 – 242,971
The Group and the Company 31 December 2010 Level 1 Level 2 Level 3 Total
Financial assets: Derivative financial assets Exchange forward contracts – 20,577 – 20,577 Currency swap contracts – 5,477 – 5,477 – 26,054 – 26,054
Held-for-trading financial assets 7,580 98,866 – 106,446
Available-for-sale bond investments – 14,859,482 – 14,859,482
7,580 14,984,402 – 14,991,982
Financial liabilities: Derivative financial liabilities Exchange trading contracts – 1,421 – 1,421 – 1,421 – 1,421
Annual Report 2011 255
CAR1204001 • Huaxia Bank • 1st Proof • 1-6-2012 • 12:02 • 80072 • 29 E_Huaxia_Bank_TNT_Notes.indd P.255 38. CAPITAL MANAGEMENT The Group’s objectives on capital management are much broader than management of equity in the statement of financial position, including:
• 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;
• To support the Group’s stability and growth;
• To allocate capital in an efficient and risk-based approach to optimize risk adjusted return to the shareholders; and
• To maintain an adequate capital base to support the development of its business.
Capital adequacy and the use of regulatory capital are monitored regularly by the Management of the Group based on regulations issued by the CBRC. The required information is filed with the CBRC by the Group quarterly.
CBRC requires commercial banks to maintain the capital adequacy ratio and core capital adequacy ratio not below the minimum of 8% and 4% respectively. In the year, the Group satisfied capital requirements of regulatory authorities.
The Group computes and reports capital adequacy ratio in accordance with the Regulations Governing Capital Adequacy of Commercial Banks promulgated by the CBRC.
The capital adequacy ratio and related components of the Group are computed in accordance with the statutory financial statements prepared under the PRC GAAP. 31 December 2011 31 December 2010
Core capital 62,063,177 34,479,300 Supplementary capital 21,571,645 20,424,219 Deductions (i) ( 496,117) –
Net capital base 83,138,705 54,903,519
(i) The amount of subordinated bonds issued by other commercial banks and held by the Group after 1 July 2009, which was deducted pursuant to the Notice on Improving the Capital Replenishment Mechanism of Commercial Banks. 39. EVENTS AFTER THE REPORTING PERIOD The ninth meeting of the Six Session of Board of Directors of the Company reviewed and adopted the Proposal on Establishing a Financial Leasing Company and Follow-up Authorisation on 22 February 2012, according to which, the Company will establish a financial leasing company by investing up to RMB3.0 billion in cash and hold no less than 82% shares in the proposed company. 40. COMPARATIVE AMOUNTS Certain comparative amounts have been reclassified to conform to the current year’s presentation. 41. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors of the Company on 23 March 2012.
256 Hua Xia Bank Co., Limited
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