2010 "//6"-
3&1035

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Table of Contents

02 Words from the Chairman

04 Words from the President

07 Section I Important Notice

08 Section II Corporate Information

10 Section III Financial and Business Highlights

15 Section IV Changes in Share Capital and Status of Shareholders

19 Section V Information of Directors, Supervisors, Senior Management and Employees

28 Section VI Corporate Governance

35 Section VII Brief Introduction to Shareholders’ Meeting

36 Section VIII Report of Board of Directors

61 Section IX Report of Board of Supervisors

63 Section X Significant Matters

69 Section XI Financial Statement

69 Section XII Documents for Inspection

69 Section XIII Appendix

Note:

English translation for reference only. Should there be any inconsistencies between the Chinese and English versions, the Chinese version shall prevail. Words from the Chairman

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Chairman: Yan Bingzhu

02 Words from the Chairman

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Words from the Chairman

The past 2010 has been the most complex year for both domestic and international economy and financial market, which was also the year that China’s banking sector faced the challenge and endeavored through difficulties. Facing the complicated and difficult business environment, Bank of Beijing, with great effort from its all employees, has fully achieved the 2010 objectives with outstanding performance, successfully celebrated its 15th anniversary.

New development strategic milestones achieved. In 2010, Bank of Beijing established the first domestic consumer finance company-Bank of Beijing Consumer Finance Company, and set up ING-BoB Life Insurance joint venture with our partner ING, realizing great breakthrough in business-mixed operation. On geographic expansion, regional branches have been opened in Nanjing and Jinan, in addition to Zhongguancun Regional Branch in Beijing-the first specialized branch for innovation zone. On international development aspect, the second overseas representative office was established in Amsterdam, indicating the Bank to become the first small/medium-sized Chinese bank entering Europe.

Comprehensive strength further enhanced. In 2010, we accurately grasped the environment change and development opportunities, achieved leapfrog growth. Total assets topped 733.2 billion Yuan, with YOY growth of 37.44%; total deposits balance was 557.7 billion Yuan, with YOY growth of 24.79%; total loans balance was 334.7 billion Yuan, with YOY growth of 22.40%. We have already stepped into the rank as a medium-sized bank. Full-year profit realized 6.8 billion Yuan, up by 20.75%. Profit per capital reached 1.05 million, ranking No.1 among all listed banks. Our assets quality has been further optimized, both NPL balance and ratio all dropped; provision coverage reached 307.12%, up by 91.43 percent compared to 2009-end.

Operation transformation stepped new progress. The Bank accelerated the development of retail, fee business and SME, continuously increasing their profit contribution. The annual savings deposit net growth was 25.46 billion; retail loan balance increased by 18.50 billion Yuan, which is more than the sum of previous 3-years growth. Net fee & commission income was 964 million Yuan, up by almost 50% and its proportion up by 0.7 percentage point. SME lending had a fast growth as high as 35%, which is 13 percentage points higher than the overall loan growth rate. We maintained the leading market share in Beijing and further strengthened the feature.

Brand image had new leapfrog. Currently, Bank of Beijing ranks No.155 in terms of tier-one capital on the Top1000 World Banks list, competitiveness ranking No.13 in Asian banking sector and brand value ranking No.9 in China’s banking sector. We also received various honors including “Top100 Chinese listed companies”, “China’s Best Retail City Commercial Bank” and etc. The Bank has grown as an outstanding listed company with widely-recognized reputation in China and certain influence in the global market.

Our achievements cannot be made without the scientific guidance from government and regulatory authorities, without the trust and support from customers and investors, or without the hard-working staff team. I would like to extend our utmost gratitude on behalf of the Board to government officials, investors, clients and all employees.

The year of 2011 is the first year of Bank of Beijing’s fourth five-year planning. Under the guidance of scientific development outlook, we will accelerate strategic transformation to compose another outstanding chapter of the Bank!

Chairman:

03 Words from the President

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President: Yan Xiaoyan

04 Words from the President

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Words from the President

In the past 2010, under the severe macro environment, Bank of Beijing has fully achieved its third five-year plan and business objectives, under the correct leadership of government departments and scientific guidance from regulators. We followed the target of “grasp opportunities, prevent risk, promote management and create performance”, tackled all kinds of challenges and achieved outstanding performance. The Bank has fully accomplished the targets set by its “Third Five-year plan” to celebrate its 15th anniversary.

As of 2010-end, the Bank’s total assets balance, total deposits balance and total loans balanced was 733.2 billion, 557.7 billion and 334.7 billion Yuan respectively, which had YOY growth of 37.44%, 24.79% and 22.40%. Full year profit realized was 6.8 billion Yuan, up by 20.75%, with profit per capita more than one million Yuan. ROA was 1.07%, ROE was 16.99% and cost/income ratio was 30.30%. NPL ratio dropped to 0.69% and profit coverage ratio increased to 307.12%. With all the indicators reaching international advanced standards, the Bank has become an outstanding listed bank with highest profit per capita and best performance efficiency.

While improving its business result, Bank of Beijing also achieved milestone progress on development strategy: established the first consumer finance company in China, leading a new trend for consumption; set up ING-BoB Life Insurance, an important step for equity investment; unveiled Amsterdam Representative Office, becoming the first Chinese small/medium-sized banks entering developed countries; opened Zhongguancun Regional Branch, which is the first specialized branch for state-level innovation zone; set up two regional branches in Nanjing and Jinan, further optimizing its national network; issued the first culture & creative SME collective bill and single largest RMB acquisition syndicate finance; SME lending balance maintained at No.1 position in Beijing while culture & creative lending took 70% market share. The Bank has built its strong brand for culture finance, technology finance and green finance.

The achievement of the Bank is also the result from the fast-developing economy of China and the reform & opening-up policy, from the scientific leadership and guidance from government departments and regulatory authorities, and from the trust and support from our shareholders, clients and the public. On behalf of Bank of Beijing team, I would like to extend our sincerest gratitude to all of you.

The new year has turned a new chapter. At the critical moment of our fifteen-year history, facing the blueprint for our “12th five- year” plan, Bank of Beijing will adhere to the strategy of differentiated, specialized and delicate management, in the structure and operation transformation, to deepen our reform and innovation, in order to improve our customer services, business development, financial management and technology utilization capacity. We will build a featured bank, a benchmark bank and a respected bank, to become a first-class international commercial bank.

President:

05 Financial and Business Highlights

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6 Important Notice

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Section I Important Notice

The Board of Directors, Supervisory Board and Directors, Supervisors as well as senior managers of the Bank hereby warrant that there are no false records, misleading statements or material omissions in the information contained in this report, and undertake individual and joint obligations for the authenticity, accuracy and integrity of the report content.

This annual report (including text and summary) was reviewed and approved by the 6th meeting of the 4th Board of Directors on 8 April 2011.

The annual financial statement of the Bank, drafted according to the China Accounting Standards (CAS), has been audited by PricewaterhouseCoopers Zhongtian Public Certified Accountants, who also issued standard unqualified audit report.

Mr. Yan Bingzhu, Chairman, Mrs. Yan Xiaoyan, President, and Mrs. Du Zhihong, CFO, hereby guarantee the authenticity and integrity of the financial statements contained in this annual report.

07 Corporate Information

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Section II Corporate Information

2.1 Registered Corporate Name in Chinese:

ӑ̚ᩏᛠᐦ͊థᬌМՂ

(Chinese abbreviation: ӑ̚ᩏᛠ, hereinafter “the Bank”, “Company” or “the Company”)

Registered Corporate Name in English:

Bank of Beijing Co., Ltd. (Condensation: “BOB”)

2.2 Legal Representative: Yan Bingzhu

2.3 Secretary of the Board of Directors: Yang Shujian

Contact Address: No. C-17, Financial Street, Xicheng District, Beijing, China

Telephone: (86) 10-66223826

Fax: (86) 10-66223833

E-mail of Board’s Secretary: [email protected]

2.4 Registered Address: Ground Floor, No. A-17, Financial Street, Xicheng District, Beijing

Office Address: No. C-17, Financial Street, Xicheng District, Beijing

Postal Code: 100033

Telephone: (86) 10-66426500

Fax: (86) 10-66426519

Website: http://www.bankofbeijing.com.cn

2.5 Designated Newspapers for Information Disclosure: China Securities, Shanghai Securities, Securities Times, Securities Daily

Websites Designated by CSRC to Publish the Annual Report: http://www.sse.com.cn

Place where the Annual Report can be obtained: Board’s Office of the Bank

2.6 Listed Stock Exchange: Shanghai Stock Exchange

Stock abbreviation: Bank of Beijing

Stock code: 601169

08 Corporate Information

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2.7 Other Related Information

Initial Registration Date: 29 January 1996

Modified Registration Date: 16 January 2008

Place of Initial Registration: No.65, You’anmen Nei Street, Xuanwu District, Beijing

Modified registration place: Ground Floor, No. A-17, Financial Street, Xicheng District, Beijing

Corporate Business License Serial Number: 110000005064399

Tax Registration Certificate Number: Jing Shui Zheng Zi 110104101174712

Organization Institution Code: 10117471-2

Accountant Employed: PriceWaterHouse Coopers Zhongtian Certified Public Accountants

Address: Floor 11, PWC Plaza, Qiye Tiandi No.2 Building, No.202 Hubin Road, Luwan Region, Shanghai

Office Address: Floor 26, Block A, Beijing Financial Center, No.7 Dong San Huan Zhong Road, Chaoyang District, Beijing

09 Financial and Business Highlights

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Section III Financial and Business Highlights

3.1 Key Financial Figures and Indicators During Reporting Period

3.1.1 Key profit figures during reporting period

(Unit: ‘000 Yuan)

Item Y2010

Total profit 8,601,150

Net profit attributed to shareholders of listed company 6,803,030

Net profit after extraordinary gains & losses attributed to shareholders of listed company 6,809,360

Operating profit 8,531,620

Non-operating profit 77,457

Business profit 8,609,077

Investment gains 117,690

Net non-operating income -7,927

Net cast flow from operating activities 33,843,239

Net increase of cash and cash equivalents 1,470,625

Note: (1) Calculated in accordance with “Questions and Answers No.1 Concerning Standards on Information Disclosure by Companies Issuing Securities to the Public: Extraordinary gains & losses (2007)” and “Code No.2 Concerning Contents and Format of Information Disclosure by Companies Issuing Securities to the Public”; (2)The deducted extraordinary gains & losses item is:

(Unit: ‘000 Yuan)

Extraordinary gains & losses Y2010

Non-operating income 19,339

Suspend unclaimed income 1,416

Others 17,923

Non-operating expense 27,266

Litigation loss reserve (transfer-back)/accrual 371

Others 26,895

Net non-operating income -7,927

Income tax impact of extraordinary items -1,982

Total -5,945

10 Financial and Business Highlights

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3.1.2 Business income and components during reporting period

(Unit: ‘000 Yuan)

Item Amount % YOY +/- Cause

Interest income of loans and Increased interest income from expanded 16,151,497 65.04% 30.46% advances granted business scale Increased interest income from expanded Interest income of inter-bank lending 524,709 2.11% 155.61% lending scale Interest income of financial assets Increased interest income from expanded 634,690 2.56% 95.33% purchased under resell agreement purchase under resell agreement Increased interest income of due from Interest income of due from central bank 1,196,324 4.82% 47.76% central bank

Interest income of due from banks 505,032 2.03% 230.06% Increased interest income of due from FI

Interest income of investment bonds 4,527,889 18.23% 27.32% Increased interest income of bond investment

Fee income 1,102,344 4.44% 45.08% Increased fee income

Others 192,123 0.77% -33.77% Decreased other item incomes

Total 24,834,608 100.00% 34.39% -

3.2 Key accounting and financial figures of the previous three years

(Unit: ‘000 Yuan)

Y2010 Y2009 +/- (%) Y2008

Operating income 15,635,226 11,894,105 31.45% 12,304,055

Total profit 8,601,150 7,162,240 20.09% 6,945,176

Net profit attributed to shareholders of listed company 6,803,030 5,633,859 20.75% 5,417,165

Net profit after extraordinary gains & losses attributed to 6,809,360 5,628,062 20.99% 5,336,008 shareholders of listed company

Basic earnings per share (Yuan) 1.09 0.90 21.11% 0.87

Diluted earnings per share (Yuan) 1.09 0.90 21.11% 0.87

Basic earnings per share after extraordinary items (Yuan) 1.09 0.90 21.11% 0.86

Fully diluted ROE 16% 15% Up by 1pp 16%

Weighted average ROE 17% 16% Up by 1pp 18%

Fully diluted ROE after extraordinary gains & losses 16% 15% Up by 1pp 16%

Weighted average ROE after extraordinary gains & losses 17% 16% Up by 1pp 18%

Net cash flow per share from operating activities (Yuan) 5.43 5.62 -3.38% 0.02

PP: percentage point Note: (1) Basic earnings per share is calculated in accordance with “Company Accounting Standards No.34 – Basic earnings per share”. (2) Other indicators are calculated in accordance with “Code No.2 Concerning Contents and Format of Information Disclosure by Companies Issuing Securities to the Public (Contents and Format of Annual Report)” (revised in 2007) and “Code No.2 Concerning Information Disclosure by Companies Issuing Securities to the Public – Calculation and Disclosure of Return on Equity and Earnings per Share” (revised in 2007).

11 Financial and Business Highlights

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(Units: ‘000 Yuan)

2010.12.31 2009.12.31 +/- (%) 2008.12.31

Total assets 733,210,504 533,469,318 37.44% 417,021,019

Total liabilities 690,643,620 495,891,547 39.27% 383,207,386

Shareholders’ equity attributed to listed company 42,545,984 37,559,415 13.28% 33,794,214

Book value attributed to shareholders of listed company (Yuan) 6.83 6.03 13.28% 5.43

3.3 Key Business Information and Figures of Previous Three Years

(Unit: ‘000 Yuan)

Item 2010.12.31 2009.12.31 2008.12.31

Total deposits balance 557,724,336 446,938,703 315,840,114

Incl: Current savings deposits 26,540,883 23,101,666 16,795,043

Fixed savings deposits 73,342,057 51,320,555 37,326,252

Current corporate deposits 268,260,092 229,541,499 174,935,099

Fixed corporate deposits 166,902,847 131,374,473 80,182,925

Guarantee deposit 22,678,457 11,600,510 6,600,795

Total loans balance 334,731,772 273,480,942 193,073,700

Incl: Corporate loans 288,410,559 239,130,063 167,398,166

Retail loans 44,466,044 25,963,253 17,524,711

Bill discounting 1,855,169 8,387,626 8,150,823

Inter-bank borrowing 16,024,695 1,617,280 1,912,618

Loan loss reserve 7,128,968 6,030,834 5,383,382

12 Financial and Business Highlights

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3.4 Supplementary financial indicators of previous three years

Item Standard rate 2010.12.31 2009.12.31 2008.12.31

ROA Ĺ0.6% 1.07% 1.19% 1.40%

ROE - 16.99% 15.79% 17.91%

CAR Ĺ8% 12.62% 14.35% 19.66%

Core CAR Ĺ4% 10.51% 12.38% 16.42%

NPL ratio ĸ5% 0.69% 1.02% 1.55%

Provision coverage ratio Ĺ60% 307.12% 215.69% 180.23%

Cost/income ratio ĸ45% 30.30% 26.27% 23.40%

Single borrower exposure ratio ĸ10% 5.71% 6.90% 7.83%

Top10 borrowers exposure ratio ĸ50% 40.85% 44.42% 40.89%

Normal loans migration ratio - 1.16% 0.70% 7.71%

Special-mention loans migration ratio - 2.58% 0.15% 0.39%

Substandard loans migration ratio - 15.80% 59.96% 58.04%

Doubtful loans migration ratio - 11.20% 2.51% 2.32%

Loan to deposit ratio ĸ75% 58.22% 58.94% 57.98%

Borrowed ĸ4% 2.48% 0.23% 0.48% Inter-bank borrowing/lending ratio Lent ĸ8% 4.00% 2.13% 4.29%

Liquidity ratio Ĺ 25% 37.71% 47.60% 63.90%

Note: (1) ROA = Net profit / [(Total assets at term-beginning + Total assets at term-end) / 2; (2) Cost/income ratio = Business and management expense / Operating income;

3.5 Capital structure & changes

(Unit: ‘000 Yuan)

Item 2010.12.31 2009.12.31 2008.12.31

Net capital 50,036,357 42,198,598 37,986,124

Incl: net core capital 41,664,145 36,404,828 31,715,558

Total risk weighted assets 391,563,269 289,636,120 188,052,859

Capital for market risk 398,377 359,295 410,660

CAR 12.62% 14.35% 19.66%

Core CAR 10.51% 12.38% 16.42%

13 Financial and Business Highlights

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3.6 Changes of shareholders’ equity during reporting period

(Unit: ‘000 Yuan)

Share Capital Surplus General Undistributed Minority Item Total capital reserve reserve reserve profit shareholders’ equity

Balance at term-beginning 6,227,562 16,364,766 2,706,190 3,645,489 8,615,408 18,356 37,577,771

Increase in current term - 218,817 680,724 1,316,598 6,803,030 2,544 9,021,713

Decrease in current term - -914,317 - - -3,118,283 - -4,032,600

Balance at term-end 6,227,562 15,669,266 3,386,914 4,962,087 12,300,155 20,900 42,566,884

3.7 Interest receivables

(Unit: ‘000 Yuan)

Item Balance at term-beginning Balance at term-end

Interest receivables on-balance sheet 1,997,391 2,838,956

Interest receivables off-balance sheet 847,550 815,230

14 Changes in Share Capital and Status of Shareholders

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Section IV Changes in Share Capital and Status of Shareholders

4.1 Changes in Shares

4.1.1 Changes in the Company’s shares during the reporting period:

(Unit: share)

Before change Increase / decrease (+, -) After change

New Conversion Number of Percentage Bonus Number of Percentage shares from public Others Subtotal shares % share shares % issued reserves

I. Shares subject to 2,272,293,444 36.5% -2,272,293,444 -2,272,293,444 0 0 selling restriction

1. State-owned shares 1,020,169,939 16.4% -1,020,169,939 -1,020,169,939 0 0

2. Shares held by state- 00 0000 owned legal persons

3. Shares held by other 260,597 0.01% -260,597 -260,597 0 0 domestic investors

Incl.:

Shares held by domestic 00 0000 legal persons

Shares held by domestic 260,597 0.01% -260,597 -260,597 0 0 natural persons

4. Shares held by foreign 1,251,862,908 20.1% -1,251,862,908 -1,251,862,908 0 0 investors

Incl.:

Shares held by overseas 1,251,862,908 20.1% -1,251,862,908 -1,251,862,908 0 0 legal persons

Shares held by overseas 00 0000 natural persons

II. Shares not subject to 3,955,268,437 63.5% 2,272,293,444 2,272,293,444 6,227,561,881 100% selling restriction

1. RMB ordinary shares 3,955,268,437 63.5% 2,272,293,444 2,272,293,444 6,227,561,881 100%

2. Domestically listed 00 0000 foreign shares

3. Overseas listed 00 0000 foreign shares

4. Others 0 0 0 0 0 0

III. Total shares 6,227,561,881 100% 0 0 6,227,561,881 100%

15 Changes in Share Capital and Status of Shareholders

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4.1.2 Changes in shares subject to selling restrictions

Number of shares Number of shares Increase of Number of Date of Reason of Name of subject to selling released from shares subject to shares subject to lock-up selling shareholder restrictions at lock-up period selling restriction selling restriction period restriction year-beginning in the year in the year at year-end release Shares issued before IPO ING BANK N.V. 1,000,484,814 -1,000,484,814 0 0 2010.9.19 & relevant commitment Shares issued Beijing State-Owned before IPO Assets Management 647,962,689 -647,962,689 0 0 2010.9.19 & relevant Co., Ltd. commitment Shares issued Beijing Energy before IPO Investment Holding 372,207,250 -372,207,250 0 0 2010.9.19 & relevant Co., Ltd commitment Shares issued International Finance before IPO 251,378,094 -251,378,094 0 0 2010.9.19 Corporation & relevant commitment Other shares subject Relevant 260,597 -260,597 0 0 2010.2.24 to selling restrictions commitment

Total 2,272,293,444 -2,272,293,444 0 0

4.2 Stock Issuance and Listing

4.2.1 Listing of the Bank

The Bank issued 1.2 billion Yuan ordinary shares (A-share) in Shanghai Stock Exchange on Sep19, 2007 upon the approval of CSRC Securities Regulation Zi [2007] No.259 document. The Initial Public Offering combined off-line allocation to potential investors and on-line subscription issuance, each of which issued 0.3 billion shares and 0.9 billion shares respectively at an issuing price of 12.50 Yuan/share.

4.2.2 Changes of the Bank’s total shares number and structure

There was no change of Company total shares number and structure caused by shares giving or allotment. On Feb 24, 2010, the 260,597 shares subject to selling restrictions were released for circulation. On Sep 19, 2010, shares with 3-years lock-up period were released for circulation.

16 Changes in Share Capital and Status of Shareholders

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4.3 Information on Shareholders

4.3.1 Number of shareholders and Information about top10 shareholders

Total number of shareholders 288,371

Top 10 shareholders

Number of shares Number of Number of shares Name Nature Shareholding subject to selling shares held pledged or frozen constriction held Foreign ING BANK N.V. 16.07% 1,000,484,814 0 0 shareholder Beijing State-Owned Assets State-owned 10.41% 648,163,689 0 42,797,361 frozen Management Co., Ltd. shareholder

Beijing Energy Investment Holding State-owned 5.98% 372,207,250 0 24,583,959 frozen Co., Ltd shareholder

Foreign International Finance Corporation 4.04% 251,378,094 0 0 shareholder

China Foreign Economy and Trade Other 2.26% 140,922,489 0 0 Trust & Investment Co., Ltd.

Century Golden Resources Group Other 1.77% 110,250,000 0 0

State-owned 83,072,032 pledged Beijing Huayuan Group 1.34% 83,157,032 0 shareholder 85,000 frozen

Beijing Liandong Investment (Group) Other 0.93% 58,000,000 0 54,800,000 pledged Co., Ltd.

Beijing Information Infrastructure State-owned 15,000,000 pledged 0.92% 57,000,000 0 Construction Co., Ltd. shareholder 4,223,511 frozen

State-owned Beijing Telecom Investment Co., Ltd 0.86% 53,519,525 0 0 shareholder

Top 10 shareholders of shares not subject to selling constriction

Number of shares not subject Name of shareholders Type of shares to selling restrictions held

ING BANK N.V. 1,000,484,814 RMB ordinary shares

Beijing State-Owned Assets Management Co., Ltd. 648,163,689 RMB ordinary shares

Beijing Energy Investment Holding Co., Ltd 372,207,250 RMB ordinary shares

International Finance Corporation 251,378,094 RMB ordinary shares

China Foreign Economy and Trade Trust & 140,922,489 RMB ordinary shares Investment Co., Ltd.

Century Golden Resources Group 110,250,000 RMB ordinary shares

Beijing Huayuan Group 83,157,032 RMB ordinary shares

Beijing Liandong Investment (Group) Co., Ltd. 58,000,000 RMB ordinary shares

Beijing Information Infrastructure Construction 57,000,000 RMB ordinary shares Co., Ltd.

Beijing Telecom Investment Co., Ltd 53,519,525 RMB ordinary shares

Note to the connected relations and concerted action The Bank is not aware of any connected relations among the among the above-mentioned shareholders shareholders with shares not subject to selling restrictions.

17 Changes in Share Capital and Status of Shareholders

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4.3.2 Information on controlling shareholders and actual controlling party

The Bank has no controlling shareholder or actual controlling party. Information of shareholders holding more than 5% of the Bank’s shares:

(1) ING Bank N.V.

ING Bank N.V. is the core enterprise of International Netherlands Group (ING Group) with more than 150 years history and focuses on banking and insurance. ING Bank N.V. holds a strong business position in the economic zone of Belgium, Holland and Luxembourg and has expanded business to many countries and regions around the world.

(2) Beijing State-Owned Assets Management Co., Ltd.

Beijing State-Owned Assets Management Co., Ltd. is a solely state-owned company engaging in capital operation authorized by Beijing municipal people’s government with a registered capital of 5.0 billion Yuan. The company’s main business scope includes: goods import & export, technology import & export; agent import & export business; for business required by laws, administrative rules and State Council’s decisions for permission, can only operate after approved by authority and registered at industrial & commercial administrative authority; for business where there is no requirement by laws, administrative rules and State Council’s decisions for permission, can operate on self-decision.

(3) Beijing Energy Investment Holding Co., Ltd

Beijing Energy Investment Holding Co., Ltd was established upon the restructuring of former Beijing International Electricity Power Development Investment Corporation and former Beijing Comprehensive Investment Corporation on Dec 8, 2004. It is a solely state-owned company funded by Beijing Municipal State-owned Asset Administration Commission with a registered capital of 8.8 billion Yuan.

18 Information of Directors, Supervisors, Senior Management and Employees

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Section V Information of Directors, Supervisors, Senior Management and Employees

5.1 Information about Directors, Supervisors and Senior Management

5.1.1 Basic Information

Name Gender Title

Yan Bingzhu Male Chairman

Yan Xiaoyan Female Vice Chairman, President

Xing Huanlou Male Director

Ren Zhiqiang Male Director

Zhang Zhengyu Male Director

Zhang Jie Male Director

Zhang Dongning Male Director, VP

Zhang Huizhen Female Director, Chief Risk Officer

Ronald Scherpenhuijsen Rom Male Director, VP

Bachar Samra Male Director/ AP

Michael Knight Ipson Male Director

Li Baoren Male Independent Director

Wu Xiaoqiu Male Independent Director

Shi Jianping Male Independent Director

Yu Ning Male Independent Director

Shi Yuan Male Chief Supervisor

Lu Xueyong Male Supervisor

He Hengchang Male Supervisor

Zhou Yichen Male Supervisor

Xing Bin Female Supervisor

Zhang Jianrong Female Supervisor

Liu Zhendong Male Supervisor

Hao Ruyu Male External Supervisor

Liu Hongyu Female External Supervisor

Zhao Rui’an Male VP, Chief Financial Market Officer

Xu Ningyue Male VP, Chief Corporate Officer

Jiang Deyao Male VP, Chief Operation Officer

Yang Shujian Male Board Secretary

Du Zhihong Female AP, Chief Financial Officer

19 Information of Directors, Supervisors, Senior Management and Employees

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5.1.2 The Evaluation & Incentive Mechanism and Annual Compensation for Directors, Supervisors and Senior Management

The Bank provides remuneration for Independent Directors and External Supervisors according to “Resolution on remuneration for Independent Directors and External Supervisors”; provides for Executive Directors and senior management according to “Bank of Beijing salary policy”; and provides for employees’ supervisors according to Remuneration Administrative Measures for the Employees of Bank of Beijing.

The organizational framework of Bank of Beijing’s remuneration management composes of the Shareholder’s Meeting, the Board of Directors and the Board of Supervisors, and the senior management. The Shareholder’s Meeting takes charge of approval of Directors and Supervisors’ remuneration; the Board of Directors is responsible for reviewing and approving remuneration of senior management and delegates the Remuneration Committee under the Board of Directors to assess Directors, Supervisors and senior management; the Board of Supervisors sets up the Monitoring Committee and the Nominations Committee to supervise works of Directors, Supervisors and senior management, which will be part of annual work report of the Board of Supervisors that shall be reported to the Shareholder’s Meeting.

The Board of Directors has set up a Remuneration Committee under it composed of three Directors, 2/3 of which are Independent Directors with 1 Independent Director as the Committee’s head. Its functions include: draft assessing standards of Directors, Supervisors and senior management; listen to and appraise work reports of Directors, Supervisors and senior management on a regular basis; determine annual reward for senior managers according to business performance in the last year; other items related with the Remuneration Committee’s duties authorized by the Board of Directors.

5.1.3 Positions of Directors and Supervisors in Shareholder’s Institutions

Name Name of the Unit served Title

Ren Zhiqiang Beijing Huayuan Group Company Chairman

Zhang Jie China Hengtian Group Co., Ltd. Chairman

Zhou Yichen Taifude Industry Co., Ltd. Chairman, President

Liu Zhendong Beijing Liandong Investment (Group) Co., Ltd. Chairman

5.1.4 Name, Gender, Tenure and Working Experience of Directors, Supervisors and Senior Management

(1) Directors

Mr. Yan Bingzhu

Mr. Yan is serving as Chairman and CPC Committee Secretary of Bank of Beijing. He obtained master degree of economics and the title of senior economist. He is the representative of 17th National Congress of CPC, member of 11th Committee of Chinese People’s Political Consultative Conference, member of 10th Beijing CPC, Vice President of China Banking Association, Vice President of Chinese Entrepreneurs’ Association, member of the standing council of Beijing Financial Association, supervisor of post-graduates, and instructor of post-doctor scientific research workstation. He enjoys special government allowance of the State Council. He had served as Deputy Head of PBOC Beijing Branch office, General Manager in Central Branch of Beijing Branch of ICBC, and General Auditor in Beijing Branch of ICBC. In 1996, he took part in setting up Bank of Beijing and served as the 1st President and as Chairman of Bank of Beijing since 2002 till now.

With great contribution to growth of China financial sector, Mr. Yan has successively won “Top 10 China Economic Talents Award”, “Beijing Advanced Worker”, “Top 10 New Talented Figure in China Finance Industry”, “Annual Figure in Banking Industry”; “Figure with Contribution to China Reform”, “Leading Figure of Chinese Top 100 Enterprises”, “Figure with Special Contributing to China Economic Construction”, “Top 10 Annual Figure in Financial Industry” and many other honored titles. In addition to that, he owns rich fruits in the research area: complied Management of Commercial Bank’s Values, and Theories and Practices of Commercial Bank Development in Transformational Period and Risk Management and Internal Control over Commercial Banks, etc. as chief editor, and published over 100 theses in several core newspaper and magazines such as Financial News, China Finance, etc.

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Mrs. Yan Xiaoyan

Mrs. Yan serves as Vice Chairman and President of the Bank. She joined the Board of Directors in July 1996, and is currently serving as member of the Standing Committee of the 12th and 13th People’s Congress of Beijing, Standing Director of both China Finance Society and Beijing Finance Society, Vice Chief Director of the Listed Companies Association of Beijing, member of Panel Advisory Committee of Beijing Financial Sector’s Development in the “Twelfth Five-year Plan”, and visiting professor of MBA Education Center of Central University of Finance and Economics. Mrs. Yan served as Vice President of the Bank from January 1996 and has been serving as President of the Bank since January 2002. Before that, Mrs. Yan had served successively as Vice General Manager and General Manager of the Central Branch of Beijing Branch of Industrial and Commercial Bank of China from April 1976 to December 1995. Mrs. Yan is a senior economist. She obtained a master degree of economics in Southwestern University of Finance and Economics in 1995 and a master degree of management in Xiamen University in 2005. She won the award of “Figure of the Year of China City Commercial Banks in 2006”, “New Talented Figure in China Finance Industry in 2007”, “Person of the Year of Banking Industry in 2007”,,“Top 10 Outstanding Figure in China Economy”, and “Top10 Influencing Figure in 30 years of China Reform and Open up” in 2008, “Top 10 Entrepreneurs with Great Contribution to China’s Growth” in 2009, “the National Women Pace-Setter”, “Pioneer of Independent Innovation in China” and “Excellent Banker” in 2010.

Mr. Zhang Dongning

Mr. Zhang is Director of the Bank, and he joined the Board of Directors in May 2008. Currently, he is serving as Deputy Secretary of Party Committee, Secretary of Discipline Inspection Committee, Vice President and Branch Manager of Shanghai Regional Branch. Mr. Zhang has been serving as Shanghai Regional Branch since January 2010, the Bank’s Vice President since December 2009, Vice Secretary of Party Committee since November 2008, Secretary of Discipline Inspection Committee of the Bank since June 2008, Chief HR Officer from July 2006 to January 2010, General Manager of HR Department from March 2005 to December 2008 and General Manager of Training Department of the Bank from January 1996 to March 2005. Before that, Mr. Zhang was engaged in management in Education Division in Beijing Branch of Industrial and Commercial Bank of China from December 1988 to December 1995, and served as Director of the Office of Youth League Committee of Daxing County from January 1988 to November 1988. He was a teacher in Beijing Xihongmen Middle School from February 1983 to December 1987. Mr. Zhang is an economist. He obtained a bachelor degree from Capital Normal University in 1983 and a master degree of management from Xiamen University in 2005.

Mr. Ronald E.E. Scherpenhuijsen Rom

Executive Director of the Bank. Dutch Nationality. He joined the Board of Directors in May 2009 and has also been serving as Vice- President of the Bank in charge of retail banking since May 2009. Prior to that position, Mr. Scherpenhuijsen Rom served as the Managing Director, Country Head and Branch Manager of ING Bank N.V., Tokyo Branch, Japan since 2005. From 1990 to 2005, he served successively as Senior Account Manager of Structured Export Finance, ING Bank, Amsterdam, the Netherlands; Director and Head of Export & Project Finance and Trade & Commodity Finance and Managing Director and Head of Lending Japan and Branch Manager ING Bank N.V. Tokyo Branch, Japan; Managing Director and Head of Natural Resources Finance Americas at ING Capital, New York; and Managing Director and Global Head of Structured Export Finance, ING Bank, Amsterdam. Before that, from 1981 to 1990, Mr. Scherpenhuijsen Rom served as the Manager of International Payment Services, Manager of Securities Department, Senior Account Manager of Corporate Business Department, and Senior Manager of Regional Treasury successively in ABN-AMRO Bank, Utrecht Region, the Netherlands. Mr. Scherpenhuijsen Rom obtained diploma in Utrecht School of Business Administration in 1981.

Mr. Bachar Samra

Director of the Bank. French nationality. He joined the Board of Directors in June 2005 and has been serving as Assistant President of the Bank in charge of risk management since October 2005. Prior to that position, Mr. Samra served as Chairman of IBA Credit Limited (Hong Kong) from 1997 to 2005, Executive Director, Alternate Chief Executive and Executive Vice President of International Bank of Asia Limited (Hong Kong) (now Fubon Bank) from 1989 to 2005, and Executive Vice President of Unitag Group (Bahrain) from 1985 to 1989. Mr. Samra graduated Cum Laude from University of Memphis, USA, with Master of Engineering in Civil Engineering, and received a Master in Business Administration (MBA) with concentration in Marketing and Financial Management from DePaul University, Chicago, USA. Mr. Samra was awarded the Great Wall Friendship Award in 2007, the highest honor for international experts by the Municipal Government of Beijing.

21 Information of Directors, Supervisors, Senior Management and Employees

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Mr. Xing Huanlou

Mr. Xing is Director of the Bank. He joined the Board of Directors in June 2004 and is currently serving as adviser of Beijing Municipal Government. He has been Vice Secretary of CPC Committee, Director and General Manager of Beijing Energy Investment (Group) Co., Ltd., Chairman of Shanxi Zhangshan Electric Power Co., Ltd., Chairman of Beijing Jingfeng Thermal Power Co., Ltd., and Chairman of Beijing Jingfeng Gas Turbine Power Co., Ltd from December-end in 2004 to December 2008. He served as Vice Secretary of CPC Group, Director, and General Manager of Beijing International Power Development & Investment Company from August 2000 to December 2004, as Vice Secretary of CPC Group and General Manager of Beijing Comprehensive Investment Company from May 1997 to August 2000. And he served successively as cadre and Vice Director in Industry Division, Director in Long-term Division, Director of Comprehensive Division and General Economist of Beijing Planning Committee from February 1982 to May 1997, and as Propaganda Secretary and Secretary of Youth League Committee in Hongxing Community of Daxing County, Beijing from August 1969 to February 1978. Mr. Xing is a senior economist and graduated from Beijing Colleague of Economics in February 1982 as a bachelor of economics.

Mr. Ren Zhiqiang

Mr. Ren is Director of the Bank. He joined the Board of Directors in June 2004. Mr. Ren is currently serving as President of Beijing Huayuan Group, Chairman of Beijing Huayuan Group Company, Chairman of Beijing Huayuan Property Co., Ltd., Chairman of Beijing Huayuan Haoli Investment Co., Ltd, Chairman of Beijing Shanfu Restaurant Co., Ltd., Chairman of Beijing Saidike Group Co., Ltd., Member of 9th, 10th and 11th CPPCC Beijing Council and Vice Director of Real Estate Chamber of All-China Federation of Industry & Commerce and China Real Estate Research Association. Mr. Ren has been serving as President of Beijing Huayuan Group and Chairman and General Manager of Beijing Huayuan Group Company since 1993. During that period, He has a concurrent post as Chairman of Beijing Huayuan Property Co., Ltd. since January 2007, as Chairman and General Manager of Beijing Huayuan New Era Real Estate Development Co., Ltd. from February 2000 to January 2007, and as Chairman and General Manager of Beijing Huayuan Real Estate Co., Ltd from 1993 to 2000. Before, He also served as General Manager of Beijing Huayuan Economic Construction Development Corporation, and Manager of Beijing Huayuan Urban Construction Development Company, etc. Mr. Ren is an engineer and post graduate of the major in civil and commercial law from Law School of Renmin University of China.

Mr. Zhang Zhengyu

Mr. Zhang is Director of the Bank. He joined the Board of Directors in June 2004. He is the member of the 11th National CPPCC and has received State Council special allowance since 1995, and as national mid/young talents. Besides, he is serving as General Manager of Beijing Hi-Tech Wealth Telecommunication Product Co., Ltd. and Director of Beijing Hi-Tech Wealth Technology Development Co., Ltd. Mr. Zhang has been working as Director of Beijing Hi-Tech Wealth Electronic Product Co., Ltd since 2003, as General Manager of Beijing Hi-Tech Wealth Telecommunication Product Co., Ltd. since 2002, and Chairman of Beijing Hi-Tech Electronic Product Co., Ltd in 1998. Before that, Mr. Zhang had a post as Vice General Manager and General Manager of China Welfare Enterprise Corporation from 1992 to 2001, and held a position as General Manager of Beijing Haidian Star Technology Development Center from 1987 to 1997. Mr. Zhang is a senior engineer with a doctor degree of dynamics of multi-body systems from Beijing University of Aeronautics and Astronautics.

Mr. Michael Knight Ipson

Director of the Bank. American nationality. He joined the Board of Directors in June 2005 and is serving as Advisor of China Representative Office in International Finance Corporation (IFC) and Member of National Committee on US-Sino Relations. He used to be Member of Banking Personnel Qualification Authentication Specialist Committee of China Banking Association, Director of American Chamber of Commerce (Hong Kong) and Chief Representative of China-Mongolia Areas of IFC. Mr. Ipson has been serving as Chief Bank expert of International Finance Corporation from 2005 to 2007. Before that, from December 1991 to April 2005, Mr. Ipson had served successively as Executive Vice President of International Bank of Asia Limited (IBA), Director of Leasing Subsidiary and Securities Subsidiary of IBA. From Sep. 1979 to Dec. 1991, he served as General Manager of Hong Kong Branch of Manufacturers Hanover, Chief Executive Officer of Manufacturers Hanover Asia, Chief Representative of Manufacturers Hanover in China, Vice President in China Business, and Person in charge of Country Business in China, Taiwan and Hong Kong. Mr. Ipson obtained a bachelor degree of history in California Berkeley University in 1969, a master degree of arts in Stanford University in 1973 and a MBA in Depaul University (U. S.) in 1998.

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Mr. Zhang Jie

Mr. Zhang is a Director of the Bank, and joined the Board of Directors in August 2010. He is currently serving as the Chairman and Party Secretary of China Hengtian Group Co., Ltd. Before that, Mr. Zhang was CEO of China Worldbest Group Co., Ltd from September 2005 to March 2008, Vice General Manager of China Hengtian Group Co., Ltd. and General Manager of China textile machinery Co., Ltd. from May 2004 to September 2005. He successively served as Vice General Manager, General Manager and Chairman of China Textile Machinery Co., Ltd. from August 1998 to May 2005, General Manager of China Textile Real Estate Development Company from May 1995 to August 1998, Deputy Head of Production Bureau and General Administrative of Chemical Fiber Department, Ministry of Textile Industry, and Director of Chemical Fiber Development Center under Textile General Association. Mr. Zhang is senior engineer with doctor degree in economics.

Mrs. Zhang Huizhen

Mrs. Zhang is a Director of the Bank. She joined the Board of Directors in August 2010, and is serving as the Bank’s Chief Risk Officer. Mrs. Zhang was General Manager of Xi’an Regional Branch, Bank of Beijing from December 2007 to May 2010, and successively served as deputy branch manager and branch manager of Yong’an Sub-branch, Guanyuan Sub-branch and Hua’an Sub-branch of Bank of Beijing from November 1996 to November 2007. In 2009, Mrs. Zhang was awarded as “Excellent Figure for Financial Development in Shaangxi Province” by the Shaangxi Provincial Government; in 2010, she won “Outstanding Party Member in the Public’s Mind” given by State-owned Assets Supervision and Administration Commission. Mrs. Zhang is an on-job graduate of Party School of Municipal Party Committee.

Mr. Li Baoren

Mr. Li is Independent Director of the Bank. He joined the Board of Directors in April 2007 and is currently serving as Professor and Doctorial Tutor in Central University of Finance and Economics and Deputy Chief Member of the Financial and Economic Committee of the People’s Congress of Beijing. He served as Secretary of CPC Committee of Central University of Finance and Economics from June 1991 to February 2005, as Vice Secretary of CPC Committee of Northeast University of Finance and Economics from August 1984 to May 1991, as teacher in the Finance Department of Liaoning Institute of Finance and Economics from January 1981 to July 1984, and as Vice Director of Finance Bureau of Tacheng Region of Xinjiang from June 1975 to December 1980. He engaged in the work in Finance Bureau of Tacheng Region of Xinjiang from April 1970 to May 1975. He graduated from Liaoning Institute of Finance and Economics in 1966 and became Specialist enjoying special government allowance of the State Council in 2000.

Mr. Wu Xiaoqiu

Mr. Wu joined the Board of Directors in April 2007 and currently also serves as Independent Director of Industrial Securities, Shanxi Securities, Haitong Securities and Xinggang Co. Ltd. Mr. Wu is also Assistant to President of Renmin University of China (RUC), Executive Vice Dean of Graduate School of RUC, professor, Ph. D supervisor, member of Disciplinary Appraisal Panel under the Committee of Academic Degree of the State Council, Member of Academic Committee of RUC, Head of Research Institute of Finance and Security at RUC. He was awarded by the Ministry of Education as a “Yangtze River Scholar” specially-engaged professor in 2007, obtained subsidy from the Ministry of Education as an excellent youth specialist in 2001, and was appraised by the Ministry of Education as a cross-century excellent talent in 2000. He also obtained special allowance of the State Council for specialists in 1998. He has a Ph. D in Economics. Mr. Wu’s main concurrent academic posts include: Standing Director of Chinese Society for Finance and Banking, Member of its Academic Committee, Standing Director of Chinese Society for Urban Finance and Member of its Academic Committee, Standing Director of Chinese Society of Rural Finance and Member of its Academic Committee, Member of Specialist Committee of National Development Bank, Financial Consultant for the People’s Government of Beijing Municipality, and part-time Professor of Nankai University etc.

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Mr. Shi Jianping

Mr. Shi is an Independent Director of the Bank. He joined the Board of Directors in August 2010. He is currently a professor, doctoral supervisor of Central University of Economics and Finance, Standing Director of China Finance Association, Deputy Director of China Rural Finance Association and Member of Banking Personnel Qualification Authentication Specialist Committee of China Banking Association. Since 1987, Mr. Shi has been teaching in Central University of Economics and Finance. Before that, he successively served as credit officer, Deputy Head and Head of ICBC Credit Division from 1983 to 1987. He became an expert enjoying government special allowance since 2006, won the 1st Award of State Teaching Achievement in 2005, and was elected as the leading talent of cross-central youth academics of the Ministry of Finance in 1998. Mr. Shi was graduated from Central University of Economics and Finance with bachelor and master degree of finance and doctor degree of national economics.

Mr. Yu Ning

Mr. Yu is an Independent Director of the Bank. He joined the Board of Directors in August 2010. He is the Member of the 11th CPPCC and Social and Legal Affair Committee of CPPCC. He currently serves as Director of All China Lawyers Association. Before that, he was Deputy Director and then Director of Central Commission for Discipline Inspection of the CPC from August 1983 to May 1994; he was a cadre of Political Work Section of Health Bureau, Zhenjiang City, Jiangsu Province from May 1978 to August 1979; and from 1969 to 1978, he was serving in No. 114 Division, No.38 Army. Mr. Yu obtained bachelor degree of jurisprudence in 1983 and master degree of economical laws in 1996, both from Peking University.

(2) Supervisors

Mr. Shi Yuan

Mr. Shi joined the Board of Supervisors in May 2008. He has been serving as Chairman of ING-BoB Life Insurance since July 2010 and Chief Supervisor of Bank of Beijing since May 2008. Before that, he was Vice Chairman of the Bank (January 2002-May 2008) and Vice President (January 1996). Prior to Bank of Beijing, Mr. Shi was Vice-Director of Macao Branch of Xinhua News Agency (June 1991-December 1995) and Deputy Director, Director of Division of the Organization Department of CPC Beijing Committee (May 1982-June 1991). Mr. Shi graduated from Renmin University of China majoring in Industrial Economy Management with a bachelor degree. He obtained master degree of Monetary Banking from Graduate School of Chinese Academy of Social Sciences and MBA from Xiamen University in 2005.

Mr. Lu Xueyong

Mr. Lu is Supervisor of the Bank. He joined the Board of Supervisors in June 2004, and served as the Chief Supervisor till May 2008. Mr. Lu had served as Member and Executive Member of Beijing CPPCC and Vice Director of Economic and Technological Committee of Beijing CPPCC from January 2003 to January 2006. Before that, Mr. Lu had served successively as Deputy Chief of Industrial Credit Division of Beijing Branch of the People’s Bank of China, Vice Director of Chaoyang District Office of the PBOC, Deputy Branch Manager of Beijing Branch of the PBOC, Secretary of CPC Group and Branch Manager of Beijing Branch of the PBOC, Secretary of CPC Committee and Director of Business Management Department of the PBOC from September 1982 to 1999, and served as Secretary of Finance Industry Committee of CPC Beijing Committee from October 1999 to March 2002. Mr. Lu is a senior economist and graduated from Beijing Correspondence University of Economics. He is an on-job graduate of Chinese Academy of Social Sciences in commercial economy major.

Mr. He Hengchang

Mr. He is Supervisor of the Bank. He joined the Board of Supervisors in August 2010. Mr. He served as the first Chairman of the Bank from January 1996 to January 2002. Before that, he served as Deputy Branch Manager of Beijing Branch of ICBC from May 1984 to October 1996, as Team Leader of Comprehensive Team of Industrial Credit Department of Beijing Branch of the PBOC, person in charge of the Banking Business Team of Beijing Finance Bureau and Deputy Branch Manager of Beijing Branch of the PBOC from June 1965 to April 1984, and as Deputy Chief of Credit Section of Dongcheng District Office of Beijing Branch of the PBOC from July 1959 to May 1965. Mr. He is a senior economist and lifelong honored member of the Bank. He graduated from the Finance Department of Northeast Institute of Finance in 1957.

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Mr. Zhou Yichen

Mr. Zhou is Supervisor of the Bank. He joined the Board of Supervisors in June 2004 and is currently serving as Chairman of Taifude Investment Group Co., Ltd. He is Executive Member of All-China Federation of Industry & Commerce, Executive Member of Beijing Federation of Industry & Commerce, Member of the 11th Committee of Beijing CPPCC, Director of China Society for Promotion of the Guangcai Program, Member of the 9th and 10th Committee of Beijing Youth Union and Honored Vice President of Chaoyang District Charity Association of Beijing. Mr. Zhou served as President of Beijing Jinanxingchen Company from July 1995 to July 1999, as Director and General Manager of Beijing Kaiyue Food Company from May 1992 to July 1995, and as Manager of the 2nd Business Department of Timber Company of Fangshan Material Bureau from March 1991 to May 1992. He obtained a master degree from Beijing Administration Institute in 2002.

Mr. Liu Zhendong

Supervisor of the Bank. Mr. Liu joined the Board of Supervisors in August 2010. He is a representative of the 13th Beijing National People’s Congress, and currently serves as the Chairman of Beijing Liandong Investment (Group) Co., Ltd. Before that, Mr. Liu was the Chairman of Beijing Liandong Gold Bridge Real Estate Development Co., Ltd from January 2000 to May 2003, and General Manager of Beijing Liandong Framework Co., Ltd from October 1999 to January 2000. From 1998 to 1999, he has been working as General Manager of Beijing Liandong Steel Structure Co., Ltd. He served as General Manager of Tianjin Liandong Framework Co., Ltd from 1994 to 1997, and General Manager of Tangshan Liandong Framework Co., Ltd from 1992 to 1993. Mr. Liu Zhendong obtained the degree of EMBA.

Mrs. Zhang Jianrong

Mrs. Zhang is Supervisor (Representative of Employees) of the Bank. She joined the Board of Supervisors in April 2007 and is currently serving as Deputy General Manager of Discipline Department of the Bank. She was a Representative of the 16th National Congress of CPC and the 13th People’s Congress of Xicheng District of Beijing. Mrs. Zhang served as Head of Auditing Department of the Bank from July 2006 to December 2008, as Deputy General Manager of Auditing Department of the Bank from March 2005 to July 2006, and as General Manager of Post-supervision Department of the Bank from January 2004 to March 2005. Before that, she served as Branch Manager of Yanjing Branch of the Bank from December 2000 to January 2004; Director of Operating Department and Deputy Branch Manager of Chang’an Branch of the Bank from January 1996 to December 2000, and as Director of Operating Department of Beijing Chang’an Urban Credit Cooperative from May 1994 to December 1995. Mrs. Zhang has a bachelor degree.

Mrs. Xing Bin

Mrs. Xing is Supervisor (Representative of Employees) of the Bank. She joined the Board of Supervisors in January 1996 and is currently serving as Vice Chairman of the Labor Union of the Bank. Mrs. Xing has been serving as Vice Chairman of the Labor Union of the Bank since January 1996. Before that, she was engaged in the work of the Labor Union of Beijing Urban Credit Cooperatives from June 1991 to December 1995, and as Vice Secretary of CPC Committee in Guestroom Department of Beijing Xiyuan Hotel from January 1986 to June 1991. Mrs. Xing served as soldier and Staff Officer in 2nd Division, 6th Bureau, 3rd Department of Headquarters of the General Staff of PLA from March 1969 to December 1985. Mrs. Xing is an engineer and graduated from Correspondence College of Central School of CPC with a bachelor degree.

Mr. Hao Ruyu

Mr. Hao is External Supervisor of the Bank. He is a professor, doctoral supervisor of Capital University of Economics and Business with a bachelor degree, China Certified Accountant and China Certified Tax Agent. In addition, he is the representative of 11th NPC, and currently is serving as Vice Director of Chinese Certified Tax Agents Association of National Tax Administration and Vice Director of Beijing Taxation Research Institute. Before that, he held the concurrent position of Vice Director of Beijing International Taxation Research Institute in 2000, and successively served as instructor, associate professor, professor, school dean and Director of Taxation Research Institute of Central University of Finance and Economics from 1982 to February 2004.

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Mrs. Liu Hongyu

Mrs. Liu is external Supervisor of the Bank. She joined the Board of Supervisors in August 2010. She is a member of the 11th CPPCC, the representative of the 12th and 13th NPC of Beijing. She currently is a senior partner and lawyer of Beijing Jincheng Tongda Law Firm. Mrs. Liu is serving as Independent Director of Chongqing International Enterprise Investment Co., Ltd, since 2009, Independent Director of Chongqing Three Gorges Water Conservancy and Electric Power Co., Ltd. since 2006, as well as Independent Director of Founder Technology Group Corporation since 2005. Before that, Mrs. Liu has been working in Beijing Tongda Law Firm as its Director from April 1993 to April 2004, as legal advisor of Beijing Branch of Agricultural Bank of China from June 1988 to April 1993, and as manager of PBOC Sichuan Branch from March 1985 to May 1988. Mrs. Liu is economist with master degree.

(3) Senior Managers

Mrs. Yan Xiaoyan

Mrs. Yan is a Director and the President of the Bank. Please refer to the resume of Mrs. Yan Xiaoyan in the above section of [Directors].

Mr. Zhang Dongning

Mrs. Zhang is a Director and Vice President of the Bank. Please refer to the resume of Mrs. Zhang Dongning in the above section of [Directors].

Mr. Zhao Rui’an

Mr. Zhao is Vice President and Chief Financial Market Officer of the Bank. He joined the Bank in June 2001. Mr. Zhao has been serving as Vice President of the Bank since June 2001, and has a concurrent post as Chief Financial Market Officer since July 2006. Before that, Mr. Zhao served as Division Chief of Treasury Division of China Development Bank HQ from March 2000 to June 2001 and served successively as Deputy General Manager of Fund-raising Department and General Manager of Treasury Department of China Investment Bank HQ from September 1988 to February 2000. Mr. Zhao is a senior economist and doctor in economics of Post-graduate School of Chinese Academy of Social Sciences.

Mr. Xu Ningyue

Mr. Xu is Vice President of the Bank and Chief Corporate Business Officer. He joined the Bank in January 1996. He has been serving as Vice President of the Bank since March 2005 and concurrently as Chief Corporate Officer of the Bank since July 2006, as General Manager of CBD District Office of the Bank in August 2006. Mr. Xu served as Assistant President of the Bank (serving concurrently as General Manager of Zhongkeyuan District Office of the Bank, and Branch Manager of Zhongkeyuan Branch) from May 2000 to March 2005, as Branch Manager of Yanjing Branch of the Bank from May 1998 to May 2000, Branch Manager of Chang’an Branch of the Bank from January 1996 to May 1998. Before that, Mr. Xu served as Vice Director and Director of Beijing Chang’an Urban Credit Cooperative from May 1994 to December 1995, and engaged in management in several enterprises and Business Development Department of All-China Federation of Trade Union from October 1977 to August 1993. Mr. Xu is an economist and MBA of Xiamen University.

Mr. Ronald E.E. Scherpenhuijsen Rom

Mr. Ronald is Director and Vice President of the Bank. Please refer to the resume of Mr. Ronald E.E. Scherpenhuijsen Rom in the above section of [Directors].

Mr. Jiang Deyao

Mr. Jiang is Vice President and Chief Operation Office of the Bank. Mr. Jiang served as Branch Manager of Liulichang Sub-branch of the Bank from April 1997 to May 2000, and has been serving as Assistant President of the Bank from May 2000 to September 2008. He has been working as Vice President of the Bank since October 2008. Besides, Mr. Jiang holds a position as Branch Manager of Tianjin Branch of the Bank since July 2006 to September in 2009, and as COO of the bank since October 2007. Before that, Mr. Jiang served as Vice Director of the Office in Beijing Branch of Shanghai Pudong Development Bank from February 1996 to December 1996. And he successively worked as a league secretary and deputy Head of Administrative Office of one of Sub- branches in Beijing Branch of ICBC from July 1982 to January 1996.

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Mr. Yang Shujian

Mr. Yang is Secretary of the Board of Directors of the Bank. He joined the Bank in July 1997. He has been serving as Secretary of the Board of Directors of the Bank since August 2007, and as Head of Board’s Office of the Bank from March 2005 to July 2007. Mr. Yang served as branch manager of Xueyuanlu Branch of the Bank from February 2004 to February 2005, as Deputy General Manager of HR Department of the Bank from May 2002 to January 2004, as Deputy Director of General Office of the Bank from May 2000 to April 2002, and as Head of Banking Card Business Group of Business Development Department of the Bank from July 1997 to April 2000. Mr. Yang is a senior economist. He obtained a bachelor degree in economics in Jilin University in 1994 and a master degree in economics in 1997 and a doctor degree in economics in Central University of Finance and Economics in 1997.

Mrs. Du Zhihong

Mrs. Du is Assistant President and Chief Finance Officer of the Bank. She joined the Bank in January 1996. She has been serving as Assistant President of the Bank since July 2005 and concurrently as Chief Finance Officer of the Bank since July 2006. Mrs. Du served as General Manager of Central Branch of the Bank from March 2005 to March 2007 and as Deputy General Manager and General Manager of Finance Department of the Bank from April 1998 to March 2005. Before that, Mrs. Du was engaged in accounting in Beijing Branch of ICBC from October 1980 to December 1995. Mrs. Du is an economist and an on-job post-graduate in finance in Central University of Finance and Economics.

5.1.5 Name and Reasons of Appointed or Resigned Personnel during the Reporting Period

On August 9, 2010, the Bank convened the 5th meeting of the 2nd Employees’ Representative Meeting, which elected Mrs. Zhang Huizhen as the representative of employees to serve as Director of the 4th Board of Directors, and elected Mr. Shi Yuan, Mrs. Zhang Jianrong and Mrs. Xing Bin as representatives of employees to serve as Supervisor of the 4th Board of Supervisors.

On August 26, 2010, the Bank convened the Y2010 First Ad hoc Shareholders’ Meeting, which elected members of the 4th Board of Directors and the 4th Board of Supervisors, including 8 Directors - Mr. Yan Bingzhu, Mrs. Yan Xiaoyan, Mr. Zhang Dongning, Mr. Ronald E.E. Scherpenhuijsen Rom, Mr. Xing Huanlou, Mr. Ren Zhiqiang, Mr. Zhang Zhengyu and Mr. Zhang Jie, and 4 Independent Directors - Mr. Wu Xiaoqiu, Mr. Li Baoren, Mr. Yu Ning and Mr.Shi Jianping. Members of the 4th Board of Supervisors include: Mr. Lu Xueyong, Mr. Zhou Yichen, Mr. He Hengchang and Mr. Liu Zhendong as Supervisors, Mr. Hao Ruyu and Mrs. Liu Hongyu as External Supervisors.

On August 26, 2010, the Bank convened the 1st meeting of the 4th Board of Directors, which elected Mr. Yan Bingzhu as the Chairman of the 4th Board of Directors, and Mrs. Yan Xiaoyan as the Vice Chairman of the 4th Board of Directors.

On August 26, 2010, the Bank convened the 1st meeting of the 4th Board of Supervisors, which elected Mr. Shi Yuan as the Chief Supervisor of the 4th Board of Supervisors.

5.2 Employee Profile

By the end the reporting period, the Bank has 6,455 employees, of which 593 people work on management positions, 366 on administration positions, and 5,496 on business positions.

Junior High Vocational Secondary Education Postgraduate Bachelor Others College School High School technical school

Number 704 3,197 1,859 178 118 336 63

% 11% 49% 29% 3% 2% 5% 1%

27 Corporate Governance

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Section VI Corporate Governance

6.1 Situation of the Company’s Corporate Governance

During the reporting period, the Company strictly observed relevant laws and regulations including the “Company Law”, “the Securities Law”, the “Commercial Bank Law”, strictly implemented related requirement from regulators, and continuously improved corporate governance structure combining the Company’s actual situation to enhance corporate governance of the Company.

6.1.1 Improving fundamental mechanism of corporate governance

During the reporting period, according to the latest regulatory requirements and based on the actual development needs, the Company has continuously refined corporate governance fundamental mechanism construction. In order to protect legal rights of public investors, the Company formulated “Bank of Beijing Rules Concerning the Management of Insiders with Inside Information”, which has further stipulated inside information management of the Company and strengthened confidentiality management on inside information. In order to continuously improve corporate governance and promote diligence and responsibility fulfillment of Directors and in line with requirements in “Listed Company Corporate Governance Standards” and “Guidelines on Board of Directors Duty Fulfillment of Joint-Stock Commercial Banks (Trial)”, the Company has drafted “Bank of Beijing Co., Ltd. Guidelines on Director Duty Fulfillment Evaluation”, to make clear stipulation on responsibilities, obligations and diligence requirements of Directors. Through the above-mentioned guidelines and rules, the company’s corporate governance policies have been further refined and formed the solid foundation for the sustained and sound development of the Company.

6.1.2 Shareholders and the Shareholders’ Meeting

During the reporting period, the Company held the Y2009 Shareholders’ Annual General Meeting and 2010 First Ad hoc General Meeting. These meetings were noticed, convened, presented and voted following relevant procedures in accordance with the stipulation in “Company Law” and the Articles of Association. The Shareholders’ Meetings examined and approved 9 major proposals with respect to work report of the Board of Directors, work report of the Board of Supervisors, financial statements, financial budget report and issuing financial bond and etc, and listened to the work report of Independent Directors. The 2010 First Ad hoc Shareholders’ Meeting reviewed and approved two proposals including the re-election of Directors and re-election of Supervisors at the expiration of office term.

On the annual and Ad hoc Shareholders’ Meetings of the Company, Beijing East Associates Law Firm was engaged to witness the legality and validity of such meetings and issued a legal opinion letter. The convening of Shareholders’ Meetings of the Company ensures that all the shareholders have the right to know, participate in and vote on the Company’s significant matters.

6.1.3 Directors and the Board of Directors

(1) Constitution and operation of the Board of Directors

The Board of Directors of the Company consists of 15 members including 4 Independent Directors. All the Directors attended meetings and examined proposals with diligence, to effectively execute their decision-making function in order to protect the interests of all shareholders and the Company. During 2010, the Company held 6 meetings of the Board of Directors in total and examined more than 40 major proposals, including regular reports, issuing financial bond, set-up of Urumqi Regional Branch, initiation of Zhejiang Wencheng Village Bank and etc, and listened business operation, risk profile and other reports on a regular basis.

(2) Specialized committees under the Board of Directors

There are Strategy Committee, Related-party Transaction Committee, Risk Management Committee, Remuneration Committee, Nomination Committee and Auditing Committee set up under the Board of Directors. Those committees under the Board have convened meetings in accordance with the requirements by laws, regulations, Articles of Association and rules of procedures. In

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2010, those committees held 18 meetings in total, examining and hearing important topics such as “Bank of Beijing Fourth Five-year Plan” formulation plan, risk reports, annual related-party transaction report, internal & external auditing reports, hiring CPA Firm, etc., thus effectively executed their supporting function for decision-making.

6.1.4 Supervisors and the Board of Supervisors

(1) Constitution and work of the Board of Supervisors

The Board of Supervisors of the Company consists of 9 Supervisors, including 2 External Supervisors. All the Supervisors have fulfilled their duties with diligence and supervised the duty fulfillment of the Board of Directors and Senior Management of the Company as well as the Company’s financial condition, to protect legal rights and interests of shareholders. During 2010, the Board of Supervisors held 5 meetings in total, examined and approved important proposals including the Company’s regular reports, report on duty fulfillment of the Board of Directors and Senior Management, and work report of the Board of Supervisors, etc, and listened to reports on resolutions made by the Board of Directors, business operation, financial conditions and internal auditing etc. During the reporting period, the Board of Supervisors, in order to effectively exercise its function of supervision, also actively carried out specific inspections and field studies including: (1) field inspection on business development and internal control construction of Xi’an Regional Branch; (2) a 2-month specific inspection on corporate governance of Bank of Beijing upon request of CBRC Beijing; (3) organizing specific reporting meeting on “government platform loans and res estate loans” to better understand the overall risk management profile of the Bank; (4) field study and inspection on Bank of Beijing Consumer Finance Company with the purpose of promoting sound business mix development of the Bank.

(2) Work of specialized committees under the Board of Supervisors

At present, there are 2 committees set up under the Board of Supervisors, Supervision Committee and Nomination Committee, both of whose chairmen are served by External Supervisors. Those committees under the Board of Supervisors have convened meetings in accordance with the requirements by laws, regulations, Articles of Association and rules of procedures. During 2010, those committees held 8 meetings in total, examining or hearing important topics including the work report by management team, duty fulfillment evaluation of the Board of Directors and Senior Management, financial reports, internal control self-assessment report and internal & external audit reports, etc.

6.1.5 Information disclosure and investor relations management

During the reporting period, the Company has disclosed its material information in compliance with laws, rules, regulations and administrative documents to ensure the timely, accurate, truthful and complete disclosure, with attention to the initiative, importance and fairness of information disclosure to enhance the company’s transparency. The Company published 42 announcements during the reporting period in total.

During the reporting period, the Company had no significant accounting error correction, significant omitted information supplementation or business forecast amendment and etc.

During the reporting period, the Company has been continuously enhancing investor relations management, realizing effective communication with investors via various channels. First, the Company timely organized investors communications and press conference soon after the disclosure of regular reports, enabling investors to have in-depth knowledge on important strategy and business performance and transferring inner value of the Company timely and accurately to investors; second, actively received visits from investors to enable them to have full understanding on important information such as business decisions, and timely conveyed the comments and suggestions from investors to the Company’s management; third, actively developed communication platform for small and medium investors who have weaker power in acquiring information, such as setting up investor column and Board Secretary’s Mailbox on the Company’s website to facilitate the communication with those investors through internet channel, mailing annual report and other materials to small investors with the needs to give them full understanding of the Company’s business operation. The Company’s investors’ relation management has been widely recognized by the public. During the “The Chinese Securities Journal Cup – Top10 Competitiveness & Public Trust of Chinese Listed Companies” Awarding Ceremony and 2010 Best Listed Company Leaders Summit hosted in June 2010, Mr. Yang Shujian, the Board Secretary of the Company, was awarded as “Investors Relation Gold Cup Board Secretary”. During “The 5th China Investor Relations Conference” held in November 2010, Bank of Beijing was awarded as “Top 10 Investor Relations Companies”.

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6.1.6 Is there any issue concerning peer competition or related-party transactions due to partial organization framework reform?

No.

6.2 Independent Directors’ Presence of Meetings

6.2.1 Overall work of Independent Directors

Pursuant to the requirements by the “Guidelines Concerning the Establishment of the Independent Director System in Listed Companies” and “Guidelines on Independent Director and External Supervisor System in Joint-stock Commercial Banks”, the Company engaged Independent Directors.

At present, the Company has 4 Independent Directors, all of whom are experts or scholars with profound essentials of theoretical knowledge and practical experience. During the reporting period, in accordance with relevant laws and regulations and the Articles of Association, Independent Directors have well performed their duties, participated in the Company’s significant decision-making, provided strong assistance in making major decisions scientifically and played a supervisory and safeguarding role in major business matters, external investment and internal auditing of the Company, which protected the Company’s and all the shareholders’ legal rights and interests.

Independent Directors of the Company, according to “Bank of Beijing Independent Director Rules of Conduct” and “Code of Conduct for Independent Director for Bank of Beijing Annual Report”, truly fulfilled the responsibility and obligation as Independent Director during the formulation and disclosure of annual report, diligently performing their function.

6.2.2 Independent Directors’ presence of Board meetings

During the reporting period, all the independent directors of the Company well fulfilled their duties with diligence, presented at Board Meetings seriously, and entrusted other directors to exercise voting rights in case they couldn’t presented at the meeting in person.

Required presence for Presence in person Presence by proxy Absence Name Board meetings (number of times) (number of times) (number of times)

Hao Ruyu [i] 3300

Xie Zhaohua [i] 3210

Zhao Haikuan [i] 3300

He Hengchang [i] 3210

Li Baoren [ii] 6510

Wu Xiaoqiu [ii] 6420

Shi Jianping [iii] 3210

Yu Ning [iii] 3300

[i] During the reporting period, as the Independent Directors of the 3rd Board of Directors, the terms of independent directors Mr. Hao Ruyu, Mr. Xie Zhaohua, Mr. Zhao Haikuan and Mr. He Hengchang had expired and not extended, therefore number of required presence for Board meetings in 2010 of them is 3. [ii] During the reporting period, upon approval of 2010 First Ad hoc Shareholders’’ Meeting, Li Baoren and Wu Xiaoqiu continued to be the Company’s independent directors, therefore number of required presence for Board meetings in 2010 of them is 6. [iii] During the reporting period, upon approval of 2010 First Ad hoc Shareholders’ Meeting, Shi Jianping and Yu Ning are the Company’s independent directors, therefore number of required presence for Board meetings in 2010 of them is 3.

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6.2.3 Objections proposed by Independent Directors on relevant issues

During the reporting period, Independent Directors didn’t raise any disagreement or objections on the proposals of Board meetings or other matters.

6.3 The Company’s Operation and Decision-making

The General Meeting of Shareholders is the Company’s highest authority; the Board of Directors is the decision-making organization, responsible for the Company’s major matter decision; the Board of Supervisors is the supervisory organization, responsible for overseeing the Board of Directors and Senior Management; Senior Management is the executive authority, organizing the conduction of all kinds of business operation and management activities in accordance with laws, and receiving leading from the Board of Directors and supervision from the Board of Supervisors. The Company adopts the mechanism of one-level legal person and every branch institution is a non-independent accounting unit whose operations and management shall be conducted in accordance with the headquarters’ authorization, and responsible for the headquarters.

The Company has no controlling shareholder or actual controlling party. The Company has maintained an operation with full independence from its majority shareholders regarding business, personnel, assets, organization and finance. The Company is an independent legal entity making its own operational decisions as well as taking full responsibility for its profits and losses, with independent and complete business and self-operating capability.

6.4 Performance Assessment and Incentive & Restraint Mechanism for Senior Executives

The Bank has improved the assessment and incentive measures for senior executives and established a target-oriented performance management system and an incentive & restraint mechanism. During the reporting period, with reference to “Proposal on enhancing venture liability of management team & improving rewarding mechanism”, “Guidelines on Head Office performance assessment” and “Bank of Beijing remuneration management rules” and other remuneration management policies, the Bank conducted regular evaluation on senior executives according to their target achievement and democratic assessment, to implement assessment and incentive for senior executives.

6.5 Construction of Internal Control Mechanism

6.5.1 Overall plan of internal control mechanism

The Board of Directors is the decision-making authority of the Bank’s internal control, responsible for setting up and implementing sufficient and effective internal control and acting its core function. First, to improve internal control policy, formulate and amend the Bank’s basic management mechanism; Second, to conduct overall evaluation on the integrity and effectiveness of internal control, form self-assessment report and disclose in annual reports; Third, the Board of Directors or its Audit Committee listen to internal & external auditing reports on a regular basis and conduct instruction and inspection on internal control of the Bank.

The Bank has been dedicating to establish an internal control framework based on good internal control environment, rational organization structure, sufficient information exchange and effective internal control procedures throughout all the positions with independent, complete and effective auditing supervision, to facilitate the Bank’s healthy and sustainable development. The Bank would like to reach the following internal control goals through continuous refining of internal control mechanism: to ensure effective execution on complying with state laws, rules and internal policies; to ensure full implementation and realization of the Bank’s development strategy and business objectives and orderly operation; to ensure the promptness, authenticity and integrity of the Bank’s business records, financial information and other management information. The Bank, with the principles of risk prevention, prudential operation and sound development, has gradually set up a relatively scientific and strict internal control mechanism. The Bank focuses on the establishment of a long-effective risk prevention mechanism, and, along with improved operation and management level, has preliminarily formed “three lines of defense” composed by policy execution, inspection execution and supervision execution, gradually built and improved the internal control mechanism covering pre-prevention, intermediate control and

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post supervision, assessment & rectification, which plays very positive role in risk prevention.

6.5.2 Establishment of internal control regulations and rules

Since its founding, the Bank has, based on principle of risk prevention, prudential operation and sound development, gradually set up a relatively scientific and strict internal control mechanism, which mainly covers the following 7 aspects:

(1) Corporate governance: formulated and improved policies regarding responsibilities and authorities of shareholders’ meeting, Board of Directors, Board of Supervisors and their sub-committees, according to Company Law, Securities Law and other laws, regulations;

(2) Financial & accounting management: including regulations on financial management policies, assets& liability management, accounting, payment and settlement and etc;

(3) Business management: including management policies for credit business, treasury business, deposit & over-counter business, bank card business, settlement business and forex business etc;

(4) Risk management: including management processes on credit risk, market risk, liquidity risk, operational risk and etc;

(5) HR management and training: including remuneration & welfare, employment & engagement, staff training and rewarding/ punishment policies;

(6) Business support and guarantee, administration and logistics: including computer system development & maintenance, office order, document receipt/delivery, corporate culture and logistic services policies;

(7) Discipline inspection & internal auditing: including CPC discipline inspection and auditing inspection policies.

6.5.3 Operation of self-assessment on internal inspection and internal control

The Board of Directors sets up Audit Committee under it, which is responsible for inspecting the Bank’s accounting policy, financial status and financial reporting procedures, and inspecting the Bank’s risk and compliance profile; reviewing and evaluating the appropriateness and effectiveness of internal auditing, approving internal auditing policies, mid/long-term auditing planning and annual work plan, and assessing and supervising internal auditing, to provide necessary guarantee for independent and objective internal auditing. During the reporting term, Audit Committee under the Board of Directors held 4 meetings in total, examined important proposals including annual report, internal control self-assessment report and financial report etc, listened to work reports by internal auditing department and external auditing institutions regularly, and provided directive comments on internal control; the Audit Committee has instructed relevant departments to draw up rectification plan and implement timely on auditing findings. The Board of Supervisors sets up Supervision Committee under it, which is responsible for drawing up inspection and supervision plan on the compliance and due diligence of Board of Directors and Senior Management’s operation, drawing up off-position auditing plan on Directors and Senior Management members, drawing up inspection and supervision plan on the Bank’s financial activities and organizing the implementation of those plans and proposing preliminary reports or comments.

The Bank’s internal audit department receives direct leading from Senior Management, reports immediately on auditing findings and regularly reports to Audit Committee under Board of Directors and Supervision Committee under Board of Supervisors in terms of internal auditing and auditing findings. The internal audit department adopts vertical management, which is based on the auditing accountability mechanism under direct headquarters leadership, to effectively carry out the principle of consistency and regional difference combination, and reflects auditing information via vertical reporting route. Internal Auditing Department, through special auditing, daily inspection and internal control assessment to audit the execution of all regulations and rules, and conducted post- evaluation on those regulation and rules based on the inspection result, so as to timely identify any issues and potential risks and follow up the rectification.

With respect to “PRC Commercial Bank Law”, “Guidelines on internal control of commercial banks” and “Interim guidelines on internal control assessment of commercial banks”, the Bank conducts internal control assessment based on business development

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and actual internal control situation. According to principle of combination of comprehensiveness and key points and combination of process and results, internal control assessment covers the full course of internal control activities and relevant management departments as well as all business units and positions, with focus on key business and steps. Process assessment is the evaluation on internal control environment, risk identification & measurement, internal control measures, supervision evaluation & correction, and information communication & feedback etc; result assessment is the evaluation on the achievement degree of main targets of internal control. In order to cultivate internal control culture of all-staff participation, the Bank’s internal control assessment has adopted a self-assessment+ independent review approach, which means departments and business units conduct self assessment on internal control situation first and auditing department then review the result of self assessment independently based on internal& external auditing findings and own experiences. Through the assessment on internal control, the Bank promoted the strict following of state laws, regulation, regulatory requirements and principle of prudent operation, enhanced risk management level, guaranteed the realization of development strategy and business targets, strengthen the authenticity, completeness and timeliness of business, financial and management information, made the effective operation of internal control system to timely and effectively assess and control possible risks.

6.5.4 On-going Internal control improving measures

The Bank will continue to enhance internal control environment construction to support stable progress of corporate governance. Further clarify management authorization and responsibilities of business units set up under the Head Office-Region-Sub-branch management structure and stipulate rules on policy making and system construction; further refine HR management with stipulated staff selection channel, recruitment process and internal staff moving management, study on matching relation between staff number and business scale/cost & profit, and enhance incentive mechanism with performance bonus linked to internal control execution; further promote corporate culture construction, continuously enrich and enhance corporate culture connotation, and positively glorify corporate culture through wider and deeper publicity.

The Bank will continue to refine risk management framework through enhanced credit risk policy guidance and construction, close focus on state industrial policy changes and macro economic trend, timely enacted credit policy and revised or refined credit management rules based on risk management needs for Head Office, regional branches and sub-branches; continue to conduct risk management organization structure reform under the new management structure and refine risk management for the Head Office-Region-Branch structure; conduct stress test on credit risks of credit assets and bond assets; enhance training on risk management skills for all kinds of business staff and improve risk management staff professional quality to prepare various risk management talents for further realizing global risk management and geographic expansion. Continue to build all-staff operational risk management framework, exploit role of Operational Risk Committee, promote regional branches to set up operational risk daily management mechanism to improve their operational risk prevention and control, and enhance the Bank’s operational risk management to a new height. Further exploit functions of compliance system and organize Head Office policy formulating departments to do yearly reassessment on risk factors and monitor changes of risks.

The Bank will continue to strengthen internal control measures. In corporate banking business, will continue to refine policies and guidelines, optimize procedures, improve risk management capability, organize business training covering the whole bank, strengthen business guidance on business units and continuously enhance business system construction in the mean time of developing new products to strictly control risk factors. In retail banking business, will continues to stipulate business management, optimize business procedures, launch product management system construction to realize scientific product management, optimize retail loan business organization structure, improve standardization, professionalization and integration of retail loan business handling, enhance team business training and set up classification mechanism of client relationship managers to improve professional quality of staff; refine functions of retail loan system, strengthen post-loan risk management, intensify inspections by Head Office and regional branches on branch retail loan post-loan management, and etc. In financial market business, will, in line with business development, timely revise and refine relevant business operation rules and further refine functions of treasury business system. In accounting and settlement aspect, will, based on development strategy and branch transformation needs, promote deeper reform of accounting system and processing procedures to improve market competitiveness, deepen business integrated handling to realize effective balance between risk prevention and cost efficiency, enhance management on accounting line to improve control on branches by Head Office, and consolidate training and monitoring to improve overall quality of settlement team.

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The Bank will continue to enhance information system management. Positively promote IT infrastructure construction based on the Bank’s infomationization development strategy and trough IT 10-Project implementation, set up long-term sound IT risk management mechanism and continuously improve the Bank’s system management automation and service process integration level to enhance overall IT operation supporting capability. Meanwhile, cultivate compound talents, through internal training and external study, to improve IT staff professional quality to form the solid foundation for the Bank’s infomationization. Intensify risk control measures through risk reassessment on compliance system documents and proper revise to ensure that rules and procedures are in line with business development.

The Bank will continue to strengthen internal supervision mechanism. Exploit role of auditing supervision in corporate governance. Refine vertical management on regional branch auditing, build professional auditing team, set up monitoring and guiding mechanism, continue to refine auditing system and conduct risk-oriented special auditing to improve overall auditing quality. Continue to execute requirements in “Basic Standards on Corporate Internal Control” and “Guidelines on Corporate Internal Control Assessment” and deepen the internal control assessment with the goal of continuously enhancing the Bank’s internal control management level and well combine internal control assessment with risk factors and control procedures in operation management activities, to have risk and control identification and assessment and raise positive and effective improvement suggestions to promote continuous enhancement of the Bank’s internal control mechanism.

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Section VII Brief Introduction to Shareholders’ Meeting

7.1 The Y2009 Shareholders’ Annual General Meeting

On May 6, 2010, the Company’s Board of Directors published the “Notice on Holding the Y2009 Shareholders’ Annual General Meeting” on “China Securities”, “Shanghai Securities News”, “Securities Times”, “Securities Daily” and website of Shanghai Stock Exchange.

The Y2009 Shareholders’ Annual General Meeting was held in Beijing on May 26, 2010. The number of shares represented by shareholders and their proxies present at the meeting amounted to 3,720,287,445 shares, accounting for 59.74% of the total share capital of the Company. The meeting was noticed, convened, presented and voted complying with relevant stipulations in the “Company Law of the People’s Republic of China” and the “Company’s Articles of Association”. The following resolutions were discussed and approved by inscribed voting at the Y2009 Shareholders’ General Meeting: “Y2009 work report of Board of Directors”, “Y2009 work report of Board of Supervisors”, “Report on Y2009 financial report”, “Report on Y2010 financial budget report”, “Proposal on Y2009 profit distribution plan”, “Proposal on engagement of CPA for Y2010”, “Proposal on issuance of subordinate bonds in 2010-2011”, “Proposal on issuance of financial bonds” and “Special report on 2009 related-party transactions”, and listened to work reports by the Company’s Independent Directors.

Beijing East Associates Law Firm witnessed the legitimacy and compliance of matters such as the convening and presence procedure, eligibility of shareholders present and procedure of the proposing and voting, and issued a Legal Opinion Letter.

The resolution announcements of the meeting were published on “China Securities”, “Shanghai Securities News”, “Securities Times”, “Securities Daily” and website of Shanghai Stock Exchange (www.sse.com.cn) on May 27, 2010.

7.2 The Y2010 First Ad hoc Shareholders’ Meeting

On August 6, 2010, the Company’s Board of Directors published the “Notice on Holding the Y2010 First Ad hoc Shareholders’ Meeting” on “China Securities”, “Shanghai Securities News”, “Securities Times”, “Securities Daily” and website of Shanghai Stock Exchange.

The Company’s Y2010 first Ad hoc Shareholders’ Meeting was held in Beijing on August 26, 2010, The number of shares with voting rights represented by shareholders and their proxies present at the meeting amounted to 3,650,564,898 shares, accounting for 58.62% of the total share capital of the Company. The following two proposals were approved by a unanimous vote at the meeting: “Proposal on election of Board of Directors at expiration of office terms” and “Proposal on election of Board of Supervisors at expiration of office terms”.

Beijing East Associates Law Firm witnessed the legitimacy and compliance of matters such as the convening and presence procedure, eligibility of shareholders present and procedure of the proposing and voting, and issued a Legal Opinion Letter.

The resolution announcements of the meeting were published on “China Securities”, “Shanghai Securities News”, “Securities Times”, “Securities Daily” and website of Shanghai Stock Exchange (www.sse.com.cn) on August 27, 2010.

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Section VIII Report of Board of Directors

8.1 Management Discussion and Analysis

8.1.1 Overall Business Review

In 2010, along with the continuing recovery of global economy and deeper effect of macro policies, the good trend of China’s economy has been further consolidated. It has maintained a steady and fast growth with rebounded industrial production, strong domestic demand and fast growing export, and moving to the expected direction of macro control. The Company adopted active measures and paid close attention to the macro economic and financial sector changes and policy changes, strictly implemented state strategic policy, actively seek development opportunities and promoted the sustainable development of all business; as a result, our business scale made a new step, all the indicators kept at good level, assets quality was continuously enhanced and better performance was achieved.

1. Stable growth of profit

In 2010, the Bank achieved a total profit of 8.6 billion Yuan with a year-on-year growth of 1.44 billion or 20.09%; net profit attributed to parent company’s shareholders was 6.8 billion with a YOY growth of 1.17 billion or 20.75%; fee & commission net income realized 964 million, with a YOY growth of 314 million or 48.32%.

2. New Step in business scale

By the end of reporting period, total assets of the Bank reached 733.2 billion Yuan, with a YOY growth of 199.74 billion or 37.44%; total deposits reached 557.72 billion, with a YOY growth of 110.78 billion or 24.79% compared with last-year-end; total loans reached 334.73 billion, with a YOY growth of 61.25 billion or 22.40%.

3. Good regulatory indicators

By the end of reporting period, the Bank’s CAR was 12.62% and Core CAR was 10.51%, indicating sufficient capital and sound risk resistance capacity; NPL balance and ratio dropped by 475 million and 0.33 pp respectively compared with 2009-end, keeping continuous double decrease; provision coverage ratio reached 307.12%, up by 91.43 pp compared to 2009-end.

4. Preliminary progress on business transformation

In 2010, the Bank actively carried out its strategic transformation in retail, fee business and SME. Total savings deposits reached 99.88 billion, up by 25.46 billion or 34.21%; retail loan balance was 44.47 billion, up by 18.50 billion or 71.27%. Net fee & commission income was 964 million Yuan, YOY growth of 314 million or 48.32%; its proportion in operation income also raised 0.7 pp. SME lending had a fast growth, which is much higher than the average loan growth. Our market share in Beijing’s SME lending market maintained leading position.

5. Further enhanced risk management capability

Organized special training on CBRC’s “three measures & 1 guidelines” to implement regulatory requirement in our day-to-day operation. Further improved the three-level risk management structure of head office, regional and sub-branches, inspected government platform loans thoroughly, conducted stress test on real estate loans, initiated credit risk management system and rating model project, refined market risk management, intensified IT risk management, carried out in-depth execution for internal control and financial crime precaution, pushed forward basic standards for internal control, implemented constant inspection on deposit risk, started pilot vertical audit mechanism at regional branch, to continue the improvement on internal control organization and long- effective mechanism.

6. Stable progress on geographic expansion

In 2010, the Bank newly opened three regional branches in Nanjing and Jinan in addition to Zhongguancun Regional Branch in Beijing, which brought the total number of regional branches to 9. The Bank also opened 11 intra-city sub-branches for regional

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branch and now total number of out-of-Beijing branch institutions reached 32. The Amsterdam Representative Office was also established in 2010. As of Dec 31, 2010, Bank of Beijing has in total 190 branch institutions.

7. HR management continuously optimized

In 2010, the Bank continued to improve its scientific talent selection, deployment and training mechanism, to build a harmonious development environment. We introduced international, comprehensive and professional talents to support business development and optimize the employee team structure. Enhanced the development of managers team, intensified comprehensive assessment and public competition, optimized staff and manager exchange and rotation, had head office manager trained at branches, and trained young back-up talents. Paid attention to staff study and training, rolled over the “2551” talent project, organized various business trainings and overseas study to improve staff quality. Pushed forward position qualification mechanism and dynamic remuneration adjustment, to maintain reasonable incentive scheme. Constantly improved personnel recruitment, training and performance assessment system to raise work efficiently. The Bank was honored as “2010 Best Chinese Company for Human Resources”.

8. Further raised brand influence

In 2010, the Bank was awarded as “China best city retail commercial bank”, “Best city commercial bank”, “Best corporate governance of financial institutions”, “Most valuable listed bank for investment” and “Top10 companies for investor relationship” etc. Mr. Yan Bingzhu, Chairman of the Bank, was awarded as “2009 Chinese Golden Bull Listed Companies Best Leaders”, “2010 China’s top10 financial figures” and “Outstanding contributor for China’s economy development” etc. President Yan Xiaoyan was awarded as “Outstanding women workers of China”, “Leading figures for indigenous innovation” and “Outstanding bankers” etc.

In 2010, Bank of Beijing’s ranking and brand image in various areas has further moved up: No.155 in terms of tier1 capital, up by 3 positions compared with Y2009; No.9 in China’s banking sector with a brand value of 6.56 billion Yuan; No.13 in the light of comprehensive competitiveness in Asian banking sector and No.7 in Chain’s banking sector; and No.38 on the “2010 Top200 best performing Chinese companies” with net profit of 5.63 billion. In 2010, the Bank’s brand image and market position were greatly enhanced.

8.1.2 Operation of major business

(I) Corporate banking

1. Major achievements

During the reporting period, Corporate Banking has accelerated the transformation of business model and growth model. By Dec 31, 2010, total corporate deposit reached 457.84 billion, accounting for 82.09% of the Bank’s total deposits; corporate loans reached 290.26 billion, accounting for 86.72% of the Bank’s total loans; SME RMB loan balance was 120.75 billion, up by 35% and accounting 42% of total corporate loans. Number of SME loan clients increased by 841 to 3799 in total. Fee business income of corporate RMB business reached 611 million, up by 170 million or 38.42%.

2. Development measures of corporate banking

(1) Deepen large client marketing. First, launched “10-100-1000” action plan for large client marketing. Organized more than 100 marketing activities for big clients, to push ward the differentiated marketing approaches for 10 benchmark clients, 100 core clients and 1000 fundamental clients; second, built the Bank’s large client branch, by organize 2010 VIP New Year Party, the 9th BoB Cup golf tournament in Dalian and the 10th BoB Cup golf tournament in Shenzhen; third, expanded the cooperation with government clients. Accomplished the social security card project by producing 7.10 million cards to local citizens, which has greatly facilitated the health care service for the customers and raised our brand image. We have also become one of the first eight banks to supervise the project funds in Beijing.

(2) Be specialized in SME marketing. First, promoted the set-up of SME featured institution. Jan 8, the Bank’s Xuanwumen Branch became the first Chinese financial service institution for culture & creative industry and received the title of “Beijing Culture & Creative Industry Financial Service Center” granted by Beijing Municipality; Oct 20, we kicked off the “Credit factory” pilot model for SME lending in Haidianyuan Branch. As of 2010-end, that branch has granted 348 SME loans of 2.32 billion for 185 clients in total, where the number of loans, number of clients and amount proportion of IT SME have all exceeded 75%; second,

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constantly built featured brand for culture finance, technology finance and green finance. On culture finance, provided loan support to Chinese movies, issued the first collective notes for culture & creative SMEs as primary underwriter. As of 2010-end, in total approved 1173 culture & creative loans of 17.18 billion, keeping the leading position in Beijing. On technology finance aspect, launched “Proactive credit lines to Zhongguancun” and has in total 3 batches of 980 qualified companies as of year-end. Signed strategic cooperation agreement with Beijing Software Association, providing in total 10.0 billion credit line to support software SMEs. As of 2010-end, in total approved 61 intellectual property pledged loans of 603 million and 159 unsecured loans to Zhongguancun of 1.72 billion, accounting over 60% in the competition. On green finance aspect, signed agreement with Beijing Energy-efficiency & Environment-protection Center, to push forward energy management. As of year-end, green credit had a balance almost 10.0 billion, with projects spreading over Beijing, Tianjin, Inner-Mongolia, Hebei, Shanxi, Shaanxi, Shandong, Hunan, Shanghai and Guangzhou.

(3) Developed key products. First, strengthened corporate fist product development including leasing factoring, company equipment secured lending, company account overdraft, bills pool, IBS and rural loans etc; second, integrated investment banking services covering syndicate loans, bond underwriting, acquisition finance, trust, leasing, insurance, PE and financial advisor etc. Acted as the team leader of small/medium-sized banks for syndicate loan and trading committee of China Banking Association and was selected into “Top10 banks for syndicate loans of Beijing”.

3. Corporate banking branch building

During the reporting term, the Bank continued to enhance the brand development of “Fortune Plus” brand and “Small Giant”. For the “Fortune Plus”: the Bank received “Best cash management innovation” in the “2010 Chinese CFO’s most trusted banks” awarding by “CFO Magazine”, after receiving the “Top10 innovative financial products” in 2009, indicating further improvement of our cash management innovation and brand value.

For “Small Giant” brand: received “2010 China low-carbon banking pioneer” award from China Low-carbon Economic Forum, “2010 best SME service” from “CFO Magazine”, “2010 best credit innovation bank for culture & creative sector” from China Culture & Creative Industry & Financial Capital Summit, “2010 outstanding SME service bank” from ”China Business” newspaper, “2010 SME financial service” from “The 21st Century Business Herald” and 21 Century Asian Financial Annual Seminar’s organization committee, and “Outstanding SME financial service brand” from Outstanding 2010 Financial Wealth Management List etc.

(II) Retail banking

1. Major achievements

In 2010, the Bank actively implemented the state strategy and policy of “Reserve the growth, adjust the structure”, to actively fine- tune the business structure and speed up strategic transformation. By Dec 31, 2010, the Bank’s total retail customer assets balance was 121.0 billion, up by 26.3 billion or 27.8%; saving deposits balance reached 99.88 billion, with a growth of 25.46 billion or 34.21% compared with last year; retail loan balance was 44.47 billion, with a growth of 18.50 billion or 71.27%. Retail fee income realized 217 million, YOY same level, including bank card income reaching 183 million with 42.6% growth. Customer structure has been further improved. Number of VIP clients reached 104,000 with assets per client 0.71 million; number of Tulip account clients, custody deposit clients and contracted e-banking users reached 206,000, 88,000 and 165,000 respectively. After launching credit card operation for 2 years, customer number topped 0.5 million and cards issued topped 0.6 million. Number of transactions per card ranks No.1 in China for successive 8 months.

2. Development measures of retail banking

(1) Sped up channel construction. The Bank continued the steady progress on Home Bank development to support branch transformation. Laid more emphasis on self-service terminals, installed 128 new devices and CDA machines increased to 220; entered cooperation with 1405 new acquiring business merchants and increased POS devices to 8233. Based on our value added and professional service, acquiring business had a big raise; increased VIP wealth management centers to 59 in total by opening 13 new in 2010, to establish multi-level efficient network channels combining physical branches and virtual branch service.

(2) Continued procedure optimization. The Bank put constant effort in sales procedure improvement, completed phase1 development of Open Counter sales system in 28 branches and went live; kept fine-tuning retail loan value chain project to increase cross-sale; launched secondary mortgage on-site approval mechanism to improve approval efficiency and business volume; launched retail

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CRM phase3 system to provide more convenient customer maintenance and management as well as accurate marketing tools for branches; launched credit card scoring card project with ING’s technical assistance support to enhance risk management.

(3) Enhanced team quality. The Bank laid remarkable focus on professional training, initiated the first Internal Trainer program to pass sales methodology, business pressure and team management skills around; organized the first “Beyond Fortune Cup” outstanding customer relationship manager selection where 120 winners have received the award, including 20 at head office level; organized retail loan product innovation competition to accumulate experience; enlarged financial planners team by increasing 86 qualified AFP and CFP; organized the second retail wealth management planning competition to fully raise the professional knowledge, skills and service of our retail team; we also had two financial planner selected into the Municipal final round competition and won the honor as “Beijing 2010 top10 financial planners”.

3. Product innovation and brand construction

(1) Product Innovation. Oriented by customer needs, the Bank accelerated product innovation. We launched savings products including “cun dai ying”, “ding huo ying” and “gun gun li” etc and loan products such as “duan dai bao” (personal business loan; year- end balance reached 2.6 billion); issued 39,000 farmers’ exclusive cards and kicked off “5+5” rural financing project; launched ali- pay internet banking function and improved on-line payment channel; released Labor Union Mutual Help card, of which card holders reached 1.60 million population; issued Charity Credit Card and Chinatown Co-branded card; upgraded Tulip Card system and “Salary Project”; launched “salary donation” service, which was selected as the Top10 charity event for 2010.

(2) Brand Building. The Bank received honors including “2010 best wealth management bank”, “Best credit card bank”, “Outstanding contribution for China’s wealth management sector”, “Best wealth management brand” for “Beyond Fortune”, “Outstanding retail loan product” for “Duan dai bao”, “China Unionpay Card outstanding promotion” and etc. The Bank once again received the honor as “Best Chinese Retail City Commercial Bank” from the “Asian Banker”, because of our branch transformation, product innovation and procedure streamlining.

(III) Treasury business

1. Business Briefings

In 2010, China has gradually stepped out of the impact of financial crisis and took the leading position in stable economy recovery. Therefore, the focus of the economy has shifted from preserving growth to adjusting structure and managing inflation. Under that background, there have been more uncertainties in the macro economy with higher market risk. Bond investment faced huge challenge. The Bank took actively measures to deal with the challenge. We continued to increase bond asset structure optimization while appropriately increasing bond investment scale, to reduce market risk of the investment and raise return. As of year-end, the Bank held in total bond asset 163.84 billion Yuan, with a YOY growth of 39.69 billion or 31.97%; interest income of bond investment was 4.51 billion Yuan, while spread income and derivative income was 106 million Yuan. The Bank maintained active trading in the national inter-bank bond market, obtained market maker qualification from national inter-bank forex market and received honors as Outstanding member for bond clearing and Most influential trading unit for inter-bank borrowing/lending market.

Our bond settlement agent business received great progress in 2010. Full-year trading volume was 117.36 billion Yuan, up by 197.63% compared to 2009. Fee income realized 5.86 million Yuan, up by 352.35%.

In 2010, as the agent bank for savings T-bond issuing, the Bank further enhanced marketing management and improved the service quality. In total we underwrote 5 phases of certificate T-bond and 11 phases of savings T-bond, with total volume of 3.93 billion Yuan and fee income 25.35 million Yuan.

2. Business Innovation and Brand Construction

The Bank integrated various precious metal services in 2011 and launched “Jing xi gold” brand. IT currently include 5 business: physical gold, deferred gold, deferred silver, agent purchase of gold and agent purchase of silver, of which the former three are cooperative with Shanghai Gold Exchange and the latter two are agent service of purchasing physical precious metal products. The Bank also organized several training and lectures for our customer managers and some high-end VIP clients on trading operation and market analysis.

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In 2010, the Bank launched new wealth management system, which include wealth management sales system, TA system, evaluation and open-counter system, covering front, mid and back office. Based on the successfully implementation of the new system, the Bank issued principle-protected asset pool wealth management product – “tian tian jin”. In 2H, the Bank also issued SHIBOR linked principle guaranteed products, which were highly recognized by the market due to its high return and safety.

(IV) Fee business

In 2010, the Bank continued to develop fee business and improve the proportion of fee business income. During the reporting term, the Bank realized net income of fee and commission 964 million Yuan, with YOY growth of 314 million or 48.32%. The proportion in operating income increased by 0.7 percent.

During the reporting period, the Bank had strong development of bank card. We issued 2.12 million debit cards (YOY growth of 1.09 million) and accumulated card issuance volume reached 8.34 million. Consumption amount reached 13.4 billion Yuan, up by 49%. Bank card income was 183 million Yuan with YOY growth of 42.33%.

During the reporting period, the Bank grasped the opportunity of credit quota control to develop investment banking business, in order to optimize fee income structure. The Bank enhanced underwriting of non-financial company debt issuing, in total have 42 lead underwriting of 40.91 billion and participation in 322 projects of 37.79 billion Yuan. Fee income received from debt financing was 100.22 million, with YOY growth of 51.22 million or 104.52%.

During the reporting period, according to market change and customers’ demand, the Bank accelerated fee business product innovation. In 2010, the Bank made breakthrough in non-principle guaranteed asset pool by conducting off-balance sheet innovation, such as direct trust and inter-bank sell-out. We issued SHIBOR linked principle-guaranteed wealth management, which enriched our product range. In 2010, the Bank issued 94.0 billion Yuan wealth management products, up by 123%. Personal wealth management products issued 45.6 billion, up by 106% and achieved fee income 26.41 million. Institutional wealth management products issued 48.4 billion, up by 142% and achieved fee income 46.83 million Yuan.

(V) IT construction and E-banking services

In 2010, the Bank launched ten IT projects including IT strategy planning, DR center establishment and Enterprise Data Warehouse, to enable technology to become the Bank’s new core competitiveness to ensure the successful implementation of our business strategy. The Bank laid high attention to improve technology level and system operation capacity; Xi’an DR center has gone-live into daily operation; completed upgrading of core banking system host machine; successfully accomplished system support for services during World Expo and Asian Games. The Bank also developed open-counter sales system, supply chain system, RMB cross-border payment phase II, wealth management system, Ali-pay internet function, centralized data processing platform, auditing system phase II and various products.

As of 2010-end, the Bank increased retail e-banking users by 283,300 to 1.09 million (YOY growth 35.07%). Corporate e-banking users reached 12,000, with accumulated 3.73 million transactions of 1.67 trillion Yuan amount, which has reached average yearly growth of 65% and 54% respectively in the recent three years. The e-banking substitution ratio of personal and corporate business against counter service reached 70% and 33.66%, which has effectively diluted the pressure of counter service. In 2010, the Bank received several awards including “Best growing e-banking”, “Best users’ value for internet banking”, “Most potential e-banking”, “Best personal e-banking wealth management service” and “Best e-banking function” etc.

(VI) Support and Security

In 2010, the Bank further enhanced operation infrastructure, strengthened service level and secured operation safety, to provide support for various business. The Bank adhered to customer-centric philosophy to optimize our service. Pushed forward centralization process in terms of operation, simplified procedures and improved service convenience. Improved branch layout, environment and focused on management to enhance system control. Intensified inspection and staff training to enhance risk resistance.

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8.1.3 Income structure

(I) By type of business (Unit: ‘000 Yuan)

Type of business Business income Proportion YOY increase (%)

loan 16,151,497 65.04% 30.46%

Inter-bank lending 524,709 2.11% 155.61%

Financial assets purchased under resale agreement 634,690 2.56% 95.33%

Due from Central Bank 1,196,324 4.82% 47.76%

Due from banks 505,032 2.03% 230.06%

Bond investment 4,527,889 18.23% 27.32%

Fee and commission income 1,102,344 4.44% 45.08%

Other business income 192,123 0.77% -33.77%

Total 24,834,608 100.00% 34.39%

(II) By geographic area (Unit: ‘000 Yuan)

Region Operating income Total profit Total assets

Beijing 13,080,080 7,625,856 594,254,259

Tianjin 558,943 260,948 21,649,702

Shanghai 661,902 315,243 36,240,489

Xi’an 518,076 305,374 33,802,618

Shenzhen 198,571 38,682 9,266,158

Hangzhou 343,546 92,840 16,075,272

Changsha 182,283 30,884 10,793,972

Nanjing 82,374 -29,580 8,992,303

Jinan 9,451 -39,097 2,135,731

Total 15,635,226 8,601,150 733,210,504

8.1.4 Financial condition and operation achievements

(I) Change of main financial indicators and reasons (Units: ‘000 Yuan) +/- compared with Main financial indicators 2010-end Brief reason previous period (%) Mainly increased due from central bank, due from Total assets 733,210,504 37.44% other bank and inter-bank lending Mainly increased due to other banks, inter-bank borrowing Total liabilities 690,643,620 39.27% and financial asset sold under re-purchase agreement Shareholders’ equity attributed 42,545,984 13.28% Mainly increased realized profit of current year to listed company Net profits attributed to 6,803,030 20.75% Increased net profit of current year shareholders of listed company Net increase of cash and 1,470,625 -73.44% Reduced cash and cash equivalent of current year cash equivalent

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(II) Information on accounting items with over 30% variation in financial statements

(Unit: ‘000 Yuan)

Assets 2010.12.31 +/- Main reason

Cash and due from central bank 104,196,879 52.93% Cash and due from central bank increased

Due from other banks 41,436,843 200.03% Due from other banks increased

Inter-bank lending 22,556,667 110.39% Inter-bank lending increased

Financial assets for trading 16,717,668 45.17% Financial assets for trading increased

Derivative financial assets 26,598 42.88% Derivative financial assets expanded

Financial asset purchased Financial asset purchased under re-sell 65,114,658 52.33% under re-sell agreement agreement increased

Interest receivables 2,838,956 42.13% Interest receivables increased

HTM investment 64,108,097 43.34% HTM investment increased

Long-term equity investment 1,177,555 278.85% New investment to ING-BoB Life Insurance

Due to other banks 55,085,270 115.78% Due to other banks increased

Inter-bank borrowing 16,024,695 890.84% Inter-bank borrowing increased

Derivative financial liabilities 11,918 39.92% Derivative financial liabilities increased

Financial asset sold under Financial asset sold under re-purchase 39,741,750 1035.48% re-purchase agreement agreement increased

Employee compensation payable 398,323 232.89% Employee compensation payable increased

Tax payable 237,914 -31.36% Tax payable reduced

Interest payable 3,463,003 46.21% Interest payable increased

Risk weighted asset increased, general risk General risk reserve 4,962,087 36.12% reserve balance increased

Undistributed profit 12,300,155 42.77% Undistributed profit increased

Item 2010 +/- Main reason

Interest income 23,540,141 35.06% Interest income increased

Interest expense -9,061,255 39.93% Interest expense increased

Net interest income 14,478,886 32.18% Net interest income increased

Fee & commission income 1,102,344 45.08% Fee & commission increased

Net fee & commission income 964,217 48.32% Fee & commission increased

Investment gains 117,690 -68.45% Investment gains reduced

Fair value change profit -56,927 -80.40% Fair value change loss reduced

Exchange income 42,202 -65.14% Exchange income reduced

Biz & administration expense 4,738,206 51.11% Biz & administration expense increased

Asset impairment loss 1,188,597 78.39% Asset impairment loss accrued increased

Non-operating expense 27,266 47.60% Non-operating expense increased

Minority shareholder’ equity 2,544 - Last year was negative while this year is positive

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8.1.5 Financial instruments measured in fair value

(1) Internal control policies on fair value measurement

The Bank formulated policies including “Guidelines on fair value management for treasury”, stipulating daily fair value measurement and defining adoption sequence for evaluation data source including market deal price, BoB’s treasury system fair value, external consulting system fair value and manual fair value measurement. The Bank also set up sound fair value decision-making procedure, where Risk Management evaluates the position and consults business departments regarding data source, model and outcome. The fair value result shall receive consensus from business departments, signed off by business departments and Risk Management, then passed to financial/accounting department for accounting treatment.

(2) Fair value calculation basis and policies

The Bank’s fair value calculation strictly follows “No.22 corporate accounting standards” from Ministry of Finance and “Guidelines on treasury’s fair value management”.

(3) Items related to fair value measurement

(Unit: ‘000 Yuan) Aggregated fair value Impairment Balance at term Current fair Balance Item change booked withdrawn beginning value change p/l at term-end into equity in the term

Financial assets

Incl: 1. Financial assets measured in fair value and whose change 11,534,319 -53,451 0 0 16,744,266 booked into current p/l

Incl: derivative financial assets 18,615 7,983 0 0 26,598

2. AFS financial assets 63,595,865 0 164,874 -1,551 78,388,297

Sub-total financial assets 75,130,184 -53,451 164,874 -1,551 95,132,563

Financial liabilities -8,518 -3,476 0 0 -11,918

Real estate for investment 0 0 0 0 0

Productive biological assets 0 0 0 0 0

3. Others 0 0 0 0 0

Total -8,518 -3,476 00 -11,918

Note: 1. all figures are in RMB; 2. including derivative financial assets; 3. items with great amount in others could be listed separately.

8.1.6 Foreign currency financial assets and liabilities held

(1) Risk management policy on FCY financial assets

The Bank formulated “Credit risk management procedures for bond investment and trading (trial)”, stipulating types of bonds allowed, rating requirements, credit facility management and portfolio management for FCY bonds. The “Market risk management policy on investment & trading book (trial)” stipulated types of forex trading position and FCY derivative trading business permitted. Meanwhile, the Bank formulated market risk limit for FCY trading book, where business departments must strictly control the exposure within the limit. In addition, there is clear requirement regarding the identification, measurement and control for exchange rate risk of forex assets stipulated in “Exchange rate risk management procedure”. The Bank adopts same risk management policies and procedures for FCY credit assets as RMB credit assets, and set up sound management on credit facility application, approval and post management. On FCY inter-bank assets, the Bank set up “Credit facility guidelines for financial institutions (trial)” and “Monitoring guidelines on the utilization of credit facility (trial)”, where FCY financial institution assets are management into the comprehensive credit facility for financial institutions, and set up sound quota application, approval, measurement and monitoring process.

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(2) FCY financial assets and liabilities held

(Unit: ‘000 Yuan) Aggregated fair value Impairment Balance at term Current fair Balance Item change booked withdrawn beginning value change p/l at term-end into equity in the term

Financial assets

Incl: 1. Financial assets measured in fair value and whose change 82,288 5,616 0 0 98,430 booked into current p/l

Incl: derivative financial assets 16,326 7,527 0 0 23,853

2. Loans and receivables 00 000

3. AFS financial assets 2,982,055 0 3,686 -1,551 1,403,551

4. HTM investment 546,128 0 0 0 527,248

Sub-total of financial assets 3,610,471 5,616 3,686 -1,551 2,029,229

Financial liabilities -5,282 -5,827 0 0 -11,109

8.1.7 Major holding companies and participating companies

(1) China UnionPay Holding Co., Ltd.

The Bank has investment of 48.75 million Yuan in China UnionPay Holding Co., Ltd. as end of Dec 31, 2010.

(2) Langfang City Commercial Bank Co., Ltd.

As of Dec 31, 2010, the Bank holds 164.21 million shares of Bank of Langfang Co., Ltd. with shareholding percentage of 19.99%.

(3) Yanqing Village Bank Co., Ltd.

On Nov 25, 2008, the Bank initiated the establishment of Yanqing Village Bank together with other sponsors. The Yanqing Village Bank has registered capital of 30.00 million Yuan, where the Bank holds 33.33%.

(4) Bank of Beijing Consumer Finance Company

As of Dec 31, 2010, the Bank has investment of 300.00 million Yuan to Bank of Beijing Consumer Finance. It has registered capital of 300 million Yuan and is 100% invested by Bank of Beijing.

(5) ING-BoB Life Insurance Co., Ltd.

As of Dec 31, 2010, the Bank holds 650.00 million shares of ING-BoB Life Insurance, with shareholding ratio of 50%.

8.1.8 New year operating plan

For 2011, we estimate that net profit will have YOY growth of 10%, total assets balance top 850.0 billion, total deposits balance top 660.0 billion, total loans balance reaching 400.0 billion, NPL ratio under 1%.

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8.2 The Bank’s business

8.2.1 Basic information of branch institutions

Number of Total assets Branch name Address Headcounts institutions (million Yuan)

Ground floor, No.Jia-17, Financial Street, Branches in Beijing 156 5,285 594,050 Xicheng District, Beijing

Tianjin 10 No.21 Chengde Rd, Heping District, Tianjin 246 21,650

No.16 Henan Rd, Huangpu District, Shanghai Shanghai 9 245 36,240 (1/F, 5/F, 6/F & basement)

Xi’an 3 No.116 Heping Rd, Beilin District, Xi’an 163 33,803

Fuchun Orient Plaza No.7006 Shennan Rd, Shenzhen 3 133 9,266 Futian District, Shenzhen (1/F, 2/F, 11/F & 17/F)

No.78 Qingchun East Rd, Jianggan District, Hangzhou 3 157 16,075 Hangzhou

New Times Square, No.163 Furong Zhong Rd Changsha 2 122 10,794 Section1, Kaifu District, Changsha

Nanjing 1 No.289 Jiangdong Zhong Rd, Jianye District, Nanjing 51 8,992

Jinan 1 No.21398 Jingshi Rd, Shizhong District, Jinan 50 2,136

Hong Kong Representative FLAT/RM 5601, 56/F, THE CENTER, 99 QUEEN'S 1 3- Office ROAD, CENTRAL, HK

Amsterdam Representative Amstelveenseweg 500, 1081 KL, Amsterdam, 1 -- Office the Netherlands.

Total 190 6,455 733,006

Note: 1. The above listed institutions refer to those who started official business operation by Dec 31, 2010, including the Central Branch and Zhongguancun Regional Branch who doesn’t have its own main branch, excluding village bank. 2. As of Dec 31, 2010, Nanchang Reigonal branch and Liangxiang Branch and Yunhe Branch in Beijing have obtained approval on opening but not yet opened.

8.2.2 Loan asset quality

(1) Loan five-tier classification

Loan five-tier classification:

(Unit: million Yuan)

2010-12-31 2009-12-31 Change in current term Reason Balance % Balance % (+, -)

Normal 324,305 96.93 263,287 96.30 61,018 Loan balance increased

Special mentioned 7,955 2.38 7,326 2.68 629 Some loans downgraded

Sub-standard 407 0.12 245 0.09 162 Some loans downgraded

Doubtful 398 0.12 962 0.35 -564 Loans recovered

Loss 1,516 0.45 1,589 0.58 -73 Loan recovery and charge-off

Total 334,581 100.00 273,409 100.00 61,172

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During the reporting term, the Bank’s NPL balance and NPL ratio kept double-decrease. NPL balance was 2.32 billion Yuan, down by 475 million compared with 2009-end; NPL ratio was 0.69%, down by 0.33 percentage point compared with 2009-end. The reason for the decreasing balances and ratio of doubtful loans and loss loans was loan collection and charge-off. Special-mentioned loans had an increase in balance and decrease in ratio, while Sub-standard loan had increased balance and ratio. Major reason was that the Bank followed prudential classification principle to downgrade some loans.

(2) Restructured loans and Overdue loans

(Unit: million Yuan) Term-beginning Term-end Change in Item % Cause balance balance current term (+, -)

Restructured loans Ŀ 1,066 1,057 -9 0.32% Few clients extended loan tenor

Overdue loans ŀ 2,818 2207 -611 0.66% Collection of overdue

Note: Ŀ Reconstructed loan refers to adjustment on original lending clauses, which includes extending loan term, re-finance and transfer, due to deterioration of the borrower’s financial condition or failure in repayment on time;

ŀ Overdue loan refers to the principal amount of a loan, of which the principle becomes overdue, excluding loans of which interests become overdue while principles not. For the loans with installment repayment, as long as the loan becomes overdue, the un-overdue principle part is also categorized into overdue loans.

At the end of the reporting term, the Bank’s NPL balance in restructured loans was 310.65 million Yuan.

8.2.3 Loan impairment provision and charge-off

(1) Basis and methodology for loan impairment provision

The Bank’s accrual provision for assets impairment is done in two methods: individual evaluation and asset portfolio evaluation. Accrual impairment provision of corporate NPLs and advances is done through individual evaluation method; Accrual impairment provision of Normal and Special-mentioned corporate loans as well as retail loans is done through asset portfolio evaluation method. The Bank accrues 100% impairment provision for corporate loans in Loss category.

(2) Consolidated loan loss provision changes during reporting period

At reporting term-end, in consolidation accrued 7.13 billion Yuan in total as credit asset provision, NPL provision coverage ratio was 307.12%. Changes of provision as follows:

(Unit: million Yuan)

Balance at term-beginning 6,031

Accrual in current term 1,203

Charge-off in current term -99

Recovered & charge-off in current term 14

Discounted interest of impairment provision released in current term -13

Exchange rate change and other adjustment -7

Balance at term-end 7,129

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8.2.4 Top 10 loan borrowers

(Unit: million Yuan)

Name Balance at term-end Proportion of total loans

Beijing Land Coordination & Reserve Center 2,858 0.85%

Beijing Public Transportation Holding (Group) Ltd. 2,738 0.82%

Shaanxi Coal and Chemical Industry Group Co., Ltd 2,300 0.69%

Beijing Shunchuang Investment Company Limited 2,118 0.63%

P.R.C. Ministry of Railway 1,995 0.60%

Beijing North Star Company Limited 1,924 0.57%

Chaoyang Sub-center of Beijing Land Coordination & Reserve Center 1,760 0.53%

Beijing Gonglian Highway Connect Line Co., Ltd. 1,650 0.49%

Tangshan Caofeidian Infrastructure Construction Investment Co., Ltd 1,600 0.48%

Tianjin Port Investment Holding Co., ltd 1,500 0.45%

Total 20,442 6.11%

8.2.5 Loan structure

(1) Sector structure of consolidated loans

(Unit: million Yuan)

Industry category Loan balance % as of total loans

Administration of Water Conservancy, Environment and Public Utilities 54,327 16.23%

Leasing & commercial service 44,181 13.20%

Real estate industry 45,756 13.67%

Manufacturing industry 41,510 12.40%

Trading 24,829 7.42%

Public transportation 22,191 6.63%

Production & supply of power, gas and water 11,300 3.38%

Construction industry 14,861 4.44%

Finance industry 5,360 1.60%

Computer software industry and telecommunication industry 7,721 2.31%

Education 2,443 0.73%

Others 15,787 4.72%

Retail loans 44,466 13.28%

Total 334,732 100.00%

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(2) Geographic regions of consolidated loans

(Unit: million Yuan)

Region Loan balance Proportion

Beijing 231,195 69.07%

Shanghai 26,370 7.88%

Tianjin 20,723 6.19%

Xi’an 18,388 5.49%

Hangzhou 15,104 4.51%

Others 22,952 6.86%

Total 334,732 100.00%

(3) Guarantee structure

(Unit: million Yuan)

Guarantee manners Loan balance Proportion

Unsecured loans 107,645 32.16%

Guaranteed loans 117,564 35.12%

Collateralized loans 84,719 25.31%

Pledged loans 22,949 6.86%

Discounting 1,855 0.55%

Total 334,732 100.00%

8.2.6 Information of discount-interest loans accounting for more than 20% (inclusive) of total loans balance at the end of the reporting period

During the reporting period, the Bank had no such business.

8.2.7 Main loan types, monthly average balance and annual average loan interest rate

(Unit: million Yuan)

Type of loans Monthly average balance Annual average interest rate

Monthly average loan balance

Short-term loans <1y 100,360 5.04% Corporate loans Mid-/long-term loans 172,141 5.44%

Short-term loans <1y 1,315.68 5.34% Retail loans Mid-/long-term loans 34,685.94 4.58%

Discounting and trans-discounting 2,555 4.60%

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8.2.8 Main deposit types, monthly average balance and annual average interest rate

(Unit: million Yuan)

Type of deposits Monthly average balance Annual average interest rate

Retail current savings deposits 23,227 0.40%

Retail fixed savings deposits 60,317 2.39%

Corporate current deposits 243,201 0.52%

Corporate fixed deposits 172,745 2.46%

8.2.9 Financial bonds held at term-end

(1) Structure of bonds held at the end of the reporting term

(Unit: million Yuan)

Types of bonds Amount

Policy-bank financial bonds 54,582

Financial bonds of commercial banks 8,256

Financial bonds of financial companies 378

Others 1,423

Total 64,639

(2) Large T- bonds held by the Bank at the end of the reporting period

(Unit: million Yuan)

Type of financial bonds Par value Annual interest rate Maturity date

Floating: CNY1Y+0.52%-0.57% Y2001 T-bond 454 2011-3-23 to 2021-10-23 Fixed: 3.85%-4.71%

Y2002 T-bond 157 Fixed: 2.7%-2.9% 2012-3-18 to 2032-5-24

Y2003 T-bond 411 Fixed: 2.8%-4.18% 2013-4-9 to 2018-10-24

Y2004 T-bond 204 Fixed: 4.86%-4.89% 2011-5-25 to 2011-11-25

Y2005 T-bond 1,556 Fixed: 2.83%-3.65% 2012-8-25 to 2020-11-15

Y2006 T-bond 2,205 Fixed: 2.4%-3.27% 2011-5-16 to 2026-6-26

Y2007 T-bond 10,179 Fixed: 2.93%-4.69% 2012-4-23 to 2037-5-17

Y2008 T-bond 7,923 Fixed: 1.77%-4.41% 2011-4-14 to 2038-10-23

Y2009 T-bond 7,622 Fixed: 1.55%-4.3% 2012-4-1 to 2059-11-30

Y2010 T-bond 19,889 Fixed: 2.15%-4.4% 2011-2-14 to 2060-11-18

Total 50,600

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(3) Large financial bonds held by the Bank at the end of the reporting period

(Unit: million Yuan)

Type of T-bonds Par value Annual interest rate Maturity date

Floating: CNY1Y+0.65% Y2001 financial bond 563 2011-4-21 to 2032-1-12 Fixed: 3.0%-4.52%

Floating: CNY1Y+0.65%-0.75% Y2002 financial bond 1,504 2012-4-23 to 2022-5-9 Fixed: 2.65%-3.63%

Floating: CNY1Y+0.49%-1.05% Y2003 financial bond 2,177 2013-3-31 to 2013-11-13 Fixed: 2.77%-2.87%

Floating: CNY1Y+0.76%-1.3% Y2004 financial bond 878 2014-2-25 to 2014-4-16 Fixed: 3.51%

Floating: CNY1Y+0.37%-0.72%; Y2005 financial bond 3,259 2015-4-27 to 2035-10-11 Fixed: 3.4%-4.67%

Floating: CNY1Y+0.47%-0.6%;FR007+0.48%-0.7% Y2006 financial bond 15,160 2011-4-6 to 2026-4-11 Fixed: 2.98%-3.79%

Floating: S3M+0.25%-0.30%;CNY1Y+0.45%-1.8% Y2007 financial bond 16,965 2011-5-19 to 2017-12-28 Fixed: 4.15%-4.94%

Floating: S3M+0.18%;CNY1Y+0.9%-0.75% Y2008 financial bond 4,692 2013-1-10 to 2018-12-26 Fixed: 2.1%-6.2%

Floating: S3M+0.18%;CNY1Y+0.54%-1.65% Y2009 financial bond 10,552 2010-3-27 to 2029-11-4 Fixed: 1.75%-5.3%

Floating: S3M+0.08%;CNY1Y+0.33%-0.59% Y2010 financial bond 5,780 2010-3-27 to 2029-11-4 Fixed: 2.61%-4.0%

Total 61,530

(4) Derivative financial instruments held by the Bank at the end of the reporting period

(Unit: million Yuan)

Fair value Types Nominal principle Assets Liabilities

Currency forward 1,402 6 -5

Currency swap 1,514 16 -4

Interest rate swap 1,127 5 -3

Total - 27 -12

8.2.10 Interest receivables and bad debt provision for other receivables

(1) Interest receivables of the bank at the end of the reporting period

The bank accrues interest receivables on loans, financial assets for trading, held-to-maturity investment, financial assets available- for-sale, due from central bank, inter-bank lending, and financial assets purchased under resell agreement etc. As of reporting term-end, the Bank didn’t withdraw bad debt provision for on-balance sheet interest receivables. If the on-balance sheet interest receivable devalues, the Bank will hedge it against current interest income and fully offset out of balance sheet for settlement.

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(Unit: million Yuan) Term-beginning Increase in Collection in Term-end Item Loss reserve balance current term current term balance

On-balance sheet interest receivables 1,997 23,540 22,698 2,839 0

Off-balance sheet interest receivables 848 52 85 815 0

(2) Other receivables at reporting term-end

(Unit: million Yuan)

Type Term-beginning balance Increase in current term Change in current period

Other receivables 637 430 -207

Bad debt provision 369 355 -14

8.2.11 Offset assets

At the end of reporting period, the original value of the Bank’s offset asset was 424 million Yuan, with accrued offset asset impairment provision of 313 million Yuan. The net value was 111 million Yuan.

(Unit: million Yuan)

Type Balance at term-beginning Balance at term-end Accrual impairment

Premises & buildings 32 32 29

Certificate of rights 265 265 203

Others 127 127 81

Total 424 424 313

8.2.12 NPLs and corresponding actions taken

At the end of reporting term, the Bank had NPL balance of 2.32 billion Yuan, down by 475 million Yuan compared to year-beginning; NPL ratio was 0.69%, down by 0.33 percentage point.

The Bank has taken the following measures to continue to optimize the asset structure and improve asset quality:

(1) Focused on risk control and quality management, conduced more prudential credit policy, improved new business quality and reduced portfolio risk;

(2) Paid attention to macro economy analysis, continuously monitored sensitive sectors and companies, regularly conducted risk identification and measurement, enhanced withdrawal from high-risk project/market, to effectively prevent systematic risk;

(3) Set up three-level risk control structure and end-to-end risk management policy, promoted “everyone is involved” risk culture, stressed the risk responsibility of front line business people and timely identified and took measures to digest risk;

(4) Enhanced off-site risk monitoring, continued monitoring on installment repayment, maturing loans, loan interest settlement, and credit rating and financial conditions of credit line borrowers, strengthened risk alert and warning;

(5) Enhanced on-site inspection, adopted multiple inspection approaches, to timely identify risk and take precautious measures to mitigate the risk;

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(6) Adopted several measures to greatly improve the bad loan collection. Took control on key assets, litigation, opportunity in property market and expand the disposal channels; achieved great result on NPL recovery;

(7) Took multiple measures, further enhanced mitigation on new NPL and collection/recovery of existing NPL.

8.2.13 Overdue outstanding debt

The Bank has no overdue outstanding debt during the report period.

8.2.14 Information of off-balance sheet project balance with potential major impact on financial condition and business performance

(Unit: million Yuan)

Off-balance sheet items 2010.12.31 2009.12.31

Credit commitment

L/C issued 3,095 1,376

L/G issued 21,912 15,119

Bank acceptance 46,191 25,703

Unused credit card facility 6,745 3,294

Refinance acceptance 4,870 351

Operating leasing commitment 1,363 1,361

Assets pledged 41,187 3,660

Equity-based commitment 160 878

Agreement signed but not paid 81 601

Approved but not signed 79 277

Securities underwriting commitment 6,644 6,500

Commercial paper and mid term note 6,644 6,500

8.3 Main risks and corresponding countermeasures

Major risks encountered by the Bank include credit risk, market risk, liquidity risk, operational risk and information security risk.

8.3.1 Credit risk profile and management measures

The Bank’s credit risks come from loan portfolio, investment portfolio, guarantee and other payment commitment.

During the reporting period, the Bank used “scale growth, quality stability, profit optimization, structure adjustment” as standard, took several measures to tackle potential negative impact on the Bank’s asset business caused by the global financial crisis, enhanced study on the adjustment of industrial policy and macro economy, formulated differentiated and localized credit policy, well handled the balance between “seize opportunity” and “prevent risk”, short-term gain and strategic goal, industry policy and credit direction, boosting domestic demand and asset structure adjustment, as well as cultivating core clients and withdrawing from certain markets, to improve credit structure.

During the reporting period, the Bank continued to follow “treating discriminatorily with both encouragements and discouragements” credit principle, enhanced support to industries which are supported, assisted and encouraged by the state, and properly handled

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credit production pace and manner. Preference of credit production was given to physical economy enterprises and retail loans, with key on SME, rural related loans and strategic emerging industries. The Bank adhered to capital restriction principle, set up and improved interest rate risk pricing mechanism; adhered to principle of return covering cost and risk, to decide loan interest rate for differentiated pricing, according to risk level, funding cost, management cost, expected return, capital return requirement and local market interest level.

During the reporting period, the Bank set up three-level risk management structure of head office, regional branch/district office and sub-branch. Clarified organization set-up and position job description of risk department at regional branches, to enhance the operation procedure; realized centralization management of credit risk and full monitoring of operational risk under regional branch; conducted mechanism innovation on credit approval: (1) grant customized delegation of authority based on the risk management of the business unit, to improve approval efficiency; (2) grant proactive credit for outstanding small/medium-sized high-tech companies; (3) align risk with marketing to implement early-state approval involvement and post-evaluation, to integrate marketing and approval.

During the reporting period, the Bank conducted study and monitoring on government platform loans, real estate loans, SME loans and land reserve loans, to ensure risk monitoring and digestion on key sectors and clients.

At the end of reporting term, credit risk exposure of the Bank was as follows:

Maximum credit risk exposure without consideration of collateral and other credit enhancement

(Unit: million Yuan)

2010.12.31 2009.12.31

Due from banks 41,437 13,811

Due from central bank 102,051 65,945

Inter-bank lending 22,557 10,721

Financial assets for trading 16,718 11,516

Derivative financial assets 27 19

Financial assets purchased under resell agreement 65,115 42,747

Loans and advanced granted 327,603 267,450

Financial assets available-for-sale 78,388 63,596

Financial assets held-to-maturity 64,108 44,723

Investment receivables 4,677 4,316

Long-term equity investment 1,177 311

Interest receivables 2,839 1,997

Other financial assets 82 268

Sub-total 726,779 527,420

L/C issued

L/G issued 3,095 1,376

Bank acceptance 21,912 15,119

Irrevocable loan commitment 46,191 25,703

Credit card facility unused 6,745 3,294

Re-finance acceptance 4,870 351

Sub-total 82,813 45,843

Total 809,592 573,263

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8.3.2 Liquidity risk profile and management measures

Liquidity risk refers to the risk that cannot meet customers’ demand of withdrawal due liabilities and new loans, reasonable financing etc, or cannot meet the demand at normal cost. It requires commercial banks to keep certain current asset or ensure smooth financing channels.

The Bank set up liquidity risk governance structure composed by the Board’s Risk Management Committee, senior management and Asset-liability Committee(ALCO), responsible for formulating liquidity risk management strategy and setting up internal control mechanism, to support the implementation and supervision of the strategy. Based on the governance structure, set up liquidity risk management organization composed by President, Finance, Risk Management, Financial Market, Corporate Banking and Retail Banking.

The Bank’s liquidity risk measurement adopts liquidity indicators and liquidity gap calculation method, and the latter one includes measurement under normal conditions and liquidity crisis conditions. The Bank uses regular stress test and Ad hoc special stress test to analyze its capacity to withhold liquidity incident or crisis. To deal with liquidity, the Bank enhanced limit management and monitoring; formulated targeted contingent plan for different liquidity incident and crisis, set up liquidity contingent leading team, established and monitored internal and external early warning indicators and triggers, as well as trigger mechanism based on early- warning indicator; set up liquidity risk reporting mechanism, having Finance and Risk Management to submit reports to senior management and the Board regularly on liquidity risk profile, liquidity stress test and contingent plan.

The Bank actively uses technical measures to improve asset-liability management system’s application level, uses the system to have real-time monitoring on liquidity indicators and exposure, to form automatic liquidity risk measurement and regular monitoring mechanism. Also, the Bank organizes its asset-liability business based on liquidity gap, uses FTP to actively and proactively adjust tenor structure. The Bank kept improving its liquidity management manners, enhanced and improved policy formulation, timely adjusted policy, to put an appropriately liquidity level.

In 2010, China implemented moderate loose monetary policy and issued credit policy of “encouraging or discouraging credit production in certain sectors” to optimize credit structure. Meanwhile, central bank issued deposit reserve rate for 6 times and benchmark rate for 2 times, as well as re-discounting and re-lending rates for the first time in past two years. There are more monetary policy tools used to control liquidity and liquidity at certain time point got tightened. But under the reasonable growth of monetary credit, the overall liquidity of banking sector is basically appropriate. Under such background, the Bank’s liquidity management focused on allocating funds reasonably to support business development. The Bank put more support to credit business, treasury business and bond business and controlled excess reserve rate to improve overall return on assets.

During the reporting period, the Bank’s asset and liability business had a stable and healthy development, with good liquidity. Liquidity related indicators are as follows:

Major regulatory indictors Standard 2010.12.31 2009.12.31 2008.12.31

Liquidity ratio (%) Ĺ25% 37.71% 47.60% 63.90%

Loan/deposit ratio (%) ĸ75% 58.22% 58.94% 57.98%

Consolidated liquidity exposure at term-end (excluding derivative financial instruments):

(Unit: million Yuan)

<1m 1-3m 3m-1y 1-5y >5y Total

Liquidity exposure -271,833 65,326 44,856 144,540 147,054 129,943

8.3.3 Market risk profile and management measures

(1) Interest rate risk

Interest rate risk of cash flow refers to the volatility risk of future cash flow of financial instrument caused by market interest rate change. Interest rate risk of fair value refers to the volatility risk of a certain financial instrument’s value caused by market interest

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rate change. The Bank’s interest rate risk exposure faces risk of fair value and cash flow interest rate caused by market major interest rate change.

Because of market interest rate volatility, the Bank’s margin might increase, might reduce or even has loss, due to unpredictable changes. The Bank mainly operates business in mainland China, abiding by central bank’s interest rate system. The Bank regularly measures its interest rate sensitivity gap, valuate IR risk undertaken via gap analysis, and further measures impact of IR change on net interest income and corporate value, under different IR level. Meanwhile, the Bank closely tracked market IR trend, reasonably adjusted the re-pricing tenor structure of interest-bearing asset and liability, aligning with fund sources and use, to reduce potential negative impact on profitability.

As end of reporting-term, the consolidated interest rate sensitivity gap is:

(Unit: million Yuan)

<1m 1-3m 3m-1y 1-5y >5y Non interest-bearing Total

IR sensitivity gap 17,508 46,358 -62,909 -1,246 37,244 2,021 38,976

(2) Exchange rate risk

The Bank’s exchange rate risks mainly come from the currency mismatch of asset and liability from proprietary business and agent business for clients, as well as currency position mismatch from foreign currency trade. The Bank faces exchange rate risk from loans, deposits, securities and other financial derivative instruments priced non-RM currency. To manage the risk, the Bank tries its best to match each currency and conducts day-to-day monitoring on the gap.

8.3.4 Operational risk

During the reporting period, the Bank continuously enhanced operational risk management to effectively prevent potential risks.

(1) Carried out activities of “execution year of internal control and financial crime prevention” thoroughly. Formulated “Internal control and financial crime prevention manual” and “Bank of Beijing guideline manual of self-inspection for internal control and financial crime prevention”, which identified the self-inspection contents and major inspection methods. During the campaign, the Bank carried out various inspection including self-inspection, head office managing department inspection, regional branch spot inspection and head office leading team inspections etc. The Bank shared the issues identified in inspections to business administrating departments and asked them to improve certain procedures to fit business development and risk control requirement;

(2) Organized regular Operational Risk Management Committee meetings. Members listened to operational risk reports to have overall knowledge of the Bank’s operational risk profile thus to make decisions. Members also reviewed operational risk reports of some regional branches and key business including retail loan and treasury etc. It has enhanced the communication between head office and regional branches, as well as emphasized operational risk management in critical areas;

(3) Intensified operational risk management at frontline branches. Issued “Operational risk management rules for branches (trial)”, which requires setting up operational risk organization, daily-inspection and rectification mechanism, risk reporting and monitoring mechanism and incentive & restriction mechanism.

8.3.5 Information security risk profile and management measures

During the reporting period, IT, Risk and Audit had close cooperation to improve information security risk management.

1. Set up Xi’an disaster recovery center to structure a layout of “three centers at two site cities”;

2. Formulated “Business continuity plan” brochures, to describe the operating procedure in case of contingent event in a brief and clear way;

3. Risk Management organized contingent drills on important information systems for branches and improved BCP based on the result;

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4. ING provided technical assistance training on seven aspects related to IT risk management, including DR development and system operation. In 2010, we received ING experts for on-site training and sent staff to ING operation for on-the-job learning. The Bank utilized the training program to absorb ING’s advanced experience and best practice in terms of data center development and system operation management and explored the training result to our work;

5. Enriched information risk management team. The Board and senior management attaches great importance to the personnel of IT risk management. We introduced talent with expertise from famous consulting companies to our IT risk management and Audit department.

8.4 Explanation on the integrity, appropriateness and effectiveness of internal control mechanism

The Board is responsible for the set-up and improvement of internal control and the scientific and effectiveness of policy implementation.

The Bank follows the principle of risk prevention, prudential operation and sound development to establish a scientific and strict internal control mechanism. On the aspect of integrity, the framework covers every aspect of corporate governance, organization structure, human resources and internal control etc, as well as the full process of risk identification and monitoring, measurement and valuation, control and management, almost penetrating to every operational position and flow of every business of the Bank. Internal control policies mainly include: decision and approval procedure, authority management, department responsibility and job description, stamp management, computer system risk control, supervision and inspection etc, involving credit business, treasury, deposits and over-counter service, bank card, settlement and forex business etc. On the aspect of reasonableness, the Bank uses compliance risk management framework, to fully identify risk factors in business and management activities, to realize self- assessment and monitoring via compliance system, in order to further regulate and standardize those activities. The Bank also constantly streamlines procedure for prompt supplementation, amendment and improvement, along with business development and new regulatory policies. In order to ensure effective execution of internal control policies, the Bank focused on the long- effective mechanism of risk prevention, and established “three lines of defense” composed by policy implementation, guidance implementation and supervision implementation. It has gradually designed and improved internal control structure for precaution, in- course control and post evaluation & rectification, which has played a positive role on preventing financial risks.

8.5 Execution of Rules Concerning the Management of Insiders with Inside Information

The Bank formulated “Bank of Beijing Co., Ltd. Rules Concerning the Management of Insiders with Inside Information” and approve the policy by the 4th Board’s 2nd meeting. During the reporting period, the Bank strictly followed the policy, organized Directors, Supervisors, senior managers and employee to study relevant rules to improve their confidentially awareness, and assigned primary responsible person for insider information management and designated liaison for insider information, to be responsible for the day- to-day management.’

According to “Bank of Beijing Co., Ltd. Rules Concerning the Management of Insiders with Inside Information”, the Bank carried out the registration and record-keeping for insider and used written form to remind CPA and legal firms and regulatory departments to fulfill their confidentiality obligation. During the reporting period, the Bank has no situation where any insider used the inside information to buy/sell the Company’s stock before the disclosure of significant sensitivity information that will affect the Company’s stock price.

8.6 Investment

8.6.1 Fund raised of RMB ordinary shares and its use

The Bank conducted its IPO of RMB 1.2 billion ordinary shares in Sep 2007, at issuing price 12.5 Yuan/share, raising 15.0 billion Yuan proceeds, which is net 14.7 billion Yuan after deducting issuing expense.

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All the proceeds raised from IPO of the Company after deducting issuing expense, have been used to increase the core capital and capital adequacy ratio, enhance risk resistance capability and profitability, to support the fast and healthy development of business. In the prospectus, the Company did not provide commitment on the detailed use of proceeds raised. As of Dec 31, 2009, the proceeds have been used as committed in the prospectus.

8.6.2 Fund raised of subordinate bonds and its use

In 2H 2005, the Company issued 3.5 billion Yuan subordinate fixed-term bonds, which have been booked into the Company’s supplement capital as stipulated. Currently the funds are mainly used to support quality loan projects and senior bond investment. In 2H 2010, the Company executed its redemption option to redeem the subordinate bonds prior to its maturity.

During the reporting period, according to the Shareholders’ Meeting’s resolution, the Bank issued the first phase of 6.5 billion subordinate fixed-term bond, which have been booked into the Company’s supplement capital as stipulated. The funds are mainly used to support quality loan projects and senior bond investment.

8.7 Change and impact of operation environment and macro policy & rule

8.7.1 About macro control

In 2010, the government maintained the consistency and stability of macro economy policy, carried out positive fiscal policy and moderate loose monetary policy, and improved the orientation and flexibility of policy. There are frequent changes in economy situation and financial policies issued in 2010. Almost every month there is new policy, which has material impact on the operation of commercial banks.

At year-beginning, PBOC intensified window guidance to financial institutions, by improving credit policy guidance, implementing credit quota control, guiding financial institutions to adjust their credit structure and production pace in a reasonable manners, and enhancing the transformation of finance to support economy adjustment.

To enhancing banking supervision and financial market control, CBRC actively set up and improved the law framework for financial institution lending. It launched “Interim guidelines for personal loan management (draft)” and “Interim guidelines for working capital loan management”, which together with previously issued “Guidelines for project finance business” and “Interim guidelines for fixed asset loan”, preliminarily established the law framework for loan business of banking institutions.

At the same time, property control policies have been frequently issued, to control real estate loans and personal loans; guided commercial banks to implement differentiated property loan policy; enhanced management of government platform loans, tightened provision withdrawal requirement; regulated bank-trust cooperation, limited trust wealth management product.

8.7.2 About interest rate change of deposits and loans and adjustment of required reserve rate

In 2010, PBOC further improved the orientation and flexibility of monetary policy, conducted open market activities in a flexible way, raised required reserve rate for 6 times, benchmark rate of loans for 2 times and re-discounting rate and re-lending rate for the first time in past 2 years.

In 2010, to conduct more proactive liquidity management, guide credit growth to normal pace and manage inflation, PBOC frequently used required reserve rate while operating opening market. It raised the rate for 6 times on Jan 18, Feb 25, May 10, Nov 16, Nov 29 and Dec 20, for 0.5 percent each time in total 3 percent. The higher reserve rate has taken out liquidity and became pressure on liquidity management for banks.

In the first three quarters of 2010, interest rate policy maintained stable. Since Q4, to stabilize inflation and curb the over-speed increase of loans, PBOC raised benchmark rate of RMB deposits and loans on Oct 20 and Dec 26 as well as re-lending rate to financial institutions on Dec 26. The shrinking margin has affected profitability of banks on certain extent.

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8.7.3 Exchange rate change

In June 2010, PBOC further pushed forward the RMB exchange rate mechanism, to focus on market supply, with reference to basket of currencies for adjustment, to enhance the flexibility of RMB exchange rate and maintain its fundamental stability at rational balance level. Since the reform of the mechanism, RMB had slight appreciation with more dual-direction floating. In general it maintained steady.

The above situation and policy change has significant impact on the operation of commercial banks. To effectively deal with the external environment change, the Company studied relevant policies and spirit and carried out product innovation and operation transformation to tackle with the situation.

(1) Enhance asset-liability management, optimize loan structure and direction. At early-2010, the Company adapted itself to fit the credit policy adjustment and scientifically controlled the credit development. The Company formulated appropriate plan on business growth and produced loans at every month-beginning to increase the daily average and interest income. Meanwhile, the Company adhered to the market position as “serve local economy, serve SME and serve citizens”, to provide funding support to rural related projects, small companies, culture & creative sector, consumer finance and strategic emerging industries, in order to establish its competitive advantage;

(2) Reinforced non-credit business. In 2010, the Company strictly controlled credit risk, appropriately increased investment on corporate bonds to improve the overall bond investment return and increase investment gains. Meanwhile, the Company strengthened operation in inter-bank market and monetary market, expanded business scale, enriched business channel and enhanced profitability;

(3) Actively improved its pricing capacity to cover the limited volume growth. The Company paid attention to the assessment of interest rate pricing of loans to increase interest income; intensified interest rate management of liabilities and adjusted FTP at appropriate time, to guide branches develop liabilities in a proper manner and reduce the cost;

(4) Developed more fee business. The Company reinforced market study and analysis, accelerated new product development and enhanced investment on fee business to create new growth. By taking of the opportunity of credit policy adjustment, the Bank developed financing advisory service, commercial paper, acquisition finance and syndicate loans to increase fee & commission growth and reduce the dependence on margin income, in order to have steady growth of profit.

8.8 Auditing opinions issued by certified public accountants

The Bank’s Y2010 financial statements have been audited by Pricewaterhouse Zhongtian Certified Public Accountants, signed by registered CPA David Wu and Li Yan and issued with PWC ZT Shen (2011) No.10051 standard auditing report without reserved opinions.

8.9 Daily work of the Board of Directors

8.9.1 Meetings of the Board of Directors

During the reporting term, the Board of Directors held 6 meetings in total, which include:

1. On April 26, 2010, the Company held the 27th meeting of the 3rd Board of Directors in Beijing, which reviewed and approved “Resolution on report of Y2009 performance & Y2010 work plan”, “Resolution on Y2009 work report of Board of Directors”, “Resolution on Y2009 social responsibility report”, “Resolution on holding Y2009 Shareholders’ Annual General Meeting”, “Resolution on Bank of Beijing Y2009 Annual Report and its Summary”, “Resolution on Y2010 Q1 Report”, “Resolution on Bank of Beijing Y2009 Financial Report”, “Resolution on Y2010 financial budget report”, “Resolution on the engagement of CPA for Y2010”, “Resolution on issuing subordinate bonds in 2010-2011”, “Resolution on issuing financial bond”, “Resolution on setting up Zhongguancun Regional Branch”, “Resolution on Y2009 internal control self-assessment report”, “Resolution on Y2009 related-party transaction report” and “Resolution on Y2009 profit distribution plan”.

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2. On June 7, 2010, the Company held the 28th meeting of the 3rd Board of Directors via circulation, which reviewed and approved “Resolution on related-party credit line to ING Bank N.V.”, “Resolution on related-party credit line to Sany Heavy Industry” and “Resolution on related-party credit line to Beijing Huayuan Group”.

3. On August 4, 2010, the Company held its 29th meeting of the 3rd Board of Directors in Beidaihe, which reviewed and approved “Resolution on initiating the establishment of Zhejiang Wencheng BoB Village Bank Co., Ltd.”, “Resolution on election at expiration of office terms of the Board” and “Resolution on convening Y2010 First Ad hoc Shareholders’ Meeting”.

4. On August 26, 2010, the Company held its 1st meeting of the 4th Board of Directors in Beijing, which reviewed and approved “Resolution on electing the Chairman of the 4th Board of Directors”, “Resolution on electing Vice Chairman of the 4th Board of Directors”, “Resolution on engagement of the President”, “Resolution on the constitution of special committees of the 4th Board of Directors” and “Resolution on Bank of Beijing 2010 1H Report and its Summary”.

5. On October 28, 2010, the Company held its 2nd meeting of the 4th Board of Directors in Beijing, which reviewed and approved “Resolution on Bank of Beijing Y2010 Q3 Report”, “Resolution on the Board’s delegation to President for 2011”, “Resolution on related-party credit line to China Hengtian Group”, “Resolution on setting up Urumqi Regional Branch”, “Resolution on initiating the establishment of Nong’an BoB Village Bank Co., Ltd.”, “Resolution on the supplementary agreement to the Strategic Alliance Agreement with ING” and “Resolution on Bank of Beijing Co., Ltd. Rules Concerning the Management of Insiders with Inside Information”.

6. On December 24, 2010, the Company held the 3rd meeting of the 4th Board of Directors in Beijing, which reviewed and approved “Resolution on Y2010 non-performing asset charge-off”, “Resolution on setting up Nanning Regional Branch” and “Resolution on upgrading Hong Kong Representative Office to Hong Kong Regional Branch”.

8.9.2 Board’s implementation of resolutions of Shareholders’ Meeting

During the reporting period, the Board carried all the resolutions of the Shareholder’s Meeting with diligence. The Company held the 2009 Shareholders’ AGM on May 26, 2010, which reviewed and approved “Resolution on Y2009 profit distribution plan”, deciding the 2009 dividend plan is 0.18 Yuan (including tax) for every share. The Board has organized the implementation on July 26, 2010.

8.9.3 Duty performance of the Board’s Audit Committee

In the reporting term, the Board’s Audit Committee held 4 meetings, which examined important proposals including annual report, internal control self-assessment report and financial reports etc, and listened to work reports from internal audit and external audit, which effectively enhanced the Board’s function on internal control and risk management. During the reporting period, Audit Committee has been diligent on their responsibilities and actively coordinated internal and external auditing, which ensured the truthfulness, integrity and accuracy of the Bank’s financial statements information.

On November 24, 2010, the Bank held the 4th meeting of the Board’s Audit Committee, which examined the report of annual auditing certified public accountant regarding Y2010 annual auditing plan, discussed with the accounting firm on major matters, timetable and staff equipment etc on auditing work and posed directive comment. Before the formal start of annual auditing, the Audit Committee reviewed financial accounting statements drawn up by the Bank, which they reckoned that has fairly reflected Bank of Beijing Y2010 operation achievements and financial conditions in all significant aspects, and agreed to submit it to certified public accountant for auditing. During the auditing process, Audit Committee has maintained a constant communication with the certified public accountants to coordinate and solve problems and urge CPAs to submit auditing report on time as scheduled. After the CPA issued preliminary comment, the Committee listened to the report on annual auditing by CPA, reviewed the Bank’s financial statements, considered it as true, accurate and complete reflection of the Bank’s overall profile, formulated written comment and voted and agreed to submit to the Board for approval.

In addition, Audit Committee has also listened to the summary report regarding annual auditing by CPA, and conducted overall evaluation on the CPA for their performance in 2010 combined with their daily work. The Committee considers that PricewaterhouseCoopers Zhongtian Certified Public Accountants, engaged by the Bank, can perform auditing responsibilities with independent, objective and just professional standards and diligence, submit auditing report on time and achieved their assigned

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tasks in a proper way. Audit Committee suggested the Bank to continue to engage PricewaterhouseCoopers Zhongtian Certified Public Accountants as the Bank’s auditing institution for Y2011 and agreed to submit the proposal to the Board for approval.

8.9.4 Duty performance of the Board’s Remuneration Committee

During the reporting period, the Board’s Remuneration Committee has, strictly following Articles of Association and “Terms of Reference of Remuneration Committee”, held meetings on time, performed their duties and urged the Bank to further improve its incentive & restraint scheme.

During the reporting period, Remuneration Committee listened to work report of senior managers, and reviewed the annual work performance of them. The Committee considers that the senior management and their members have conducted operation by laws and compliance, performed their duties with diligence, led the Bank to work hard and be aggressive, achieved good performance and fully reached objectives set by the Shareholders’ Meeting.

During the reporting period, Remuneration Committee has completed the assessment plan on senior management’s annual operation performance, reviewed the compensation of Directors, Supervisors and senior managers disclosed in Y2010 Annual Report with diligence and considered it as aligned with the Bank’s relevant rules.

8.10 Profit distribution plan

8.10.1 Number of shares participating in Y2010 profit distribution of the Bank

The Bank has realized its IPO and public listing in 2007. Currently, number of total shares is 6.228 billion shares. Therefore shares participating in the Bank’s Y2010 profit distribution are 6.228 billion shares.

8.10.2 Y2010 profit distribution plan

PricewaterhouseCoopers Zhongtian Certified Public Accountants, engaged by the Bank, has issued standard auditor’s report with unqualified comment. The after-tax profit of 2010 in the audited financial statement is 6.807 billion Yuan. The profit distribution plan of Y2010 is as follows:

1. Withdraw 10% of audited net profits of Y2010 as statutory surplus reserve, that is 680,724 thousand Yuan;

2. Accrue general reserve of 1,316,598 thousand Yuan from the net profit of current year according to the “Measures for Management of Withdrawal of Bad Debt Reserves of Financial Institutions” (CaiJin [2005] No.49) and “Notice of the Ministry of Finance on Withdrawal of Bad Debts Reserves” (CaiJin [2005] No.90);

3. The profit available for distribution to shareholders of current year is 12,305,193 thousand Yuan. Based on Y2010’s 6.228 billion shares, every 10 shares will receive cash dividend of 2.16 Yuan (including tax), thus accumulated cash dividend distribution is 1.345 billion Yuan.

After the distribution scheme is implemented, surplus undistributed profit will be distributed in subsequent years.

The above profit distribution plan shall be implemented within 2 months after examined and approved by the Company’s Y2010 Shareholders’ Annual General Meeting.

Dividend of the Company of previous 3 years:

Year Dividend per share (Yuan) Total share capital (0.1 billion share) Total dividend (0.1 billion Yuan)

2007 0.12 62.28 7.47

2008 0.18 62.28 11.21

2009 0.18 62.28 11.21

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Section IX Report of Board of Supervisors

9.1 Meetings of Board of Supervisors

1. On April 26, 2010, the Bank convened the 17th meeting of the 3rd Board of Supervisors in Beijing, which examined and approved “Resolution on report regarding Y2009 operation & Y2010 work plan”, “Resolution on Bank of Beijing Y2009 Annual Report (main text & Summary)”, “Resolution on self-assessment report regarding internal control”, “Resolution on Y2009 work report of Board of Supervisors”, “Resolution on assessment comment regarding Board of Directors’ Y2009 work”, “Resolution on assessment comment regarding Senior Management’s Y2009 work”, “Resolution on assessment comment regarding Board of Supervisors’ Y2009 work”, “Resolution on Bank of Beijing Y2010 Q1 Report”, and listened to proposals and resolutions of the 27th meeting of the 3rd Board of Directors.

2. On August 4, 2010, the Bank convened the 18th meeting of the 3rd Board of Supervisors in Beidaihe, which examined and approved “Proposal on election of Supervisors at the expiration of office terms”, and listened to proposals and resolutions of the 29th meeting of the 3rd Board of Directors.

3. On August 26, 2010, the Bank convened the 1st meeting of the 4th Board of Supervisors in Beijing, which examined and approved “Resolution on electing the Chief Supervisor of the 4th Board of Supervisors”, “Resolution on members of special committees of the 4th Board of Supervisors”, “Resolution on Bank of Beijing Y2010 Semi-year Report & Summary”, and listened to proposals and resolutions of the 1st meeting of the 4th Board of Directors.

4. In October 2010, the Bank convened the 2nd meeting of the 4th Board of Supervisors in Beijing, which examined and approved “Resolution on Bank of Beijing Y2010 Q3 Report”, and listened to proposals and resolutions of the 2nd meeting of the 4th Board of Directors.

5. In December 27, 2010, the Bank convened the 3rd meeting of the 4th Board of Supervisors in Beijing, which listened to resolutions of the 3rd meeting of the 4th Board of Directors.

9.2 Special Inspections and Research of Board of Supervisors

The Board of Supervisors took initiative in broadening its supervision channel, carried out active special inspections and studies and proposed corresponding administration recommendations.

1. During June 4-6, 2010, Board of Supervisors went to Xi’an Regional Branch to carry out special inspection on the branch’s business development and internal control, and asked about deposit and loan clients in details, as well as the branch’s risk management level.

2. At July-end, 2010, entrusted by CBRC Beijing Office, Board of Supervisors carried out an inspection on the Bank’s corporate governance profile with close attention. It set up an inspection leading team in the first time and worked out the work plan. After two months’ special inspection, “Report on inspection of Bank of Beijing’s corporate governance” was finalized, which was approved by the regulator.

3. On November 10, 2010, in order to push forward the Bank’s comprehensive operation in a stable manner and enhance its capability of fulfilling the duties, Board of Supervisors carried out an inspection in BoB Consumer Finance Company, where attending Supervisors listened to reports on business development and risk management of the Company, and fully communicated with heads of the Company and managers of its business line about the Company’s future development.

4. Board of Supervisors attaches great importance to the Bank’s risk management. On November 10, 2010, it convened a special report meeting on government financing platform loans and real estate loans, during which attending Supervisors listened to relevant

61 Report of Board of Supervisors

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work report by Risk management department, and proposed many valuable suggestions on fending off risks of government financing platform loans and real estate loans. Relevant functional departments expressed their resolution of well conducting pre-warning and prevention of such risks according to requirements of Board of Supervisors.

9.3 Independent Opinions of the Board of Supervisors on Relevant Issues

The Board of Supervisors has attended the shareholders’ meeting, and Chief Supervisor was presented in Board of Directors’ meetings as a nonvoting delegate and carried out supervision on the Company according to relevant laws and regulations.

1. Legitimating of the operation

During the reported period, the Bank has followed legal and valid operations and decision-making procedure in compliance with relative laws and regulations. The Directors and Senior Executives have been deemed to be prudent, conscientious and diligent and have no behavior against any relevant laws, regulations and the Articles of Association, or impairing the interests of the Company and shareholders in business operation and management.

2. Authenticity of financial statements

Pricewaterhouse Zhongtian Certified Public Accountants has audited the annual financial statements in accordance with China Accounting Standard (2006) and issued standard auditing report without reserved opinions. The financial statements have truly and objectively reflected the Bank’s financial status and operation results.

3. Acquisition and sale of assets

During the reporting period, the Bank has not been involved in any significant purchase or sale of assets greater than 5% of the audited previous-year net assets.

4. Related-party transactions

During the reporting period, the related-party transactions of the Bank have been made in a fair and sound manner without impairing interests of shareholders and the Company.

5. Internal control

The Company has an integrated, sound and effective internal control. The Bank’s 2010 internal control self-assessment report has truly and completely reflected the Bank’s internal control current status and main aspects that need to be improved; the improvement plan is feasible in line with long-term needs of the Bank’s internal control.

6. Execution of resolutions of Shareholders’ Meeting

The Board of Supervisors has presented no disagreement on all reports and proposals submitted by the Board of Directors to the Shareholders’ General Meeting for review and approval during the reporting period. The Board of Supervisors has conducted supervision for the implementation of resolutions made by the Shareholders’ General Meeting, and deemed that the Board of Directors had diligently implemented relevant resolutions of the Shareholders’ General Meeting.

62 Significant Matters

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Section X Significant Matters

10.1 Significant Litigation and Arbitration

During the reporting period, there were no litigation or arbitration proceedings that might have significant impact on the operation of the Bank.

By December 31, 2010, there were in total 31 unfinished litigations or arbitrations where the Bank acted as the plaintiff and of which every single subject value under dispute amounted to more than 10.00 million Yuan, with a total amount of about 1.41 billion Yuan. There were in total 5 unfinished litigations or arbitrations where the Bank acted as the defendant and of which every single principle value under dispute amounted to more than 10.00 million Yuan, with a total amount of about 100 million Yuan. The Bank has booked the expected loss that might be caused by unfinished litigations where the Bank acted as the defendant into the balance sheet as anticipated liabilities.

10.2 Acquisitions & Sale of Assets and Merges & Acquisitions

10.2.1 ING-BoB Life Insurance Company

On April 28, 2010, China Insurance Regulatory Commission approved ING Capital Life Insurance Company to alter its share equity structure where 50% of its shares would be held by Bank of Beijing, and required that the proportions of foreign capital investment shall comply with related regulations within 6 months (CIRC International [2010] No.475).

On May 6, 2010, China Insurance Regulatory Commission approved ING Capital Life Insurance Company to change its name into “ING-BoB Life Insurance Company Limited” (CIRC International [2010] No.501). For detailed information, please refer to “the Announcement of Bank of Beijing on Changing the Name of ING Capital Life Insurance Company Limited” published on “China Securities”, “Shanghai Securities News”, “Securities Times”, “Securities Daily” and official website of Shanghai Stock Exchange www.sse.com.cn, on May 15th, 2010.

On July 1, 2010, Liaoning Provincial Administration of Industrial & Commerce ratified and issued the business license to ING-BoB Life Insurance Company Limited.

On July 13, 2010, Bank of Beijing and ING Insurance Company Limited increased 400 million Yuan investment in ING-BoB Life Insurance Company Limited, with 200 million from each.

10.2.2 Bank of Beijing Consumer Finance Company

On August 25, 2009, Bank of Beijing convened the 21st Meeting of the 3rd Board of Directors, on which “Proposal of Initiating BoB Consumer Finance Company” was passed to approve the initiating of BoB Consumer Finance Company with registered place in Beijing, China and the registered capital of 300 million Yuan, and Bank of Beijing holds 100% of its shares.

On January 6, 2010, China Banking Regulatory Commission issued “the Reply on Approving of Setting up BoB Consumer Finance Company by Bank of Beijing” (CBRC Reply [2010] No.4), which officially approved Bank of Beijing to set up BoB Consumer Finance Company.

On February 24, 2010, Bank of Beijing obtained “China Banking Regulatory Commission’ Reply on Approving the Opening of BoB Consumer Finance Company by Bank of Beijing” (CBRC Reply[2010]No. 93).

On March 1, 2010, BoB Consumer Finance Company was officially opened for business in Beijing.

63 Significant Matters

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For more detailed information, please refer to “the Announcement of Bank of Beijing on Obtaining the Regulators’ Approval of Setting up BoB Consumer Finance Company” and “the Announcement of Bank of Beijing on Obtaining the Regulators’ Approval of Opening BoB Consumer Finance Company for Business”, which were published on “China Securities”, “Shanghai Securities News”, “Securities Times”, “Securities Daily” and official website of Shanghai Stock Exchange www.sse.com.cn, on Jan. 8th, 2010 and Feb. 21st, 2010.

10.3 Significant Related-party Transactions

All of the related-party transactions were generated from normal operation activities; the conditions and interest rates of such transactions complied with general stipulations of the Bank’s business management and regulators, and were not preferential to those transactions for other common borrowers or counterparts.

During the reporting period, significant related-party transactions with an amount more than 30.00 million Yuan between the Bank and its related-parties are as follows:

10.3.1 Loans

(Unit: ‘000 Yuan)

Client 2010-end 2009-end +/- during the reporting period

Beijing State-owned Assets Management Co., Ltd. 400,000 400,000 0

Beijing Grain Group Co., Ltd. 60,000 120,000 -60,000

Beijing Huayuan Group 150,000 100,000 50,000

Beijing Huayuan Real Estate Co., Ltd 1,000,000 1,000,000 0

China Hengtian Group Co., Ltd 800,000 500,000 300,000

China Textile Machinery Co., Ltd 800,000 800,000 0

Total 3,210,000 2,920,000 290,000

10.3.2 Other business with related-parties

1. During the reporting period, the Bank increased capital investment in ING-BoB Life Insurance Company. By the end of the reporting period, ING-BoB Life Insurance Company had registered capital of 1.3 billion Yuan, 50% of which were held by Bank of Beijing. The transaction has been approved by China Insurance Regulatory Commission and business license were ratified by and obtained from industrial and commerce department.

2. During the reporting period, ING Bank N.V. and its branches continued to cooperate with the Bank on treasury business and trade finance. By the end of reporting period, ING Bank N.V. and its branches had 8.46 million Yuan outstanding treasury business and 1.46 billion Yuan off-balance sheet business with the Bank.

3. During the reporting period, the Bank sold products of ING-BoB Life Insurance Company, collecting insurance premium of 105 million Yuan as agent and realized fee income of 11.32 million Yuan.

4. By the end of reporting period, the Bank held medium term notes of Beijing State-owned Assets Management Co., Ltd., with an amount of 150 million Yuan in total.

5. During the reporting period, the Bank transferred credit assets of 360 million Yuan to Xi’an City Commercial Bank, whose balance at the end of reporting period was 135 million Yuan.

6. During the reporting period, the Bank conducted transactions with BoB Consumer Finance Company such as bond buy-back, bond trading etc. The Bank had 1605 reverse bond buy-back transactions with BoB Consumer Finance Company with a total

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amount of 15.95 billion Yuan, which were all settled by payment at sight of bond and bond delivery at sight of payment, and there was no balance by the end of the reporting period. The Bank purchased 464 bonds from BoB Consumer Finance Company with total amount of 4.94 billion Yuan, which were all settled by paying at sight of bond; sold 226 bonds to BoB Consumer Finance Company with a total amount of 4.99 billion Yuan, which were all settled by delivering bond at sight of payment; there were no balance of these bond transactions by the end of the reporting period.

10.4 Significant Contracts and Their Fulfillment

According to the application of Beijing State-owned Assets Management Co., Ltd., on July 27, 2010, the Bank issued Performance Letter of Guarantee with the beneficiary of CITIC Security Co., Ltd. and a maximum amount of 2.394 billion Yuan. By the end of the reporting period, the Performance Letter of Guarantee has expired.

10.5 Performance of Commitments by the Company or Shareholders Holding 5% or More Shares During the reporting period

10.5.1 Commitment of 3-years share lock-up

ING Bank N.V., Beijing State-owned Assets Management Co., Ltd., Beijing Energy Investment (Group) Co., Ltd. and International Finance Corporation (IFC), who hold more than 5% of the Company’s shares before the IPO, made the commitment that they would not transfer or entrust others to manage their shares of Bank of Beijing, nor let the Bank buy back such shares within 36 months after the IPO of the Bank. Those shareholders have fulfilled the commitment during the reporting period. On September 19, 2010, the above shareholders’ shares subject to selling restrictions were released for circulation.

10.5.2 Commitment of avoiding peer competition

Not applicable.

10.6 Employment & Repayment of Non-operation Funds by Controlling Shareholders or Affiliated Parties

Not applicable.

10.7 Non-operational external guarantee

Within the reporting period, the Bank has no such guarantee.

10.8 Appointment and Dismissal of Accounting Firms

During the reporting period, the Bank continued to engage PricewaterhouseCoopers Zhongtian Certified Public Accountants to serve as the auditing institution on the Bank’s annual report prepared by following China Accounting Standards. During the reporting period, the Bank had paid PricewaterhouseCoopers Zhongtian Certified Public Accountants the expenses on financial auditing in total 4.38 million Yuan.

PricewaterhouseCoopers Zhongtian Certified Public Accountants has been offering the Bank with auditing services under international standards for 4 years and auditing services under domestic accounting standards for 4 years.

65 Significant Matters

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10.9 Investigation of China Securities Regulatory Commission (CSRC), Administrative Punishment or Public Criticism from CSRC or Public Reprimand by Stock Changes That were Imposed on the Company, the Board of Directors and Board Members

During the reporting period, the Bank has no such above-mentioned events.

10.10 Index of the Bank’s Information Disclosure During the Reporting Period

Announcement Published No. Name Type Disclosed media date website “China Securities”, Announcement of Bank of Beijing on Obtaining Provisional “Shanghai Securities News”, www.sse. 1 the Regulators’ Approval of Setting up BoB 2010-1-8 announcement “Securities Times”, com.cn Consumer Finance Company “Securities Daily”

Announcement of Bank of Beijing on Obtaining Provisional 2 the Regulators’ Approval of Investing in ING 2010-2-5 As above As above announcement Capital Life Insurance Company

Announcement of Bank of Beijing on Releasing Provisional 3 Parts of Shares Subject to Selling Restrictions 2010-2-12 As above As above announcement For Circulation

Announcement of Bank of Beijing on Obtaining Provisional 4 the Regulators’ Approval of Opening BoB 2010-2-26 As above As above announcement Consumer Finance Company for business

Announcement of Bank of Beijing on Opening Provisional 5 2010-3-30 As above As above Nanjing Regional Branch announcement

Announcement on the Resolutions of Bank Provisional 6 of Beijing 27th Meeting of the 3rd Board of 2010-4-28 As above As above announcement Directors

Announcement on Related-party Transaction Provisional 7 2010-4-28 As above As above between Bank of Beijing and ING Bank N.V. announcement

Announcement on the Related-party Transaction Provisional 8 between Bank of Beijing and Beijing State- 2010-4-28 As above As above announcement owned Assets Management Co., Ltd.

Announcement on the Resolutions of Bank Provisional 9 of Beijing 17th Meeting of the 3rd Board of 2010-4-28 As above As above announcement Directors

10 Bank of Beijing Annual Report Regular report 2010-4-28 As above As above

11 Bank of Beijing Annual Report Summary Regular report 2010-4-28 As above As above

12 Bank of Beijing Q1Report Regular report 2010-4-28 As above As above

Notice of Bank of Beijing on Convening the Provisional 13 2010-5-6 As above As above Y2009 Shareholders’ Annual General Meeting announcement

Announcement of Bank of Beijing on Changing Provisional 14 the Name of ING Capital Life Insurance 2010-5-15 As above As above announcement Company

Documents of Bank of Beijing Y2009 Provisional 15 2010-5-20 - As above Shareholders’ Annual General Meeting announcement

Legal Opinion of Bank of Beijing Y2009 Provisional 16 2010-5-27 - As above Shareholders’ Annual General Meeting announcement

66 Significant Matters

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Announcement Published No. Name Type Disclosed media date website

“China Securities”, Announcement on Resolutions of Bank of Provisional “Shanghai Securities News”, www.sse. 17 Beijing Y2009 Shareholders’ Annual General 2010-5-27 announcement “Securities Times”, com.cn Meeting “Securities Daily”

Announcement on Related-party Transaction Provisional 18 2010-6-9 As above As above of Bank of Beijing and ING Bank N.V. announcement

Announcement on Related-party Transaction Provisional 19 2010-6-9 As above As above of Bank of Beijing and Beijing Huayuan Group announcement Announcement on Resolutions of Bank of Provisional 20 Beijing 28th Meeting of the 3rd Board of 2010-6-9 As above As above announcement Directors Announcement of Bank of Beijing on Execution Provisional 21 2010-7-14 As above As above of Y2009 Dividend Distribution announcement

Announcement on Resolutions of Bank of Beijing 29th Meeting of the 3rd Board of Provisional 22 2010-8-6 As above As above Directors & Convening Y2010 Shareholders’ announcement 1st Ad hoc Meeting

Announcement on Resolutions of Bank of Provisional 23 Beijing 18th Meeting of the 3rd Board of 2010-8-6 As above As above announcement Supervisors Documents of Bank of Beijing Y2010 Provisional 24 2010-8-21 - As above Shareholders’ 1st Ad hoc Meeting announcement

“China Securities”, Announcement of Bank of Beijing on Electing Provisional “Shanghai Securities News”, 25 Employees’ Representative Director of the 4th 2010-8-27 As above announcement “Securities Times”, Board of Directors “Securities Daily”

Legal Opinion of Bank of Beijing Y2010 Provisional 26 2010-8-27 - As above Shareholders’ 1st Ad hoc Meeting announcement

“China Securities”, Announcement on Resolutions of Bank of Provisional “Shanghai Securities News”, 27 Beijing Y2010 Shareholders’ 1st Ad hoc 2010-8-27 As above announcement “Securities Times”, Meeting “Securities Daily” Announcement of Bank of Beijing on Electing Provisional 28 Employees’ Representative Supervisor of the 2010-8-27 As above As above announcement 4th Board of Supervisors Announcement on Resolutions of Bank of Provisional 29 Beijing 1st Meeting of the 4th Board of 2010-8-30 As above As above announcement Supervisors Announcement on Resolutions of Bank of Provisional 30 2010-8-30 As above As above Beijing 1st Meeting of the 4th Board of Directors announcement

31 Bank of Beijing Mid-year Report Regular report 2010-8-30 As above As above

32 Bank of Beijing Mid-year Report Summary Regular report 2010-8-30 As above As above

Announcement of Bank of Beijing on Opening Provisional 33 2010-9-11 As above As above Jinan Regional Branch announcement Prompt Announcement of Bank of Beijing Provisional 34 on Releasing Shares Subject to Selling 2010-9-15 As above As above announcement Restrictions for Circulation Announcement of Bank of Beijing on Opening Provisional 35 2010-9-17 As above As above of Amsterdam Representative Office announcement

67 Significant Matters

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Announcement Published No. Name Type Disclosed media date website

“China Securities”, Announcement on Resolutions of Bank of Provisional “Shanghai Securities News”, www.sse. 36 2010-10-30 Beijing 2nd Meeting of the 4th Board of Directors announcement “Securities Times”, com.cn “Securities Daily”

37 Bank of Beijing Q3 Report Regular report 2010-10-30 As above As above

Bank of Beijing Rules Concerning the Provisional 38 2010-10-30 - As above Management of Insiders with Inside Information announcement

“China Securities”, Announcement on Related-party Transaction Provisional “Shanghai Securities News”, 39 between Bank of Beijing and China Hengtian 2010-10-30 As above announcement “Securities Times”, Group Co., ltd “Securities Daily”

Announcement of Bank of Beijing on Provisional 40 Obtaining the Regulators’ Approval of issuing 2010-12-15 As above As above announcement Subordinate Bonds Announcement on Resolutions of Bank of Provisional 41 2010-12-25 As above As above Beijing 3rd Meeting of the 4th Board of Directors announcement

Announcement of Bank of Beijing on Finishing Provisional 42 2010-12-25 As above As above the Issuing the 1st Phase of Subordinate Bonds announcement

68 Financial Statement / Documents for Inspection / Appendix

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Section XI Financial Statement

The Company’s annual financial statements, drafted according to China Accounting Standards, have been audited by PricewaterhouseCoopers Zhongtian Certified Public Accountants, who has issued standard auditing reports with unqualified opinion.

Section XII Documents for Inspection

12.1 The annual report text with the signatures of the Bank’s Directors and Senior Managers.

12.2 The accounting statements with the signatures and seals of the Bank’s legal representative and the person in charge of finance function.

12.3 The original of auditor’s report with the seal of the accounting firm and the signature and the seal of certified public accountant.

12.4 The original of the internal control auditing report with the seal of the accounting firm and the signature and the seal of certified public accountant.

12.5 The originals of all the documents text and announcements disclosed publicly by the Bank on China Securities, Shanghai Securities News, Securities Times and Securities Daily during the reporting period.

12.6 Articles of Association of the Bank.

Section XIII Appendix

Appendix: Bank of Beijing 2010 Annual Auditor’s Report and Financial Statements Notes

69 Validation Opinion

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Validation Opinion of the Board of Directors and the Senior Management on the 2010 Annual Report of Bank of Beijing Co., Ltd.

In accordance with relevant provisions in the Securities Law and the Code No.2 Concerning Contents and Formats of Information Disclosure by Companies Offering Securities to the Public (revised in 2007), we, as Directors and Senior Management of the Bank of Beijing Co., Ltd., are of the view that the information in the Bank’s 2010 Annual Report and its Summary is true, accurate and complete with no false records, misleading statements or major omissions. We warrant individual and joint responsibilities for the truthfulness, accuracy and completeness of the contents.

Yan Bingzhu Yan Xiaoyan Zhang Dongning

Ren Zhiqiang Xing Huanlou Zhang Zhengyu

Bachar Samra Zhang Jie

Ronald Scherpenhui Jsen Rom Zhang Huizhen

Michael Knight Ipson Wu Xiaoqiu

Li Baoren Shi Jianping Yu Ning

Zhao Rui’an Xu Ningyue Jiang Deyao

Yang Shujian Du Zhihong

70 Consolidated and Company Balance Sheets

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

BANK OF BEIJING CO., LTD.

FINANCIAL STATEMENTS AND REPORT OF THE AUDITORS FOR THE YEAR ENDED 31 DECEMBER 2010

[English translation for reference only. Should there be any inconsistencies between the Chinese and English versions, the Chinese version shall prevail.]

71 Consolidated and Company Balance Sheets

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Appendix

73 INDEPENDENT AUDITORS’ REPORT

74 CONSOLIDATED AND COMPANY BALANCE SHEETS

76 CONSOLIDATED AND COMPANY INCOME STATEMENTS

77 CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS

78 CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

82 NOTES TO THE FINANCIAL STATEMENTS

72 Independent auditors’ report

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Independent auditors’ report

[English translation for reference only]

PwC ZT Shen Zi (2011) No. 10051

To the shareholders of Bank of Beijing Co., Ltd.

We have audited the accompanying financial statements of Bank of Beijing Co., Ltd. (the “Bank”) and its subsidiaries which comprise the consolidated and company balance sheets as at 31 December 2009, the consolidated and company income statements, the consolidated and company cash flow statements, and the consolidated and company statements of changes in shareholders’ equity for the year then ended and notes to these financial statements.

Management’s responsibility for the financial statements

The management of the Bank is responsible for the preparation of these financial statements in accordance with the Accounting Standards for Business Enterprises. This responsibility includes: (1) designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances.

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 the China Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance 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 judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting polices used and the reasonableness of accounting estimates made by 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.

Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2010, and financial performance and cash flows for the year then ended in accordance with the Accounting Standards for Business Enterprises.

PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Shanghai, People’s Republic of China

8 April 2011

73 Consolidated and Company Balance Sheets

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CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2010

Consolidated The Bank ASSETS Note VII 31 December2010 31 December2009 31 December2010 31 December2009

Cash and deposits with central 1 104,196,879 68,132,832 104,157,532 68,111,042 bank

Due from banks and other 2 41,436,843 13,810,866 41,357,493 13,812,825 financial institutions

Placements with banks and 3 22,556,667 10,721,546 22,376,667 10,721,546 other financial institutions

Trading assets 4 16,717,668 11,515,704 16,668,828 11,515,704

Derivative financial instruments 5 26,598 18,615 26,598 18,615

Assets purchased under resale 6 65,114,658 42,746,679 65,114,658 42,746,679 agreements

Interest receivables 7 2,838,956 1,997,391 2,836,904 1,997,249

Loans and advances to 8 327,602,804 267,450,108 327,454,024 267,378,461 customers

Available-for-sale financial 9 78,388,297 63,595,865 78,388,297 63,595,865 assets

Held-to-maturity investments 10 64,108,097 44,723,620 64,108,097 44,723,620

Investment securities classified 11 4,676,937 4,315,942 4,676,937 4,315,942 as receivables

Long-term equity investments 12 1,177,555 310,821 1,487,555 320,821

Investment properties 13 232,099 243,800 232,099 243,800

Fixed assets 14 1,935,525 1,734,821 1,929,044 1,732,226

Deferred income tax assets 15 996,617 782,010 994,840 782,010

Other assets 16 1,204,304 1,368,698 1,196,811 1,361,887

TOTAL ASSETS 733,210,504 533,469,318 733,006,384 533,378,292

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer:

74 Consolidated and Company Balance Sheets

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

CONSOLIDATED AND COMPANY BALANCE SHEETS(CONT’D) AS AT 31 DECEMBER 2010

LIABILITIES AND Consolidated The Bank Note VII SHAREHOLDERS’ EQUITY 31 December2010 31 December2009 31 December2010 31 December2009

LIABILITIES:

Due to banks and other financial 17 55,085,270 25,528,500 55,122,930 25,573,099 institutions

Placements from banks 18 16,024,695 1,617,280 16,024,695 1,617,280

Derivative financial instruments 5 11,918 8,518 11,918 8,518

Assets sold under repurchase 19 39,741,750 3,500,000 39,741,750 3,500,000 agreements

Customer deposits 20 557,724,336 446,938,703 557,501,801 446,820,989

Salary and welfare payable 21 398,323 119,657 396,391 119,657

Taxes payable 22 237,914 346,632 236,909 346,533

Interest payable 23 3,463,003 2,368,479 3,462,649 2,368,353

Provisions 24 40,413 41,322 40,413 41,322

Bonds issued 25 16,470,737 13,468,821 16,470,737 13,468,821

Deferred tax liabilities 22 - - -

Other liabilities 26 1,445,239 1,953,635 1,445,169 1,953,482

TOTAL LIABILITIES 690,643,620 495,891,547 690,455,362 495,818,054

SHAREHOLDERS' EQUITY:

Share capital 27 6,227,562 6,227,562 6,227,562 6,227,562

Capital surplus 28 15,669,266 16,364,766 15,669,266 16,364,766

Surplus reserve 29 3,386,914 2,706,190 3,386,914 2,706,190

General reserve 30 4,962,087 3,645,489 4,962,087 3,645,489

Retained earnings 31 12,300,155 8,615,408 12,305,193 8,616,231

Capital and reserves attributable 42,545,984 37,559,415 to shareholders of the Bank

Minority interest 32 20,900 18,356

TOTAL SHAREHOLDERS’ 42,566,884 37,577,771 42,551,022 37,560,238 EQUITY

TOTAL LIABILITIES AND 733,210,504 533,469,318 733,006,384 533,378,292 SHAREHOLDERS’ EQUITY

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer:

75 Consolidated and Company Income Statements

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CONSOLIDATED AND COMPANY INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010

Consolidated The Bank Items Note VII 2010 2009 2010 2009

I. Operating Income

Interest income 34 23,540,141 17,429,597 23,522,438 17,427,294

Interest expense 34 (9,061,255) (6,475,675) (9,061,889) (6,475,600)

Net interest income 34 14,478,886 10,953,922 14,460,549 10,951,694

Fee and commission income 35 1,102,344 759,818 1,101,097 759,040

Fee and commission expense 35 (138,127) (109,714) (138,064) (109,650)

Net fee and commission income 35 964,217 650,104 963,033 649,390

Net gains on investments 36 117,690 372,981 117,114 372,736

Including: Investment income from associate and 24,021 43,247 24,021 43,247 joint venture

Net losses on fair value changes 37 (56,927) (290,392) (55,145) (290,392)

Exchange gains 42,202 121,065 42,202 121,065

Other operating income 38 89,158 86,425 89,091 86,425

II. Operating expenses

Business tax and surcharges 39 (1,087,645) (925,992) (1,086,605) (925,823)

General and administrative expenses 40 (4,738,206) (3,135,597) (4,718,155) (3,131,707)

Allowance for impairment losses 41 (1,188,597) (666,302) (1,187,552) (665,579)

Other operating expenses (11,701) (11,703) (11,701) (11,703)

III. Operating profit 8,609,077 7,154,511 8,612,831 7,156,106

Add: non-operating income 42 19,339 26,202 18,559 26,202

Less: non-operating expenses 43 (27,266) (18,473) (27,256) (18,473)

IV. Profit before tax 8,601,150 7,162,240 8,604,134 7,163,835

Less: Income tax expenses 44 (1,795,576) (1,529,444) (1,796,889) (1,529,444)

V. Net profit 6,805,574 5,632,796 6,807,245 5,634,391

Attributable to shareholders of the Bank 6,803,030 5,633,859

Minority interest 2,544 (1,063)

VI. Earnings per share (expressed in Rmb per share)

(i)Basic earnings per share 45 1.09 0.90

(ii)Diluted earnings per share 45 1.09 0.90

VII. Other comprehensive income 46 (695,500) (747,697) (695,500) (747,697)

VIII. Comprehensive income 6,110,074 4,885,099 6,111,745 4,886,694

Attributable to shareholders of the Bank 6,107,530 4,886,162

Minority interest 2,544 (1,063)

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer:

76 Consolidated and Company Cash Flow Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010

Consolidated The Bank Items Note VII 2010 2009 2010 2009 I. Cash flows from operating activities Net increase in customer deposits and due to banks 140,342,402 120,355,275 140,230,642 120,261,937 Net decrease in placements with banks and - 5,841,509 - 5,841,509 other financial institutions Net increase in placements from banks 50,649,165 - 50,649,165 - Net decrease in trading assets - 5,172,154 - 5,172,154 Interests received 18,251,113 13,830,771 18,235,318 13,828,610 Fee and commission received 1,102,344 759,818 1,101,097 759,040 Cash received from other operating activities 186,936 2,043,297 186,101 2,043,297 Sub-total of cash inflows 210,531,960 148,002,824 210,402,323 147,906,547 Net increase in loans and advances to customers (61,336,089) (80,444,246) (61,257,911) (80,371,876) Net increase in due from banks and other financial (45,025,650) (12,746,027) (45,015,039) (12,736,967) institutions and deposits with central bank Net decrease in placements with banks and other (50,445,577) - (50,265,577) - financial institutions Net decrease in placements from banks - (8,222,119) - (8,222,119) Net increase in trading assets (5,195,687) - (5,145,643) - Interests paid (7,455,266) (5,593,414) (7,456,127) (5,593,476) Fee and commission paid (138,127) (109,714) (138,064) (109,650) Cash paid to and for employees (1,910,705) (1,509,877) (1,905,295) (1,508,381) Tax payments (2,987,920) (3,048,155) (2,987,130) (3,048,082) Cash paid for other operating activities (2,193,700) (1,338,663) (2,182,752) (1,337,432) Sub-total of cash outflows (176,688,721) (113,012,215) (176,353,538) (112,927,983) Net cash generated from operating activities 47 33,843,239 34,990,609 34,048,785 34,978,564 II. Cash flows from investing activities Proceeds from disposals of investments 278,387,672 159,404,732 278,387,672 159,404,732 Cash received from investment income 4,226,076 3,500,519 4,226,076 3,500,275 Proceeds from sale of fixed assets and other long 1,041 1,690 1,041 1,690 term assets Sub-total of cash inflows 282,614,789 162,906,941 282,614,789 162,906,697 Purchases of investments (314,510,005) (189,862,843) (314,510,005) (189,862,843) Increase in investment in subsidiaries, associates (881,800) (49,623) (1,181,800) (49,623) and joint ventures Purchases of fixed assets and other long-term assets (885,581) (736,358) (879,382) (733,365) Sub-total of cash outflows (316,277,386) (190,648,824) (316,571,187) (190,645,831) Net cash generated from investing activities (33,662,597) (27,741,883) (33,956,398) (27,739,134) III. Cash flows from financing activities Proceeds from issuance of debt securities 6,493,500 - 6,493,500 - Sub-total of cash inflows 6,493,500 - 6,493,500 - Repayments for debt issued (3,500,000) - (3,500,000) - Interests paid on debt securities (503,050) (644,800) (503,050) (644,800) Dividends paid (1,118,245) (1,105,519) (1,118,245) (1,105,519) Sub-total of cash outflows (5,121,295) (1,750,319) (5,121,295) (1,750,319) Net cash generated from financing activities 1,372,205 (1,750,319) 1,372,205 (1,750,319) IV. Effect of exchange rate changes on cash and (82,222) 38,483 (82,222) 38,483 cash equivalents V. Net increase in cash and cash equivalents 47 1,470,625 5,536,890 1,382,370 5,527,594 Add: cash and cash equivalents at beginning of year 79,290,071 73,753,181 79,279,371 73,751,777 VI. Cash and cash equivalents at end of year 47 80,760,696 79,290,071 80,661,741 79,279,371

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer: 77 Consolidated Statement of Changes in Shareholders’ Equity

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010

Capital and reserves attributable to shareholders of the Bank

Share Capital Surplus General Retained Minority Note VII Total capital surplus reserve reserve earnings interest I. Balance as at 31 6,227,562 16,364,766 2,706,190 3,645,489 8,615,408 18,356 37,577,771 December 2009

Add: changes in accounting ------policies

corrections of previous ------errors

II. Balance at 1 January 2010 6,227,562 16,364,766 2,706,190 3,645,489 8,615,408 18,356 37,577,771

III. Net changes for the year

(1) Net profit for the year - - - - 6,803,030 2,544 6,805,574

(2) Other comprehensive income

a. reserves for fair value changes of available-for- sale financial assets

(i) recognised in 46 - (610,406) - - - - (610,406) shareholders’ equity

(ii) transferred to the income 46 - (264,860) - - - - (264,860) statement b. share of other comprehensive income of 46 - (39,051) - - - - (39,051) associate and joint ventures under equity method

c. related tax impact 15 - 218,817 - - - - 218,817

Sub-total of above (1) and - (695,500) - - 6,803,030 2,544 6,110,074 (2)

(3) Profit distribution

a. appropriation to statutory 29 - - 680,724 - (680,724) - - surplus reserve

b. appropriation to general 30 - - - 1,316,598 (1,316,598) - - reserve

c. cash dividends 33 - - - - (1,120,961) - (1,120,961)

IV. Balance as at 31 6,227,562 15,669,266 3,386,914 4,962,087 12,300,155 20,900 42,566,884 December 2010

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer:

78 Consolidated Statement of Changes in Shareholders’ Equity

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009

Capital and reserves attributable to shareholders of the Bank

Share Capital Surplus General Retained Minority Note VII Total capital surplus reserve reserve earnings interest I. Balance as at 31 6,227,562 17,112,463 2,142,751 2,978,000 5,333,438 19,419 33,813,633 December 2008

Add: changes in accounting ------policies

corrections of previous ------errors

II. Balance at 1 January 2009 6,227,562 17,112,463 2,142,751 2,978,000 5,333,438 19,419 33,813,633

III. Net changes for the year

(1) Net profit for the year - - - - 5,633,859 (1,063) 5,632,796

(2) Other comprehensive income

a. reserves for fair value changes of available-for- sale financial assets

(i) recognised in 46 - (632,794) - - - - (632,794) shareholders’ equity

(ii) transferred to the income 46 - (371,734) - - - - (371,734) statement b. share of other comprehensive income of 46 - 194 - - - - 194 associate and joint ventures under equity method

c. related tax impact 15 - 256,637 - - - - 256,637

Sub-total of above (1) and - (747,697) - - 5,633,859 (1,063) 4,885,099 (2)

(3) Profit distribution

a. appropriation to statutory 29 - - 563,439 - (563,439) - - surplus reserve

b. appropriation to general 30 - - - 667,489 (667,489) - - reserve

c. cash dividends 33 - - - - (1,120,961) - (1,120,961)

IV. Balance as at 31 6,227,562 16,364,766 2,706,190 3,645,489 8,615,408 18,356 37,577,771 December 2009

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer:

79 Company Statement of Changes in Shareholders’ Equity

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COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010

Share Capital Surplus General Retained Note VII Total capital surplus reserve reserve earnings

I. Balance as at 31 December 2009

Add: changes in accounting policies 6,227,562 16,364,766 2,706,190 3,645,489 8,616,231 37,560,238

corrections of previous errors ------

II. Balance at 1 January 2010 6,227,562 16,364,766 2,706,190 3,645,489 8,616,231 37,560,238

III. Net changes for the year

(1) Net profit for the year - - - - 6,807,245 6,807,245

(2) Other comprehensive income

a. reserve for fair value changes of available-for-sale financial assets

(i) recognised in shareholders’ equity 46 - (610,406) - - - (610,406)

(ii) transferred to the income 46 - (264,860) - - - (264,860) statement

b. share of other comprehensive income of associate and joint 46 - (39,051) - - - (39,051) ventures under equity method

c. related tax impact 15 - 218,817 - - - 218,817

Sub-total of above (1) and (2) - (695,500) - - 6,807,245 6,111,745

(3) Profit distribution

a. appropriation to statutory surplus 29 - - 680,724 - (680,724) - reserve

b. appropriation to general reserve 30 - - - 1,316,598 (1,316,598) -

c. cash dividends 33 - - - - (1,120,961) (1,120,961)

IV. Balance as at 31 December 2010 6,227,562 15,669,266 3,386,914 4,962,087 12,305,193 42,551,022

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer:

80 Company Statement of Changes in Shareholders’ Equity

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009

Share Capital Surplus General Retained Note VII Total capital surplus reserve reserve earnings

I. Balance as at 31 December 2008 6,227,562 17,112,463 2,142,751 2,978,000 5,333,729 33,794,505

Add: changes in accounting policies ------

corrections of previous errors ------

II. Balance at 1 January 2009 6,227,562 17,112,463 2,142,751 2,978,000 5,333,729 33,794,505

III. Net changes for the year

(1) Net profit for the year - - - - 5,634,391 5,634,391

(2) Other comprehensive income

a. reserve for fair value changes of available-for-sale financial assets

(i) recognised in shareholders’ equity 46 - (632,794) - - - (632,794)

(ii) transferred to the income 46 - (371,734) - - - (371,734) statement

b. share of other comprehensive income of associate and joint 46 - 194 - - - 194 ventures under equity method

c. related tax impact 15 - 256,637 - - - 256,637

Sub-total of above (1) and (2) - (747,697) - - 5,634,391 4,886,694

(3) Profit distribution

a. appropriation to statutory surplus 29 - - 563,439 - (563,439) - reserve

b. appropriation to general reserve 30 - - - 667,489 (667,489) -

c. cash dividends 33 - - - - (1,120,961) (1,120,961)

IV. Balance as at 31 December 2009 6,227,562 16,364,766 2,706,190 3,645,489 8,616,231 37,560,238

Notes to the financial statements are an integral part of these financial statements.

Legal representative, Chairman of the Board: President: Chief Financial Officer:

81 Notes to the Financial Statements

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NOTES TO THE FINANCIAL STATEMENTS

I GENERAL INFORMATION

Bank of Beijing Co., Ltd. (the “Bank”) was established in Beijing, the People’s Republic of China (the “PRC”) as approved by the People’s Bank of China (“PBOC”) on 28 December 1995, originally known as Beijing Urban Cooperative Bank. On 28 September 2004, the Bank was renamed as Bank of Beijing Co., Ltd. with the approval from the China Banking Regulatory Commission (“CBRC”) Beijing Bureau. The Bank is licensed to operate in Beijing as a financial institution by the CBRC license number B0107H211000001; and is registered as a business enterprise with the Beijing Branch of the State Administration of Industry and Commerce with the business registration number 110000005064399. The registered address is first floor of A17, Financial Street, Xicheng District, Beijing.

On 19 September 2007, the Bank issued ordinary shares and was listed on the Shanghai Stock Exchange.

As at 31 December 2010, the Bank has established 190 branches and sub-branches in Beijing, Tianjin, Shanghai, etc and 2 representative offices in Hong Kong and Amsterdam, Netherland.

The Bank and its subsidiaries (together “the Group”) provide a full range of financial services, including corporate banking, personal banking, treasury operations and others.

The financial statements have been approved by the Board of Directors on 8 April 2011.

II BASIS OF PREPARATION

The financial statements comply with the Accounting Standards for Business Enterprises General Standards and the 38 specific accounting standards issued by the Ministry of Finance (hereinafter referred to as “ASBE”) on 15 February 2006, the implementation guidance on and interpretations of the Accounting Standards for Business Enterprises and other relevant rules and regulations subsequently released (hereinafter collectively referred to as “CAS”), and Preparation Conventions of Information Disclosure by Public Offering Company No. 15 - General Rules for Financial Reporting (2010 revised) issued by China Securities Regulatory Commission (hereinafter referred to as “CSRC”).

III STATEMENT OF COMPLIANCE WITH CAS

The consolidated and company financial statements for the year ended 31 December 2010 prepared by the Bank comply with CAS, and present fairly and completely the financial position of the Group and the Bank as at 31 December 2010, the financial performance, cash flows and other relevant information of the Group and the Bank for the year then ended.

IV SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

(I) Significant accounting policies

1 Accounting period

The Group’s accounting year starts on 1 January and ends on 31 December.

2 Recording currency

The recording currency is Renminbi (hereinafter referred to as “Rmb”).

82 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

3 Preparation of consolidated financial statements

The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries.

The subsidiaries are fully consolidated from the date on which the Bank obtains control and is de-consolidated from the date when such control ceases.

The financial statements of the subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Bank during the preparation of the consolidated financial statements, where there are inconsistencies in the accounting policies and accounting periods.

All significant inter-bank balances, transactions and unrealised profits are eliminated in the consolidated financial statements. The portion of a subsidiary’s equity and the portion of a subsidiary’s net profits and losses for the year not attributable to the Bank are recognised as minority interest and presented separately in the equity of the consolidated balance sheet and net profit.

4 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held at call with banks, short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

5 Foreign currency transactions

Foreign currency transactions are translated into Rmb using the exchange rates prevailing at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the financial reporting date are translated at the foreign exchange rates ruling at that date. Translation differences on monetary assets and liabilities, except monetary securities classified as available for sale, are recognised in the income statement. Translation differences of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in the income statement, and other changes in the carrying amount are recognised in reserves of changes in the fair value of available-for-sale financial assets in equity.

Non-monetary assets and liabilities that are measured at historical cost in foreign currencies are translated into Rmb using the foreign exchange rates at the date of the transaction. Non-monetary assets and liabilities that are measured at fair value in foreign currencies are translated using the foreign exchange rates at the date the fair value is determined. Translation differences on non- monetary financial assets classified as available-for-sale are recorded in the available-for-sale reserve in capital reserve. Translation differences on non-monetary financial assets and liabilities held at fair value through profit or loss are recognised as “gains or losses on fair value changes” in the income statement.

6 Financial assets

(1) Classification of financial assets

Financial assets are classified into the following categories at initial recognition: financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets and held-to-maturity investments. The classification of financial assets depends on the Group’s intention and ability to hold the financial assets.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in the short term, which are presented as trading assets on the balance sheet.

83 Notes to the Financial Statements

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Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, including deposits with central bank, due from banks and other financial institutions, placements with banks and other financial institutions, assets purchased under resale agreements, loans and advances to customers, investment receivables and part of other receivables.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable payments that management has the positive intention and ability to hold to maturity.

Other than in specific circumstances (e.g. sale of an insignificant amount of held-to-maturity securities at a time close to maturity), if the Group fails to hold these securities to maturity or reclassifies some of the securities to available-for-sale financial assets, the Group shall have to reclassify any of the remaining securities as available-for-sale financial assets, and measure them at fair value rather than amortized cost. After this reclassification, the Group shall not reclassify financial assets as held-to-maturity in the current period and the following two full accounting years.

(2) Recognition and measurement

Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. Regular-way purchases and sales of financial assets are recognised or derecognised on trade date. In the case of financial assets at fair value through profit or loss, the related transaction costs occurred at the time of acquisition are recognised in profit or loss for the current period. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initial recognition amounts.

Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Loans and receivables and held-to-maturity investments are measured and subsequently measured at amortised cost using the effective interest method.

A gain or loss arising from a change in the fair value of financial assets at fair value through profit or loss is recognised as “gains or losses on fair value changes” in the income statement. Interests and cash dividends received during the period in which such financial assets are held, as well as the gains or losses arising from the disposal of the assets are recognised as “gains or losses on investments” in the income statement.

A gain or loss arising from a change in fair value of an available-for-sale financial asset is recognised directly in capital surplus, except for impairment losses and foreign exchange gains or losses arising from the foreign translation of monetary financial assets. When such financial asset is derecognised, the cumulative gains or losses previously recognised in equity are recognised in profit or loss for the current period. Interests on available-for-sale financial assets in debt instruments are calculated using the effective interest rate method during the period in which such investments are held are recognised as “interest income” in the income statement and cash dividends declared by the investees on available-for-sale financial assets in equity instruments are recognised as “gains or losses on investments” in the income statement.

7 Offsetting financial instruments

Financial assets and liabilities are offset against each other and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously.

84 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

8 Impairment of financial assets

The Group reviews the carrying amount of all financial assets on each balance sheet date except for financial assets at fair value through profit or loss, and the allowance shall be made if there is objective evidence states impairment incurred.

The objective evidences used by the Group to recognise whether impairment exists are as follows:

- Significant financial difficulty of the issuer or obligor;

- A breach of contract, such as a default or delinquency in interest or principal payments;

- The creditors granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider;

- It becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;

- The disappearance of an active market for that financial asset because of financial difficulties;

- Historical experience or observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including the payment ability of the borrowers of a group of financial assets deteriorate gradually, the unemployment rate of the borrowers’ countries or regions increases, the price of guaranties drops significantly in the region, or the borrowers are in depressed industries;

- Any significant change with an adverse effect that has taken place in the technological, market, economic or legal environment in which the issuer operates and indicates that the cost of the investment in the equity instrument may not be recovered;

- Significant or prolonged decline in the fair value of the equity instrument investment; or

- Other objective evidences indicating impairment of the financial asset.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If the Group determines that objective evidence of impairment exists for an individually assessed financial asset, the financial assets that are individually significant will be recognised in the profit or loss as “impairment losses”. For financial assets that are not individually significant or that have no objective evidence of impairment after the individual assessment, the Group includes the assets in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

(1) Assets carried at amortised costs

If an impairment loss has been incurred on financial assets carried at amortised cost, 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 (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate and recognised as “allowance for impairment losses” in the income statement. Original effective interest rate is the effective interest rate computed at initial recognition. For financial asset with a variable interest rate, the discount rate for measuring future cash flows is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

For the purposes of a collective assessment of impairment, financial assets are grouped on the basis of similar and relevant credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

85 Notes to the Financial Statements

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Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the 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 effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets have reflected and are directionally consistent with changes in related observable data from period to period. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

When a loan is uncollectible, it is written off against the related allowance for impairment after all the necessary procedures have been completed. Subsequent recoveries of amounts previously written off decrease the amount of “allowance for impairment losses” in the income statement.

If, in a subsequent period, the amount of the impairment losses decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement of credit rating of the debtor), the previously recognised impairment loss is reversed and recognised as “allowance for impairment losses” in the income statement. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed.

(2) Available-for-sale financial assets

If there is objective evidence that the available-for-sale financial assets occur impairment, the accumulative losses arising from the decrease of the fair value, which was originally directly included the shareholders’ equity, shall be transferred into income statement as impairment losses. The cumulative losses are measured as the net value after the initial recognition cost less collected principal, amortised amount, current fair value and allowance which are originally recorded in the profit or loss.

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement and recognised as “allowance for impairment losses”.

With respect to equity instruments, impairment losses recognised in profit or loss are subsequently reversed through equity, rather than through profit or loss. If there is objective evidence that an impairment loss has been incurred on an unquoted equity investment that is not carried at fair value because its fair value cannot be reliably measured, the impairment loss should not be reversed.

9 De-recognition of financial assets

The financial assets are derecognised when one of the following criteria is met: (1) the contractual rights to receive the cash flows from the financial assets have expired; (2) the financial assets have been transferred, and all substantial risks and rewards of ownership of the financial assets have been transferred; (3) the Group gives up the control over the financial assets, although it neither transfers nor retains substantially all risks and rewards of ownership of the financial assets.

When the financial assets are derecognised, the difference between the book value and consideration and the accumulated fair value change accounted in equity, is recognised in profit or loss for the current period.

10 Determination of fair value for financial instruments

If there is an active market for financial instruments, the quoted market prices in the active market shall be used to determine the fair value. If there is no active market for financial instruments, the Group determines the fair value using a valuation technique. The valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same and discounted cash flow analysis. The Group uses observable data except for certain factors directly related with the Group in the valuation models if actual operation permits.

11 Derivative financial instruments and embedded derivatives

Derivative financial instruments include forward contracts, financial futures contracts, financial swaps and options, as well as compound instruments which have one or more characteristics of the above financial instruments. A derivative financial instrument

86 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

has all of the following characteristics:

- Its value changes in response to the changes in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable;

- It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in those market factors; and

- It is settled at a future date.

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re- measured at their fair values. The gains or losses from the valuation of the financial instruments as a result of the fluctuation of their fair value are recorded in the income statement of the current period, and reflected in the balance sheet as derivative financial instrument assets or derivative financial instrument liabilities.

An embedded derivative financial instrument is a derivative financial instrument embedded in a non-derivative host contract (the “host contract”), and the derivative financial instrument causes some or all of the cash flows that otherwise would be required by the contract to be modified, according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, such as the conversion option for the holder of a convertible bond.

If a contract contains embedded derivatives but the entire hybrid contract is not designated as a financial asset or financial liability at fair value through profit or loss, the Group separates embedded derivatives from the host contract and accounts for these as derivatives, if, and only if:

(i) The economic characteristics and risks of the embedded derivative are not closely related to those of the host contract

(ii) A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative

If those embedded derivatives separated from the host contract, but are unable to measure separately either at acquisition or at a subsequent financial reporting date, the Group designate the entire hybrid contract as at fair value through profit or loss.

After an embedded derivative is separated from its host contract, the host contract, if it is a financial instrument, shall be accounted for as a financial asset or financial liability where appropriate.

12 Resale and repurchase agreements

Assets purchased under resale agreements are bonds, loans and bills purchased by the Group at certain price from the sellers under agreements with commitment to resell these items to the original sellers in the future at predetermined prices. Assets sold under repurchase agreements refer to bonds, loans and bills sold by the Bank at certain prices under agreements with commitment to buy back the items in the future at predetermined prices.

Assets purchased under resale agreements and assets sold under repurchase agreements are recognised at actual amount paid or received, and recorded as “assets purchased under resale agreements” and “assets sold under repurchase agreements” respectively, at transaction dates. Securities, loans and bill purchased under resale agreements are not recognised on the balance sheet. The assets sold subject to repurchase agreements are not derecognised and are recorded on the balance sheet as investment securities and loans and advances to customers.

13 Long-term equity investments

Long-term equity investments of the Bank include long-term equity investments to subsidiary, joint venture associate and other investments where the Bank does not have control, joint control or significant influence over the investees, and which are not quoted in an active market and whose fair value cannot be reliably measured.

Subsidiary is the entity over which the Bank has control. Joint ventures is the entity which the Bank has a contractual arrangement with one or more parties to joint control. Associate is the entity which the Bank has significant influence on its financial and

87 Notes to the Financial Statements

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operating policy decisions.

Investment in the subsidiary is measured using the cost method in the Bank’s financial statements, and adjusted using the equity method when preparing the consolidated financial statements. The Bank uses the equity method for accounting investment in associate and joint venture. For the long-term equity investments which the Bank does not exercise control, joint control or significant influences over the investees, and which are not quoted in the active market and whose fair value cannot be reliably measured are accounted for using the cost method.

(a) Initial recognition and subsequent measurement

Under the cost method, long-term equity investment is measured at its initial investment cost. Cash dividends or profit distributions declared by the investee shall be recognised as investment income in current period.

Under the equity method, if the initial investment cost exceeds the Group’s interest in the fair value of the investee’s identifiable net assets, the initial investment cost of the long-term equity investment shall not be adjusted. Where the initial cost of a long-term equity investment is less than the Bank’s interest in the fair value of the investee’s identifiable net assets, the difference is charged to profit or loss for the current period and the cost of the long-term equity investment is adjusted accordingly. The Group recognises the investment income based on its share of net profit or loss of the investee and makes appropriate adjustments to the share of the investee’s profits or loss based on the identifiable net assets at acquisition. The investee’s net loss incurred is recognized until the carrying amount of the long-term equity investment is reduced to zero.For changes in owners’ equity of the associate other than those arising from its net profit or loss, the Bank records directly in capital surplus its proportion. The carrying amount of the investment is reduced by the Group’s share of the profit or cash dividends declared by the associate.

(b) Basis to determine “Control”, “Joint Control” or “Significant Influence”

Control is the power to govern the financial and operating polices of an enterprise so as to obtain benefits from its activities. The potential voting rights including currently exercisable convertible bonds and share warrants are considered when assessing whether an entity controls another entity.

Joint Control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing the control.

Significant Influence is the power to participate in the financial and operating policy decisions of the investee but is not Control or Joint Control together with other parties over the formulation of these policies.

(c) Impairment of long-term equity investment

For long-term equity investment in subsidiary, joint venture, and associated, the carrying amount is reduced to its recoverable amount when the recoverable amount is lower than the carrying amount, The recoverable amount is the higher of fair value of long- term equity investment less costs to sell and the present value of the future cash flows expected to be derived from the investments. For the impairment of long-term equity instruments that are not quoted in an active market or whose fair value cannot be reliably measured, the impairment amount is the difference between the carrying value and the estimated future cash flow which was calculated by the similar market yield rate. The recognised impairment loss cannot be reversed.

The Bank’s investment in joint venture includes goodwill which represents the excess of the cost of acquisition over fair value of the Group’s share of the identifiable net assets acquired. Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill is allocated to each cash-generating unit or groups of cash-generating units, which are expected to benefit from the synergies of the combination. If the result of impairment testing indicated that the recoverable amount of the unit or groups of units including goodwill allocated is below than the carrying value, the impairment loss should be recognised.

14 Investment properties

Investment properties refer to the real estates that have already been rented or held for renting, are initially measured at its cost. Subsequent expenditures incurred for investment properties are included in the cost of the investment properties when meeting the recognition criteria for assets such as the economic benefits relating to the investment properties are likely to flow into the Group and

88 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

the expenditures can be reliably measured, otherwise the expenditures are included in the income statement in the period in which they are incurred.

Investment properties are subsequently measured using the cost model, and are depreciated on a straight line basis to the estimated net residual rate over their estimated useful life. The expected useful life ranges from 20 to 30 years, and estimated net residual rate is 5%.

The estimated useful life, the estimated net residual value and the depreciation method applied to the investment properties are reviewed and adjusted as appropriate at least at each balance sheet date.

When the recoverable value of the investment properties is lower than the carrying value, the carrying value is deducted to the recoverable value.

15 Fixed assets

(1) Recognition and initial measurement of fixed assets

Fixed assets include buildings, office equipments and motor vehicles.

The fixed assets are recognised when it is probable that the economic benefits associated with the fixed assets will flow to the Group and its cost can be reliably measured. Fixed assets purchased or newly constructed are initially measured at cost.

Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when it is probable that the economic benefits associated with the fixed asset will flow to the Group and its cost can be reliably measured. All the other subsequent expenditures are recognised in the income statement in the period in which they are incurred.

(2) Depreciation of fixed assets

Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For fixed assets being provided for impairment losses, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.

The expected useful life of fixed assets, the net residual rate and depreciation rate are as follows:

Estimated useful life Estimated net residual rate Annual depreciation rate

Buildings 20-30 years 5% 3.17% to 4.75%

Office equipment 5-10 years 5% 9.50% to 19.0%

Motor vehicles 5 years 5% 19%

The estimated useful life, the estimated net residual value and the depreciation method applied to the fixed asset are reviewed and adjusted as appropriate at each balance sheet date.

A fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in income statement in “non-operating income” or “non-operating expense”.

The book value of fixed asset is written down to recoverable amount when the recoverable amount is lower than the carrying amount.

(3) Construction in progress

Construction in progress is stated at cost. The cost comprises construction cost, installation cost, interest expenses from financing and other costs which make the project ready for use.

Construction in progress is transferred to fixed assets when it is ready for the intended use, and the depreciation will be provided for

89 Notes to the Financial Statements

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from the following month.

The book value of construction in progress is written down to the recoverable amount when the recoverable amount is lower than the carrying amount.

16 Long-term prepaid expenses

Long-term prepaid expenses include improvements of operating leased fixed assets, expenditures which have been paid and with an amortisation life of more than one year. They are amortised evenly on the straight-line basis over the beneficiary period, and carried at expenditure paid less amortisation.

17 Foreclosed assets

Foreclosed assets are initially recognised at fair value when settling loans and receivables or interest receivables. Transaction costs that are attributable to the acquisition of foreclosed assets are included in their initial recognition amounts. When there is an indication that the recoverable amount of a foreclose asset is lower than the book value, the Group writes down the book value to its recoverable amount.

18 Impairment of non-financial assets

The Group tests for impairment on fixed assets, construction in progress, investment properties, etc, when any impairment indicator exists at balance sheet date. When the result of the impairment test indicates that the recoverable amount of the asset is lower than the carrying amount, the difference is included in income statement as impairment loss. The recoverable amount of an asset is the higher of its fair value less costs to sell and the present value of the future cash flows expected to be derived from the assets. Impairment of assets is determined on an individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows.

Once an impairment loss is recognised, it shall not be reversed in the subsequent periods.

19 Financial liabilities

Financial liabilities are classified into two categories when acquired: financial liabilities at fair value through profit or loss and other financial liabilities.

-financial liabilities at fair value through profit or loss include financial liabilities held for trading, and the designated at fair value through profit or loss at inception. Derivative financial liabilities are classified as trading financial liabilities. These financial liabilities are initially recognised at fair value on the transaction date and subsequently measured at fair value as well. Transaction expenses are recognised in income statement on transaction date. The profit or loss attributed by fair value changes (except accrued interest expense) is recorded in “Gains or losses on fair value changes” in the income statement. The accrued interest is recorded in “Interest expense” in income statement.

-Other financial liabilities including due to banks and other financial institutions, placements from other banks, assets sold under repurchase agreements, customer deposits, debt securities in issue etc. These financial liabilities are initially recognised at fair value net of transaction expense that are directly attributable to acquisition of financial liabilities, and subsequently measured at amortised cost using the effective interest rate method.

The Group fully or partially derecognises the financial liabilities when the obligations are fully or partially released. The difference between the carrying value and the consideration paid is recorded into income statement.

20 Employee benefits

(1) Employee compensation

Employee compensation mainly includes wages or salaries, bonuses, allowances and subsidies, staff welfare, social security benefits, housing funds, labour union funds, employee education funds and other expenditures incurred in exchange for services rendered by employees.

90 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

Employee compensation is recognised in “general and administrative expenses” in the income statement in the accounting period in which an employee has rendered service.

(2) Staff social security benefits

The Group participates in employee social security plans, including pension, medical, housing and other social welfare benefits, organised and administered by the government authorities.

In accordance with relevant regulations and contracts, the premiums and the housing benefits contributions are calculated based on percentages of the total salary of employees, subject to certain ceilings, and are paid to the human resources and social security authorities, the related costs are recognised as “general and administrative expenses” in income statement when incurred.

(3) Retirement benefit obligations

The Group pays supplemental retirement benefits to retired employees and employees who have accepted an early retirement arrangement. The supplemental retirement benefits include supplemental pension payments and medical expense coverage.

The liability related to the above retirement benefit obligation is calculated by using assumptions and recorded as a liability under “salary and welfare payable” in the balance sheet. These assumptions include discount rates, pension benefit inflation rates, medical benefit inflation rates, and other factors. Actual results that differ from the assumptions are recognised as “general and administrative expenses” in income statement.

21 Dividends distribution

The cash dividends are recognised as liability as per the resolution of the meeting of the Board of Directors.

22 Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax base of assets and liabilities and their carrying amount (temporary differences). The deductible losses that can be carried forward to deduct the taxable profit in subsequent years in accordance with the tax law are regarded as the temporary difference and for which a deferred tax asset is recognised. For the deductible temporary differences arising from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither accounting profit nor taxable profit (or deductible loss), the resulting deferred tax assets and deferred tax liabilities are not recognised. At the balance sheet date, deferred tax assets and deferred 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.

Deferred tax assets are recognised for deductible temporary differences and deductible losses and tax credits to the extent that it is probable that the Group’s future taxable profit will be available against which the deductible temporary differences, deductible losses and tax credits can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences in all cases unless that the Group is able to control the timing of reversal of the taxable temporary differences associated with investments in subsidiary, joint venture and associate, and it is probable that the temporary differences will not reverse in the foreseeable future. When it is probable that the deductible temporary differences associated with investments in subsidiary, joint venture and associate will reverse in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilised, the corresponding deferred tax assets are recognised.

Deferred tax assets and deferred tax liabilities are presented as the net amount after offsetting if, and only if, certain conditions are satisfied include:

-Deferred tax assets and deferred tax liabilities is associated with the income tax that collected from the same tax payers in the Group by the same tax collection authorities;

-The Group has a legally enforceable right to set off current tax assets against current tax liabilities.

91 Notes to the Financial Statements

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23 Leases

Leases where the Group has transferred substantially all the risks and rewards of ownership are classified as finance leases. All leases other than finance leases are classified as operating leases.

(a) Operating lease

The rental expense for operating leases is charged in “General administrative expenses” in the income statement on a straight-line basis over the period of the lease.

(b) Finance lease

The leased assets are capitalised initially at the fair value of the asset or, if lower, the present value of the minimum lease payments. The difference between the book value and the minimum lease payments is recorded as unrecognised financing charge, and should be amortised to each period during the lease term, by using an interest rate which reflects a constant rate of return. The difference between the minimum payments and the unrecognised financing charge is recorded as long term payables.

24 Provision

A present obligation related to contingencies such as outstanding litigation and onerous contracts is recognised as provision when it is probable that an outflow of economic benefits will be required to settle the obligation and the amount of the obligation can be measured reliably.

Provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors surrounding a contingency such as the risks, uncertainties and the time value of money shall be taken into account as a whole in reaching the best estimate of an allowance for impairment losses.

The carrying amount of provision is reviewed at each balance sheet date and adjusted to reflect the current best estimation.

25 Interest income and expenses

Interest income and expenses for all interest-bearing financial instruments, except derivatives, are recognised within “interest income” and “interest expense” in income statement using the effective interest method. Interest income and expense for derivatives is recognised as “gains or losses on investments” in income statement.

The effective interest rate method is a method for calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all amount paid or received by the Group that are an integral part of effective interest rate, including transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss

26 Fees and commission income and expenses

Fees and commission income and expenses are generally recognised on an accrual basis when the service has been provided.

27 Fiduciary activities

The Group commonly acts as a trustee, which results in its holding or placing assets on behalf of retail customers, trusts and other institutions. These assets are not included in the statement of financial position of the Group, as they are not assets of the Group.

Entrusted loans are those funded by Group’s customers (the principals) who also assume the risks of the loans, and disbursed by the Group as the agent (the trustee) in accordance with the conditions specified by the principals with regard to the potential borrowers, purposes, amounts, tenors and interest rates and collected by the Group. The risk of loss is borne by the principals.

92 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

The Group charges a commission related to its activities in connection with the entrusted loans, but not make advances or bear credit risks.

28 Financial guarantee contracts

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies to secure customer loans, overdrafts and other banking facilities.

Financial guarantees are initially recognised at fair value on the date the guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial measurement less amortization calculated and the best estimate of the expenditure required to settle any financial obligation arising at the financial reporting date. Any increase in the liability relating to guarantees is taken to the income statement. These estimates are determined based on experience of similar transactions, historical losses and by the judgment of management.

29 Contingent liabilities

A contingent liability is a possible obligation that arises from past transactions or events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future or events, or is a present obligation arising from past transactions or 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.

A contingent liability is not recognised but is disclosed in the notes to the financial statements.

30 Segment reporting

The Group identifies business segments on the basis of its internal organisational structure, management requirement, and internal reporting system, and then the Group identifies the reporting segments and discloses segmental information based on business segments.

An operating segment is a component of the Group:(1) that engages in business activities from which it may earn revenues and incur expenses; (2) whose operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information, including financial position, operating results and cash flow, is available. If two or more operating segments have similar economic characteristics, and satisfy certain conditions, they are aggregated into a single operating segment.

(II) Critical accounting estimates and judgements

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Areas susceptible to changes in essential estimates and judgments, which affect the carrying value of assets and liabilities, are set out below. It is impracticable to determine the effect of changes to either the key assumptions discussed below or other estimation uncertainties. It is possible that actual results may be materially different from the estimates and judgments referred below.

1 Impairment allowance for loans and receivables

In addition to evaluating the impairment losses for the identified impaired loans individually, the Group also evaluates the impairment losses of the credit portfolios periodically. For loans portfolios the cash flows of which are not found to be decreased in the individual test, the Group makes judgements as to whether there are any indicators that there is decrease in estimated future cash flows and determine whether to provide loan impairment allowance. The indications that result in the decrease of the cash flow include: the deterioration of ability of payment of the borrowers in the portfolio, the default of the borrowers because of the deterioration of the economic environment and so on. Based on historical loss experience for assets portfolio with similar credit risk characteristics, the Group conducts impairment estimates for the loans portfolio with impairment indications. The Group evaluates the methodologies and assumptions periodically, which used for estimating the time and amount of future cash flows, to reduce any difference between estimated losses and actual losses.

93 Notes to the Financial Statements

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2 Fair value of financial instrument

The Group uses valuation model techniques for the fair value of financial instruments that are not quoted in active markets. Valuation techniques only use observable data as much as possible. However, areas such as credit risks (including both the business parties), volatilities of market interest rate and correlations require management to evaluate. Changes in assumptions about these factors could affect the valuation for the fair value of financial instruments.

3 Classification of financial instruments

The Group classifies non-derivative financial assets with fixed or determinable payments and fixed maturities as held to maturity. This classification requires significant judgement. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity.

4 Retirement benefit obligations

The Group has established liabilities in connection with benefits payable to certain retired and early retired employees. The amounts of employee benefit expense and these liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, pension benefit inflation rates, medical benefit inflation rates, and other factors. Actual results that differ from the assumptions are recognised immediately in expense when occurred. Management believes that its assumptions are appropriate, while differences in actual experience or changes in assumptions may affect the Group’s expense related to its employee retirement.

5 Income tax

During the ordinary operating activities, the final tax treatments of lots of transactions and matters are uncertain. When accruing the income tax expense, the Group needs to make significant judgment. If the final tax outcome of these matters is different from the amounts initially recorded, such differences will impact the amount of income tax expense and deferred tax in the period in which such determination is made.

V TAXATION

The Group's major applicable taxes, tax rates and taxable bases are as follows:

Tax types Tax rates Taxable basis

Enterprise income tax 25% Taxable income

Business tax 5% Taxable turnover

City construction and maintenance tax 5%-7% Business tax paid

Educational Surcharges 3% Business tax paid

VI SUBSIDIARIES

Subsidiaries included in the consolidation as at 31 December 2010 are listed as below.

Registered Business nature Shares Voting Capital invested as Included in the Registration capita in and operating held rights at 31 December 2010 consolidation address thousand scope by the Bank or not

Yanqing Rural Commercial Beijing China 30,000 33.33% 80% 10,000 yes Bank Banking Business

Bank of Beijing Consumer Finance Consumer Finance Beijing China 300,000 100% 100% 300,000 yes Business Company

94 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

VII NOTES TO THE FINANCIAL STATEMENTS

1 Cash and deposits with central bank

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Cash 2,145,080 2,188,046 2,143,989 2,187,494

Statutory reserves with central bank 84,864,336 55,383,921 84,844,594 55,374,790

Surplus reserves with central bank 17,049,344 10,430,036 17,030,830 10,417,929

Fiscal reserves with central bank 138,119 130,829 138,119 130,829

Total 104,196,879 68,132,832 104,157,532 68,111,042

The Bank places mandatory reserve funds with the PBOC. The statutory reserve cannot be used in the daily business activities. As at 31 December 2010, mandatory reserve funds placed with the PBOC were calculated at 16.5% (31 December 2009: 13.5%) and 5% (31 December 2009: 5%) of eligible RMB deposits and foreign currency deposits from customers respectively. The mandatory reserve funds for the subsidiary’s RMB customer deposits were calculated at 13% (31 December 2009:11%).

2 Due from banks and other financial institutions

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank Term deposits with domestic banks 34,327,475 7,086,896 34,249,475 7,089,896 and other financial institutions Demand deposits with domestic banks 6,856,057 6,644,273 6,854,707 6,643,232 and other financial institutions Demand deposits with overseas banks 480,207 306,593 480,207 306,593 and other financial institutions Total 41,663,739 14,037,762 41,584,389 14,039,721

Less: allowance for impairment losses (226,896) (226,896) (226,896) (226,896)

Net value 41,436,843 13,810,866 41,357,493 13,812,825

Movement of allowance for impairment losses

2010 Consolidated and the Bank 2009 Consolidated and the Bank

At beginning of year 226,896 236,596

Reversal (Note VII.41) - (9,700)

At end of year 226,896 226,896

3 Placements with banks and other financial institutions

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Placements with other domestic banks 11,388,097 8,987,730 11,388,097 8,987,730

Placements with other domestic 11,380,450 1,569,997 11,200,450 1,569,997 financial institutions Placements with other overseas banks 150,594 540,667 150,594 540,667

Total 22,919,141 11,098,394 22,739,141 11,098,394

Less: allowance for impairment losses (362,474) (376,848) (362,474) (376,848)

Net value 22,556,667 10,721,546 22,376,667 10,721,546

95 Notes to the Financial Statements

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Movement of allowance for impairment losses

2010 Consolidated and the Bank 2009 Consolidated and the Bank

At beginning of year 376,848 389,620

Reversal (Note VII.41) (1,551) (12,772)

Written off (12,823) -

At end of year 362,474 376,848

4 Trading assets

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Debt securities issued by:

- Government 748,937 461,549 748,937 461,549

- Central bank 494,836 - 494,836 -

- Policy banks 10,818,489 8,474,357 10,818,489 8,474,357

- Other financial institutions - 30,015 - 30,015

- Corporate 4,655,406 2,549,783 4,606,566 2,549,783

Total 16,717,668 11,515,704 16,668,828 11,515,704

There are no significant restrictions on realisation and disposal of the above financial assets.

5 Derivative financial assets and liabilities

The Group enters into the following derivative financial instruments for trading, assets and liabilities management and on behalf of customers.

Currency forwards are commitments to purchase or sell foreign currencies on a future date, including undelivered spot transactions.

Currency swaps transactions are commitments between two parties, to exchange specified amounts of the principles and interests of two currencies.

Interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of interest rates (for example, fixed rate for floating rate). No exchange of principal takes place.

Credit default swaps are commitments between two parties, the buyer regularly pay a certain fee to the seller (credit default swap spread), once a credit issue occurs (e.g. the bond issuer is unable to liquidate), the buyer is entitled to apply for the creditor’s rights, and then efficiently avoid the credit risk.

Other derivatives include credit default options, price index options, early redemption options and forward agreement.

The notional/contractual amounts of certain types of derivative financial instruments provide a basis for comparison with fair value recognised on the balance sheet, but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bank’s exposure to credit or market risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates, foreign exchange rates or stock and futures prices relative to their terms. The effect can fluctuate significantly from time to time.

The outstanding notional/contractual amounts and fair values of the derivative financial instruments held by the Bank are set out as follows:

96 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

31 December 2010

Consolidated and the Bank

Fair value Contractual / Notional amount Assets Liabilities

Exchange rate derivative financial instruments

- Currency forwards 1,401,741 5,845 (5,165)

- Currency swaps 1,514,478 15,587 (4,088)

Interest rate derivative financial instruments

- Interest rate swaps 1,126,805 5,166 (2,665)

Total 26,598 (11,918)

31 December 2009

Consolidated and the Bank

Fair value Contractual / Notional amount Assets Liabilities

Exchange rate derivative financial instruments

- Currency forwards 1,078,537 4,216 (2,524)

- Currency swaps 1,593,685 7,047 (25)

Interest rate derivative financial instruments

- Interest rate swaps 877,862 6,386 (5,969)

- Credit default swaps 409,596 966 -

Other derivative financial instruments

- Credit default options 17,500 - -

- Price index options 35,397 - -

- Early redemption options 3,500,000 - -

Total 18,615 (8,518)

6 Assets purchased under resale agreements

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Debt securities issued by:

- Government 484,324 12,722,704

- Central bank 6,209,038 11,944,100

- Policy banks 4,502,430 13,423,640

- Other financial institutions 214,016 616,600

- Corporate 1,307,300 104,500

Bills 48,197,136 528,603

Loans 4,285,938 3,492,056

Total 65,200,182 42,832,203

Less: allowance for impairment losses (85,524) (85,524)

Net value 65,114,658 42,746,679

97 Notes to the Financial Statements

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Movement of allowance for impairment losses

2010 Consolidated and the Bank 2009 Consolidated and the Bank At beginning of year 85,524 85,857 Reversal (Note VII.41) - (333) At end of year 85,524 85,524

7 Interest receivable

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank Interest receivable from debt securities 1,803,525 1,469,297 1,802,141 1,469,297 Interest receivable from loans and 663,183 471,180 662,793 471,024 advances to customers Interest receivable from banks and 372,248 56,914 371,970 56,928 other financial institutions Total 2,838,956 1,997,391 2,836,904 1,997,249

Movement of interest receivable

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank At beginning of year 1,997,391 1,723,244 1,997,249 1,723,244 Accrued(Note VII.34) 23,540,141 17,429,597 23,522,438 17,427,294 Received (22,698,576) (17,155,450) (22,682,783) (17,153,289) At end of year 2,838,956 1,997,391 2,836,904 1,997,249

8 Loans and advances to customers

Consolidated

31 December 2010 31 December 2009 Corporate loans and advances - General corporate loans 285,551,921 238,232,166 - Discounted bills 1,855,169 8,387,626 - Import & export bills and advances to customers 2,858,638 897,897 290,265,728 247,517,689 Retail loans - Mortgage loans 37,540,115 21,326,466 - Consumer and operating loans 5,110,112 3,119,871 - Car loans and others 1,815,817 1,516,916 44,466,044 25,963,253 Loans and advances to customers, total 334,731,772 273,480,942 Less: allowance for impairment losses Corporate loans - Individual assessment (1,572,330) (2,025,666) - Collective assessment (5,050,841) (3,380,842) Retail loans - Collective assessment (505,797) (624,326) (7,128,968) (6,030,834) Loans and advances to customers, net 327,602,804 267,450,108

98 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

The Bank

31 December 2010 31 December 2009 Corporate loans and advances - General corporate loans 285,533,691 238,217,686 - Discounted bills 1,855,169 8,387,626 - Import & export bills and advances to customers 2,858,638 897,897 290,247,498 247,503,209 Retail loans - Mortgage loans 37,534,750 21,318,656 - Consumer and operating loans 4,987,507 3,069,791 - Car loans 1,811,469 1,516,916 44,333,726 25,905,363 Loans and advances to customers, total 334,581,224 273,408,572 Less: allowance for impairment losses Corporate loans - Individual assessment (1,572,330) (2,025,666) - Collective assessment (5,050,659) (3,380,698) Retail loans - Collective assessment (504,211) (623,747) (7,127,200) (6,030,111) Loans and advances to customers, net 327,454,024 267,378,461

As at 31 December 2010, the Group and the Bank did not pledge any of the above loans and advances to customers under repurchase agreements with other financial institutions (2009:nil).

(1) By industries:

Consolidated

31 December 2010 31 December 2009 Balance % Balance % Corporate loans and advances - Water environment and community facilities management 54,327,256 16 50,435,248 18 - Rental and business services 44,181,365 13 42,452,749 16 - Real estates 45,756,243 14 37,207,464 14 - Manufacturing 41,510,038 12 27,466,907 10 - Trading 24,829,244 8 17,930,804 7 - Transportation 22,190,693 7 16,486,151 6 - Electric power, fuel gas and water producer and supplier 11,299,472 3 11,849,579 4 - Construction 14,860,751 4 10,380,142 4 - Financial institutions 5,359,488 2 9,717,720 4 - Computer software and telecommunications 7,721,337 2 8,240,558 3 - Education 2,442,640 1 3,345,920 1 - Other industries 15,787,201 5 12,004,447 4 290,265,728 87 247,517,689 91 Retail loans and advances 44,466,044 13 25,963,253 9 Total 334,731,772 100 273,480,942 100

99 Notes to the Financial Statements

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The Bank

31 December 2010 31 December 2009

Balance % Balance %

Corporate loans and advances

- Water, environment and community facilities management 54,327,256 16 50,435,248 19

- Rental and business services 44,178,965 13 42,451,749 16

- Real estates 45,756,243 14 37,204,814 13

- Manufacturing 41,506,738 12 27,464,937 10

- Trading 24,827,894 8 17,929,454 7

- Transportation 22,190,693 7 16,486,151 6

- Electric power, fuel gas and water producer and supplier 11,299,472 3 11,849,579 4

- Construction 14,859,251 4 10,378,782 4

- Financial institutions 5,359,488 2 9,717,720 4

- Computer software and telecommunications 7,721,337 2 8,240,558 3

- Education 2,442,640 1 3,345,920 1

- Other industries 15,777,521 5 11,998,297 4

290,247,498 87 247,503,209 91

Retail loans and advances 44,333,726 13 25,905,363 9

Total 334,581,224 100 273,408,572 100

(2) By guarantee type:

Consolidated

31 December 2010 31 December 2009

Balance % Balance %

Unsecured loans 107,645,338 32 105,271,564 39

Guaranteed loans 117,563,433 35 90,102,231 33

Collateralised and pledged

- Collateralised 84,719,280 25 57,410,794 21

- Pledged 22,948,552 7 12,308,727 4

Discounted bills 1,855,169 1 8,387,626 3

Total 334,731,772 100 273,480,942 100

100 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

The Bank

31 December 2010 31 December 2009

Balance % Balance %

Unsecured loans 107,622,799 32 105,271,164 38

Guaranteed loans 117,546,884 35 90,089,311 33

Collateralised and pledged

- Collateralised 84,607,820 25 57,351,744 21

- Pledged 22,948,552 7 12,308,727 5

Discounted bills 1,855,169 1 8,387,626 3

Total 334,581,224 100 273,408,572 100

(3) By geographical areas:

Consolidated

31 December 2010 31 December 2009

Balance % Balance %

Beijing 231,194,608 69 209,387,898 77

Shanghai 26,369,906 8 20,011,807 7

Tianjin 20,723,192 6 17,036,187 6

Xi’an 18,387,571 5 11,994,399 4

Hangzhou 15,104,186 5 7,854,764 3

Other 22,952,309 7 7,195,887 3

Total 334,731,772 100 273,480,942 100

The Bank

31 December 2010 31 December 2009

Balance % Balance %

Beijing 231,044,060 69 209,315,528 77

Shanghai 26,369,906 8 20,011,807 7

Tianjin 20,723,192 6 17,036,187 6

Xi’an 18,387,571 5 11,994,399 4

Hangzhou 15,104,186 5 7,854,764 3

Other 22,952,309 7 7,195,887 3

Total 334,581,224 100 273,408,572 100

101 Notes to the Financial Statements

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(4) Overdue period analysis of overdue loans:

Consolidated

31 December 2010

Within 90 days 90-360 days 360 days- 3 years Over 3 years Total (Including 90 days) (Including 360 days) (Including 3 years)

Unsecured loans 39,731 15,738 57,467 232,501 345,437

Guaranteed loans 6,780 4,656 3,807 965,369 980,612

Collateralised and pledged loans

- Collateralised 226,843 5,827 61,336 524,312 818,318

- Pledged - - - 62,690 62,690

Sub-total 273,354 26,221 122,610 1,784,872 2,207,057

31 December 2009

Within 90 days 90-360 days 360 days- 3 years Over 3 years Total (Including 90 days) (Including 360 days) (Including 3 years) Unsecured loans 23,099 11,696 51,551 230,868 317,214

Guaranteed loans 378 10,564 132,865 980,370 1,124,177

Collateralised and pledged loans

- Collateralised 239,365 35,090 111,311 927,995 1,313,761

- Pledged - - - 62,690 62,690

Sub-total 262,842 57,350 295,727 2,201,923 2,817,842

The Bank

31 December 2010

Within 90 days 90-360 days 360 days- 3 years Over 3 years Total (Including 90 days) (Including 360 days) (Including 3 years) Unsecured loans 39,689 15,652 57,467 232,501 345,309

Guaranteed loans 6,780 4,656 3,807 965,369 980,612

Collateralised and pledged loans

- Collateralised 226,843 5,827 61,336 524,312 818,318

- Pledged - - - 62,690 62,690

Sub-total 273,312 26,135 122,610 1,784,872 2,206,929

31 December 2009

Within 90 days 90-360 days 360 days- 3 years Over 3 years Total (Including 90 days) (Including 360 days) (Including 3 years) Unsecured loans 23,099 11,696 51,551 230,868 317,214

Guaranteed loans 378 10,564 132,865 980,370 1,124,177

Collateralised and pledged

- Collateralised 239,365 35,090 111,311 927,995 1,313,761

- Pledged - - - 62,690 62,690

Sub-total 262,842 57,350 295,727 2,201,923 2,817,842

102 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

(5) Movement of allowance for impairment losses

Consolidated

2010

Corporate loans Retail loans Total Individual assessment Collective assessment Collective assessment

At beginning of year 2,025,666 3,380,842 624,326 6,030,834

(Reversal) / Provision(Note VII. 41) (416,545) 1,669,999 (50,011) 1,203,443

Written off (30,795) - (67,713) (98,508)

Reversal - Cash received for loans previously 13,682 - 127 13,809 written off - Unwinding of discount on allowance (12,644) - (372) (13,016)

- Exchange rate changes and others (7,034) - (560) (7,594)

At end of year 1,572,330 5,050,841 505,797 7,128,968

2009

Corporate loans Retail loans Total Individual assessment Collective assessment Collective assessment

At beginning of year 2,252,587 2,534,147 596,648 5,383,382

Provision/ (reversal) (Note VII. 41) (180,208) 846,695 28,873 695,360

Written off (46,332) - - (46,332)

Reversal - Cash received for loans previously 9,329 - - 9,329 written off - Unwinding of discount on allowance (9,857) - (1,195) (11,052)

- Exchange rate changes and others 147 - - 147

At end of year 2,025,666 3,380,842 624,326 6,030,834

The Bank

2010

Corporate loans Retail loans Total Individual assessment Collective assessment Collective assessment

At beginning of year 2,025,666 3,380,698 623,747 6,030,111

(Reversal)/ provision (Note VII. 41) (416,545) 1,669,961 (51,018) 1,202,398

Written off (30,795) - (67,713) (98,508)

Reversal - Cash received for loans previously 13,682 - 127 13,809 written off - Unwinding of discount on allowance (12,644) - (372) (13,016)

- Exchange rate changes and others (7,034) - (560) (7,594)

At end of year 1,572,330 5,050,659 504,211 7,127,200

103 Notes to the Financial Statements

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2009

Corporate loans Retail loans Total Individual assessment Collective assessment Collective assessment

At beginning of year 2,252,587 2,534,147 596,648 5,383,382

Provision/(reversal) (Note VII. 41) (180,208) 846,551 28,294 694,637

Written off (46,332) - - (46,332)

Reversal

- Cash received for loans previously 9,329 - - 9,329 written off - Unwinding of discount on allowance (9,857) - (1,195) (11,052) - Exchange rate changes and others 147 - - 147 At end of year 2,025,666 3,380,698 623,747 6,030,111

9 Available-for-sale financial assets

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Debt securities issued by:

- Government 12,372,543 10,275,555

- Central bank 20,442,733 1,787,827

- Policy banks 28,054,915 38,579,504

- Other financial institutions 5,555,071 5,801,707

- Corporate 11,963,035 7,151,272

Total 78,388,297 63,595,865

10 Held-to-maturity investments

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank Debt securities issued by:

- Government 38,155,109 25,765,157

- Central bank - 1,563,070

- Policy banks 15,708,522 10,880,871

- Other financial institutions 2,368,670 2,435,210

- Corporate 7,875,796 4,079,312

Total 64,108,097 44,723,620

11 Investment securities classified as receivables

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Debt securities issued by:

Government bonds 2,543,191 2,584,098

Central bank - 400,000

Other financial institutions 2,133,746 1,331,844

Total 4,676,937 4,315,942

104 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

12 Long-term equity investments

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Investment in subsidiaries - - 310,000 10,000

Investment in associate 307,049 260,442 307,049 260,442

Investment in joint venture 820,163 - 820,163 -

Others 50,343 50,379 50,343 50,379

Total 1,177,555 310,821 1,487,555 320,821

Less: allowance for impairment losses - - - -

Net value 1,177,555 310,821 1,487,555 320,821

As at 31 December 2010, there were no restrictions for the Bank to dispose the above long-term equity investments (2009: nil).

The Bank acquired 19.99% interest of Bank of Langfang Co., Ltd (herein after as “Bank of Langfang”) on 9 September 2008 and has significant influence over it. The registration location of Bank of Langfang is in Hebei Province. As at 31 December 2010, Bank of Langfang had the total capital of Rmb 821 million and mainly provided commercial banking services.

The Bank acquired 50% interest of ING-BOB Life Insurance Co. Ltd. (herein after as “ING-BOB Life”) on 1 July 2010, and jointly controls ING-BOB with ING Insurance. The registration location of ING-BOB Life is Dalian, Liaoning Province. As at 31 December 2010, ING-BOB had total capital of Rmb 1300 million and mainly provided services of life insurance, health insurance, accident insurance and reinsurance of such business.

Movement of long-term equity investment in associates:

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

At beginning of year 260,442 167,378

Increase in investment cost 30,705 58,500

Share of results of the associates (Note VII. 36) 47,907 43,247

Share of reserve movement of the associates

- Stock dividends transferred into share capital (30,705) (8,877)

- Other (1,300) 194

At end of year 307,049 260,442

The above long-term equity investment in associates has no active market quotes.

Movement of long-term equity investment in joint venture:

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Acquisition cost 681,800 -

Increase in investment cost 200,000 -

Share of results of joint venture(Note VII. 36 ) (23,886) -

Share of reserve movement of joint venture (37,751) -

At end of year 820,163 -

The carrying value of the investment in joint venture includes the goodwill of 339.8 million which represents the excess of acquisition cost over the Bank’s share of the identifiable net assets' fair value of the joint venture.

105 Notes to the Financial Statements

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13 Investment properties

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Cost 320,330 320,330

Accumulated depreciation (88,231) (76,530)

Net value 232,099 243,800

(1) Movement of investment properties:

Cost Buildings

At 31 December 2009 320,330

At 31 December 2010 320,330

Accumulated depreciation

As at 31 December 2009 (76,530)

Add: Charged for the year (11,701)

As at 31 December 2010 (88,231)

Net value

As at 31 December 2010 232,099

As at 31 December 2009 243,800

(2) Investment properties without property ownership certificates

As at 31 December 2010, because of the historical issues, the Group and the Bank had four investment properties without ownership certificates. The cost of the four investment properties is Rmb58,769 thousands (31 December 2009: Rmb58,769 thousand) and the face amount is Rmb20,436 thousands (31 December 2009:Rmb23,303 thousand). The above issues will not affect the Group’s and Bank’s ownership over these investment properties.

14 Fixed assets

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Cost 2,819,879 2,487,083 2,812,128 2,484,107

Accumulated depreciation (1,084,344) (952,252) (1,083,074) (951,871)

Net value 1,735,535 1,534,831 1,729,054 1,532,236

Construction in progress 210,846 210,846 210,846 210,846

Less: allowance for impairment losses (10,856) (10,856) (10,856) (10,856)

Net value 199,990 199,990 199,990 199,990

Total 1,935,525 1,734,821 1,929,044 1,732,226

106 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

(1) Movement of fixed assets:

Consolidated

Construction in Buildings Office equipment Motor vehicles Total progress

Original cost

As at 31 December 2009 1,491,660 741,240 254,183 210,846 2,697,929

Add: Purchases 89,365 223,521 67,640 - 380,526

Less: Disposals - (36,790) (10,940) - (47,730)

As at 31 December 2010 1,581,025 927,971 310,883 210,846 3,030,725

Accumulated depreciation

As at 31 December 2009 (381,949) (395,444) (174,859) - (952,252)

Add: Charges for the year (Note VII. 40) (58,335) (97,858) (22,099) - (178,292)

Less: Disposals - 35,471 10,729 - 46,200

As at 31 December 2010 (440,284) (457,831) (186,229) - (1,084,344)

Allowance for impairment losses

As at 31 December 2009 - - - (10,856) (10,856)

As at 31 December 2010 - - - (10,856) (10,856)

Net book value

As at 31 December 2010 1,140,741 470,140 124,654 199,990 1,935,525

As at 31 December 2009 1,109,711 345,796 79,324 199,990 1,734,821

The Bank

Construction in Buildings Office equipments Motor vehicles Total progress

Original cost

As at 31 December 2010 1,491,660 738,590 253,857 210,846 2,694,953

Add: Purchases 89,365 218,746 67,640 - 375,751

Less: Disposals - (36,790) (10,940) - (47,730)

As at 31 December 2010 1,581,025 920,546 310,557 210,846 3,022,974

Accumulated depreciation

As at 31 December 2009 (381,949) (395,109) (174,813) - (951,871)

Add: Charges for the year (Note VII. 40) (58,335) (97,031) (22,037) - (177,403)

Less:Disposals - 35,471 10,729 - 46,200

As at 31 December 2010 (440,284) (456,669) (186,121) - (1,083,074)

Allowance for impairment losses

As at 31 December 2009 - - - (10,856) (10,856)

As at 31 December 2010 - - - (10,856) (10,856)

Net book value

As at 31 December 2010 1,140,741 463,877 124,436 199,990 1,929,044

As at 31 December 2009 1,109,711 343,481 79,044 199,990 1,732,226

The Bank did not have any significant fixed assets acquired by means of finance lease as at 31 December 2010 (2009: nil).

107 Notes to the Financial Statements

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(2) Fixed assets without property ownership certificate

As at 31 December 2010, because of the historical issues, the Group and the Bank had 7 fixed assets without ownership certificates. The cost of the 7 fixed assets is Rmb81,730 thousand (31 December 2009: Rmb81,730 thousand) and the book value of the assets is Rmb27,715 thousand (31 December 2009: Rmb31,754 thousand). The above issue will not affect the Bank’s rights over these fixed assets.

15 Deferred income tax assets and liabilities

(1) Deferred income tax assets and liabilities after offsetting:

The deferred income tax assets and deferred income tax liabilities are presented on net basis:

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank Deferred income tax assets 1,349,965 1,137,361 1,348,135 1,137,361 Deferred income tax liabilities (353,370) (355,351) (353,295) (355,351) 996,595 782,010 994,840 782,010

Consolidated

2010 2009 At beginning of year 782,010 85,443 The impact of income tax charged to shareholders’ equity - Unrealised losses on available-for-sale financial assets and others 218,817 256,637 Deferred income tax expense charged to the year (Note VII.44) (4,232) 439,930 At end of year 996,595 782,010

The Bank

2010 2009

At beginning of year 782,010 85,443 The impact of income tax charged to shareholders’ equity - Unrealised losses on available-for-sale financial assets and others 218,817 256,637 Deferred income tax expense charged to the year (Note VII.44) (5,987) 439,930 At end of year 994,840 782,010

(2) Deferred income tax assets and liabilities before offsetting consist of the following items:

Consolidated

Deferred income tax assets:

Deductible temporary differences Deferred income assets 31 December 2010 31 December 2009 31 December 2010 31 December 2009 Allowance for impaired assets 4,302,030 4,220,935 1,075,507 1,055,234 Provision on litigation losses 41,083 41,322 10,271 10,330 Unrealised losses on available-for-sale 828,053 189,914 207,013 47,478 financial assets Loss on fair value changes of trading 13,700 8,518 3,424 2,129 assets and derivative financial instruments Other 214,988 88,756 53,750 22,190 Total 5,399,854 4,549,445 1,349,965 1,137,361

108 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

Deferred income tax liabilities:

Taxable temporary differences Deferred income taxliabilities

31 December 2010 31 December 2009 31 December 2010 31 December 2009

Unrealised gains on available-for-sale 1,047,884 1,285,011 261,971 321,253 financial assets Gains on fair value changes of trading 55,939 107,598 13,985 26,900 assets and derivative financial instruments

Other 309,656 28,796 77,414 7,198

Total 1,413,479 1,421,405 353,370 355,351

The Bank

Deferred income tax assets:

Deductible temporary differences Deferred income assets

31 December 2010 31 December 2009 31 December 2010 31 December 2009

Allowance for impaired assets 4,302,030 4,220,935 1,075,507 1,055,234

Provision on litigation losses 41,083 41,322 10,271 10,330 Unrealised losses on available-for-sale 828,053 189,914 207,013 47,478 financial assets Loss on fair value changes of derivative 11,918 8,518 2,979 2,129 financial instruments Other 209,454 88,756 52,365 22,190

Total 5,392,538 4,549,445 1,348,135 1,137,361

Deferred income tax liabilities:

Taxable temporary differences Deferred income taxliabilities

31 December 2010 31 December 2009 31 December 2010 31 December 2009

Unrealised gains on available-for-sale 1,047,884 1,285,011 261,971 321,253 financial assets Fair value changes of trading assets and 55,939 107,598 13,985 26,900 derivatives financial instruments

Other 309,358 28,796 77,339 7,198

Total 1,413,181 1,421,405 353,295 355,351

(3) The deferred income tax expense charged to the year consist of the following

Consolidated

2010 2009

Allowance for impaired assets 20,273 368,937

Reversal of litigation losses (59) (9,393)

Fair value changes on trading assets and derivative financial instruments 14,210 72,613

Other (38,656) 7,773

Total (4,232) 439,930

109 Notes to the Financial Statements

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The Bank

2010 2009

Allowance for impaired assets 20,273 368,937

Reversal of litigation losses (59) (9,393)

Fair value changes on trading assets and derivative financial instruments 13,765 72,613

Other (39,966) 7,773

Total (5,987) 439,930

16 Other assets

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Foreclosed assets 424,360 423,800 424,360 423,800

Less: allowance for impairment losses (1) (313,199) (312,674) (313,199) (312,674)

Foreclosed assets, net 111,161 111,126 111,161 111,126

Other receivables 430,457 637,305 430,258 637,305

Less: allowance for impairment losses (2) (355,222) (368,708) (355,222) (368,708)

Other receivables, net 75,235 268,597 75,036 268,597

Long-term deferred expenses 1,011,126 988,069 1,003,832 981,258

Other 6,782 906 6,782 906

Total 1,204,304 1,368,698 1,196,811 1,361,887

(1) Movement of allowance for impairment losses on foreclosed assets

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

At beginning of year 312,674 312,727

Provision (Note VII.41) 525 2,349

Reversal - (2,402)

At end of year 313,199 312,674

(2) Movement of allowance for impairment losses on other receivables

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

At beginning of year 368,708 371,150

Reversal (Note VII.41) (12,269) (1,168)

Written off (1,217) (1,274)

At end of year 355,222 368,708

110 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

17 Due to banks and other financial institutions

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Demand deposits from domestic banks 2,119,975 2,129,292 2,120,007 2,129,391

Time deposits from domestic banks 47,136,098 16,322,834 47,136,098 16,367,334

Demand deposits from other domestic 4,104,721 6,608,972 4,142,349 6,608,972 financial institutions

Time deposits from other domestic 1,724,476 467,402 1,724,476 467,402 financial institutions

Total 55,085,270 25,528,500 55,122,930 25,573,099

18 Placements from banks

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Placements from other domestic banks 15,824,695 1,617,280

Placements from other foreign banks 200,000 -

16,024,695 1,617,280

19 Assets sold under repurchase agreements

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Investment securities issued by:

- Government 17,266,850 3,500,000

- Central bank 6,112,200

- Policy banks 9,752,700 -

- Other financial institutions 1,920,000 -

- Corporate 4,690,000 -

Total 39,741,750 3,500,000

20 Customer deposits

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Demand deposits from corporate 268,260,092 229,541,499 268,126,703 229,473,074

Demand deposits from individuals 26,540,883 23,101,666 26,509,915 23,078,616

Time deposits from corporate 166,902,847 131,374,473 166,883,468 131,359,473

Time deposits from individuals 73,342,057 51,320,555 73,308,259 51,309,316

Margin deposits 22,678,457 11,600,510 22,673,456 11,600,510

Total 557,724,336 446,938,703 557,501,801 446,820,989

111 Notes to the Financial Statements

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Margin deposits consist of the following:

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Margin deposits for acceptance 14,616,655 8,692,095 14,616,655 8,692,095

Margin deposits for letters of guarantee 1,728,561 1,080,339 1,728,561 1,080,339

Margin deposits for letters of credit 1,068,840 418,058 1,068,840 418,058

Margin deposits for guarantee 4,877,785 1,059,871 4,872,784 1,059,871

Other 386,616 350,147 386,616 350,147

Total 22,678,457 11,600,510 22,673,456 11,600,510

21 Employee benefits payable

Consolidated

31 December 2009 Current year additions Current year eductions 31 December 2010

Wages and salaries, bonuses, 104,619 1,713,704 (1,443,744) 374,579 allowances and subsidies

Staff welfare - 143,310 (143,310) -

Social security contributions 15,027 212,163 (208,850) 18,340

Housing funds 11 85,723 (80,330) 5,404

Labour union funds and employee - 34,471 (34,471) - education funds

Others 119,657 2,189,371 (1,910,705) 398,323

The Bank

31 December 2009 Current year additions Current year eductions 31 December 2010

Wages and salaries, bonuses, 104,619 1,707,746 (1,439,570) 372,795 allowances and subsidies

Staff welfare - 143,002 (143,002) -

Social security contributions 15,027 211,421 (208,256) 18,192

Housing funds 11 85,459 (80,066) 5,404

Labour union funds and employee - 34,401 (34,401) - education funds

Others 119,657 2,182,029 (1,905,295) 396,391

As at 31 December 2010, there was no payable in arrears.

112 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

22 Taxes payable

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Income tax prepayment/ (payable) (195,801) 47,835 (196,243) 47,835

Business tax payable and surcharge 330,663 269,076 330,358 268,977

Other 103,052 29,721 102,794 29,721

Total 237,914 346,632 236,909 346,533

23 Interest payable

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Interest payable on customer deposits 2,967,969 2,205,782 2,967,600 2,205,630

Interest payable on due to banks and 383,376 57,527 383,391 57,553 other financial institutions

Interest payable on debt securities 111,658 105,170 111,658 105,170

Total 3,463,003 2,368,479 3,462,649 2,368,353

Movement of Interest payable

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

At beginning of year 2,368,479 2,139,448 2,368,353 2,139,458

Accrued(Note VII.34) 9,061,255 6,475,675 9,061,889 6,475,600

Paid (7,966,731) (6,246,644) (7,967,593) (6,246,705)

At end of year 3,463,003 2,368,479 3,462,649 2,368,353

24 Provisions

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Provisions on litigation loss (Notes VIII. 7) 40,413 41,322

Movement of provisions

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

At beginning of year 41,322 78,891

Reversal (Notes VIII. 43) 371 (289)

Payment (610) (37,289)

Exchange rate changes and others (670) 9

At end of year 40,413 41,322

113 Notes to the Financial Statements

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25 Bonds issued

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

General financial bonds issued 9,977,226 9,968,821

Subordinated bonds issued 6,493,511 3,500,000

Total 16,470,737 13,468,821

(1) General financial bonds issued

Pursuant to notice Yin Shi Chang Xu Zhun Yu Zi [2008] No. 29 issued by PBOC and notice Yin Jian Fu [2008] No. 253 issued by CBRC, the Bank issued financial bonds as follows:

— Fixed rate bonds issued in 2008 has a maturity of 5 years, with nominal amount of Rmb2.5 billion and a fixed coupon rate of 4.95% per annum. Interest is paid annually.

— Floating rate bonds issued in 2008 has a maturity of 5 years, with nominal amount of Rmb7.5 billion. The coupon rate is the benchmark rate plus basic spread. The benchmark rate is the one-year time deposit rate quoted by PBOC on the first day of issue and on the interest accrual date of each interest-bearing year and basic spread is 95 bps fixed in the bond issue duration. Interest is paid annually.

(2) Subordinated bonds issued

During 2010, the Bank exercised the option to redeem at face value of subordinated bonds issued in 2005.

Pursuant to notice Yin Shi Chang Xu Zhun Yu Zi [2010] No. 56 issued by PBOC and notice Yin Jian Fu [2010] No. 493 issued by CBRC, the Bank issued subordinated bonds as follows:

Fixed rate subordinated bonds issued in 2010 has a maturity of 15 years, with nominal amount of Rmb6.5 billion and fixed coupon rate of 5.00% per annum from the first year to the tenth year. Interest is paid annually. The Bank has the option to redeem all of the bonds at face value on last day of the tenth year. Before exercising the redemption right, the Bank shall issue an announcement and notice China Central Depository & Clearing Co.,Ltd. at lease one month before the 10th interest payable date. If the Bank does not exercise the option, the annual coupon rate shall be the original fixed rate and shall remain fixed through the maturity date from the 11th year.

These subordinated bonds are subordinated to all other claims on the assets of the Bank, except those of the shareholders. In calculating of the Bank's capital adequacy ratio, these bonds are qualified as supplementary capital.

As at 31 December 2010, there were no defaults of principal and interest or other breaches with respect to these subordinated bonds during the year (2009: nil). The subordinated bonds are not secured.

26 Other liabilities

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Payable for clearing and settlement 649,739 1,108,529 649,739 1,108,529

Suspense amount of financial products 202,230 156,944 202,230 156,944

Agency security 88,620 79,918 88,620 79,918

Dividends payable 73,214 70,498 73,214 70,498

Intercity exchange and clearing 13,411 14,991 13,404 14,991

Other payables 418,025 522,755 417,692 522,602

Total 1,445,239 1,953,635 1,445,169 1,953,482

114 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

27 Capital stock

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Restricted stock

Rmb ordinary shares

- State-owned shares - 1,020,170

- Shares held by natural persons - 261

- Shares held by foreign legal - 1,251,863

Freely tradable stock

Rmb ordinary shares 6,227,562 3,955,268

6,227,562 6,227,562

In 2010, 2,272,293 thousand restricted shares issued before the IPO in the A share market, were converted to RMB common stock and became tradable in the market. As at 31 December 2010, all shares of the Bank were unrestricted RMB common shares.

28 Capital surplus

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

At beginning of year 16,364,766 17,112,463

Unrealised losses on available-for-sale financial (610,406) (632,794) assets Amortization of fair value gains on securities (237,127) (195,247) transfer from available-for-sale to held-to-maturity

Net fair value changes transferred to income statement on sale of available-for-sale financial (27,733) (176,487) assets

Share of reserve changes of associate (1,300) 194

Share of reserve changes of joint venture (37,751) -

Impact of deferred income tax 218,817 256,637

At end of year 15,669,266 16,364,766

29 Surplus reserve

31 December 2009 Appropriation for the year 31 December 2010 Consolidated and The Bank Consolidated and The Bank Consolidated and The Bank

Statutory surplus reserve 2,355,739 680,724 3,036,463

General surplus reserve 271,109 - 271,109

Other surplus reserve 79,342 - 79,342

Total 2,706,190 680,724 3,386,914

In accordance with the PRC “Company Law", the Bank’s articles of associations and the Board of Directors’ resolution, the Bank is required to allocate 10% of its profit after tax to a surplus reserve based on its statutory financial statements. Appropriation to the statutory surplus reserve may cease when the balance of such reserves has reached 50% of the share capital. Upon approval by the general shareholders’ meeting, the surplus reserve can be used to make up previous losses or transferred to registered capital.

115 Notes to the Financial Statements

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The statutory surplus reserve amount used to increase the share capital is limited to a level where the balance of statutory surplus reserve after such capitalisation is not less than 25% of the share capital. The Bank appropriated 10% of its net profit to surplus reserve for the year ended 31 December 2010, to increase the balance to Rmb 680,724 thousand (2009: Rmb563,439 thousand).

30 General reserve

31 December2010 31 December2009 Consolidated and The Bank Consolidated and The Bank

At beginning of year 3,645,489 2,978,000

Appropriation to general reserve 1,316,598 667,489

At end of year 4,962,087 3,645,489

Pursuant to "Measures on General Provision for Bad and Doubtful Debts for Financial Institutions’’ (Caijin [2005] No. 49) and “Financial Principles for Financial Institutions-Implementation Guide” (Caijin [2007] No. 23) issued by MOF, the Bank established a general reserve within shareholders' equity, through the appropriation of income to address unidentified potential impairment losses, in addition to the specific allowance for impairment losses. According to Caijin [2005] No. 49, the general reserve should not be less than 1% of the aggregate amount of risk assets, before any allowance for impairment losses at the balance sheet date.

According to the resolution of the Sixth Meeting of the Fourth Board of Directors on 8 April 2011, the Bank appropriated 1,316,598 thousand to the general reserve for the year ended 31 December 2010 (2009: Rmb 667,489 thousand).

31 Retained earnings

Consolidated

31 December 2010 31 December 2009 Appropriation or distribution Percentage

At beginning of year 8,615,408 5,333,438

Add: Attributable to shareholders of 6,803,030 5,633,859 the Bank Less: appropriation to statutory (680,724) (563,439) (Notes VII. 29) surplus reserve

Appropriation to general reserve (1,316,598) (667,489) (Notes VII. 30)

Distribution of ordinary shares (1,120,961) (1,120,961) dividends

At end of year 12,300,155 8,615,408

As of December 31 2010, the retained earnings included Rmb 45,000 surplus reserve provided by subsidiaries and attributable to the Bank.

The Bank

31 December 2010 31 December 2009 Appropriation or distribution Percentage

At beginning of year 8,616,231 5,333,729

Add: Net Profit 6,807,245 5,634,391

Less: appropriation to statutory (680,724) (563,439) (Notes VII. 29) surplus reserve

Appropriation to general reserve (1,316,598) (667,489) (Notes VII. 30)

Distribution of ordinary shares (1,120,961) (1,120,961) dividends

At end of year 12,305,193 8,616,231

116 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

32 Minority interest

Minority interest on subsidiary owned by other minority shareholders is shown as below:

31 December 2010 31 December 2009

Yanqing Rural Bank Co., Ltd. 20,900 18,356

33 Dividends distribution

According to dividend distribution plan proposed in the resolution of the Sixth Meeting of the Fourth Board of Directors on April 8, 2011, the Bank proposed to declare cash dividends of Rmb2.16 (including tax) for every ten shares, or Rmb1,345,153 thousand of cash dividends in total based on all outstanding shares as at 31 December 2010 (6,227,561,881 shares). The plan has been proposed for approval at the Shareholders' General Meeting to be held on April 29, 2011.

According to dividend distribution plan approved in the resolution of the Shareholders' General Meeting on May 26, 2010, the Bank declared cash dividends of Rmb1.8 (including tax) for every ten shares, or Rmb1,120,961 thousand of cash dividends in total (2009: Rmb 1,120,961 thousand) based on all outstanding shares as of 31 December 2009 (6,227,561,881 shares).

34 Net interest income

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Interest income

Deposits with central bank 1,196,324 809,656 1,195,987 809,496

Due from banks and other financial 505,032 153,013 504,831 153,012 institutions Placements with banks and other 524,709 205,277 522,140 205,277 financial institutions Assets purchased under resale 634,690 324,940 641,378 324,940 agreements

Loans and advances

- Corporate loans and advances 14,349,635 11,024,042 14,348,381 11,023,563

- Retail loans and advances 1,635,329 974,854 1,628,160 973,191

- Discounted bills 117,641 352,879 117,641 352,879

- Import & export bills and advance 48,892 28,644 48,892 28,644

Investment securities 4,527,889 3,556,292 4,515,028 3,556,292

Sub-total 23,540,141 17,429,597 23,522,438 17,427,294

Interest income from impaired 13,016 11,052 13,016 11,052 financial Instruments

Interest expense

Due to banks and other financial (786,419) (792,559) (788,153) (792,822) institutions

Placements from banks (190,953) (47,863) (190,953) (47,863)

Assets sold under repurchase (624,963) (92,579) (624,963) (92,579) agreements

Customer deposits (6,940,967) (4,929,834) (6,939,867) (4,929,496)

Bonds issued (517,953) (612,840) (517,953) (612,840)

Sub-total (9,061,255) (6,475,675) (9,061,889) (6,475,600)

Net interest income 14,478,886 10,953,922 14,460,549 10,951,694

117 Notes to the Financial Statements

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Net trading income - geographical segments:

Consolidated

2010 2009

Interest income Interest expense Interest income Interest expense

Beijing 19,035,530 7,932,363 15,069,971 5,636,151

Shanghai 1,176,035 437,489 772,310 279,465

Tianjin 967,128 172,752 761,692 295,787

Xi’an 887,346 209,140 423,103 148,548

Other areas 1,474,102 309,511 402,521 115,724

Total 23,540,141 9,061,255 17,429,597 6,475,675

The Bank

2010 2009

Interest income Interest expense Interest income Interest expense

Beijing 19,017,827 7,932,997 15,067,668 5,636,076

Shanghai 1,176,035 437,489 772,310 279,465

Tianjin 967,128 172,752 761,692 295,787

Xi’an 887,346 209,140 423,103 148,548

Other areas 1,474,102 309,511 402,521 115,724

Total 23,522,438 9,061,889 17,427,294 6,475,600

35 Fee and commission income, net

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Fee and commission income

- Bank card business 183,295 128,779 183,295 128,779

- Bonds business 177,339 117,984 177,339 117,984

- Inter-bank business 137,331 67,656 137,331 67,656

- Settlements and clearings 129,137 88,580 129,134 88,578 business

- Agency business 126,437 107,038 127,434 107,038

- Financing consultancy business 127,594 63,436 127,594 63,436

- Financial products business 73,243 108,889 73,243 109,010

- Letters of guarantee and 63,477 51,008 63,477 51,008 commitment business

- Other 84,491 26,448 82,250 25,551

Total 1,102,344 759,818 1,101,097 759,040

Fee and commission expense (138,127) (109,714) (138,064) (109,650)

Net fee and commission income 964,217 650,104 963,033 649,390

118 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

36 Investment income

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Trading assets 67,711 152,088 67,135 152,088

Available-for-sale financial assets 27,733 176,487 27,733 176,487

Derivative financial instruments 11,188 5,104 11,188 5,104

Share of net profit of associate and 24,021 43,247 24,021 43,247 joint venture

Dividends 1,020 1,284 1,020 1,284

Other (13,983) (5,229) (13,983) (5,474)

Total 117,690 372,981 117,114 372,736

37 Fair value changes

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Fair value changes of trading assets (61,434) (275,539) (59,652) (275,539)

Fair value changes of derivative 4,507 (14,853) 4,507 (14,853) financial instruments

Total (56,927) (290,392) (55,145) (290,392)

38 Other operating income

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Rental income from investment 64,043 58,948 64,043 58,948 properties

Other 25,115 27,477 25,048 27,477

Total 89,158 86,425 89,091 86,425

39 Business tax and surcharges

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Business tax 988,703 842,107 987,753 841,950

Urban construction tax 66,828 57,421 66,766 57,414

Education surcharges 30,604 25,492 30,576 25,487

Other 1,510 972 1,510 972

Total 1,087,645 925,992 1,086,605 925,823

119 Notes to the Financial Statements

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40 General and administrative expenses

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Staff costs

- Salaries and bonus 1,593,704 924,801 1,587,746 923,536

- Other 595,667 319,354 594,283 319,123

Administrative expenses 1,108,279 831,357 1,104,552 830,368

Rental expenses 568,892 452,097 562,011 451,468

Business promotion and 594,803 347,491 594,074 347,309 development expenses

Depreciation 178,292 155,266 177,403 154,885

Other 98,569 105,231 98,086 105,018

Total 4,738,206 3,135,597 4,718,155 3,131,707

41 Allowance for impairment losses

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Reversal of impairment losses on due from banks and other financial - (9,700) - (9,700) institutions

Reversal of impairment losses on placements with banks and other (1,551) (12,772) (1,551) (12,772) financial institutions

Reversal of impairment losses on assets purchased under resale - (333) - (333) agreements

Impairment losses on loans to 1,203,443 695,360 1,202,398 694,637 customers

Reversal of impairment losses on (1,551) (7,434) (1,551) (7,434) available-for-sale financial assets

Allowance for impairment losses on 525 2,349 525 2,349 foreclosed assets

Reversal of impairment losses on (12,269) (1,168) (12,269) (1,168) other receivables

Total 1,188,597 666,302 1,187,552 665,579

42 Non-operating income

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Dormant customer bank accounts 1,416 6,868 1,416 6,868

Gains on disposal of non-current 826 1,284 826 1,284 assets

Other 17,097 18,05016,317 18,050

Total 19,339 26,202 18,559 26,202

120 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

43 Non-operating expenses

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Losses on disposal of non-current 1,314 489 1,314 489 assets

Provision/ (reversal) of litigation 371 (289) 371 (289) losses

Other 25,581 18,273 25,571 18,273

Total 27,266 18,473 27,256 18,473

44 Income tax expense

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Current tax 1,791,344 1,969,374 1,790,902 1,969,374

Deferred tax (Note VII.15) 4,232 (439,930) 5,987 (439,930)

Total 1,795,576 1,529,444 1,796,889 1,529,444

The actual income tax differs from the theoretical amount and the reconciliation is as follows:

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Profit before tax 8,601,150 7,162,240 8,604,134 7,163,835

Tax calculated at statutory tax rate 2,150,288 1,790,959 2,151,034 1,790,959

The effect of non-taxable income (384,158) (292,945) (384,158) (292,945)

The effect of non-deductible 29,446 31,430 30,013 31,430 expenses and other adjustments

Income tax expense 1,795,576 1,529,444 1,796,889 1,529,444

45 Earnings per share and return on equity

Pursuant to the circular issued by CSRC, “Information Disclosure No. 9 of Public Offering Securities – the Calculation and Disclosure of Return on Equity and the Earnings Per Share” (CSRC [2007] No. 9), earnings per share and return on equity are calculated as follows:

(1) Earnings per share

Earnings per share were computed by dividing the profit attributable to the equity holders of the Bank by the weighted average number of ordinary shares in issue during the year.

2010 Consolidated 2009 Consolidated

Net profit attributable to the equity holders the Bank 6,803,030 5,633,859

Weighted average number of ordinary shares 6,227,562 6,227,562 outstanding (In thousand shares)

Earnings per share (Yuan per share) 1.09 0.90

Diluted earnings per share was computed by dividing the adjusted profit attributable to the equity holders of the Bank based on conversion of all potential dilutive share for the year by the adjusted weighted average number of ordinary shares in issue. During the year of 2009 and 2010, the Bank did not have diluted shares, therefore diluted earnings per share was equal to earnings per share.

121 Notes to the Financial Statements

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(2) Return on equity

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Net profit 6,803,030 5,633,859 6,807,245 5,634,391

Net asset balance at year end 42,545,984 37,559,415 42,551,022 37,560,238

Return on equity 15.99% 15.00% 16.00% 15.00%

Weighted average net assets 39,959,286 35,583,401 39,962,217 35,583,958

Weighted average return on equity 17.02% 15.83% 17.03% 15.83%

46 Other comprehensive income

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Unrealised losses on available-for-sale financial assets (610,406) (632,794) Net amount transferred from other comprehensive income to profit or loss - Net fair value changes transferred to income statement (27,733) (176,487) on sale of available-for-sale financial assets - Amortization of fair value gains on securities transfer (237,127) (195,247) from available-for-sale to held-to-maturity Less: related Income tax impact 218,817 256,715 Share of other comprehensive income of investees (39,051) 116 accounted for by the equity method, after tax Total (695,500) (747,697)

47 Notes to cash flow statements

(1) Reconciliation of net profit to cash flows from operating activities

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Net profit 6,805,574 5,632,796 6,807,245 5,634,391

Add: Allowance for impairment losses 1,188,597 666,302 1,187,552 665,579 Depreciation of fix assets and 189,993 166,968 189,104 166,587 investments properties Amortization of deferred assets 481,085 386,560 480,145 385,837 Losses/(gains) from disposal of fix 488 (795) 488 (795) assets and other assets Interest income from investment (4,515,028) (3,556,292) (4,515,028) (3,556,292) securities Fair value changes 56,927 290,392 55,145 290,392 Net gain on investments of available- for-sale financial assets, investment (52,774) (221,262) (52,774) (221,018) securities classified as receivables and long-term equity investments Interest expense of bonds issued 517,953 612,840 517,953 612,840

Increase in deferred tax assets (214,585) (696,567) (212,830) (696,567)

Increase in operating receivable (162,711,841) (80,952,661) (162,390,294) (80,871,018)

Increase in operating payable 192,096,850 112,662,328 191,982,079 112,568,628

Net cash flows from operating activities 33,843,239 34,990,609 34,048,785 34,978,564

122 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

(2) Investing and financing activities that do not involve cash receipts and payments

In 2010, there were no investing and financing activities that did not involve cash receipts and payments (2009: nil).

(3) Movement of cash and cash equivalents

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Cash at end of year 52,787,037 36,635,725 52,688,082 36,625,025

Less: cash at beginning of year (36,635,725) (32,094,040) (36,625,025) (32,092,636)

Add: cash equivalents at end of year 27,973,659 42,654,346 27,973,659 42,654,346

Less: cash equivalents at beginning of year (42,654,346) (41,659,141) (42,654,346) (41,659,141)

Net increase in cash and cash equivalents 1,470,625 5,536,890 1,382,370 5,527,594

(4) Cash and cash equivalents

The cash and cash equivalents listed in the cash flow statements are set out below:

2010 Consolidated 2009 Consolidated 2010 The Bank 2009 The Bank

Cash 2,145,080 2,188,046 2,143,989 2,187,494

Unrestricted deposits with central bank 17,049,344 10,430,036 17,030,830 10,417,929

Original maturity within three months:

- Due from banks and other financial 25,898,899 13,810,866 25,819,549 13,812,825 institutions

- Placements with banks and other 7,693,714 10,206,777 7,693,714 10,206,777 financial institutions

- Assets purchased under resale 27,973,659 41,704,624 27,973,659 41,704,624 agreements

- Available-for-sale financial assets - 949,722 - 949,722

Total 80,760,696 79,290,071 80,661,741 79,279,371

48 Segmental information

The Group’s management evaluated the operation results from corporate banking, retail banking and treasury business perspective. The segment income, profit, assets and capital expenditures listed in the operating segment report including all the related items that could be directly attributable to a segment or allocated based on reasonable basis. As part of assets and liabilities management, the Bank’s fund is allocated to each segment based on the business nature, and the fund pricing is calculated according to the benchmark interest rates issued by PBOC or current market interest rates, and internal transactions have been eliminated during the preparation of the financial statements.

Corporate banking business - providing banking services for corporate customers, including deposit taking, loan lending, trade finance, agency service, entrusting services and credit assurance.

Retail banking business - providing banking services for individual customers, including savings, investment saving, entrusting, bank cards, credit and individual assets management, settlement, agent and credit assurance.

Treasury business - including trading of the derivatives of interest rate and foreign exchanges, trading in money markets, securities investment and assets and liabilities management.

Other business - including segments that could not be listed separately or could not be divided by any reasonable benchmark.

123 Notes to the Financial Statements

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Consolidated

Corporate banking Retail banking Treasury Others Total

2010

I. Operating income

Net interest income- external 9,003,511 185,971 5,289,404 - 14,478,886

Net interest income- internal 1,654,403 1,806,289 (3,460,692) - -

Net interest income 10,657,914 1,992,260 1,828,712 - 14,478,886

Net fee and commission income 532,546 202,349 229,322 - 964,217

Net gain on investments - - 92,648 25,042 117,690

Fair value changes - - (56,927) - (56,927)

Exchange gain 54,401 14,018 (26,217) - 42,202

Other operating income 24,251 856 64,051 - 89,158

II. Operating expense

Operating and administrative expense (3,909,666) (1,637,712) (278,473) - (5,825,851)

Allowance for impairment losses (1,253,979) 50,011 1,551 13,820 (1,188,597)

Other operating expenses - - (11,701) - (11,701)

III. Operating income 6,105,467 621,782 1,842,966 38,862 8,609,077

Net non-operating income - - 770 (8,697) (7,927)

IV. Profit before tax 6,105,467 621,782 1,843,736 30,165 8,601,150

Income tax expenses (1,795,576)

V. Net profit 6,805,574

Depreciation and amortization 443,501 205,177 22,400 - 671,078

Capital expenditure 554,335 298,374 32,872 - 885,581

31 December 2010

Total Assets 372,391,509 63,306,889 295,337,935 2,174,171 733,210,504

Total Liabilities 460,949,604 101,741,693 127,879,087 73,236 690,643,620

124 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

Consolidated

Corporate banking Retail banking Treasury Others Total

2009

I. Operating income

Net interest income- external 7,582,224 (351,811) 3,723,509 - 10,953,922

Net interest income- internal (443,080) 1,642,094 (1,199,014) - -

Net interest income 7,139,144 1,290,283 2,524,495 - 10,953,922

Net fee and commission income 311,499 207,730 130,875 - 650,104

Net gain on investments - - 371,697 1,284 372,981

Fair value changes - - (290,392) - (290,392)

Exchange gain 111,264 9,369 432 - 121,065

Other operating income 18,794 684 66,947 - 86,425

II. Operating expense

Operating and administrative expense (2,738,831) (1,079,657) (243,101) - (4,061,589)

Allowance for impairment losses (668,837) (28,873) 7,434 23,974 (666,302)

Other operating expenses - - (11,703) - (11,703)

III. Operating income 4,173,033 399,536 2,556,684 25,258 7,154,511

Net non-operating income - - - 7,729 7,729

IV. Profit before tax 4,173,033 399,536 2,556,684 32,987 7,162,240

Income tax expenses (1,529,444)

V. Net profit 5,632,796

Depreciation and amortization 366,568 159,590 27,370 - 553,528

Capital expenditure 452,378 244,680 39,300 - 736,358

31 December 2009

Total Assets 297,473,735 38,581,005 196,321,173 1,093,405 533,469,318

Total Liabilities 375,536,814 75,932,456 44,351,205 71,072 495,891,547

125 Notes to the Financial Statements

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The Bank

Corporate banking Retail banking Treasury Others Total

2010

I. Operating income

Net interest income-external 9,002,778 179,381 5,278,390 - 14,460,549

Net interest income-internal 1,654,403 1,806,289 (3,460,692) - -

Net interest income 10,657,181 1,985,670 1,817,698 - 14,460,549

Net fee and commission income 531,784 201,927 229,322 - 963,033

Net gain on investments - - 92,072 25,042 117,114

Fair value changes - - (55,145) - (55,145)

Exchange gain 54,401 14,018 (26,217) - 42,202

Other operating income 24,184 856 64,051 - 89,091

II. Operating expense

Operating and administrative expense (3,907,674) (1,620,406) (276,680) - (5,804,760)

Allowance for impairment losses (1,253,941) 51,018 1,551 13,820 (1,187,552)

Other operating expenses - - (11,701) - (11,701)

III. Operating income 6,105,935 633,083 1,834,951 38,862 8,612,831

Net non-operating income - - - (8,697) (8,697)

IV. Profit before tax 6,105,935 633,083 1,834,951 30,165 8,604,134

Income tax expenses (1,796,889)

V. Net profit 6,807,245

Depreciation and amortization 442,988 204,144 22,117 - 669,249

Capital expenditure 554,271 292,275 32,836 - 879,382

31 December 2010

Total Assets 372,342,316 63,160,866 295,020,808 2,482,394 733,006,384

Total Liabilities 460,791,345 101,674,551 127,916,252 73,214 690,455,362

126 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

The Bank

Corporate banking Retail banking Treasury Others Total

2009

I. Operating income

Net interest income-external 7,581,918 (353,310) 3,723,086 - 10,951,694

Net interest income-internal (443,080) 1,642,094 (1,199,014) - -

Net interest income 7,138,838 1,288,784 2,524,072 - 10,951,694

Net fee and commission income 311,499 207,016 130,875 - 649,390

Net gain on investments - - 371,452 1,284 372,736

Fair value changes - - (290,392) - (290,392)

Exchange gain 111,264 9,369 432 - 121,065

Other operating income 18,794 684 66,947 - 86,425

II. Operating expense

Operating and administrative expense (2,737,033) (1,077,374) (243,123) - (4,057,530)

Allowance for impairment losses (668,693) (28,294) 7,434 23,974 (665,579)

Other operating expenses - - (11,703) - (11,703)

III. Operating income 4,174,669 400,185 2,555,994 25,258 7,156,106

Net non-operating income - - - 7,729 7,729

IV. Profit before tax 4,174,669 400,185 2,555,994 32,987 7,163,835

Income tax expenses (1,529,444)

V. Net profit 5,634,391

Depreciation and amortization 366,080 158,994 27,350 - 552,424

Capital expenditure 451,055 243,063 39,247 - 733,365

31 December 2009

Total Assets 297,439,766 38,512,143 196,322,976 1,103,407 533,378,292

Total Liabilities (375,453,168) (75,897,982) (44,395,830) (71,704) (495,818,054 )

127 Notes to the Financial Statements

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VIII CONTINGENT LIABILITIES AND COMMITMENTS

1 Credit commitments

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Letters of credit issued 3,095,431 1,375,649

Letters of guarantee issued 21,911,711 15,119,092

Bank acceptances 46,190,801 25,703,485

Unused credit facilities 6,745,305 3,293,543

Payment of bills of exchange for other banks 4,869,800 350,582

Total 82,813,048 45,842,351

2 Operating lease

31 December 2010 31 December 2009 31 December 2010 31 December 2009

Consolidated Consolidated The Bank The Bank

Within 1 year 264,218 217,738 258,868 217,738

Between 1 and 2 years 222,532 410,327 217,182 410,327

Between 2 and 3 years 182,214 157,624 176,865 157,624

Over 3 years 694,361 575,604 607,430 575,604

Total 1,363,325 1,361,293 1,260,345 1,361,293

3 Assets pledged

Assets are pledged as collateral under repurchase agreements with banks and other financial institutions. As at 31 December 2010 and 31 December 2009, PBOC bills and bonds were pledged under the repurchase agreements by which the parties accepted the pledges had no right to sell or re-pledge.

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Investment securiteis issued by:

- Government 17,752,625 3,659,750

- Central bank 6,158,462 -

- Policy banks 10,423,384 -

- Other financial institutions 1,999,960 -

- Corporate 4,852,719 -

The pledged assets accepted by the Group in relation to repurchase agreements cannot be sold or re-pledged.

128 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

4 Capital commitments

31 December 2010 31 December 2009 31 December 2010 31 December 2009

Consolidated Consolidated The Bank The Bank

Contracted but not provided for 80,892 600,727 79,150 600,727

Authorised but not contracted for 79,319 276,965 79,319 276,965

The above capital commitments are related to equipments purchases, system developments and equity investment. The Group’s management is confident that the Bank’s liquidity and future profit will be sufficient to cover these commitments.

5 Underwriting liabilities

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Short -term and medium-term financing bills, 6,644,000 6,500,000 and collective notes

The above commitment represents the portion of firm commitment of underwriting of securities by the Group and the Bank as the lead underwriter that had been approved by the regulatory authorities but had not been issued.

6 Bearer bonds and savings-type treasury bonds redemption commitments

As at 31 December 2010, the amount of bearer bonds and savings-type treasury bonds that the Group and the Bank had an obligation to redeem prior to maturity was Rmb9.261 billion (31 December 2009: Rmb8.366 billion). The original maturities of these bonds vary from 1 to 5 years.

7 Legal proceedings

The Group was involved as a defendant in a number of outstanding litigations and issues that may lead to litigation and claims. As at 31 December 2010, provision of Rmb40.413 million was made (31 December 2009: Rmb41.322 million). Management of the Group believes that the ultimate outcome of these lawsuits will not have a material impact on the financial position or operating results of the Group.

IX ENTRUSTED BUSINESS

The Group holds and manages assets in the capacity of an agent or in other entrusted businesses. The financial statements presented herein do not cover the entrusted assets and the income generated from such assets that the Group manages as a custodian, trustee or agent, assuming only custodian obligations, and has committed to return to the customers.

The Group originates entrusted loans and makes entrusted investments on behalf of third-party customers. As an intermediate, the Group extends loans or makes investments to borrowers in accordance with the intent of the third-party customers who provide the funding, and enters into agreements with the third-party customers to manage and collect the loans or make investments on behalf of them. The third-party customers make their own decisions on the terms and conditions for making entrusted loans and investments, including the purpose, amount, interest rates and repayment arrangements of the loans or investments. The Group collects commission fees from the entrusted loans or investments and recognises the commission fees as income on a proportional basis during the servicing period. However, the risk of loss on the loans or investments shall be assumed by the third-party customers.

129 Notes to the Financial Statements

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X RELATED PARTIES AND RELATED PARTY TRANSACTIONS

1 Related parties

If a party has the power, whether directly or indirectly, to control, jointly control or exercise significant influence over another party, or if two or more parties are subject to control, joint control or significant influence from the same party, the related party relationships shall be deemed to have been constituted Individuals or companies are likely to be related parties.

(1) The shareholders with 5% or more shares of the Bank:

The related parties’ names and shareholders with 5% or more shares of the Bank are shown as follow:

31 December 2010 31 December 2009 Related parties Shares (thousand) Percentage (%) Shares (thousand) Percentage (%)

ING BANK N.V. 1,000,485 16.07 1,000,485 16.07

Beijing State-owned Assets Management 648,164 10.41 648,164 10.41 Co., Ltd.

Beijing Energy Investment Holding Co., Ltd. 372,207 5.98 372,207 5.98

(2) Subsidiaries and Associates

For the information of the subsidiaries and associates of the Bank including the basic information, the registered capital and the shares held by the Bank, please refer to Notes VI and Notes VII.12.

(3) Other related parties

Other related parties include key management, enterprises controlled, jointly controlled or under significant influence of key management or their close family members.

2 Related party transactions and balances

The Bank has normal banking transactions with related parties in daily operations. These transactions mainly include deposits and loans. Related party transactions of the Bank are all carried out according to the ordinary commercial terms and normal business causes, and the pricing principles are consistent with transactions with independent third parties.

(1) Transaction with subsidiaries

31 December 2010 The Bank 31 December 2009 The Bank

Due to banks and other financial institutions 37,660 44,599

Due from banks and other financial institutions 6,357 4,400

2010 The Bank 2009 The Bank

Interest rate range

Due to banks and other financial institutions 0.36%-2.2% 0.36%-1.35%

Due from banks and other financial institutions 0.36%-4.2% 0.72%-2.78%

Assets purchased under resale agreements 1.63%-3.35% -

130 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

2010 The Bank 2009 The Bank

Interest income of assets purchased under resale 6,688 - agreements

Interest income of due from banks and other 87 21 financial institutions

Fee and commission income 1,032 120

Interest expense of due to banks and other (1,711) (263) financial institutions

General and administrative expenses - (93)

(2) Transaction with associate

2010 Consolidated and the Bank 2009 Consolidated and the Bank

Fee and commission income 600 -

(3) Transaction with joint venture

2010 Consolidated and the Bank 2009 Consolidated and the Bank

Fee and commission income 11,324 -

(4) Transactions with shareholders with 5% or more shares of the Bank

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Loans and advances to customers 400,000 400,000

Customer deposits 186,380 192,240

Investment securities 150,000 -

Due from banks and other financial institutions 8,465 7,312 Placements with banks and other financial - 409,596 institutions Derivative financial assets - 1,125

Off-balance sheet items * 1,460,547 166,717 * The off-balance sheet items include letter of guarantee issued, standby and letter of credit payment and irrevocable credit commitments.

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Interest rate range:

Loans and advances to customers 4.779%-4.86% 4.78%

Customer deposits 0.36%-2.5% 0.36%-4.14%

Bond investment * 1 year Depo+172bp -

Due from banks and other financial institutions** Eonia+(-0.75%) Eonia+(-0.75%)

Placements with banks and other financial institutions 0.2%-4.26% 0.1%-3.7% * Depo is interest rate of deposit. ** Eonia (Euro Over Night Index Average) is an effective overnight interest rate computed by weighted average of all overnight unsecured lending transactions.

131 Notes to the Financial Statements

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31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Interest income of loans and advances to customers 29,332 44,915

Interest expense of customer deposit (7,202) (12,589)

Interest income of bond investment 4,714 -

Interest income of due from banks and other financial -45 institutions Interest income of placements with banks and other 450 10,110 financial institutions

Notes underwriting income 1,275 -

Currency option income 202 -

(5) Transactions with other related parties

As at 31 December 2010, 14 entities were related parties of the Bank as key management personnel (mainly directors and supervisors) of the Bank acting as their chairman of the board or general manager.

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Loans and advances to customers 2,750,000 1,680,000

Customer deposits 87,634 319,324

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Interest rate range:

Loans and advances to customers 4.779%-5.85% 4.78%-5.40%

Customers deposits 0.36%-2.50% 0.36%-4.14%

Assets purchased under resale agreements - 1.19%

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Interest income of loans and advances to customers 126,999 53,254

Interest expense of customer deposits (4,907) (3,843)

Fee and commission income 60 -

Interest income of assets purchased under resale -29 agreements

(6) Transactions with directors and senior management

Key management personnel are persons having authority and responsibility for planning, directing and controlling the activities of the Bank, including directors and senior management.

132 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Deposits 12,830 12,932

Loans - 2,718

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Shares of the Bank held (In thousands) 3,029 4,756

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Salaries and short-term welfare 25,566 28,692

Employment benefits, retirement plan and other long- 199 187 term welfare

The payment of salaries and welfare to non-Chinese directors are included in salaries and short-tem welfare.

XI FINANCIAL RISK MANAGEMENT

1. Overview of financial risk management

The Group extensively used financial instruments in its operating activities. The Group accepts deposits from customers at both fixed and floating rates for various periods, and seeks to earn above-average interest margins by investing these funds in high quality assets. The Group seeks to increase these margins by lending short-term funds to long term loans at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due. The Group operates its business in China mainland under an interest rate scheme regulated by PBOC.

The Group also seeks to raise its interest margins by obtaining above-average margins through lending to commercial and retail borrowers with a range of credit standing. Such exposures involve not only on-balance sheet loans and advances to customers, but also guarantees and other commitments, such as letters of credit, guarantees, and acceptances.

The Group faces various financial risks during its operating activities, mainly including credit risk, market risk and liquidity risk. In managing its risks, the Group focuses on the identification, measurement, monitoring and control of various risks, and complies with the requirements of the regulatory authorities, depositors and other stakeholders.

The Board of Directors is the supreme decision-making institution for the risk management of the Group, which is responsible for determining the credit risk appetite and risk tolerance of the Group. The Risk Management Committee of the Board of Directors is authorised to approve the risk management strategies, policies and procedures. Senior management of the Group authorised the Credit Risk Committee, the Credit Risk Policies Committee, the Assets and Liabilities Committee and the Operation Risk Committee, which are respectively responsible for the controlling on the credit risk, market risk and operation risk and the approval of related policies and procedures. Besides, in accordance with the requirements of overall risk management, the Group has set up several risk management departments to implement different risk management functions, including the Credit Risk Departments, the Credit Approval Department, the Legislation and Compliance Department and Market Risk Office, to enhance the combined management ability covering the three risks.

133 Notes to the Financial Statements

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2. Credit risk

Credit risk is the risk of loss that counterparty may not meet its obligations according to the original contractual terms of its facility with the Group. Credit risk is the greatest risk connected to the Group’s operating activities, and the management manages its credit risk exposure in line with prudent principles. The credit risks faced by the Group mainly arising from its loan portfolio, investment portfolio, trade finance, guarantees and other payment commitments.

The Risk Management Committee determines, coordinates and arranges the procedures to avoid the credit risk of the Group, and manages credit risk by professional methods and procedures in credit approval, centralized monitoring, centralized operation and settlement of non-performing assets and so on. The credit risk management functions of the Group comprise the following hierarchies: the overall credit risk control is implemented by the Credit Risk Management Department of the Head Office in collaboration with risk management functional departments of the Head Office including the Credit Approval Department, Post- lending Management Department, Asset and Liability Department and Legislation and Compliance Department; for credit risk- based products and business lines, the Group has set up dedicated functions to address credit risks, including the Credit Approval Department, Small and Middle Enterprise Centre, Retail Loan Centre, Vouchers and Certificates Centre and other professional institutions; where appropriate, the Group also sets up regional risk management departments or branch risk management departments to manage the credit risks in their respective jurisdiction.

(1) Credit risk measurement a. Loans and advances to customers

Monitoring and measurement of credit risk over loans and advances and off-balance sheet credit related exposures is performed by the Risk Management Department, and reported to the senior management and Board of Directors regularly.

The Group measures and manages the credit quality of loans and advances to corporate and personal customers based on the “Guiding Principles on the Classification of Loan Risk Management” issued by the CBRC, which requires Chinese commercial banks to classify their corporate and personal loans into five categories: pass, special-mention, substandard, doubtful and loss, among which loans classified in the substandard, doubtful and loss categories are regarded as non-performing.

Guidelines on risk-based loan classification defines the five grading as follows:

Pass: the borrower can meet its contractual obligations, and there is no doubt on the borrower’s ability to repay the scheduled principal and interest payments in full and on time.

Special mention: although there is no doubt on the borrower’s ability to repay at this point in time, there exist potential indications that may affect its ability to repay in the future.

Sub-standard: the borrower’s repayment ability is apparently in question. It cannot depend on its normal operating revenue to repay in full the principal and interest. Even when the Group executes the guarantee or realises the collateral, there is possibility of some loss.

Doubtful: the borrower cannot repay the principal and interest in full. Even when the Group executes the guarantee or realises the collateral, there is possibility of substantial loss.

Loss: after exhausting all possible means of recovery actions or taking the necessary legal actions, there is still no recovery of principal and interest, or the recovery is negligible. b. Debt securities and other bills

The Credit Risk Committee of the Group sets credit limits for every customer in its treasury transactions (including counterparties, debt issuers, etc.). Debt securities are converted to utilised credit limit using a conversion coefficient that matches the maturity and rating of the debt securities, while derivative financial instruments are converted to utilised credit limit using a conversion coefficient that matches the risk factors and maturities of the derivative financial instruments. The Treasury Department engages in debt securities and derivative financial instruments transactions within these limits.

134 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

Debt securities in foreign currencies include mainly sovereign bonds issued overseas by the Chinese government or bonds issued overseas by quasi-sovereign issuers, such as Chinese policy banks, sovereign bonds in major convertible currencies issued by countries with a sovereign rating of AA- and above or quasi-sovereign bonds issued by quasi-sovereign issuers, including the government agencies of these countries, and bonds with a rating of A and above issued by financial institutions.

Rmb debt securities include mainly treasury bonds issued by the Ministry of Finance, notes issued by PBOC in open markets, financial bonds issued by Chinese policy related banks, and bonds issued by other debt issuers who meet relevant regulatory requirements and basic conditions prescribed by the Group.

(2) Risk limit management and risk mitigation measures

The Group controls its credit risks mainly through establishing and implementing strict investigation, review and approval and loan origination and placement procedures for its lending activities, regular analysis of the ability to repay interests and principals of its existing and potential customers, appropriate adjustments of credit limits, and creating and applying risk control measures in a timely manner. In addition, the Group acquires collaterals and guarantees to help manage its credit risks.

Credit risk limit management a. Loans and advances to customers

The Group has developed its guidelines for credit risk limit management, defining the credit risk limits for individual customers, single group customer, regions and industries and the parties responsible for monitoring and managing credit risk limits. The credit limit management guidelines have been approved by the Risk Management Committee for implementation, and operations in excess of credit limits must be reported to the Presidents’ meeting or the Risk Management Committee for approval before they can be engaged.

On the basis of the regulatory indicators and the risk concentration indicators prescribed in its credit policies, the Group analyses on a regular basis the compliance with relevant risk limits, reports the results on a monthly basis to the senior management and on a quarterly basis to the Risk Management Committee and regulatory authorities, and discloses relevant information to the public on a regular basis in compliance with the information disclosure policies and regulatory information disclosure requirements. b. Bond investments

The Group sets limits for its debt securities portfolio, issuers and single issue of debt securities so as to manage credit risks on debt securities on a portfolio basis.

Risk mitigation measures a. Guarantee and collaterals

The Group requires guarantee from borrowers as a measure for risk mitigation based on the level of credit risk involved. Collaterals are widely used as a mean of guarantee in the Group’s credit facilities. Collaterals acceptable to the Group include mainly marketable securities, debt securities, equity shares, real estate properties, land use rights, machinery and equipment, transportation vehicles, etc.

The Group appoints professional intermediaries to assess the value of the collaterals, and uses the assessment report from professional intermediaries to support its decision-making during the review process. In the Group, the Credit Risk Management Committee and other authorised review and approval bodies at the Head Office are responsible for validating the assessment results and making final decisions on the collateral rates for the Group’s lending activities.

After granting the credit facilities, the Group requires dynamic understating and updated knowledge of the ownership, status, amount, market value and realisable value of collaterals, and post-lending management of collaterals at least on a quarterly basis. At the same time, the Group begins to arrange re-assessment of collaterals on an annual basis. If a loan becomes impaired, the value of collaterals shall be considered to determine whether additional collaterals or collaterals with higher reliability should be provided by the borrower.

135 Notes to the Financial Statements

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For loans secured with guarantee from third parties, the Group applies the same procedures and standards applicable to the borrowers to assess the guarantor’s financial position, credit records and ability to meet its obligations.

For financial assets other than investment securities classified as receivables, the collaterals shall depend on the types of financial instruments. Debt securities are generally not secured with collaterals, while asset-backed securities are generally secured by a pool of financial assets. b. Master netting arrangements

The Group further restricts its exposure to credit losses by entering into master netting arrangements with counterparties with which it undertakes a significant volume of transactions. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross basis. However, the credit risk associated with favourable contracts is reduced by a master netting arrangement to the extent that if a default occurs, all amounts with the customer are terminated and settled on a net basis. c. Credit commitments

The main objective of credit commitments is to ensure that customers get the funds they need. The Group makes irrevocable guarantee when it issues letters of guarantee and letters of credit, i.e. the Group shall make repayments on behalf of the customer if the customer cannot meet its repayment obligations to a third party, and the Group assumes the same credit risks as those of a loan. In certain circumstances, the Group receives margin deposit to reduce the credit risk involved in providing this service. The margin deposit is collected at a certain percentage of the committed amount based on the credibility of the customer.

(3) Impairment analysis on credit assets and the provision policies

According to the Group’s accounting policies, if objective evidence indicates a decrease of expected future cash flow from a loan and that such decrease can be estimated, the Group recognises an impairment loss on the loan and accordingly accrues impairment loss provisions.

The criteria for objective evidence used by the Group to determine impairment includes: · Default or delinquency in repayment of interests or principals; · Financial difficulty of the borrower (e.g. deterioration of indicators, including equity ratio, the ratio of net profit against income); · Breach of loan covenants or conditions; · Initiation of bankruptcy proceedings; · Deterioration of the borrower’s competitive position; · Downgrading to below investment grade level. The Group reviews at least once every quarter the quality of individually significant financial assets. For assets whose allowance is provided individually, the Group assesses the loss of each of such assets at the balance sheet date to determine the amount of provision. During the assessment, the Group usually considers the value of the collaterals for and future cash flows from these assets.

The Group provides allowance for the following asset portfolios based on historical data, empirical judgment and statistical techniques: (1) group of individually insignificant assets with similar credit risk characteristics; (2) unidentified impaired assets.

(4) Maximum risk exposure

The following shows the Group and the Bank’s maximum credit risk exposures on the balance sheet as of 31 December 2010 and 31 December 2009 without any consideration of collaterals, guarantees or other credit mitigation measures. For on-balance sheet financial assets, the credit risk exposure is their carrying values at the balance sheet date.

136 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Credit risk exposures relating to on-balance sheet financial assets are as follows:

Due from banks and other financial 41,436,843 13,810,866 41,357,493 13,812,825 institutions

Cash and deposits with central bank 102,051,799 65,944,786 102,013,543 65,923,548

Placements with banks and other 22,556,667 10,721,546 22,376,667 10,721,546 financial institutions

Trading assets 16,717,668 11,515,704 16,668,828 11,515,704

Derivative financial instruments 26,598 18,615 26,598 18,615

Assets purchased under resale 65,114,658 42,746,679 65,114,658 42,746,679 agreements

Loans and advances to customers

- Corporate loans 283,642,557 242,111,181 283,624,509 242,096,845

- Retail loans 43,960,247 25,338,927 43,829,515 25,281,616

Available-for-sale financial assets 78,388,297 63,595,865 78,388,297 63,595,865

Held-to-maturity investments 64,108,097 44,723,620 64,108,097 44,723,620

Investment securities classified as 4,676,937 4,315,942 4,676,937 4,315,942 receivables

Long-term equity investments 1,177,555 310,821 1,487,555 320,821

Interest receivable 2,838,956 1,997,391 2,836,904 1,997,249

Other financial assets 81,775 268,284 81,576 268,284

Sub-total 726,778,654 527,420,227 726,591,177 527,339,159

Credit risk exposures relating to off-balance sheet are as follows:

Letters of credit 3,095,431 1,375,649 3,095,431 1,375,649

Letters of guarantee 21,911,711 15,119,092 21,911,711 15,119,092

Bank acceptances 46,190,801 25,703,485 46,190,801 25,703,485

Unused credit card limit 6,745,305 3,293,543 6,745,305 3,293,543

Payment of bills of exchange for 4,869,800 350,582 4,869,800 350,582 other banks

Sub-total 82,813,048 45,842,351 82,813,048 45,842,351

Total 809,591,702 573,262,578 809,404,225 573,181,150

(5) Overdue and impairment of financial assets

Overdue and impaired loans and advances to customers, due from banks and other financial institutions, placements with banks and other financial institutions, assets purchased under resale agreements, available-for-sale financial assets and held-to-maturity investments:

137 Notes to the Financial Statements

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Loans and advances to customers Due from Placements Assets Available- Investment banks with banks purchased Held-to- for-sale securities and other and other under maturity Corporate financial classified as Retail loans Total financial financial resale investments loans assets receivables institutions institutions agreements

31 December 2010 Consolidated

Neither overdue nor 288,419,257 43,722,558 332,141,815 41,436,843 22,556,667 65,114,658 78,388,297 64,108,097 4,676,937 impaired Overdue but not - 268,704 268,704 ------impaired

Impaired 1,846,471 474,782 2,321,253 226,896 362,474 85,524 54,262 - -

Total 290,265,728 44,466,044 334,731,772 41,663,739 22,919,141 65,200,182 78,442,559 64,108,097 4,676,937

Less: allowance for (6,623,171) (505,797) (7,128,968) (226,896) (362,474) (85,524) (54,262) - - impairment losses

Net value 283,642,557 43,960,247 327,602,804 41,436,843 22,556,667 65,114,658 78,388,297 64,108,097 4,676,937

31 December 2009 Consolidated

Neither overdue nor 245,290,506 25,131,844 270,422,350 13,810,866 10,716,373 42,746,679 63,595,865 44,723,620 4,315,942 impaired Overdue but not - 262,842 262,842 ------impaired

Impaired 2,227,183 568,567 2,795,750 226,896 382,021 85,524 54,262 - -

Total 247,517,689 25,963,253 273,480,942 14,037,762 11,098,394 42,832,203 63,650,127 44,723,620 4,315,942

Less: allowance for (5,406,508) (624,326) (6,030,834) (226,896) (376,848) (85,524) (54,262) - - impairment losses

Net value 242,111,181 25,338,927 267,450,108 13,810,866 10,721,546 42,746,679 63,595,865 44,723,620 4,315,942

31 December 2010 The Bank

Neither overdue nor 288,401,027 43,590,368 331,991,395 41,357,493 22,376,667 65,114,658 78,388,297 64,108,097 4,676,937 impaired

Overdue but not - 268,662 268,662 ------impaired

Impaired 1,846,471 474,696 2,321,167 226,896 362,474 85,524 54,262 - -

Total 290,247,498 44,333,726 334,581,224 41,584,389 22,739,141 65,200,182 78,442,559 64,108,097 4,676,937

Less: allowance for (6,622,989) (504,211) (7,127,200) (226,896) (362,474) (85,524) (54,262) - - impairment losses

Net value 283,624,509 43,829,515 327,454,024 41,357,493 22,376,667 65,114,658 78,388,297 64,108,097 4,676,937

31 December 2009 The Bank

Neither overdue nor 245,276,026 25,073,954 270,349,980 13,812,825 10,716,373 42,746,679 63,595,865 44,723,620 4,315,942 impaired Overdue but not - 262,842 262,842 ------impaired

Impaired 2,227,183 568,567 2,795,750 226,896 382,021 85,524 54,262 - -

Total 247,503,209 25,905,363 273,408,572 14,039,721 11,098,394 42,832,203 63,650,127 44,723,620 4,315,942

Less: allowance for (5,406,364) (623,747) (6,030,111) (226,896) (376,848) (85,524) (54,262) - - impairment losses

Net value 242,096,845 25,281,616 267,378,461 13,812,825 10,721,546 42,746,679 63,595,865 44,723,620 4,315,942

138 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

a. Neither overdue nor impaired

The following table presents five-grading status of neither overdue nor impaired loans and advances to customers:

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Corporate loans

- Pass 280,514,607 238,031,388 280,496,377 238,016,908

- Special mention 7,904,650 7,259,118 7,904,650 7,259,118

288,419,257 245,290,506 288,401,027 245,276,026

Retail loans

- Pass 43,722,558 25,131,844 43,590,368 25,073,954

Total 332,141,815 270,422,350 331,991,395 270,349,980 b. Overdue but not impaired

Unless there are impairment indications, financial assets overdue for less than 90 days are generally not regarded as impaired, overdue but unimpaired financial assets are disclosed by overdue days as follows:

Consolidated 31 December 2010

Loans and advances to customers

Corporate loans Retail loans Total

Overdue up to 30 days - 218,015 218,015

Overdue 30-60 days - 38,417 38,417

Overdue 60-90 days - 12,272 12,272

Total - 268,704 268,704

Consolidated 31 December 2009

Loans and advances to customers

Corporate loans Retail loans Total

Overdue up to 30 days - 196,032 196,032

Overdue 30-60 days - 46,566 46,566

Overdue 60-90 days - 20,244 20,244

Total - 262,842 262,842

The Bank 31 December 2010

Loans and advances to customers

Corporate loans Retail loans Total

Overdue up to 30 days - 217,995 217,995

Overdue 30-60 days - 38,395 38,395

Overdue 60-90 days - 12,272 12,272

Total - 268,662 268,662

139 Notes to the Financial Statements

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The Bank 31 December 2009

Loans and advances to customers

Corporate loans Retail loans Total

Overdue up to 30 days - 196,032 196,032

Overdue 30-60 days - 46,566 46,566

Overdue 60-90 days - 20,244 20,244

Total - 262,842 262,842 c. Financial assets impaired

(i) Loans and advances to customers

Loans and advances to customers impaired by guarantee are listed as follows:

31 December 2010 Consolidated 31 December 2009 Consolidated

Unsecured loans 305,706 294,115

Guaranteed loans 1,291,382 1,224,549

Collateralised and pledged loans

- Collateralised loans 661,475 1,214,396

- Pledged loans 62,690 62,690

Total 2,321,253 2,795,750

31 December 2010 The Bank 31 December 2009 The Bank

Unsecured loans 305,620 294,115

Guaranteed loans 1,291,382 1,224,549

Collateralised and pledged loans -

- Collateralised loans 661,475 1,214,396

- Pledged loans 62,690 62,690

Total 2,321,167 2,795,750

(ii) Other impaired financial assets

The Group has set aside full provisions for the impaired placements with banks and other financial institutions, due from banks and other financial institutions, financial assets purchased under resale agreements which were carried forward from history.

(6) Investment securities

The following table presents the external rating agencies’ ratings of the debt securities held by the Group as at 31 December 2010 and 31 December 2009:

140 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

31 December 2010

Consolidated

Investment Available-for- Held-to- securities Trading assets sale financial maturity Total classified as assets investments receivables

Rmb long-term bonds (1 year and above):

AAA 1,296,968 8,881,237 900,000 7,142,874 18,221,079

AA- to AA+ 795,117 966,530 903,746 1,505,374 4,170,767

Unrated, issued by:

- Government 545,810 4,881,362 1,548,979 37,052,740 44,028,891

- Central bank - 9,497,939 - - 9,497,939

- Policy banks 7,503,225 21,832,547 - 14,891,891 44,227,663

- Other financial institutions - 34,859 330,000 - 364,859

-Corporate - 471,060 - - 471,060

Sub-total 10,141,120 46,565,534 3,682,725 60,592,879 120,982,258

Rmb short-term bonds (less than 1 year):

AAA - 898,043 - 1,514,096 2,412,139

A-1 2,563,321 5,125,469 - 82,122 7,770,912

Unrated, issued by:

- Government 128,550 7,491,181 994,212 1,102,369 9,716,312

- Central bank 494,836 10,944,794 - - 11,439,630

- Policy banks 3,315,264 5,958,348 - 289,383 9,562,995

- Other financial institutions - 1,377 - - 1,377

Sub-total 6,501,971 30,419,212 994,212 2,987,970 40,903,365

Foreign currency bonds:

AAA 74,577 134,276 - - 208,853

A+ - 1,255,105 - 527,248 1,782,353

Unrated, issued by:

- Other financial institutions - 14,170 - - 14,170

Sub-total 74,577 1,403,551 - 527,248 2,005,376

Total 16,717,668 78,388,297 4,676,937 64,108,097 163,890,999

141 Notes to the Financial Statements

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31 December 2009

Consolidated

Investment Available-for- Held-to- securities Trading assets sale financial maturity Total classified as assets investments receivables

Rmb long-term bonds (1 year and above):

AAA 783,965 10,516,783 100,000 5,038,781 16,439,529

AA- to AA+ 31,458 745,642 501,844 1,475,740 2,754,684

Unrated, issued by:

- Government 355,447 6,262,635 2,584,098 25,725,078 34,927,258

- Central bank - 800,417 400,000 1,003,355 2,203,772

- Policy banks 8,474,357 36,634,466 - 10,284,562 55,393,385

- Other financial institutions bonds - 99,594 730,000 - 829,594

Sub-total 9,645,227 55,059,537 4,315,942 43,527,516 112,548,222

Rmb short-term bonds (less than 1 year):

A-1 1,764,375 352,514 - - 2,116,889

Unrated, issued by:

- Government 40,140 4,012,920 - 40,079 4,093,139

- Central bank - 987,410 - 559,715 1,547,125

- Policy banks - 201,428 - 50,182 251,610

Sub-total 1,804,515 5,554,272 - 649,976 8,008,763

Foreign currency bonds:

AAA 65,962 198,282 - - 264,244

A+ - 2,770,675 - 546,128 3,316,803

Unrated, issued by:

- Other financial institutions - 13,099 - - 13,099

Sub-total 65,962 2,982,056 - 546,128 3,594,146

Total 11,515,704 63,595,865 4,315,942 44,723,620 124,151,131

142 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

31 December 2010

The Bank

Investment Available-for- Held-to- securities Trading assets sale financial maturity Total classified as assets investments receivables

Rmb long-term bonds (1 year and above):

AAA 1,248,128 8,881,237 900,000 7,142,874 18,172,239

AA- to AA+ 795,117 966,530 903,746 1,505,374 4,170,767

Unrated, issued by:

- Government 545,810 4,881,362 1,548,979 37,052,740 44,028,891

- Central bank - 9,497,939 - - 9,497,939

- Policy banks 7,503,225 21,832,547 - 14,891,891 44,227,663

- Other financial institutions - 34,859 330,000 - 364,859

-Corporate - 471,060 - - 471,060

Sub-total 10,092,280 46,565,534 3,682,725 60,592,879 120,933,418

Rmb short-term bonds (less than 1 year):

AAA - 898,043 - 1,514,096 2,412,139

A-1 2,563,321 5,125,469 - 82,122 7,770,912

Unrated, issued by:

- Government 128,550 7,491,181 994,213 1,102,369 9,716,312

- Central bank 494,836 10,944,794 - - 11,439,630

- Policy banks 3,315,264 5,958,348 - 289,383 9,562,995

- Other financial institutions bonds - 1,377 - - 1,377

Sub-total 6,501,971 30,419,212 994,213 2,987,970 40,903,365

Foreign currency bonds:

AAA 74,577 134,276 - - 208,853

A+ - 1,255,105 - 527,248 1,782,353

Unrated, issued by:

- Other financial institutions - 14,170 - - 14,170

Sub-total 74,577 1,403,551 - 527,248 2,005,376

Total 16,668,828 78,388,297 4,676,937 64,108,097 163,842,159

143 Notes to the Financial Statements

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31 December 2009

The Bank

Investment Available-for- Held-to- securities Trading assets sale financial maturity Total classified as assets investments receivables

Rmb long-term bonds (1 year and above):

AAA 783,965 10,516,783 100,000 5,038,781 16,439,529

AA- to AA+ 31,458 745,642 501,844 1,475,740 2,754,684

Unrated, issued by:

- Government 355,447 6,262,635 2,584,098 25,725,078 34,927,258

- Central bank - 800,417 400,000 1,003,355 2,203,772

- Policy banks 8,474,357 36,634,466 - 10,284,562 55,393,385

- Other financial institutions - 99,594 730,000 - 829,594

Sub-total 9,645,227 55,059,537 4,315,942 43,527,516 112,548,222

Rmb short-term bonds (less than 1 year):

A-1 1,764,375 352,514 - - 2,116,889

Unrated, issued by:

- Government 40,140 4,012,920 - 40,079 4,093,139

- Central bank - 987,410 - 559,715 1,547,125

- Policy banks - 201,428 - 50,182 251,610

Sub-total 1,804,515 5,554,272 - 649,976 8,008,763

Foreign currency bonds:

AAA 65,962 198,282 - - 264,244

A+ - 2,770,675 - 546,128 3,316,803

Unrated, issued by:

- Other financial institutions - 13,099 - - 13,099

Sub-total 65,962 2,982,056 - 546,128 3,594,146

Total 11,515,704 63,595,865 4,315,942 44,723,620 124,151,131

The ratings of Rmb debt securities in 2010 mainly come from China Cheng Xin International Rating Co., Ltd., Dagong Global Credit Rating Co., Ltd., and China Lianhe Credit Rating Co., Ltd. The ratings of foreign currency debt bonds in 2010 come from Moody’s Investors Service and Standard & Poor’s Ltd.

(7) Foreclosed assets

The foreclosed assets held by the Group are presented by type and carrying value as follows:

144 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

31 December 2010 31 December 2009 Consolidated and the Bank Consolidated and the Bank

Buildings 2,735 2,735

Documents of titles or claims 62,093 62,093

Other 46,333 46,298

111,161 111,126

Foreclosed assets shall be sold immediately after the balance sheet date when selling conditions are met. Foreclosed assets are included under other assets in the balance sheet.

(8) Credit concentration risk on financial assets

Geographical concentration

As at 31 December 2010 and 2009, the majority of the financial assets, financial guarantee, and relevant credit commitments held by the Group were based in mainland China. Please refer to Notes VII 8 for the geographical concentration analysis of loans and advances to customers.

Industrial concentration

As at 31 December 2010 and 2009, the major assets of the Group comprised loans (including loans and advances to customers) and securities investments (including trading assets, available-for-sale financial assets, investment securities classified as receivables and held-to-maturity investments). Please refer to Notes VII for the industrial concentration risk analysis of these financial assets.

3. Market risk

Market risk refers to the potential loss in both on or off-balance sheet caused by market prices (interest rates, exchange rates, stock prices) adverse changes.

The Group's business is divided into trading accounts and bank accounts. Trading accounts include financial instruments and commodities positions held for trading to avoid market risk. Trading accounts intend to make profit from the short-term price fluctuations. Bank accounts include other assets and liabilities. Risk Management Department fulfils recognition, measurement and monitoring of risk functions. Financial and Planning Department performs interest rate risk identification, measurement and risk monitoring for trading accounts.

(1) Techniques for measuring market risks

The Group established monitoring limitation, position limitation, risk limitation and stop-loss limitation systems to identify, monitor and control the market risk. According to the market condition and technical condition of the trading accounts, the Group established the Value at Risk (“VAR”) method under normal market condition and performed stress testing for the market risk under the extreme circumstance scenario that the various changes in market conditions may occur.

The Group currently uses sensitivity analysis to assess its bank account’s exposure to interest rate and exchange rate risks. The Group calculates on a regular basis the difference (gap) between interest-bearing assets and liabilities which become due within a certain period of time or need to be re-priced, and use the gap data to conduct sensitivity analysis of the Group’s exposure to changes of benchmark rate, market interest rates and exchange rates, in order to support the adjustment of the re-priced maturity structure of interest-bearing assets and liabilities. The Group requires the escalation of sensitivity analysis, and the results of sensitivity are regularly summarised and reported to Assets Management Committee and Risk Management Committee for review.

(2) Currency risk

The Group’s majority of business operations are denominated in Rmb, and there is a small amount of business operations denominated in US dollar, Hong Kong dollar and other foreign currencies.

145 Notes to the Financial Statements

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Changes in foreign exchange rates affect mainly the financial position and cash flows of the Group. Due to the limited volume of business in foreign currencies, foreign currency risks are insignificant to the Group. In controlling currency risks, the Group follows the key principle of maintaining optimal matching between its assets and liabilities in each currency, and monitoring its currency risk exposure on a daily basis.

The following table summarises the distribution of the Group’s and Bank’s financial assets and liabilities exposure to foreign currency exchange rate risks, and the carrying values in foreign currencies of assets, liabilities, financial guarantee and relevant credit commitments have been converted to Rmb.

As at 31 December 2010

Consolidated Other USD (in HKD (in currencies Rmb equivalent equivalent Total (in equivalent Rmb) Rmb) Rmb) Financial assets

Cash and deposits with central bank 103,737,437 386,057 27,774 45,611 104,196,879

Due from banks and other financial institutions 39,022,278 1,893,727 13,204 507,634 41,436,843 Placements with banks and other financial 21,630,000 282,406 406,896 237,365 22,556,667 institutions Trading assets 16,643,091 74,577 - - 16,717,668

Derivative financial instruments 2,745 19,505 - 4,348 26,598

Assets purchased under resale agreements 65,114,658 - - - 65,114,658

Interest receivable 2,803,822 31,521 476 3,137 2,838,956

Loans and advances to customers 320,608,103 6,774,467 99,315 120,919 327,602,804

Available-for-sale financial assets 76,984,746 1,269,275 - 134,276 78,388,297

Held-to-maturity investments 63,580,849 527,248 - - 64,108,097

Investment securities classified as receivables 4,676,937 - - - 4,676,937

Long term equity investments 1,176,562 993 - - 1,177,555

Other financial assets 81,324 - - 451 81,775

Total financial assets 716,062,552 11,259,776 547,665 1,053,741 728,923,734

Financial liabilities

Due to banks and other financial institutions (54,802,319) (282,949) (1) (1) (55,085,270) Placements from banks (13,629,999) (2,016,724) - (377,972) (16,024,695)

Derivative financial instruments (809) (8,403) - (2,706) (11,918)

Assets sold under repurchase agreements (39,741,750) - - - (39,741,750)

Customer deposits (549,675,964) (6,796,784) (663,651) (587,937) (557,724,336)

Interest payable (3,453,017) (8,503) (291) (1,192) (3,463,003)

Bonds issued (16,470,737) - - - (16,470,737)

Other financial liabilities (1,090,241) (185,206) (3,489) (147,337) (1,426,273)

Total financial liabilities (678,864,836) (9,298,569) (667,432) (1,117,145) (689,947,982)

Net on-balance sheet position 37,197,716 1,961,207 (119,767) (63,404) 38,975,752

Off-balance sheet commitments 72,092,868 9,522,740 - 1,197,440 82,813,048

146 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

As at 31 December 2009

Consolidated

Other USD (in HKD (in currencies Rmb equivalent equivalent Total (in equivalent Rmb) Rmb) Rmb)

Financial assets

Cash and deposits with central bank 67,675,009 334,257 83,275 40,291 68,132,832

Due from banks and other financial institutions 13,243,846 231,451 25,642 309,927 13,810,866

Placements with banks and other financial 9,405,174 608,933 510,574 196,865 10,721,546 institutions

Trading assets 11,449,742 65,962 - - 11,515,704

Derivative financial instruments 2,289 16,172 - 154 18,615

Assets purchased under resale agreements 42,746,679 - - - 42,746,679

Interest receivable 1,981,424 13,139 4 2,824 1,997,391

Loans and advances to customers 261,796,721 5,449,975 140,618 62,794 267,450,108

Available-for-sale financial assets 60,613,810 2,783,773 - 198,282 63,595,865

Held-to-maturity investments 44,177,492 546,128 - - 44,723,620

Investment securities classified as receivables 4,315,942 - - - 4,315,942

Long term equity investments 309,792 1,029 - - 310,821

Other financial assets 268,284 - - - 268,284

Total financial assets 517,986,204 10,050,819 760,113 811,137 529,608,273

Financial liabilities

Due to banks and other financial institutions (22,650,997) (2,877,501) (1) (1) (25,528,500)

Placements from banks (1,000,000) (580,261) - (37,019) (1,617,280)

Derivative financial instruments (3,236) (5,264) - (18) (8,518)

Assets sold under repurchase agreements (3,500,000) - - - (3,500,000)

Customer deposits (440,843,722) (4,244,532) (1,450,445) (400,004) (446,938,703)

Interest payable (2,315,738) (50,781) (937) (1,023) (2,368,479)

Bonds issued (13,468,821) - - - (13,468,821)

Other financial liabilities (1,784,443) (131,039) (7,390) (13,883) (1,936,755)

Total financial liabilities (485,566,957) (7,889,378) (1,458,773) (451,948) (495,367,056)

Net on-balance sheet position 32,419,247 2,161,441 (698,660) 359,189 34,241,217

Off-balance sheet commitments 42,352,527 2,723,481 2,045 764,298 45,842,351

147 Notes to the Financial Statements

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As at 31 December 2010

The Bank

Other USD (in HKD (in currencies Rmb equivalent equivalent Total (in equivalent Rmb) Rmb) Rmb)

Financial assets

Cash and deposits with central bank 103,698,090 386,057 27,774 45,611 104,157,532

Due from banks and other financial institutions 38,942,928 1,893,727 13,204 507,634 41,357,493

Placements with banks and other financial 21,450,000 282,406 406,896 237,365 22,376,667 institutions

Trading assets 16,594,251 74,577 - - 16,668,828

Derivative financial instruments 2,745 19,505 - 4,348 26,598

Assets purchased under resale agreements 65,114,658 - - - 65,114,658

Interest receivable 2,801,770 31,521 476 3,137 2,836,904

Loans and advances to customers 320,459,323 6,774,467 99,315 120,919 327,454,024

Available-for-sale financial assets 76,984,746 1,269,275 - 134,276 78,388,297

Held-to-maturity investments 63,580,849 527,248 - - 64,108,097

Investment securities classified as receivables 4,676,937 - - - 4,676,937

Long term equity investments 1,486,562 993 - - 1,487,555

Other financial assets 81,125 - - 451 81,576

Total financial assets 715,873,984 11,259,776 547,665 1,053,741 728,735,166

Financial liabilities

Due to banks and other financial institutions (54,839,979) (282,949) (1) (1) (55,122,930)

Placements from banks (13,629,999) (2,016,724) - (377,972) (16,024,695)

Derivative financial instruments (809) (8,403) - (2,706) (11,918)

Assets sold under repurchase agreements (39,741,750) - - - (39,741,750)

Customer deposits (549,453,429) (6,796,784) (663,651) (587,937) (557,501,801)

Interest payable (3,452,663) (8,503) (291) (1,192) (3,462,649)

Bonds issued (16,470,737) - - - (16,470,737)

Other financial liabilities (1,090,171) (185,206) (3,489) (147,337) (1,426,203)

Total financial liabilities (678,679,537) (9,298,569) (667,432) (1,117,145) (689,762,683)

Net on-balance sheet position 37,194,447 1,961,207 (119,767) (63,404) 38,972,483

Off-balance sheet commitments 72,092,868 9,522,740 - 1,197,440 82,813,048

148 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

As at 31 December 2009

The Bank

Other USD (in HKD (in currencies Rmb equivalent equivalent Total (in equivalent Rmb) Rmb) Rmb)

Financial assets

Cash and deposits with central bank 67,653,219 334,257 83,275 40,291 68,111,042

Due from banks and other financial institutions 13,245,805 231,451 25,642 309,927 13,812,825

Placements with banks and other financial 9,405,174 608,933 510,574 196,865 10,721,546 institutions

Trading assets 11,449,742 65,962 - - 11,515,704

Derivative financial instruments 2,289 16,172 - 154 18,615

Assets purchased under resale agreements 42,746,679 - - - 42,746,679

Interest receivable 1,981,282 13,139 4 2,824 1,997,249

Loans and advances to customers 261,725,074 5,449,975 140,618 62,794 267,378,461

Available-for-sale financial assets 60,613,810 2,783,773 - 198,28263,595,865

Held-to-maturity investments 44,177,492 546,128 - - 44,723,620

Investment securities classified as receivables 4,315,942 - - - 4,315,942

Long term equity investments 319,792 1,029 - - 320,821

Other financial assets 268,284 - - - 268,284

Total financial assets 517,904,584 10,050,819 760,113 811,137 529,526,653

Financial liabilities

Due to banks and other financial institutions (22,695,596) (2,877,501) (1) (1) (25,573,099)

Placements from banks (1,000,000) (580,261) - (37,019) (1,617,280)

Derivative financial instruments (3,236) (5,264) - (18) (8,518)

Assets sold under repurchase agreements (3,500,000) - - - (3,500,000)

Customer deposits (440,726,008) (4,244,532) (1,450,445) (400,004) (446,820,989)

Interest payable (2,315,612) (50,781) (937) (1,023) (2,368,353)

Bonds issued (13,468,821) - - - (13,468,821)

Other financial liabilities (1,784,290) (131,039) (7,390) (13,883) (1,936,602)

Total financial liabilities (485,493,563) (7,889,378) (1,458,773) (451,948) (495,293,662)

Net on-balance sheet position 32,411,021 2,161,441 (698,660) 359,189 34,232,991

Off-balance sheet commitments 42,352,527 2,723,481 2,045 764,298 45,842,351

(3) Interest rate risk

Interest rate risk on cash flows refers to the risk of fluctuations in future cash flows or fair value of financial instruments due to changes in market interest rates. The Group is exposed to fair value and cash flow interest rate risks arising from changes in RMB interest rates.

149 Notes to the Financial Statements

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Interest margins may increase as a result of movements of market interest rates, but may decrease in the event that unexpected movements arise. The Group operates its business predominantly in mainland China under the interest rate scheme regulated by PBOC. PBOC has historically adjusted its benchmark interest rates for loans and deposits in the same direction (though not necessarily by the same magnitude). Therefore, the Group manages its interest rate risks mainly through controlling the maturity structure of its loans and deposits.

According to PBOC regulations, interest rates on loans denominated in Rmb can be above and below the benchmark rates within certain ranges. The discount rates for Rmb notes are determined through market, but cannot be lower than the rediscount rate stipulated by the central bank. The interest rates for Rmb deposits cannot be higher than the benchmark rates of the central bank.

The Group closely monitors the interest trend of Rmb and foreign currencies, and follows the changes of the market rates to make a proper case analysis, and also adjusts the loan and deposit interest rates both in Rmb and foreign currencies to guard against the interest rate risk.

The following table summarises the interest rate risk exposure of the Group. The on-balance sheet assets and liabilities have been classified by the earlier of the contractual repricing date and the maturity date, and financial assets and liability are stated in carrying value.

As at 31 December 2010

Consolidated Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing

Financial assets

Cash and deposits with 101,606,251 - - - - 2,590,628 104,196,879 central bank

Due from banks and other financial 9,741,903 25,967,603 5,070,000 - - 657,337 41,436,843 institutions

Placements with banks and other financial 4,636,349 13,847,365 4,072,953 - - - 22,556,667 institutions

Trading assets 2,264,333 2,396,189 8,079,928 3,406,916 570,302 - 16,717,668

Derivative financial - - - - - 26,598 26,598 instruments Assets purchased under 39,234,756 18,505,046 7,374,856 - - - 65,114,658 resale agreements Investment securities - - - - - 2,838,956 2,838,956 classified as receivables Loans and advances to 294,861,124 6,541,709 21,735,633 2,601,434 1,862,904 - 327,602,804 customers Available-for-sale 2,776,991 16,917,793 33,812,653 21,957,065 2,923,795 - 78,388,297 financial assets Held-to-maturity - 611,604 3,483,096 21,533,933 38,479,464 - 64,108,097 investments

Investment receivables - 180,182 1,114,031 1,548,979 1,833,745 - 4,676,937

Long term equity - - - - - 1,177,555 1,177,555 investments

Other financial assets - - - - - 81,775 81,775

Total financial assets 455,121,707 84,967,491 84,743,150 51,048,327 45,670,210 7,372,849 728,923,734

150 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

As at 31 December 2010

Consolidated Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing Financial liabilities Due to banks and other (18,244,696) (2,737,574) (34,103,000) - - - (55,085,270) financial institutions Placements from banks (15,174,695) (850,000) - - - - (16,024,695) Derivative financial - - - - - (11,918) (11,918) instruments Assets sold under (24,666,550) (300,000) (14,775,200) - - - (39,741,750) repurchase agreements Customer deposits (379,501,383) (34,721,908) (91,290,977) (49,800,301) (1,932,830) (476,937) (557,724,336)

Interest payable - - - - - (3,463,003) (3,463,003)

Bonds issued - - (7,482,919) (2,494,307) (6,493,511) - (16,470,737)

Other financial liabilities (25,963) - - - - (1,400,310) (1,426,273)

Total Financial liabilities (437,613,287) (38,609,482) (147,652,096) (52,294,608) (8,426,341) (5,352,168) (689,947,982)

Total interest repricing gap 17,508,420 46,358,009 (62,908,946) (1,246,281) 37,243,869 2,020,681 38,975,752

As at 31 December 2009

Consolidated Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing Financial assets Cash and deposits with 65,487,300 - - - - 2,645,532 68,132,832 central bank Due from banks and 11,146,594 2,300,000 - - - 364,272 13,810,866 other financial institutions Placements with banks and other financial 131,070 10,080,880 100,000 409,596 - - 10,721,546 institutions Trading assets 500,526 2,349,335 5,025,805 2,546,295 1,093,743 - 11,515,704 Derivative financial - - - - - 18,615 18,615 instruments Assets purchased under 35,037,023 7,267,600 442,056 - - - 42,746,679 resale agreements Investment securities - - - - - 1,997,391 1,997,391 classified as receivables Loans and advances to 150,716,173 31,707,067 78,420,975 1,932,260 4,673,633 - 267,450,108 customers Available-for-sale 7,300,622 9,942,229 24,960,339 15,312,544 6,080,131 - 63,595,865 financial assets Held-to-maturity 559,715 902,805 1,456,760 12,369,713 29,434,627 - 44,723,620 investments Investment receivables - 175,941 1,552,598 1,555,559 1,031,844 - 4,315,942 Long term equity - - - - - 310,821 310,821 investments Other financial assets - - - - - 268,284 268,284 Total financial assets 270,879,023 64,725,857 111,958,533 34,125,967 42,313,978 5,604,915 529,608,273

151 Notes to the Financial Statements

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As at 31 December 2009

Consolidated Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing Financial liabilities Due to banks and other (12,778,845) (3,415,859) (2,333,796) (7,000,000) - - (25,528,500) financial institutions Placements from banks (617,280) - (1,000,000) - - - (1,617,280) Derivative financial - - - - - (8,518) (8,518) instruments Assets sold under - - (3,500,000) - - - (3,500,000) repurchase agreements Customer deposits (300,829,369) (38,892,334) (70,554,446) (30,940,911) (5,500,000) (221,643) (446,938,703)

Interest payable - - - - - (2,368,479) (2,368,479)

Bonds issued - - (7,476,616) (2,492,205) (3,500,000) - (13,468,821)

Other financial liabilities (32,134) - - - - (1,904,621) (1,936,755)

Total Financial liabilities (314,257,628) (42,308,193) (84,864,858) (40,433,116) (9,000,000) (4,503,261) (495,367,056)

Total interest repricing gap (43,378,605) 22,417,664 27,093,675 (6,307,149) 33,313,978 1,101,654 34,241,217

As at 31 December 2010

The Bank Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing Financial assets Cash and deposits with 101,567,995 - - - - 2,589,537 104,157,532 central bank Due from banks and 9,675,553 25,954,603 5,070,000 - - 657,337 41,357,493 other financial institutions Placements with banks and other financial 4,636,349 13,737,365 4,002,953 - - - 22,376,667 institutions Trading assets 2,264,333 2,396,189 8,079,928 3,358,076 570,302 - 16,668,828 Derivative financial - - - - - 26,598 26,598 instruments Assets purchased under 39,234,756 18,505,046 7,374,856 - - - 65,114,658 resale agreements Investment securities - - - - - 2,836,904 2,836,904 classified as receivables Loans and advances to 294,858,352 6,534,606 21,685,514 2,514,747 1,860,805 - 327,454,024 customers Available-for-sale 2,776,991 16,917,793 33,812,653 21,957,065 2,923,795 - 78,388,297 financial assets Held-to-maturity - 611,604 3,483,096 21,533,933 38,479,464 - 64,108,097 investments Investment receivables - 180,182 1,114,031 1,548,979 1,833,745 - 4,676,937 Long term equity - - - - - 1,487,555 1,487,555 investments Other financial assets - - - - - 81,576 81,576 Total financial assets 455,014,329 84,837,388 84,623,031 50,912,800 45,668,111 7,679,507 728,735,166

152 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

As at 31 December 2010

The Bank Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing Financial liabilities Due to banks and other (18,282,356) (2,737,574) (34,103,000) - - - (55,122,930) financial institutions Placements from banks (15,174,695) (850,000) - - - - (16,024,695) Derivative financial - - - - - (11,918) (11,918) instruments Assets sold under (24,666,550) (300,000) (14,775,200) - - - (39,741,750) repurchase agreements Customer deposits (379,329,332) (34,695,339) (91,269,421) (49,797,942) (1,932,830) (476,937) (557,501,801)

Interest payable - - - - - (3,462,649) (3,462,649)

Bonds issued - - (7,482,919) (2,494,307) (6,493,511) - (16,470,737)

Other financial liabilities (25,963) - - - - (1,400,240) (1,426,203)

Total Financial liabilities (437,478,896) (38,582,913) (147,630,540) (52,292,249) (8,426,341) (5,351,744) (689,762,683)

Total interest repricing gap 17,535,433 46,254,475 (63,007,509) (1,379,449) 37,241,770 2,327,763 38,972,483

As at 31 December 2009

The Bank Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing Financial assets Cash and deposits with 65,466,062 - - - - 2,644,980 68,111,042 central bank Due from banks and 11,148,553 2,300,000 - - - 364,272 13,812,825 other financial institutions Placements with banks and other financial 10,206,776 414,770 100,000 - - - 10,721,546 institutions Trading assets 500,526 2,349,335 5,025,805 2,546,295 1,093,743 - 11,515,704 Derivative financial - - - - - 18,615 18,615 instruments Assets purchased under 35,037,023 7,267,600 442,056 - - - 42,746,679 resale agreements Investment securities - - - - - 1,997,249 1,997,249 classified as receivables Loans and advances to 150,716,172 31,707,067 78,396,225 1,932,260 4,626,737 - 267,378,461 customers Available-for-sale 7,300,622 9,942,229 24,960,339 15,312,544 6,080,131 - 63,595,865 financial assets Held-to-maturity 559,715 902,805 1,456,760 12,369,713 29,434,627 - 44,723,620 investments Investment receivables - 175,941 1,552,598 1,555,559 1,031,844 - 4,315,942 Long term equity - - - - - 320,821 320,821 investments Other financial assets - - - - - 268,284 268,284 Total financial assets 280,935,449 55,059,747 111,933,783 33,716,371 42,267,082 5,614,221 529,526,653

153 Notes to the Financial Statements

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As at 31 December 2009

The Bank

Within 1 1-3 3 months-1 1-5 Over 5 Non-Interest Total month months year years years bearing

Financial liabilities

Due to banks and other (12,823,444) (3,415,859) (2,333,796) (7,000,000) - - (25,573,099) financial institutions

Placements from banks (617,280) - (1,000,000) - - - (1,617,280)

Derivative financial - - - - - (8,518) (8,518) instruments

Assets sold under - - (3,500,000) - - - (3,500,000) repurchase agreements

Customer deposits (300,711,655) (38,892,334) (70,554,446) (30,940,911) (5,500,000) (221,643) (446,820,989)

Interest payable - - - - - (2,368,353) (2,368,353)

Bonds issued - - (7,476,616) (2,492,205) (3,500,000) - (13,468,821)

Other financial liabilities (32,134) - - - - (1,904,468) (1,936,602)

Total Financial liabilities (314,184,513) (42,308,193) (84,864,858) (40,433,116) (9,000,000) (4,502,982) (495,293,662)

Total interest repricing gap (33,249,064) 12,751,554 27,068,925 (6,716,745) 33,267,082 1,111,239 34,232,991

Based on the above gap analysis on interest rate risks and the assumption of a parallel shifting by 100 bps of the yield curve for each currency, the Group has assessed the potential impact on its net interest income in 2010 as follows:

Net interest gain/ (loss)

2010 2009 Consolidated and the Bank Consolidated and the Bank

Upward shifting of the benchmark yield curve by 100 bps 2,384,784 1,370,905

Downward shifting of the benchmark yield curve by 100 bps (2,384,784) (1,370,905)

The Group makes general assumptions for determining its business conditions and financial parameters in conducting interest rate risk sensitivity testing. However, the following has not been considered:

(i) changes in business operations after the balance sheet date, as the analysis is based on the static gap on the balance sheet date;

(ii) the impact of changes in interest rates on customer behaviours;

(iii) the complex relationship between complex structured products and changes in interest rates;

(iv) the impact of changes in interest rates on off-balance sheet products.

154 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

4. Liquidity risk

Liquidity risk is the risk that the Group is unable to fully meet its payment obligations with sufficient cash flows from its assets and liabilities. The Group is exposed to daily calls on its available cash resources from call deposit overnight deposits, current accounts, matured time deposits, debt securities in issue, loan draw downs, guarantees and other calls on cash settled derivatives. As experience shows that a minimum level of reinvestment of matured deposit can be predicted with a high level of certainty. In order to meet unforeseeable funding needs, the Group sets the minimum level of cash resources, and the minimum level of due to banks and other financial institutions and other borrowings.

Besides, according to PBOC’s requirement, the Group sets that the loan-to-deposit ratio should not be higher than 75%. As at 31 December 2010 the Bank was required to maintain 16.5% of its total Rmb denominated deposits and 5% of its foreign currencies denominated deposits with PBOC as statutory reserves.

Maintain the assets and liabilities match the maturity structure, as well as effective control of the management in the difference of matches is paramount to the Group. As the business has an uncertain duration and different categories, banks rarely able to maintain the assets and liabilities items match exactly. The positions which do not match the structure may increase revenue, but also increases the liquidity risk.

(1) Liquidity risk management

The matching of maturity of assets and liabilities and the ability to replace interest-bearing liabilities as they mature at an acceptable cost are important factors in assessing the liquidity of the Group.

The Group provides guarantees and issues stand-by letters of credit to customers based on their credit and margin deposits at the Group. Liquidity required to support calls under guarantees and stand-by letters of credit is generally less than the amount of the Group’s other commitments, because the Group does not generally expect customers to draw the full amount of guarantees provided by the Group or stand-by letters of credit issued by the Group. In addition, the total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

The Asset and Liability Management Committee defines the Group’s liquidity management strategy and policies. The Financial and Planning Department is responsible for liquidity management, and carries out ongoing monitoring and analysis of liquidity indicators.

The Group adopts a series of liquidity indicators to assess and monitor its liquidity risks, and has systems put in place to support daily, monthly and quarterly liquidity risk reporting so that the Risk Management Committee, Asset and Liability Management Committee, and senior management can be kept updated of the liquidity indicators in a timely manner. The Group performed stress testing for the liquidity risk under the extreme circumstance scenario that the various changes in market conditions may occur.

(2) Funding sources

The Group monitors the funding diversification by focusing on four areas, including the types of creditors, products and instruments, market conditions and large customer funding concentration.

(3) Cash flow analysis on non-derivative financial instruments

The following table presents the cash flows from financial assets and liabilities other than derivative financial instruments by their remaining maturities. Remaining maturities refer to period from the balance sheet date to the contractual maturity date; the amounts of financial liabilities for the time intervals are contractual undiscounted cash flows; the amounts of financial assets for the time intervals are cash flows expected to be received.

155 Notes to the Financial Statements

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As at 31 December 2010

Consolidated

Within 1 1-3 3 months-1 1-5 Over 5 Total month months year years years

Financial assets

Cash and deposits with central 104,196,879 - - - - 104,196,879 bank

Due from banks and other 10,465,855 26,217,632 5,190,682 - - 41,874,169 financial institutions

Placements with banks and 4,652,250 14,021,384 4,200,530 - - 22,874,164 other financial institutions

Trading assets 203,078 324,175 6,433,769 8,922,453 2,408,178 18,291,653

Assets purchased under 39,421,084 18,732,237 7,536,035 - - 65,689,356 resale agreements

Loans and advances to 8,865,790 32,673,310 139,197,914 134,273,435 83,586,166 398,596,615 customers

Available-for-sale financial 152,584 11,824,628 20,634,981 39,448,580 13,787,619 85,848,392 assets

Held-to-maturity investments 72,208 372,633 4,941,090 29,633,221 56,886,945 91,906,097

Investment securities classified 3,990 193,209 959,576 2,091,973 2,613,900 5,862,648 as receivables

Long term equity investments - - - - 1,177,555 1,177,555

Other financial assets 6,894 - 436 10,690 63,756 81,776

Total financial assets 168,040,612 104,359,208 189,095,013 214,380,352 160,524,119 836,399,304 (expected maturity date)

Financial liabilities

Due to banks and other (18,392,945) (2,761,364) (35,294,566) - - (56,448,875) financial institutions

Placements from banks (15,226,362) (860,309) - - - (16,086,671)

Assets sold under repurchase (24,759,030) (302,460) (14,974,791) - - (40,036,281) agreements

Customer deposits (380,385,278) (35,106,239) (93,076,077) (57,704,670) (3,719,534) (569,991,798)

Bonds issued - - (688,750) (12,027,500) (9,750,000) (22,466,250)

Other financial liabilities (1,110,422) (2,281) (204,775) (107,759) (1,036) (1,426,273)

Total financial liabilities (439,874,037) (39,032,653) (144,358,959) (69,839,929) (13,470,570) (706,456,148) (contractual maturity date)

Net liquidity gap (271,833,425) 65,326,555 44,856,054 144,540,423 147,053,549 129,943,156

156 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

As at 31 December 2009

Consolidated

Within 1 1-3 3 months-1 1-5 Over 5 Total month months year years years

Financial assets

Cash and deposits with central 68,207,645 - - - - 68,207,645 bank

Due from banks and other 11,520,488 2,310,975 - - - 13,831,463 financial institutions

Placements with banks and 10,216,856 411,230 103,248 - - 10,731,334 other financial institutions

Trading assets 30,854 1,340,638 1,347,760 6,263,498 4,044,791 13,027,541

Assets purchased under 35,057,440 7,291,229 510,076 - - 42,858,745 resale agreements

Loans and advances to 9,076,239 22,601,301 103,773,932 129,266,062 58,382,866 323,100,400 customers

Available-for-sale financial 2,474,642 2,958,199 8,226,520 41,140,180 16,533,727 71,333,268 assets

Held-to-maturity investments 14,580 61,063 1,174,751 6,001,237 56,661,149 63,912,780

Investment securities classified 3,990 177,580 1,346,876 1,976,925 1,681,864 5,187,235 as receivables

Long term equity investments - - - - 310,821 310,821

Other financial assets 262 - 136,360 8,617 123,045 268,284

Total financial assets 136,602,996 37,152,215 116,619,523 184,656,519 137,738,263 612,769,516 (expected maturity date)

Financial liabilities

Due to banks and other (12,732,623) (2,075,831) (3,778,290) (7,327,731) - (25,914,475) financial institutions

Placements from banks (617,780) - (1,006,219) - - (1,623,999)

Assets sold under repurchase - - (3,520,208) - - (3,520,208) agreements

Customer deposits (301,254,803) (39,285,392) (72,154,738) (35,057,718) (6,541,701) (454,294,352)

Bonds issued - - (503,050) (12,068,450) (3,744,300) (16,315,800)

Other financial liabilities (1,472,626) (2,672) (223,736) (235,949) (2,369) (1,937,352)

Total financial liabilities (316,077,832) (41,363,895) (81,186,241) (54,689,848) (10,288,370) (503,606,186) (contractual maturity date)

Net liquidity gap (179,474,836) (4,211,680) 35,433,282 129,966,671 127,449,893 109,163,330

157 Notes to the Financial Statements

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As at 31 December 2010

The Bank

Within 1 1-3 3 months-1 1-5 Over 5 Total month months year years years

Financial assets

Cash and deposits with central 104,157,532 - - - - 104,157,532 bank

Due from banks and other 10,360,488 26,204,584 5,190,682 - - 41,755,754 financial institutions

Placements with banks and 4,652,250 13,909,131 4,127,590 - - 22,688,971 other financial institutions

Trading assets 203,078 324,175 6,433,749 8,872,371 2,408,178 18,241,551

Assets purchased under 39,421,084 18,732,237 7,536,035 - - 65,689,356 resale agreements

Loans and advances to 8,860,643 32,648,966 139,133,845 134,182,501 83,583,835 398,409,790 customers

Available-for-sale financial 152,584 11,824,628 20,634,981 39,448,580 13,787,619 85,848,392 assets

Held-to-maturity investments 72,208 372,633 4,941,090 29,633,221 56,886,945 91,906,097

Investment securities classified 3,990 193,209 959,576 2,091,973 2,613,900 5,862,648 as receivables

Long term equity investments - - - - 1,487,555 1,487,555

Other financial assets 6,894 236 10,690 63,756 81,576

Total financial assets 167,890,715 104,209,563 188,957,784 214,239,336 160,831,788 836,129,222 (expected maturity date)

Financial liabilities

Due to banks and other (18,430,605) (2,761,364) (35,294,566) - - (56,486,535) financial institutions

Placements from banks (15,226,362) (860,309) - - - (16,086,671)

Assets sold under repurchase (24,759,030) (302,460) (14,974,791) - - (40,036,281) agreements

Customer deposits (380,213,173) (35,079,493) (93,053,979) (57,702,018) (3,719,534) (569,768,197)

Bonds issued - - (688,750) (12,027,500) (9,750,000) (22,466,250)

Other financial liabilities (1,110,415) (2,281) (204,712) (107,759) (1,036) (1,426,203)

Total financial liabilities (439,739,585) (39,005,907) (144,216,798) (69,837,277) (13,470,570) (706,270,137) (contractual maturity date)

Net liquidity gap (271,848,834) 65,203,656 44,740,986 144,402,059 147,361,218 129,859,085

158 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

As at 31 December 2009

The Bank

Within 1 1-3 3 months-1 1-5 Over 5 Total month months year years years

Financial assets

Cash and deposits with central 68,139,505 - - - - 68,139,505 bank

Due from banks and other 11,522,447 2,310,975 - - - 13,833,422 financial institutions

Placements with banks and 10,216,856 411,230 103,248 - - 10,731,334 other financial institutions

Trading assets 30,854 1,340,638 1,347,760 6,263,498 4,044,791 13,027,541

Assets purchased under 35,057,440 7,291,229 510,076 - - 42,858,745 resale agreements

Loans and advances to 9,153,942 22,860,203 105,006,736 130,837,951 58,686,490 326,545,322 customers

Available-for-sale financial 2,474,642 2,958,199 8,226,520 41,140,180 16,533,727 71,333,268 assets

Held-to-maturity investments 14,580 61,063 1,174,751 6,001,237 56,661,149 63,912,780

Investment securities classified 3,990 177,580 1,346,876 1,976,925 1,681,864 5,187,235 as receivables

Long term equity investments - - - - 320,821 320,821

Other financial assets 262 - 136,360 8,617 123,045 268,284

Total financial assets 136,614,518 37,411,117 117,852,327 186,228,408 138,051,887 616,158,257 (expected maturity date)

Financial liabilities

Due to banks and other (12,777,222) (2,075,831) (3,778,290) (7,327,731) - (25,959,074) financial institutions

Placements from banks (617,780) - (1,006,219) - - (1,623,999)

Assets sold under repurchase - - (3,520,208) - - (3,520,208) agreements

Customers deposits (301,137,089) (39,285,392) (72,154,738) (35,057,718) (6,541,701) (454,176,638)

Debt securities in issue - - (503,050) (12,068,450) (3,744,300) (16,315,800)

Other financial liabilities (1,472,473) (2,672) (223,736) (235,949) (2,369) (1,937,199)

Total financial liabilities (316,004,564) (41,363,895) (81,186,241) (54,689,848) (10,288,370) (503,532,918) (contractual maturity date)

Net liquidity gap (179,390,046) (3,952,778) 36,666,086 131,538,560 127,763,517 112,625,339

159 Notes to the Financial Statements

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(4) Cash flow analysis on derivative financial instruments a. Derivative financial instruments settled on a net basis

The Group settles the interest rate derivative financial instruments including interest rate swap and interest rate option on a net basis.

The following table presents cash flows from derivative financial instruments held for trading and settled on a net basis by their remaining maturities of the Group. Remaining maturities refer to the period from the balance sheet date to the contractual maturity date, and the amounts of derivative financial instruments for the time intervals represent contractual undiscounted cash flows.

As at 31 December 2010

Consolidated and the Bank

Within 1 month 1-3 months 3 months-1 year 1-5 years Over 5 years Total

Interest rate derivatives (265) 479 349 2,082 - 2,645

As at 31 December 2009

Consolidated and the Bank

Within 1 month 1-3 months 3 months -1 year 1-5 years Over 5 years Total

Interest rate derivatives 648 833 (42) (227) - 1,212 b.Derivative financial instruments settled on a gross basis

Gross-settled derivative financial instruments of the Group include foreign exchange derivatives, such as currency forward and currency swap.

The following table presents the cash flows from derivative financial instruments held for trading and settled on a gross basis by their remaining maturities of the Group. Remaining maturities refer to the period from the balance sheet date and the contractual maturity date, and the amounts of derivative financial instruments for the time intervals are contractual undiscounted cash flows.

As at 31 December 2010

Consolidated and the Bank

Within 1 month 1-3 months 3 months -1 year 1-5 years Over 5 years Total

Foreign exchange derivatives

- Cash outflow (977,422) (137,911) (1,944,838) - - (3,060,171)

- Cash inflow 974,767 139,343 1,959,526 - - 3,073,636

As at 31 December 2009

Consolidated and the Bank

Within 1 month 1-3 months 3 months -1 year 1-5 years Over 5 years Total

Foreign exchange derivatives

- Cash outflow (740,327) (765,788) (1,159,360) - - (2,665,475)

- Cash inflow 740,560 768,743 1,164,972 - - 2,674,275

160 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

(5) Off-balance sheet commitments

The table below analyzes the Group’s off-balance sheet commitments based on the remaining maturities. Remaining maturities refer to the period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

As at 31 December 2010

Consolidated

Within 1 year 1-5 years Over 5 years Total

Letters of credit issued 3,036,113 59,318 - 3,095,431

Letters of guarantee issued 13,127,322 8,184,664 599,725 21,911,711

Banks acceptances 44,377,753 1,813,048 - 46,190,801

Payment of bills of exchange for other banks 4,869,800 - - 4,869,800

Unused credit card limit 6,745,305 - - 6,745,305

Operating lease commitments 264,218 702,797 396,310 1,363,325

Capital commitments 78,052 82,159 - 160,211

Total 72,498,563 10,841,986 996,035 84,336,584

As at 31 December 2009

Consolidated

Within 1 year 1-5 years Over 5 years Total

Letters of credit issued 1,375,649 - - 1,375,649

Letters of guarantee issued 7,817,877 6,779,313 521,902 15,119,092

Banks acceptances 25,693,833 796 8,856 25,703,485

Payment of bills of exchange for other banks 350,582 - - 350,582

Unused credit card limit - 3,293,543 - 3,293,543

Operating lease commitments 217,738 802,894 340,661 1,361,293

Capital commitments 616,035 261,657 - 877,692

Total 36,071,714 11,138,203 871,419 48,081,336

As at 31 December 2010

The Bank

Within 1 year 1-5 years Over 5 years Total

Letters of credit issued 3,036,113 59,318 - 3,095,431

Letters of guarantee issued 13,127,322 8,184,664 599,725 21,911,711

Banks acceptances 44,377,753 1,813,048 - 46,190,801

Payment of bills of exchange for other banks 4,869,800 - - 4,869,800

Unused credit card limit 6,745,305 - 6,745,305

Operating lease commitments 258,868 681,399 320,078 1,260,345

Capital commitments 76,310 82,159 - 158,469

Total 72,491,471 10,820,588 919,803 84,231,862

161 Notes to the Financial Statements

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As at 31 December 2009

The Bank

Within 1 year 1-5 years Over 5 years Total

Letters of credit issued 1,375,649 - - 1,375,649

Letters of guarantee issued 7,817,877 6,779,313 521,902 15,119,092

Banks acceptances 25,693,833 796 8,856 25,703,485

Payment of bills of exchange for other banks 350,582 - - 350,582

Unused credit card limit - 3,293,543 - 3,293,543

Operating lease commitments 217,738 802,894 340,661 1,361,293

Capital commitments 616,035 261,657 - 877,692

Total 36,071,714 11,138,203 871,419 48,081,336

5. Fair value of financial assets and liabilities

(1) Financial instruments not accounted at fair value

The financial assets and liabilities that are not accounted at fair value in balance sheet include due from central bank, due from banks and other financial institutions, placements with banks and other financial institutions, loans and advances, held-to-maturity, investment receivables, due to banks and other financial institutions, placements from banks, assets sold under repurchase agreement, customer deposits, and bond issued, etc.

The table below summarises the carrying value and fair value of those financial assets and liabilities that are not presented at fair value on balance sheet.

Other than above, financial assets and liabilities not presented at fair value on the balance sheet are measured using discounted cash flow model. Their carrying values approximate their fair values.

Consolidated

31 December 2010 31 December 2009

Carrying value Fair value Carrying value Fair value

Financial assets

Loans and advances (a) 327,602,804 327,646,090 267,450,108 267,463,448

Held-to-maturity investment (b) 64,108,097 62,569,475 44,723,620 44,025,871

Investment securities classified as 4,676,937 4,690,857 4,315,942 4,370,669 receivables (b)

Financial liabilities

Customers deposits (c) (557,724,336) (558,273,583) (446,938,703) (448,376,629)

Bonds issued (d) (16,470,737) (16,679,222) (13,468,821) (13,690,207)

162 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

The Bank

31 December 2010 31 December 2009

Carrying value Fair value Carrying value Fair value

Financial assets

Loans and advances (a) 327,454,024 327,497,309 267,378,461 267,391,801

Held-to-maturity investment (b) 64,108,097 62,569,475 44,723,620 44,025,871

Investment securities classified as 4,676,937 4,690,857 4,315,942 4,370,669 receivables (a)

Financial liabilities

Customers deposits (c) (557,501,801) (558,051,047) (446,820,989) (448,258,915)

Bonds issued (d) (16,470,737) (16,679,222) (13,468,821) (13,690,207) a. Loans and advances to customers and investment securities classified as receivables

Loans and advances to customers and investment securities classified as receivables are stated net of allowance for impairment, and their estimated fair value is the present value of expected future cash flows discounted at the current market interest rate. b. Held-to-maturity investment

The fair value of the held-to-maturity investment is based on quoted prices from the market or traders. If the relevant information is not available, the fair value is determined by the quoted prices of securities which have similar credit risk, maturity and rate of return. c. Customers deposits

The fair value of the checking account, savings account and short-term money market deposit is the amount payable on demand at the reporting date. For fixed rate deposits without quoted market prices, their fair value is based on the discounted cash flow model using the current interest rates for fixed rate deposits with similar remaining maturities. d. Bonds issued

The fair value of bonds issued is determined with reference to quoted market prices. In the absence of quoted market prices, their fair value is calculated based on the discounted cash flow model using the current market interest rates for similar debt securities with similar remaining maturities.

(2) Financial instruments measured at fair value

Financial instruments measured at fair value are divided into the following three levels. The Group uses valuation techniques or counterparty quotations to determine the fair value of financial instruments when unable to obtain the open market quotation in active markets.

Level 1: Quoted prices in active markets for identical assets or liabilities, including securities traded on exchanges or certain governments bonds.

Level 2: Valuation technique using inputs other than quoted prices included within level 1 that are observable for the asset or liability, includes majority of the OTC derivative contracts and debt securities for which quotations are available from pricing services providers or website of China Government Securities Depositing Trust & Clearing Co., Ltd. (herein after as “China Bond”) (including valuation and settle price from China Bond).

Level 3: Valuation technique using inputs for the asset or liability that is not based on observable market data (unobservable inputs) mainly include OTC structured derivative financial products.

163 Notes to the Financial Statements

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The main parameters used in valuation techniques for financial instruments held by the Group include bond prices, interest rates, foreign exchange rates, volatilities, correlation and others, which are all observable and obtainable from open market.

The financial instruments classified into level 3 mainly include OTC structured derivatives transactions held by the Group. The Group has established internal control procedures to control the Group’s exposure to such financial instruments.

Level 1 Level 2 Level 3 Total

31 December 2010 Consolidated

Trading assets 3,152,861 13,564,807 - 16,717,668

Derivative financial assets - 26,598 - 26,598

Available-for-sale financial assets 1,893,548 76,494,749 - 78,388,297

Total 5,046,409 90,086,154 - 95,132,563

Derivative financial liabilities - (11,918) - (11,918)

31 December 2010 The Bank

Trading assets 3,152,861 13,515,967 - 16,668,828

Derivative financial assets - 26,598 - 26,598

Available-for-sale financial assets 1,893,548 76,494,749 - 78,388,297

Total 5,046,409 90,037,314 - 95,083,723

Derivative financial liabilities - (11,918) - (11,918)

31 December 2009 Consolidated and the Bank

Trading assets 65,962 11,449,742 - 11,515,704

Derivative financial assets - 17,649 966 18,615

Available-for-sale financial assets 88,499 63,507,366 - 63,595,865

Total 154,461 74,974,757 966 75,130,184

Derivative financial liabilities - (8,518) - (8,518)

6. Capital management

The capital management at the Group centres on capital adequacy ratio and return on assets, and aims to keep capital management closely aligned with the Group’s development plans and achieve optimal integrity among the Group’s expansion and profitability, total capital and structural optimisation, and the optimal capital base and return on capital.

On the basis of comprehensive consideration of the regulatory indicators, average level across the industry, the Group’s growth rate, timing of capital addition, and the objective to maintain stable increase of the return on net asset, the Group determines an appropriate target interval for managing its capital adequacy ratio, which is no less than the regulatory requirement.

The Group calculates and discloses its capital adequacy ratio in accordance with the “Administrative Measures for Capital Adequacy Ratio of Commercial Groups” promulgated by CBRC.

164 Notes to the Financial Statements

All amounts expressed in Rmb’000 unless otherwise stated [English translation for reference only]

31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Core capital

Paid-in capital 6,227,562 6,227,562 6,227,562 6,227,562

Capital reserve (excluding reserves on 15,504,392 15,543,443 15,504,392 15,543,443 available-for-sale financial assets)

Surplus reserve 3,386,914 2,706,190 3,386,914 2,706,190

General reserve for risk assets 4,962,087 3,645,489 4,962,087 3,645,489

Retained earnings (1) 12,267,118 8,541,098 12,272,156 8,541,920

Minority Interest 20,900 18,356 - -

Total core capital 42,368,973 36,682,138 42,353,111 36,664,604

Less: 50% of capital investment (588,778) (155,410) (743,778) (160,410) nonconsolidated financial institutions

Less: 50%of capital investment in (116,050) (121,900) (116,050) (121,900) investment properties

Core capital, net 41,664,145 36,404,828 41,493,283 36,382,294

Supplementary capital:

General reserve (2) 3,347,753 2,734,809 3,346,322 2,734,086

Long-term subordinated debt 6,493,511 3,500,000 6,493,511 3,500,000

Other supplementary capital (3) 115,474 484,972 115,474 484,972

Computable supplementary capital

(up to 100% of the net core capital) 9,956,738 6,719,781 9,955,307 6,719,058

Total capital (total core capital + 52,325,711 43,401,919 52,308,418 43,383,662 supplementary capital)

Less: capital investment in unconsolidated (1,177,555) (310,821) (1,487,555) (320,821) financial institutions

Less: capital investment in investment (232,099) (243,800) (232,099) (243,800) properties

Less: other items (4) (879,700) (648,700) (879,700) (648,700)

Capital, net 50,036,357 42,198,598 49,709,064 42,170,341

165 Notes to the Financial Statements

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31 December 2010 31 December 2009 31 December 2010 31 December 2009 Consolidated Consolidated The Bank The Bank

Risk-weighted assets:

On-balance sheet risk-weighted assets 352,627,971 266,679,516 352,589,829 266,597,638

Off-balance sheet risk-weighted assets 38,935,298 22,956,604 38,935,298 22,956,604

Total risk-weighted assets 391,563,269 289,636,120 391,525,127 289,554,242

Market risk capital 398,377 359,295 396,202 359,295

Core capital adequacy ratio 10.51% 12.38% 10.47% 12.37%

Capital adequacy ratio 12.62% 14.35% 12.54% 14.34%

(1) Retained earnings represent the after tax amount excluding the gains on fair value changes (unrealized) of the Group’s trading financial assets and derivative instruments.

(2) General reserve represents 1% of the loans and advances to customers of the Group.

(3) Other supplementary capital represents the fair value gains determined based on certain percentage and taken to capital surplus.

(4) Other items include asset backed securities and the subordinated debts issued by other banks and acquired by the Group after 1 July 2009.

XII NET PROFIT EXCLUDING EXTRAORDINARY GAINS AND LOSSES

According to the “Information Disclosure Conventions for Companies Offering Securities to the Public: Questions and Answers No. 1 – Extraordinary Gains and Losses [2008]”, extraordinary gains and losses refer to gains and losses that arise from transactions and events of a company that are unrelated to the ordinary activities of the company or though related to the ordinary activities, can affect the proper reporting of the company’s operating results and profitability due to their nature, amount and frequency of occurrence.

The net profit excluding extraordinary gains and losses of year 2010 and 2009 is presented below:

2010 2009 2010 2009 Consolidated Consolidated The Bank The Bank

Net profit 6,805,574 5,632,796 6,807,245 5,634,391

Plus/(less): extraordinary items

- Non-operating income (19,339) (26,202) (18,559) (26,202)

- Non-operating expense 27,266 18,473 27,256 18,473

Income tax impact of extraordinary items (1,982) 1,932 (2,174) 1,932

Net profit excluding extraordinary items 6,811,519 5,626,999 6,813,768 5,628,594

Attributable to

- Shareholders of the Bank 6,809,360 5,626,062

- Minority interest 2,159 (1,063)

166 Bank of Beijing Co.,Ltd.

Bank of Beijing Building, No.17C, Financial Street, Xicheng District, Beijing, PRC Postal Code: 100033 Telephone: +86- 10- 66426500 Fax: +86- 10- 66426519 Customer Service Hotline: 95526 Website: www.bankofbeijing.com.cn

This report is printed with recycled paper.