Shanghai Rural Commercial Bank Annual Report 2009

All copy right reserved by Shanghai Rural Commercial Bank. It is not allowed to transfer and reprint without permission. Welcome to put forward your suggestion and advice.

Annual Report Annual Report 2009

02 Company Information 04 Important Statements 07 Message from the Leaders 14 Summary of Accounting Data and Financial Performance 20 Changes of Share Capital and Shareholders Profile 24 Profiles of Directors on the Company Board, Supervisory Board, Senior Management Staff 34 Corporate Governance Structure 42 Shareholders Meeting 44 Report of the Company Board of Director 68 Report of the Supervisory Board 76 Significant Events 84 2009 Big Annual Events 90 Financial Report and Documents Available for Inspection

Appendix Financial Report Social Responsibility Report Shanghai Rural Commercial Bank Address: No.8 middle yincheng road shanghai Tel:86-21-38576666 Fax:86-21-50105085

Welcome to dial our 24-hour customer service hotline 86-21-962999 or login our website www.srcb.com According to the statistics provided by the British magazine “The Banker”, SRCB was ranked No. 340th among world’s top 1000 banks based on tier-1 capital, which was 74 positions higher than last year. Also, SRCB was ranked No. 17th among all the selected Chinese banks.

Total assets and Shareholders Equity Net profit and average earnings per share NPL ratio

Total assets Shareholders Net profit Average earnings per share

2500 150 20 0.6 2.5 2,119.16

2000 120 1,733.27 0.5 1,574.74 15

1500 90 0.4 10 2.0 1000 60 0.3

5 500 30 0.2

0 0 0 0.1 1.5

Deposit balance and Loan balance Capital adequacy ratio Average return on equity (%) and net assets per share

Deposit balance Loan balance Net Assets Per Share Average Return On Equity

2000 20 1,788.69 12

1,470.43 10 1500 15 1,283.17 1,185.39 8

1000 6 10

4 500 5 2

0 0 0 According to the statistics provided by the British magazine “The Banker”, SRCB was ranked No. 340th among world’s top 1000 banks based on tier-1 capital, which was 74 positions higher than last year. Also, SRCB was ranked No. 17th among all the selected Chinese banks.

Total assets and Shareholders Equity Net profit and average earnings per share NPL ratio

Total assets Shareholders Net profit Average earnings per share

2500 150 20 0.6 2.5 2,119.16

2000 120 1,733.27 0.5 1,574.74 15

1500 90 0.4 10 2.0 1000 60 0.3

5 500 30 0.2

0 0 0 0.1 1.5

Deposit balance and Loan balance Capital adequacy ratio Average return on equity (%) and net assets per share

Deposit balance Loan balance Net Assets Per Share Average Return On Equity

2000 20 1,788.69 12

1,470.43 10 1500 15 1,283.17 1,185.39 8

1000 6 10

4 500 5 2

0 0 0 Shanghai Rural Commercial Bank

All copy right reserved by Shanghai Rural Commercial Bank. It is not allowed to transfer and reprint without permission. Welcome to put forward your suggestion and advice.

Annual Report Annual Report 2009

Appendix Financial Report Social Responsibility Report Shanghai Rural Commercial Bank Address: No.8 middle yincheng road shanghai Tel:86-21-38576666 Fax:86-21-50105085

Welcome to dial our 24-hour customer service hotline 86-21-962999 or login our website www.srcb.com

SRCB Annual Report 2009 Concentrate on Rural/Suburban Expand in Downtown (CBD) Based in Shanghai Extend to Surrounding Cities 02

SRCB Annual Report 2009

Company Information

• Legal Name in Chinese: 上海农村商业银行股份有限公司 Abbreviations: 上海农商银行 Legal name in English: Shanghai Rural Commercial Bank Co., Ltd. Abbreviations: SRCB (“Shanghai Rural Commercial Bank”, referred to as “the Company”) • Legal Representative: Hu Ping Xi

• Board Secretary: Liu Yong Fen

Telephone: 0086-21-38576709

Facsimile: 0086-21-50105085

Email: [email protected]

Mailing Address: Level 23 No.8 Middle Yincheng Road, Pudong New Area, Shanghai PRC

• Registered Address: No.981 Pudong Avenue, Shanghai, China

Oﬃce Address: Level 15-27 No.8 Middle Yincheng Road, Pudong New Area, Shanghai, China

Postcode: 200120

Website: http://www.srcb.com

Email: [email protected]

• The newspaper for disclosure of company information: Jiefang Daily, Shanghai Financial News, Shanghai Securities News, Shanghai Morning Post, Shanghai Evening Post, and Xinmin Evening News

Annual Report published on: http://www.srcb.com

Copies of Annual Report available at the Company Secretary's Oﬃce

• Other Information:

Date of ﬁrst registration: 23 August 2005

Registration Number of Legal Entity License: 310000000088142

Tax Registration Number: Shanghai 310043779347314

Organization Code: 77934731-4

Auditor: PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Auditor Address:11/F. PricewaterhouseCoopers Center, No.202 Hu Bin Road, Shanghai PRC Better Service Better Experience 04

SRCB Annual Report 2009

Important Statements

1. The Company and the Directors assume several and joint responsibilities for any false record, misleading statements or signiﬁcant omissions of information contained in this report. 2. Content of the “Shanghai Rural Commercial Bank Company Limited 2009 Annual Report” has been approved by the second Board of Directors at the Fourth Company Board Meeting and by the second Supervisory Board of Directors at the Fourth Supervisory Board Meeting. 3. The ﬁnancial reports have been audited and opined by the PricewaterhouseCoopers Zhong Tian Accounting Firm. 4. The Report is prepared in both Chinese and English. The Chinese version prevails.

SRCB Board of Directors March 2010

Interpretation

The following words have the following meanings in the Report unless otherwise referred to in the context: 1. Company, the Company, the Bank and SRCB all refer to Shanghai Rural Commercial Bank Co., Ltd. 2. The Group refers to Shanghai Rural Commercial Bank Co., Ltd. and its subsidiary Shanghai Chongming Changjiang Village and Town Bank Co., Ltd. 3. CBRC refers to China Banking Regulatory Commission 4. The Central Bank refers to the People's Bank of China 5. The Company Law refers to the Company Law of the People's Republic of China 6. The Articles of Association refers to the Articles of Association of Shanghai Rural Commercial Bank Co., Ltd. 7. Yuan refers to Chinese Renminbi (RMB) 05

Board of Directors Signatures

Hu Pingxi Hou Funing Shen Xunfang

Robert John Edgar Alistair Marshall Bulloch Wan Jianhua

Shi Derong Yuan Ping Zhang Yuliang

Chen Wenjun Liu Yipeng Shi Jiliang

Wu Daqi Su Zhong Yu Yinghui

Liu Hongzhong Wu Jian Hu Pingxi Party Secretary and Chairman 07

Chairman’s Address

Looking back over the past year, with a severe external envi- moted. Being people-oriented, we vigorously strengthened ronment, SRCB actively responded to the impact of interna- the building of human resources, a large number of businesses tional financial crisis and resolutely implemented the national backbones were introduced, strict internal management was macro-control policy as guided by the scientific development conducted, corporate culture developmentwas actively carried concept. Prudent management and rational development was out, and the tendency towards new development was created. carried out and the two main themes of realizing development We are very thankful for all sections ofsociety and all custom- and controlling risk were focused with the main customer ers that are interestedand supportive for SRCB’s development! bases of farmers, countryside, agriculture, small and medium According to the prospects for 2010, the global economy is ex- enterprises, and community residents. All types of business pected to rise from its recent depths, and the domestic econ- were developed in a stable and healthy manner, services con- omy is starting to be stable and is beginning to rise. However, tinued to be improved, the quality of the assets was further im- the macroeconomic situation remains complex; Shanghai is proved and good performance was maintained. As at the end speeding up the "two centers" construction and is further pro- of 2009, the total assets of the Bank were RMB 211.9 billion, the moting developmentand economic restructuring to host the outstanding deposit were RMB 178.9 billion, the outstanding World Expo that will attract worldwide attention. With the new loans were RMB 118.5 billion, the non-performing loan ratio opportunities and challenges, we must completely analyze and (five categories) was 1.88% and the net profit was RMB 1.973 understand the domestic and international economic and fi- billion. nancial situation, carefully carry out the national macro control At the same time, we attached importance to improving the policy, and identify the orientation and focus point with the Company governance and successfully carried out transition policy guidance of structural adjustment, restructuring promo- amongst the Board of Directors and the Board of Supervisors. tion, and processes to improve people's living conditions. We We established the governance structure of the Board of Direc- will adhere to the principle of maximizing favorable factors tors, the Board of Supervisors, the Shareholders' Meeting and and minimizing unfavorable ones, doing what is appropriate Senior Management with clear division and responsibilities. and discarding what is inappropriate to realize a good start for A new three-year development strategy was developed. We the new three-year strategy. formulated the development neededto train the employee We will further improve the company governance, adhere team to be willing to learn, and be progressive, pragmatic and to compliant management, stable development, risk con- innovative and to build a people-friendly bank that serves the trol, rational structuralorganisation, optimize the business public and is caring and thoughtful. We clarified our market structure, innovate financial products, achieve differentiated orientation to enhance the business in rural areas, to develop orientation and feature excellent services. Meanwhile, we will in urban areas and to be based in Shanghai and spread out- actively promote conversion of our own development mode wards. The plan to expand the business in urban areas within and constantly enhance our core competitiveness, and strive one year, to spread out of Shanghai within two years and to for new achievements to repay society and shareholders, with lay the foundation to be listed within three years, with the ad- the aim to build the people-friendly bank, the opportunity to vanced listed banks as the benchmark was established. SRCB provide financial services to Expo 2010 and the task to build will be gradually built into a regional people-friendly bank with the convenient financial bank. We will continue to strengthen good company governance, rational organisational structure, the exchange and interaction with all sections of society and complete business functions, adequate capital, fine manage- customers, put social responsibilities into practice and make ment, controllable risk, and remarkable performance. We better contributions to build a harmonious society. have kept on reforming and innovating, and have established and improved the long-term mechanism such as operational

management, risk prevention and control, incentive and restriction, etc. The investment in infrastructure and resources Chairman: was enhanced,information technology development was pro- 08

SRCB Annual Report 2009

Shen Huiqi Chairman of Supervisory Board 09

Hou Funing Deputy Party Secretary, Vice Chairman and President 10

SRCB Annual Report 2009

President’s Address

In 2009, SRCB, facing severe complex business environment, launched. The business mode for personal loans were inno- studied and put into practice the scientific development con- vated and the “Second-hand Housing mortgage broker chan- cept, faithfully implemented national macroeconomic policy nel” was launched. Innovative products such as equity pledge and the decisions and plans made by Shanghai CPC Committee financing and order financing were promoted for scientific and and Shanghai Municipal Government, adhered to the two main technological enterprises. The personal e-bank and credit card themes of business development and risk prevention, faced e-banking operations were achieved and mobile two-way POS all difficult situations, responded proactively, and all business was launched. tasks were fully completed. A new round of overall structure building was started and The financial situation continued to improve and our risk man- SRCB’s financial services were greatly enhanced. The first agement capability was further enhanced. The net profit of the village and town bank in Shanghai, Shanghai Chongming year was RMB 1.973 billion; the pre-tax profit was RMB 2.488 Changjiang Village and Town Bank, was established, and billion. The capital adequacy ratio was 11.95%, an increase of Jing'an Sub-branch was successfully opened. A cross-regional 0.15 percentage points over the beginning of the year; the loan business survey was actively carried out. The head office was provisioning coverage was 98.3%,an increase of 37.02 percent- re-located to Lujiazui Finance and Trade Zone smoothly. A 600- age points over the beginning of the year. day Action Plan for “Expo 2010" was implemented, standardization of business networks was promoted, and conformity of The business volume saw steady increase, and business inno- the internal layout of all the business networks and the image vation was intensified. Outstanding deposits were RMB 178.9 of the Bank was achieved. Close attention was paid to cus- billion, representing an increase of RMB 31.8 billion over the tomer service and ranking of the counter service quality index beginning of the year. The average daily deposits for the year significantly improved. were RMB 169.8 billion, an increase of RMB 31.4 billion over 2008. Outstanding loans were RMB 118.5 billion, an increase of Risk management was improved continuously, and the oper- RMB 25.8 billion over the beginning of the year. The commer- ating capacity was gradually increased. The non-performing cial loans saw an increase of RMB 17.4 billion. The macroeco- loans accounted for 1.88%, down 0.41 percentage points over nomic policy of domestic demand expansion, growth mainte- the beginning of the year. Off-balance-sheet non performing nance, and structural adjustment was effectively implemented. loans of RMB 88.22 million were collected, and on-balance- We actively participated in major projects of urban traffic, sheet repossessed assets of RMB 188 million were disposed of. urban and rural infrastructure construction, continued to sup- A case prevention and control responsibility mechanism was port the development of SMEs, started a business financing established. Pilot programs of designating accounting manag- pilot program for SMEs, and further increased support for agers and risk managers from headquarter to branches as well riculture credit. The average size of funds under management as vertical auditing managment were implemented so as to on daily basis reached RMB 69 billion, which was an increase gradually build a multi-level and professional risk prevention of RMB 18.2 billion over 2008. RMB treasury turnover volume and control system. Standardization and adjustment of the reached a record high of RMB 6.5 trillion. SRCB’s bond settle- accounting system of the Bank was conducted under the new ment volume ranked the ninth in the country. The new busi- accounting standards. Construction of the treasury and cash ness including corporate finance advisory, financial advisory, center of the head office was promoted. Planning and con- syndicated loans and personal finances, presented fairly rapid struction of the new frame work for information technology growth. was started, and the personal loan processing system was put into operation. We received approval for increased market access, including electronic saving bonds, foreign exchange spot trading, etc. 2010 is the first year since implementation of the new three- Our credit card product range was expanded, and the of- year development strategy of SRCB and it is also a year full of fice card, business card, Xinfeng card and Xinnong card were opportunities and challenges. We will adhere to the scientific 11

development concept at work, thoroughly implement the We will implement a more market-orientated approach to ideas proposed in the national and Shanghai local economic enhance the businesses in rural areas, develop in urban areas, meetings, adjust the structure, promote development, carry to be based in Shanghai and surrounding areas, promote out strict management, focus on services, build a good image, urban sub-branch building, and achieve full coverage of the lay the solid foundation and promote the reform so as to bring urban districts. With the focus on the strategic goal of being a about a good beginning for overall implementation of the new people-friendly bank, we will rely on scientific and technologi- three-year development strategy. cal support, improve the services, carry out innovations in the path of community service, and build the brand for community We will actively participate and serve in the process of trans- finance. forming the economic development mode of Shanghai, making every effort to seize the opportunities and speed up devel- We will focus on the requirements of “six aspects of guarantee” opment. With the focus on industrial restructuring of Shanghai, to make all efforts in financial services for Expo 2010, further we will further study the new industries, new mode of indus- strengthening construction of the payment environment, tries, the new way of industrial clustering and the resulting operation management and security work, ensuring safe and demand for financial services. We will enhance the interaction stable operation of the Bank, further enhancing customer between financial services and industrial development. With service systems, strengthening service capacity, ensuring stan- the focus on construction of urbanization of the outskirts, we dardization, quality and efficiency of counter service, further will further study the urban construction mode of different re- improve staff morale, call for full participation, enhance public- gions under different economic conditions and explore effec- ity, positively guide work, and create a good atmosphere in tive ways of financing support. With the focus on construction financial services for Expo 2010. of the two centers, we will strengthen cooperation with various financial institutions, actively participate in various kinds We will actively promote the risk management system, make of financial markets and productive factors, speed up opening efforts to cultivate a good risk control culture, strengthen of new businesses, and explore the ways for cross-regional de- case prevention and control governance, gradually establish velopment, with greater impact on the financial market. With the long-term mechanisms, implement the new information the focus on building a harmonious society, we will improve technology strategic plan to centralise back and middle office the financial services system, and provide strong support for operations, carry out the major infrastructure development of the development of farmers, countryside, agriculture, and the a new generation of core accounting system, data warehouse, people’s livelihoods. business processing center, etc, and further improve the operational management. We will promote timely market access and product innovation to further enhance our market competitiveness, initiate and Reform and development of SRCB has entered a new histori- promote preparation and license application for third-party cal stage. Under the leadership and guidance of the municipal deposits, custodian services, underwriting of non-financial party committee, municipal government, municipal finance debt instruments and gold, promote fixed asset based financ- committees, municipal financial services office, and financial ing, share margin financing of listed companies, share margin supervisory sector, as well as the care and support of all sec- financing of intellectual property, and loans to venture capital tions of society, we will further open our minds and be vigor- institutions, promote the “Second-hand Housing mortgage ous to create a new chapter for construction of a modern com- broker channel”, carry out a service pilot program for housing mercial bank with a more scientific attitude, more persistent fund loans, and explore innovative rural-related credit sup- pursuit, more pragmatic spirit, and more effective work! ported by collateral and mortgages, using tools such as rural property rights, management rights , use age rights, lease rights, etc.. President: 12

SRCB Annual Report 2009

Shen Xunfang Deputy Party Secretary, Party Secretary of the Discipline Committee and Director

Shen Xingbao Ye Guorong Vice President Vice President 13

Wu Guohua Jin Jianhua Assistant to President Assistant to President 14

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Corporate Governance Struc ture - Shareholders Meeting Shareholders Report of the Company Board Board Company the of Report of Director of Report of the Supervisory Supervisory the of Report Board Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 15

Summary of Accounting Data and Financial Performance

01 16

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Summary of Accounting Data

Changes of Share Capital and and Capital Share of Changes and Financial Performance Shareholders Profile Shareholders 1. Highlight of Financial Results of the Period of the Report

Unit: thousand RMB Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Items The Group The Bank Total profit 2,483,724 2,488,190 Net profit attributable to shareholder(s) of the parent company 1,971,205 1,973,483 Net profit with extraordinary gains and losses deducted attributable 1,869,174 1,872,202 to shareholder(s) of the parent company

Corporate Governance Struc Proﬁt from principle operations 2,347,683 2,353,149 Investment income 1,188,075 1,185,203 ture Subsidy - - Non-operating net income 136,041 135,041

- Net cash ﬂow from operating activities 5,880,308 5,803,573

Shareholders Meeting Shareholders Net Increase in cash and cash equivalents -667,550 -744,111

Note 1: Investment income includes interest income from bond investments, gains and losses on sale of transaction bonds, gains and losses on transfers of marketable ﬁnancial assets, gains and losses on long-term equity investment, as well as dividend income, the same as below.

Report of the Company Board Board Company the of Report 2. Highlight of ﬁnancial results and ratios of the last three years of Director of

Unit: thousand RMB

The Group The Bank Items 2009 2009 2008 2007 Report of the Supervisory Supervisory the of Report Income from principle operations 8,167,713 8,158,413 8,612,457 6,734,862

Board Net proﬁt attributable to shareholder(s) of the parent company 1,971,205 1,973,483 740,805 370,572 Total assets 212,250,359 211,915,691 173,327,345 157,474,437 Deposit balance 179,234,051 178,868,758 147,043,235 128,317,458 Loan balance 118,777,789 118,538,894 92,732,082 82,713,857

Significant Events Significant Equity attributable to shareholder(s) of the parent company 13,022,069 13,024,347 11,643,112 11,159,485 Fully diluted earnings per share attributable to shareholder(s) of 0.53 0.53 0.20 0.10 the parent company (RMB) Weighted average earnings per share attributable to 0.53 0.53 0.20 0.12 shareholder(s) of the parent company (RMB) Earnings per share after extraordinary item attributable to 0.50 0.50 0.02 0.10 2009 Big Annual Events Annual Big 2009 shareholder(s) of the parent company (RMB) Net assets per share attributable to shareholder(s) of the parent 3.48 3.48 3.11 2.98 company (RMB) Net operating cash ﬂow from operating activities per share 1.57 1.55 1.60 0.96 (RMB) Cost to Income ratio (%) 43.74% 43.59% 35.95% 38.27% ments Available for Inspection for Available ments Financial Report and Docu and Report Financial Weighted average return on equity (%) 16.23% 16.28% 6.50% 4.21% Weighted average return on equity after extraordinary items (%) 15.39% 15.45% 0.67% 3.69%

Note 2: On January 1, 2009, the Company implemented the Accounting Standards for Business Enterprises issued by the Ministry of Finance

- in February 15, 2006. The 2009 annual financial statement was the first annual financial statement of SRCB prepared in accordance with this standard. The 2009 accounting data and financial performance of the Group and the Bank was recorded in the financial statements prepared as per the Accounting Standards for Business Enterprises (2006). While the data and performance in the ﬁnancial statement prepared as per the Implementation Rules for Financial Management of Rural Credit Cooperatives in 2008 Annual Report of SRCB was adopted as the 2007 and 2008 accounting data and ﬁnancial performance, the same as below. Note 3: Operating income includes interest income, service fee and commission income, investment gains and losses, changes in fair value gains and losses, exchange gains and losses, and other operating income, the same as below. 17 and Financial Performance Summary of Accounting Data

3. Three-year provision for asset impairment as of the end of the reporting period Shareholders Profile Changes of Share Capital and

Unit: thousand RMB

The Group The Bank Item 2009 2009 2008 2007 Opening balance 2,512,480 2,512,480 1,398,633 1,206,313 Profiles of Directors on the Company Board, Supervisory Board, Senior Management Staff

Accruement from the gains and losses of the current year in the - 278,247 275,858 3,000,000 1,800,000 reporting period Provision from gains and losses of the owner in the reporting - - - - period ture Other transfer-in in the reporting period 48,537 48,537 393,772 3,000

Recovery in the reporting period 19,371 19,371 18,899 11,393 Struc Governance Corporate

Transfer-out in the reporting period - - - -

Write-oﬀ in the reporting period 127,903 127,903 3,335,425 1,622,073

Closing balance 2,730,732 2,728,343 1,475,879 1,398,633 Shareholders Meeting Note 4: provision for asset impairment includes loan loss provisions, bad debts provisions, impairment of long-term equity investments, receivables investment impairment provisions, and decline in value of collateral assets.

4. Supplementary Financial Data for the last three years of Director Report of the Company Board Unit: thousand RMB

The Group The Bank Items 2009 2009 2008 2007 Board Total liabilities 199,181,478 198,891,344 161,684,233 146,314,952

Total deposits 179,234,051 178,868,758 147,043,235 128,317,458 Report of the Supervisory Interbank borrowing - - - Total loans 118,777,789 118,538,894 92,732,082 82,713,857 Including: Corparate 94,774,261 94,575,311 71,904,565 67,618,579 Credit Discount 11,118,925 11,118,925 9,488,946 3,275,718 Significant Events Personal 12,884,603 12,844,658 11,338,571 11,819,560

5. Supplementary Statement to Income Statement 2009 Big Annual Events

Unit: thousand RMB -

The Group The Bank 项目 2009 2009 2008 2007 Proﬁt from principle operations 2,347,683 2,353,149 88,672 677,535 Financial Report and Docu

Net proﬁt attributable to shareholder(s) of the parent company 1,971,205 1,973,483 740,805 370,572 ments Available for Inspection Proﬁt after extraordinary items attributable to shareholder(s) of 1,869,174 1,872,202 76,556 325,146 the parent company 02 18

6. Supplementary Financial Indicators for the previous three years Report of the Company Board Board Company the of Report Unit: thousand RMB of Director of The Group The Bank Items Standard Value 2009年 2009年 2008年 2007年 Capital adequacy ratio ≥8% 11.95% 11.95% 11.80% 9.16% Core capital adequacy ratio ≥4% 10.21% 10.21% 12.02% 9.65% Report of the Supervisory Supervisory the of Report Liquid ratio: RMB ≥35% 44.65% 44.65% 61.08% 42.43%

Board Foreign currency 127.91% 127.91% 205.79% 1224.21% Deposit-loan ratio: RMB ≤75% 66.36% 66.36% 63.06% 62.15% Foreign currency 14.48% 14.48% 50.18% 63.73%

Interbank funding ratio:Borrowing ratio 3.64% 3.65% 0.10% 2.68% Significant Events Significant Lending ratio 5.87% 5.88% 4.20% 5.36%

Intl commercial borrowing ratio - - - -

NPL ratio ≤5% 1.88% 1.88% 2.29% 2.34%

2009 Big Annual Events Annual Big 2009 Interest repayment ratio 100.03% 100.03% 99.99% 99.83%

Single largest customer loan ratio ≤10% 7.00% 7.00% 5.53% 7.86%

Top ten customer loan ratio ≤100% 50.13% 50.13% 46.31% 59.92% ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 19 and Financial Performance Summary of Accounting Data Shareholders Profile Changes of Share Capital and Profiles of Directors on the Company Board, Supervisory Board, Senior Management Staff - ture Corporate Governance Struc Governance Corporate

7. Capital Composition and Change Shareholders Meeting

Unit: thousand RMB

Bank Items

2009-12-31 2008-12-31 2007-12-31 of Director Net capital 13,583,288 10,858,445 7,635,591 Report of the Company Board Net core capital 11,608,731 11,061,147 8,048,113 Total risk-weighted assets 113,699,568 92,048,502 83,365,661 Capital adequacy ratio 11.95% 11.80% 9.16% Board Report of the Supervisory

8. Changes in Shareholders Equity Significant Events Unit: thousand RMB

The Bank Items Paid-up capital Capital surplus Surplus reserve General reserves Retained proﬁt Total equity

As at 1 Jan 2009 3,745,686 1,430,443 478,295 2,625,540 2,937,423 11,217,387

Increase - 149,734 395,413 - 1,973,483 2,518,630 2009 Big Annual Events Decrease - 16,603 - - 695,067 711,670 - As at 31 Dec 2009 3,745,686 1,563,574 873,708 2,625,540 4,215,839 13,024,347 Financial Report and Docu ments Available for Inspection 20

Changes in Share Capital and Shareholder’s Profile

02 22

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Changes in Share Capital and Shareholder’s Profile Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders 1. Changes in Share Capital

1.1 Share Capital Structure Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Unit: share

Class Number of Shares Percentage Legal person share 2,968,250,470 79.24% Natural person share 777,222,000 20.75% Corporate Governance Struc Grouped shareholder(Note1) 213,306 0.01%

ture Total 3,745,685,776 100%

Note1:Grouped shareholder: in accordance with the requirements of the document CBRC (2004) No.61, where the shareholder of the share capital in the original rural credit cooperative is not known, it will be counted within the “Grouped shareholder”, for categorisa- - tion after the shareholders’ identities are confirmed.

Shareholders Meeting Shareholders 1.2 Share Issuance None during the reporting period. Report of the Company Board Board Company the of Report of Director of 2. Shareholders Profile

2.1 Number of Shareholders Report of the Supervisory Supervisory the of Report At the end of the Period, the Company’s total number of shareholders is 24,678, among which 217 are legal person

Board shareholders, 24,460 are natural person shareholders and 1 grouped shareholder.

Top Ten Shareholders as at the end of the Period (unit: ten thousand shares):

unit: ten thousand shares Significant Events Significant

No. Name Class Percentage Shares Variation 1 ANZ Banking (Group) Co., Ltd. Foreign-owned 19.90% 74，539.147 - 2 Shanghai International (Group) Co., Ltd. SOE 8.01% 30，000 - 3 Shanghai Sheng Rong Investment Co., Ltd. SOE 8.01% 30，000 - 2009 Big Annual Events Annual Big 2009 4 Shanghai State-owned Assets management Co., Ltd. SOE 8.01% 30，000 - 5 Shanghai Greenland (Group) Co., Ltd. SOE 5.34% 20，000 -

6 Jin jiang International (Group) Co., Ltd. SOE 4.00% 15，000 -

7 Shanghai Shangtou Investment Mngt Co., Ltd. SOE 4.00% 15，000 - ments Available for Inspection for Available ments Financial Report and Docu and Report Financial 8 Shanghai Shan Xin Property Co., Ltd. Private-owned 1.73% 6，500 -

9 Oriental Intl (Group) Co., Ltd. SOE 1.60% 6，000 -

10 Shanghai Qingpu Asset Mngt Co.,Ltd. SOE 1.33% 5，000 -

- Total 61.94% 232，039.147 - 23 and Financial Performance Summary of Accounting Data

Top Ten Shareholders’ Correlation 3) Shanghai Sheng Rong Investment Co., Ltd has ap- Shanghai State-owned Asset Management Co., Ltd and proximately 8.01% shares of the company. Shanghai Sheng Rong Investment Co., Ltd, which was set up in Shareholders Profile Shanghai Shangtou Investment Management Co., Ltd Changes of Share Capital and are subsidiary companies of Shanghai International November 2002 is a wholly state-owned entity. It has (Group) Co., Ltd. registered capital of RMB 3 billion. Its business scope covers investment and consulting. Investments cover During the period none of the ten largest shareholders business, real estate and related activities and infrastruc- Profiles of Directors on the Company Board, Supervisory

have had any shares frozen. ture development, consulting services cover investment Board, Senior Management Staff consulting, financial consulting, advisory and agency - 2.2 Shareholders holding more than 5% of SRCB’s shares services for corporate M&A and corporate financial advi-

1) Australia and New Zealand Banking Group Limited sory. ture holds 19.9% of SRCB’s shares. Established in 1835, Aus- 4) Shanghai State-Owned Asset Management Co., Ltd tralia and New Zealand Banking Group Limited (“ANZ”), Struc Governance Corporate holds nearly 8.01% of SRCB’s shares. The Company was is headquartered in Melbourne, Australia and is the 4th established in October 1999 as a comprehensive state- largest bank in Australia and the largest bank in New owned assets management company under the gover- Zealand. ANZ operates 1,251 branches in 32 countries. nance of the municipal authority with registered capital As at 30th September, 2009, ANZ had assets of AUD 477 Shareholders Meeting of RMB 5 billion. Its principal task is to revitalize state- billion, and its market value ranked it 24th amongst the owned assets operated with the authorization of the world’s commercial banks. municipal authority, through market means. The main business is industrial investment, capital operation, as-

2) Shanghai International Group Co. has approximately of Director 8.01% shares of the company. Shanghai International set acquisition, packaging and transfer. Group was established in April 2000 under the ap- Report of the Company Board 5) Shanghai Green Land (Group) Co., Ltd holds nearly proval of the Shanghai Municipal Government following 5.34% of SRCB’s shares. The Company was established standardization of the administration of state-owned in July 1992 as a domestic joint-venture company with assets. It has registered capital of RMB 10.56 billion. The Board registered capital of RMB 702 million. The business tenet

company plays the three roles of equity investment for Report of the Supervisory of the company is to “Make Life Better by Greenland” acquisition, capital operation and state-owned assets and the development concept is to “build harmonious management. As licensed by the Shanghai government Greenland and jointly construct and share”. With the authority, the company’s business scope covers invest- core industry of real estate development and manage- ments, the majority of which are in the financial sector ment, as well as related industries relying on the primary Significant Events with supplementary investments in non-financial sec- business, it has formed the industrial layout with co- tors, capital operation, assets management, financial development of energy, finance and other related indus- planning and business consultancy. tries. 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection 24

Profiles of Directors on the Company Board, Supervisory Board, Senior Management and Staff

0034 26

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Profiles of Directors on the Company Board, Supervisory Board, Senior Management and Staff Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders 1. Directors on the Company Board, Supervisory Board and Senior Manage- ment Board Board, Senior Management Staff Management Senior Board, Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Profiles of Directors on the the on Directors of Profiles Title Name Gender Year of Birth Tenure Salary (√) Share holding (shares) Directors on the Company Board Chairman Hu Pingxi male 1953 2009.9.8-2012.9.7 √ 500,000 Vice Chairman Hou Funing male 1964 2009.9.8-2012.9.7 √ 500,000

Corporate Governance Struc Worker Director Shen Xunfang male 1958 2009.9.8-2012.9.7 √ 500,000 Shareholder Director Robert John Edgar male 1946 2009.9.8-2012.9.7 ture Shareholder Director Alistair Marshall Bulloch male 1957 2009.9.8-2012.9.7 Shareholder Director Wan Jianhua male 1956 2009.9.8-2012.9.7

- Shareholder Director Shi Derong male 1948 2009.9.8-2012.9.7

Shareholders Meeting Shareholders Shareholder Director Yuan Ping male 1963 2009.9.8-2012.9.7 Shareholder Director Zhang Yuliang male 1956 2009.9.8-2012.9.7 Shareholder Director Chen Wenjun female 1955 2009.9.8-2012.9.7 Shareholder Director Liu Yipeng male 1968 2009.9.8-2012.9.7

Report of the Company Board Board Company the of Report Independent Director Shi Jiliang male 1945 2009.9.8-2012.9.7 IndependentDirector Wu Daqi male 1954 2009.9.8-2012.9.7 of Director of Independent Director Su Zhong male 1948 2009.9.8-2012.9.7 100,000 Independent Director Yu Yinghui male 1948 2009.9.8-2012.9.7 Independent Director Liu Hongzhong male 1965 2009.9.8-2012.9.7

Report of the Supervisory Supervisory the of Report Independent Director Wu Jian male 1968 2009.9.8-2012.9.7 Board Secretary Liu Yongfen male 1965 2009.9.8-2012.9.7 √ 300,000 Board Directors on the Supervisory Board Chief Supervisor Shen Huiqi male 1950 2009.9.8-2012.9.7 √ 500,000 Shareholder Supervisor Wu Zhenlai male 1950 2009.9.8-2012.9.7 50,000 Shareholder Supervisor Zhang Lei male 1971 2009.9.8-2012.9.7 Significant Events Significant Shareholder Supervisor Lu Changsheng male 1959 2009.9.8-2012.9.7 30,000 Worker Supervisor Lou Jinjiang male 1951 2009.9.8-2012.9.7 √ 500,000 Worker Supervisor Feng Baolong male 1951 2009.9.8-2012.9.7 √ 150,000 Worker Supervisor Zhang Zuyu male 1957 2009.9.8-2012.9.7 √ 100,000 2009 Big Annual Events Annual Big 2009 External Supervisor Wu Xing male 1945 2009.9.8-2012.9.7 External Supervisor Jiang Hong male 1950 2009.9.8-2012.9.7 Senior Management President Hou Funing male 1964 2009.9.8-2012.9.7 √ 500,000 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial Vice President Shen Xingbao male 1958 2009.9.8-2012.9.7 √ 500,000 Vice President Ye Guorong male 1957 2009.9.8-2012.9.7 √ 500,000 Assistant to President Wu Guohua male 1964 2009.9.8-2012.9.7 √ 500,000 Assistant to President Jin Jianhua male 1965 2009.9.8-2012.9.7 √ - CIO Zhou Hengchang male 1965 2009.9.8-2012.9.7 √ 500,000 CIO Wang Ming male 1957 2009.9.8-2012.9.7 √ 150,000 27 and Financial Performance Summary of Accounting Data

2. Directors, Supervisors and Senior Management’s Working Experience Shareholders Profile

2.1 Board of Directors Changes of Share Capital and

Directors:

Hu Pingxi, male, born in October 1953, master’s degree in finance, senior economist. He is currently the Party Sec- retary and Chairman of SRCB. Previously, he served as the Vice-President of Zhejiang Branch of the People's Bank Profiles of Directors on the Profiles of Directors on the Company Board, Supervisory Company Board, Supervisory Board, Senior Management Staff Board, Senior Management Staff

of China and the deputy director of Zhejiang Branch of the State Administration of Foreign Exchange, Secretary of - the Party Leadership Group and President of Fujian Branch of the People's Bank of China and the Director of Fujian Branch of the State Administration of Foreign Exchange, the Party Secretary and President of Wuhan Branch of the ture People's Bank of China and the Director of Hubei Branch of the State Administration of Foreign Exchange, the Party Secretary and President of Shanghai Branch of the People's Bank of China and the Director of Shanghai Branch of Corporate Governance Struc Governance Corporate the State Administration of Foreign Exchange, as well as the Deputy Party Secretary and the Deputy Director of the Shanghai headquarters of the People's Bank of China and the Director of the Union Committee.

Hou Funing, male, born in February 1964, Master’s Degree, Senior Economist. Mr. Hou is Deputy Party Secretary,

Vice Chairman and President of SRCB. Previous positions held with Bank of Shanghai include General Manager, Trea- Shareholders Meeting sury and Finance, Head of President’s Office, Assistant President and Head of President’s Office, Assistant President and General Manager Head Office Branch, and Vice President. He was also Deputy Party Secretary and President of Shanghai Rural Credit Cooperatives Union. of Director Shen Xunfang, male, born in April 1958, Doctor’s Degree. He is Deputy Party Secretary, Party Secretary of the Disci- pline Committee and Director of SRCB. He has previously held positions in General Office and Secretariat of Shang- Report of the Company Board hai Municipal Government and was Deputy Party Secretary and Secretary of the Discipline Committee of Shanghai Rural Credit Cooperatives Union. Board Robert John Edgar, male, born in May 1946, holding a PhD. He is currently the Director of SRCB, Director of Bank of Tianjin, Director of AmInvestment Bank in Malaysia, and Director of Nufarm, Transurban, Asciano, Linfox Armagard Report of the Supervisory and Prince Henry's Medical Research Institution in Australia. Dr. Edgar retired in 2009, having previously served as the Deputy Chief Executive Officer, Senior Managing Director, Chief Operating Officer, Managing Director of the Corpo- rate Banking Department, Managing Director of Institutional, as well as Head of the Group Strategy and Chief Econo- mist of ANZ. Significant Events

Alistair Marshall Bulloch, male, born in November 1957, Bachelor's Degree (Honors). He is currently the Deputy Chief Executive Officer of Asia-Pacific & Europe and America of ANZ, Chairman of ANZ China , Director of SRCB, Director of the Bank of Tianjin, Director of Capital Private, India, Director of ANZBEL in Europe and Director of ANZ Chongqing Liangping Rural Bank. He has worked in many branches of Standard Chartered Bank including Ireland, 2009 Big Annual Events Dubai, Doha, Hong Kong, Shanghai and Beijing, and served as the Business Director Wholesale Banking in Korea, - Customer Relations Director in China and Taiwan, General Manager in Hong Kong, and was most recently the Chief Executive Officer of ANZ North East Asia.

Wan Jianhua, male, born in January 1956, Master’s Degree in economics, senior economist. He is currently deputy Financial Report and Docu ments Available for Inspection 28

Party Secretary, Vice Chairman and General Manager of Shanghai International Group Co., Ltd., Director of SRCB, Independent Director of Great Wall Fund Management Co., Ltd., Director of All in Pay. He once served as the Deputy Director, Director of Funds Management Department of the Head Office of People's Bank of China, Vice President, Board, Senior Management Staff Management Senior Board, Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Profiles of Directors on the the on Directors of Profiles Deputy Party Secretary, Executive Vice President of the Head Office of China Merchants Bank, as well as the Party Secretary, Vice Chairman and President of China Union Pay Co., Ltd.

Shi Derong, male, born in November 1948, PhD. He is currently Chairman of Shanghai Guosheng (Group) Co., Ltd., and Party Secretary and President of Shanghai Shengrong Investment Co., Ltd., and Director of SRCB. He once served

Corporate Governance Struc as Deputy Party Secretary of CPC in Luwan District of Shanghai, Secretary of Party Leadership Group and Director of the Shanghai Civil Affairs Bureau. ture Yuan Ping, male, born in October 1963, Master’s Degree in economics. He is currently General Manager of Financial Assets Management Department of Shanghai State-owned Assets management Co., Ltd., Director of SRCB, Direc- - tor of Guotai Jun’an Investment Management Co., Ltd., Director of Anxin Agriculture Insurance Co., Ltd., Director Shareholders Meeting Shareholders of Guotai Jun’an Securities Co., Ltd. He once served as the credit loan officer of the Foreign Exchange Credit Loan Department of Shanghai Branch of the Bank of China, Vice President of Credit Loan Department of Shanghai Interna- tional Finance Co., Ltd., General Manager of the Capital Management Centre of Manpower Overseas (Shanghai) Co., Ltd., and Vice General Manager of Shanghai Boerqiang International Trading Co., Ltd. Report of the Company Board Board Company the of Report Zhang Yuliang, male, born in December 1956, graduated with a Bachelor’s Degree, Senior Economist. Mr. Zhang is of Director of Party Secretary, President and Chairman of Shanghai Green Land (Group) Co.,Ltd. Previous positions held include Di- rector, Planning Department, Shanghai Agricultural Committee, Deputy Director, Housing Office and Party Secretary and General Manager, Shanghai Green Land Development Company.

Report of the Supervisory Supervisory the of Report Chen Wenjun, female, born in November 1955, Master’s degree, Senior Accountant. Chen is Director and Senior

Board Vice-president of Jinjiang Group Ltd. Co. Previous positions held with Jinjiang Group include Vice-president, Director and Assistant to President, and Head of Finance.

Liu Yipeng, male, born in September 1968, MBA, economist. He is currently General Manager of Shanghai Interna- tional Group Assets Management Co., Ltd., Director of SRCB, Supervisor of All in Pay. He once served as the chief, as- Significant Events Significant sistant manager and deputy manager of investment banking department of Shanghai International Trust and Invest- ment Co., Ltd., General Manager and Executive Director of Shanghai International Group Assets Management Co., Ltd.

2009 Big Annual Events Annual Big 2009 Shi Jiliang, male, born in February 1945, Bachelor’s Degree, senior economist. He is currently Chairman of Board of Supervisors and External Supervisor of China Merchants Bank, Independent Director of SRCB. He once served as the President of Tianjin Branch of People's Bank of China, President of Agricultural Bank of China, Vice President of the People's Bank of China, and Vice-Chairman of China Banking Regulatory Commission. ments Available for Inspection for Available ments Financial Report and Docu and Report Financial Wu Daqi, male, born in June 1954, Bachelor’s Degree, professor, certified public accountant, 13th NPC member of Shanghai. He is currently vice president of Shanghai Finance Institute, leader of accounting discipline, and special auditor of Shanghai, Vice Dean of the Teaching and Research Committee of the College Accounting discipline in Shang- hai, member of Democratic League Central Committee and Dean of the Municipal Working Committee of Shanghai,

- Dean of Pudong New Area Party Committee, Vice President of Shanghai Financial Law Research Association, member 29 and Financial Performance Summary of Accounting Data of the Finance Committee of the Accounting Society of China, member of the Accounting Society of Shanghai, Inde- pendent Director of SRCB, and Independent Director of Orient International Enterprise Ltd. He once was the teaching assistant of the School of Literature of Shanghai University, trainee lawyer, Associate Professor, Associate Director, Shareholders Profile Changes of Share Capital and Associate Dean, Professor and Graduate Tutor of Shanghai University of Electric Power.

Su Zhong, male, born in February 1948, postgraduate with Master’s Degree, senior economist. He is currently Inde- pendent Director of SRCB. He once was Deputy Director of the foreign capital division of Shanghai branch of China Profiles of Directors on the Construction Bank, Vice President, Secretary of Party Leadership Group and President of Shanghai branch of China Profiles of Directors on the Company Board, Supervisory Company Board, Supervisory Board, Senior Management Staff Board, Senior Management Staff

Investment Bank, President and Party Secretary of Shanghai branch of China Development Bank, Party Secretary and - Chairman of Dazhong Insurance Co., Ltd., and Chairman of the Board of Supervisors of Anxin Agriculture Insurance Co., Ltd. ture

Yu Yinghui, male, born in November 1948, graduated from college, senior economist. He is currently Independent Director of SRCB. He once was the chief of Loan Sector of Bazhou branch of People's Bank of China, Deputy Director Struc Governance Corporate of Survey Division of Xinjiang branch of People's Bank of China, Vice President of Urumqi branch of People's Bank of China, deputy director of the finance institute of Shanghai branch of People's Bank of China, Director of monetary gold and silver service, Deputy Director (deputy bureau director level) of No. 1 Financial Services of Shanghai Head

Office of People's Bank of China. Shareholders Meeting

Liu Hongzhong, male, born in June 1965, PhD. He is currently Dean of the School of International Finance of Fudan University, Professor, and Deputy Director of the International Finance Research Centre of Fudan University, Inde-

pendent Director of SRCB, Independent Director of Shenyin & Wanguo Futures Limited. He once was the Associate of Director Professor and Vice Dean of the School of International Finance of Fudan University, Associate Director, and external Supervisor of SRCB. Report of the Company Board

Wu Jian, male, born in March 1968, Master’s Degree, lawyer. He is currently senior partner of Shanghai Duanheduan

Law Firm, Executive Director of Shanghai Bar Association, Independent Director of SRCB. He was once the legal ad- Board viser of Asia McDonald's, Assistant Economist of the Price Bureau of the Shanghai Planning Committee, and editor of Report of the Supervisory Huadong Price.

Board Secretary: Liu Yongfen, male, born in October 1965, Master’s Degree, economist. He is currently Secretary of the Board of Di- Significant Events rectors of SRCB, Dean of Board of Directors Office, and Dean of Party Committee Office. He once served as the Direc- tor of Administration of Foreign Affairs of Shanghai Branch of People's Bank of China, and Deputy Director of Foreign Exchange Management Department of Shanghai Head Office of the People's Bank of China.

2.2 Supervisory Board 2009 Big Annual Events Shen Huiqi, male, born in October 1950, graduated with a Bachelor’s Degree. Mr. Shen is Chairman of Supervisory - Board, SRCB. He was formerly member of the Party’s Standing Committee of Jiading District, Shanghai, Deputy Party Secretary and Deputy Director of Fengxian District Government.

Wu Zhenlai, male, born in September 1950, graduated from college. Mr. Wu is the Chairman of Shanghai Shan Xin Financial Report and Docu ments Available for Inspection 30

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders Board, Senior Management Staff Management Senior Board, Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Profiles of Directors on the the on Directors of Profiles Corporate Governance Struc ture - Shareholders Meeting Shareholders

Property Co., Ltd. He was previously Manager, Shanghai Wenhua Architectural Design Firm. Report of the Company Board Board Company the of Report

of Director of Zhang Lei, male, born in May 1971, Master’s Degree; He is currently the Deputy Director of Assets Operation Depart- ment of Orient International (Holdings) Co., Ltd., and Deputy Director of the Office, and Supervisor of SRCB. He once was the Assistant Office Director of Orient International (Holdings) Co., Ltd., and the Youth League Secretary of the Group. Report of the Supervisory Supervisory the of Report Lu Changsheng, male, born in July 1959, graduated from college. Mr. Lu is Manager of the Support Advisory Division Board of Shanghai Qingpu Asset Management Co., Ltd and Manager of Shanghai Qingpu Grain and Oil Warehouse Man- agement Company. He was previously Manager of Shanghai Qingpu Grain Oil and Foodstuff Company.

Lou Jinjiang, male, born in August 1951, graduated from college. Lou is Deputy Secretary of Discipline Committee,

Significant Events Significant SRCB. He was formerly Deputy Director of Communications, Shanghai Finance Bureau, Deputy Director, HR Depart- ment and Deputy Director, Communications Department, Shanghai General Economic Committee.

Feng Baolong, male, born in April 1951, graduated from college. He is Deputy General Manager SRCB Pudong Branch. He was previously Deputy General Manager, Pudong Rural Credit Cooperatives. 2009 Big Annual Events Annual Big 2009 Zhang Zuyu, male, born in December 1957, graduated from college, economist, and is Business Manager Jinshan Branch, SRCB. He was formerly General Manager Zhang Yan Credit Cooperatives, President of Zhangyan Branch, SRCB and Manager of Compliance and Supervision Jinshan Branch, SRCB. ments Available for Inspection for Available ments Financial Report and Docu and Report Financial Wu Xing, male, June 1945, graduated from college, senior economist. He is currently External Supervisor of SRCB. He once was the Vice President of Anhui Branch of Industrial and Commercial Bank of China, Commissioner of Wuhan, Commissioner Office of the Audit & Supervision Bureau of Industrial and Commercial Bank of China, General Manag- er of Audit & Supervision Bureau of China Industrial and Commercial Bank of China, Director of Internal Audit Bureau - of China Industrial and Commercial Bank of China. 31 and Financial Performance Summary of Accounting Data

Jiang Hong, male, born in February 1950, PhD, Professor and Doctoral Tutor. He is currently Director of Professor Committee of the School of Public Economics and Management of Shanghai University of Finance and Economics, Director of Public Relations Research Center of Shanghai University of Finance and Economics, External Supervisor of Shareholders Profile Changes of Share Capital and SRCB. He once was the Deputy Director of the School of Finance of Shanghai University of Finance and Economics, and principal of the School of Public Management.

2.3 Senior Management Profiles of Directors on the Profiles of Directors on the Company Board, Supervisory Company Board, Supervisory Board, Senior Management Staff Shen Xingbao, male, born in August 1958, graduated with a master degree major in Politics. Mr. Shen is Vice Presi- Board, Senior Management Staff - dent of SRCB. Previous positions held include Party Secretary and Chief of YangPu Environmental Protection Bureau, Party Secretary and General Manager, YangPu Administrative Department, Bank of Shanghai, General Manager, SME Service Centre, Bank of Shanghai, Head of President’s Office, Bank of Shanghai, Deputy Party Secretary and Secretary ture of Discipline Committee, Da Zhong Insurance Co., Ltd, Vice President, Shanghai Rural Credit Cooperatives Union. Corporate Governance Struc Governance Corporate Ye Guorong, male, born in November 1957, graduated from college, Accountant. Mr. Ye is Vice President of SRCB. Previous positions held with Bank of Shanghai include General Manager, Huanlong Branch, General Manager, Zha Bei Regional Branch and General Manager, Accounting.

Wu Guohua, male, born in February 1964, graduated with a Master’s Degree, Economist. Mr. Wu is Assistant to Presi- Shareholders Meeting dent, SRCB. He was formerly General Manager, Operations, Minsheng Bank, Shanghai Branch and Assistant Director, Shanghai Rural Credit Cooperatives Union.

Jin Jianhua, male, born in January 1965, PhD, economist; He is currently Vice President of SRCB. He once was the of Director President of Fumin Sub-branch of Bank of Shanghai, President of Waitan Sub-branch of Bank of Shanghai, Deputy Report of the Company Board Director and Director of Financial Institution of Shanghai Financial Services Office (temporary position).

Zhou Hengchang, male, born in October 1965, Bachelor’s Degree, Senior Engineer; He is currently Chief Informa- tion Officer of SRCB and General Manager of Information Management Department. He once was Deputy Director of Board

Business Application Division of the Information Technology Department of Bank of Communications, and the Vice Report of the Supervisory General Manager of the Software Development Center of Bank of Communications.

Wang Ming, male, born in October 1957, Bachelor’s Degree, Economist. He is currently Chief Credit Approval Officer of SRCB and the General Manager of Risk Management Department. He once was the President of Songjiang Sub- branch of SRCB, and General Manager of Risk Management Department of SRCB. Significant Events

3. Change of Directors, Supervisors, Senior Management

The Company agreed on Mr. Li Xiulun’s resignation as Director on April 20, 2009 at the 2008 Annual Shareholders' 2009 Big Annual Events

Meeting, and Mr. Hu Pingxi was elected as the Director. In the 2009 1st Extraordinary Board of Directors Meeting of - that day, Mr. Hu Pingxi was elected Chairman of the 1st Board of Directors, and it was agreed that Mr. Zhao Deyuan resigned from the post of Secretary of Board of Directors. Mr. Liu Yongfen was appointed to be Secretary of the 1st Board of Directors. Financial Report and Docu ments Available for Inspection 32

The 1st Board of Directors and Board of Supervisors of appointed as President’s Assistants, and Mr. Liu Yongfen the Company expired in 2009 and the general election was appointed as Secretary of the Board of Directors. was conducted. On August 14, 2009, the general elec- The 1st meeting of the 2nd Board of Supervisors held on Board, Senior Management Staff Management Senior Board, Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Profiles of Directors on the the on Directors of Profiles tion plan was discussed and approved at the 1st Board the same day elected Mr. Shen Huiqi as the Chairman of of Directors meeting and Board of Supervisors meeting. the Board of Supervisors. The 2nd Directors and Supervisors (Employee Directors The 1st meeting of the 6th Workers Congress of the and Supervisors excluded) were elected at the 2009 1st Company held on June 3, 2009 elected Mr. Shen Xun- Extraordinary Shareholders Meeting on September 8, Corporate Governance Struc fang as employee Director of the 2nd Board of Directors 2009, including 16 Directors, respectively: Hu Pingxi, and Messers Lou Jinjiang, Feng Baolong and Zhang

ture Hou Fu’ning, Robert Edgar, Alistair Bulloch, Wan Jianhua, Zuyu as the employee Supervisors of the 2nd Board of Shi Derong, Yuan Ping, Zhang Yuliang, Chen Wenjun, Liu Supervisors. Yipeng, Shi Jiliang, Wu Daqi, Su Zhong, Yu Yinghui, Liu - Zhonghong and Wu Jian, and 6 Supervisors, respective- After the general election of the Board of Directors and Shareholders Meeting Shareholders ly: Chen Huiqi, Wu Zhenlai, Zhang Lei, Lu Changsheng, Board of Supervisors, the former Company Directors, Wu Xing and Jiang Hong. The 1st meeting of the 2nd Shen Xingbao, Pan Longqing, Chen Shaochang, She Board of Directors elected Mr. Hu Pingxi as Chairman Sibai, Jia Chunrong, Mei Zhe, Zhang Wei, Lu Wenzhong, and Mr. Hou Fu’ning as Deputy Chairman on the same Tang Wenxin, Li Rong, Wu Xing and Yan Qifen no longer

Report of the Company Board Board Company the of Report day. Mr. Hou Fu’ning was confirmed as President, and serve as the Company Directors. The former Company Mr. Shen Xingbao and Ye Guorong were appointed as

of Director of Supervisors, Cai Hongsheng, Zhang Tiangao, Liu Zhong- Vice Presidents. Mr. Wu Guohua and Jin Jianhua were hong no longer serve as the Company Supervisors. Report of the Supervisory Supervisory the of Report Board Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 33 and Financial Performance Summary of Accounting Data

4. Workforce

As at the end of the Period, SRCB has 4,817 employees elor’s Degree or Diploma, accounting for 72.62% of total Shareholders Profile Changes of Share Capital and on its register, consisting of 844 management execu- headcount. 1,176 employees graduated from Technical tives, 3,873 business staff and 100 other staff. 143 em- Secondary School or below, accounting for 24.41% of ployees have a Master’s Degree or PhD, accounting for total headcount. 2.97% of total headcount. 3,498 employees have a Bach- Profiles of Directors on the Profiles of Directors on the Company Board, Supervisory Company Board, Supervisory Board, Senior Management Staff Board, Senior Management Staff - ture Corporate Governance Struc Governance Corporate

Business Staﬀ Bachelor’s Degree or Diploma Management Executives Secondary School or below Other Staﬀ Master’s Degree or PhD Shareholders Meeting of Director Report of the Company Board Board Report of the Supervisory Significant Events 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection 34

Corporate Governance Structure

04 36

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Corporate Governance Structure Changes of Share Capital and and Capital Share of Changes

Shareholders Profile Shareholders 1. Corporate Governance situation

The Company, during the reporting period, further Law, Articles of Association and relevant regulations per improved the governance structure, optimized the gov- Shanghai Jun He Law Firm’s legal opinion. The views and ernance mechanism, took the advanced listed banks as recommendations of the Shareholders were expressed Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles the examples, learnt from the governance experience in the Shareholders' Meeting to ensure the right to infor- of the mature bank corporations, further strengthened mation access, participation and voting on substantial the strategic management, risk management, incentive matters of the Company and to create good environ- and restrictive mechanism and information disclosure ment for full participation in decision making and equal system, ensured effective balance and close match of implementation of the rights of Shareholders. Corporate Governance Struc decision-making bodies, implementing bodies and supervision bodies, ensured compliance of the Company (II) Shareholders and the Company ture in laws and regulations and sound and sustainable The Shareholding structure complies with relevant development, protected interest of the depositors and banking regulations and rules. The top five shareholders - other related persons, generated returns for the share- did not bypass the Shareholders Meeting to intervene Shareholders Meeting Shareholders holders, and created value for society in strict and due with the Company’s operation and decision-making, compliance with the PRC Company Law, the Guidelines directly or indirectly. The Company is completely in- on Performance of Boards of Directors of Joint-Stock dependent from the top five shareholders in terms of Commercial Banks and the PRC Provisional Regulation personnel, asset, finance, organizational structure and

Report of the Company Board Board Company the of Report of Rural Commercial Banks. business operation. The Company’s Board of Directors,

of Director of Board of Supervisors and its internal organizations were The Company, during the reporting period, developed able to operate independently. the Regulations on Responsibilities Division of Main Leaders of the Head Office, Regulations on Director’s (III) Directors, Board of Directors, special committees Management, Method of Reporting on the Company Report of the Supervisory Supervisory the of Report and secretary of the Board of Directors Governance Information, Method of Market Appoint-

Board ment and Contract Management of Senior Manage- The 2nd Board of Directors of the Company has 17 Direc- ment, amended the Procedure Rules of Board of Direc- tors, including 6 independent Directors, 3 Executive Di- tors, Method of Examination and Evaluation of Directors, rectors (including an employee nominee Director) and 7 Method of Evaluation of Duty Performance of Supervi- shareholder Directors. The number of people and com-

Significant Events Significant sors, Working Rules of Special Committees of Board of position of the Board of Directors complies with regula- Directors, Working Rules of Audit Committee of Board tory requirements and the provisions of the Articles of of Supervisors, and the Management Method of Related Association. The Board of Directors and its subordinate Party Transactions. The company also further improved committees carry out their own duties to ensure that its systems and optimized the company’s governance Board of Directors takes into account various sugges- 2009 Big Annual Events Annual Big 2009 mechanism. tions and comments with the premise of full information access and makes appropriate decisions. (I) Shareholders and the Shareholders' Meeting The Board of Directors held 8 meetings during the re-

ments Available for Inspection for Available ments The Company, during the reporting period, held its 2008 porting period, with 58 proposals heard or deliberated. Financial Report and Docu and Report Financial Annual Shareholders' Meeting and the 1st Extraordinary All Directors diligently and effectively executed the Meeting, with 13 resolutions passed. The notification, policy-making functions of the Board of Directors, as- preparation, convening and voting procedures of the sumed ultimate responsibility for operations and man- Shareholders' Meeting are consistent with the Company

- agement, promoted the establishment of a good and 37 and Financial Performance Summary of Accounting Data honest corporate culture and values of SRCB in strict ac- of 9 Supervisors, including 2 external supervisors, 4 cordance with the Company Law, Articles of Association Executive Supervisors (including 3 employee nominee and other relevant regulations and the company’s gov- Supervisors) and 3 shareholder Supervisors. The num- Shareholders Profile Changes of Share Capital and ernance procedures. The Company Board of Directors ber of people and composition of the Board of Directors carried out due diligent work in improving governance comply with regulatory requirements and the provisions and the Company’s governance operation, focusing on of the Articles of Association. policy-making quality, fully executing the role of special

The Company held 5 Board of Supervisors meetings in Profiles of Directors on the Company Board, Supervisory

committees and independent Directors, formulating Board, Senior Management Staff

2009 with 19 resolutions adopted. The Board of Supervi- - development strategies, strengthening strategic man- sors has two special committees, namely the Nomina- agement, strengthening capital management, ensuring tion Committee and Audit Committee. 7 special Com- effective risk prevention, establishing incentive and re- ture mittee meetings were held, with 8 resolutions passed. strictive mechanisms, promoting management improve- All Supervisors were diligent and responsible, and the ment, strengthening information disclosure, as well as Struc Governance Corporate supervision and evaluation functions were further improving communication; which ensured strict compli- strengthened. The Board of Supervisors supervised and ance with laws, regulations and rules by SRCB and effec- promoted the Board of Directors to develop strategic tive protection of the legitimate rights and interests of planning, and the Senior Management to execute the

Shareholders, attention and protection of interests of Shareholders Meeting strategic planning in accordance with regulatory re- depositors and other interests-related persons, and ef- quirements. fective implementation of duties.

The Board of Directors consists of five special commit- (V) Senior Management and the special committees of Director tees, namely, Strategy Committee, Risk Management The Company’s Senior Management includes 1 Presi- Committee, Related-Party Transactions Committee, dent, 2 Vice Presidents, 2 President Assistants, 1 Chief Report of the Company Board Audit Committee, Remuneration and Nomination Com- Information Officer and 1 Chief Censoring Officer. The mittee. Altogether 19 meetings were held by the special Senior Management, during the reporting period within committees in 2009, with 25 proposals heard or deliber- a complex and tough business environment, studied Board ated. All committee members had good performance and put into practice the scientific concept of develop- Report of the Supervisory of their duties and actively participated in the meeting, ment, firmly implemented the macro-economic policies, expressed their views independently, and carried out focused on SRCB’s new three-year development strat- in-depth primary investigation, which were their due egy, earnestly implemented resolutions of the Board of responsibilities in promoting the coordinated develop- Directors, firmly grasped the two main tasks of business Significant Events ment of SRCB and further improving the corporate gov- development and risk control, sized up the situation, ernance structure. positively responded, and achieved the objectives of business under the leadership of the Board of Directors. The Company now has a Secretary of the Board of Di- rectors, who is responsible for the Company’s external The Company’s Senior Management established a information disclosure and the daily work of Board of system of collective decision-making on major issues, 2009 Big Annual Events Directors. consisting of 6 special committees, namely the Asset - Liability Management Committee, Credit Risk Manage- (IV) Supervisors, the Board of Supervisors and special ment Committee, Internal Control and Operation Risk committees Management Committee, Marketing Promotion Com- Financial Report and Docu

The 2nd Board of Supervisors of the Company consists mittee, Risk Assets Solution Committee, and Information ments Available for Inspection 38

Technology Management Committee. 2. Independent Directors and Exter-

(VI) Information disclosure and transparency nal Supervisors Report of the Company Board Board Company the of Report The Company disclosed the significant information of

of Director of 2.1 Independent Directors the Company in an honest, standardized and timely manner strictly in accordance with the laws and regula- The second Board of Directors has 6 independent Direc- tions and the Articles of Association and ensured fair tors instead of the original 2. During the reporting peri- and timely access to information by all shareholders. od, the independent Directors, being responsible to the Report of the Supervisory Supervisory the of Report The Company considered and approved the Provisional shareholders, safeguarded the interest of the company

Board Measures on Information Disclosure during the report- and related parties faithfully and diligently, and played ing period, which clearly specified the way of informa- active roles in implementing the policy of the Board of tion disclosure and division of management and respon- Directors. sibilities of information disclosure. Significant Events Significant The Company carried out regular disclosures by reporting twice during the reporting period, which were respectively the 2008 Annual Report and the 2008 Social Responsibility Report; and via interim disclosures by 2009 Big Annual Events Annual Big 2009 notice 6 times, including timely announcement of the dividend of 2008, Shareholders’ Meeting and general information on 2nd director and supervisor candidates. ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 39 and Financial Performance Summary of Accounting Data

2.1.1 Independent Directors’ Attendance of the Board Meetings

Total Number of Meetings Attendance in Attendance by Name Absence Comment Shareholders Profile ought to attend person authorized Deputy Changes of Share Capital and Yan Qifen 6 3 3 - First Session Wu Xing 6 6 - - Shi Jiliang 2 2 - - Wu Daqi 2 2 - - Profiles of Directors on the Company Board, Supervisory Su Zhong 2 2 - - Board, Senior Management Staff - Second Session - Yu Yinghui 2 2 - - Liu Hongzhong 2 2 - - ture ture Wu Jian 2 2 - - Corporate Governance Struc Governance Corporate Corporate Governance Struc Governance Corporate

2.1.2 Disputes Proposed by Independent Directors Concerning Corporate Affairs During the reporting period, no such disputes were proposed by the independent Directors. Shareholders Meeting 2.2 External Supervisors The second Supervisory Board has 2 external Supervisors. During the reporting period, the external Supervisors, being responsible to the shareholders, safeguarded the interest of the company and related parties faithfully and

diligently, and played active roles in implementing the policy and supervision functions of the Board of Supervisors. of Director

Attendance of supervisor meetings by the external supervisors Report of the Company Board

Total Number of Attendance by Name Meetings ought to Attendance in person Absence Comment

authorized Deputy Board attend

Shen Huiqi 2 2 - - Report of the Supervisory First Session Liu Hongzhong 2 2 - - Wu Xing 3 3 - - Second Session Jiang Hong 3 3 - - Significant Events

3. Independent from Shareholders in terms of Assets, Personnel, Finance, Organizations and Business operation 2009 Big Annual Events

There are no controlling shareholders. SRCB was wholly incorporated and is completely independent of large share- - holders in terms of business operation, personnel, assets, organizations and finance. The Board of Directors, the Board of Supervisors and the various internal departments all operated independently. Financial Report and Docu ments Available for Inspection 40

The Shareholders Meeting has the ultimate discretion and have commissioned the Company’s Board to make deci- Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles sions and ensure appropriate / satisfactory management of the Company. The Supervisory Board plays a supervisory role as required by regulation. The President, who is appointed by the Board of Directors, has overall responsibility for day to day management and operation of the Company. The Company operates under a single legal entity structure with a centralized accounting system, a tiered management model and a delegation of discretion policy. None of the branches are independent entities in an accounting sense. They operate under the discretion delegated by, Corporate Governance Struc Corporate Governance Struc and report through to, the head office. ture ture

5. Evaluation and incentive condition of Senior Management - -

Shareholders Meeting Shareholders The Company, during the reporting period, improved the incentive and restriction mechanism of Senior Manage- ment, developed the Method of Market Appointment and Contract Management of Senior Management, and carried out market-oriented employment and contract management for the newly appointed Vice Presidents and President’s Assistants in order to introduce and attract scarce human resources and to enhance the Company's core

Report of the Company Board Board Company the of Report competitiveness.

of Director of Evaluation of the performance of Senior Management was strengthened. In accordance with the requirements of the evaluation system of Senior Management, performance was measuredby the supervision department, and the Remuneration Committee and Nomination Committee issued evaluation comments on the performance indicators and conditions of the Senior Management in 2009. Report of the Supervisory Supervisory the of Report Board Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 41

6. Organizational Chart and Financial Performance

Shareholder Meeting Summary of Accounting Data

Audit Committee

Nomination Committee

Board of Supervisors Shareholders Profile Changes of Share Capital and

Strategy Committee Asset/Liability Committee Supervisor Office

Asset-writing Approval Risk Committee Credit Risk Committee Board of Directors committee

Related Transaction Com.. Internal control & Operational Information Safety Risk Committee Committee Profiles of Directors on the Company Board, Supervisory Board, Senior Management Staff - Audit Committee Marketing Committee - President Office

Remuneration &Nomination NPL Recovery Com. ture ture

Board Office IT Committee Corporate Governance Struc Governance Corporate Corporate Governance Struc Governance Corporate

Affiliated Operation Affiliated Business Front Office Middle Office Back Office Entity Entity Shareholders Meeting Corporate Banking Banking Corporate Retail Banking Bus International Treasury Financial Institution E-banking Card Credit Finance Compliance Risk Assets Recovery Accounting &Development Planning IT & Assurance Operation IT Office HR Audit Corporate Development Assurance Safety Admin Centre Call Centre Cash Processing Centre Centre Tech-SME Branch HQ of Director

Report of the Company Board Board Report of the Supervisory SME Service Centre Service SME Product management Wealth Centre Inspection Loan Training Centre Significant Events 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection 42

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Shareholders' Meeting Corporate Governance Struc ture - Shareholders Meeting Shareholders Report of the Company Board Board Company the of Report of Director of Report of the Supervisory Supervisory the of Report Board Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial

- 05 43

Shareholders’ Meeting

I. Annual Shareholders’ Meeting and Financial Performance The Company held its 2008 annual Shareholders' Meeting on Summary of Accounting Data April 20, 2009 on the 3rd Floor of Huamin Hanzun International Plaza at No. 728, West Yan'an Road, Shanghai. 69 shareholders and their representatives attended the meeting, which Shareholders Profile

represented as 2,694,086,470 shares, 71.925% of total capital. Changes of Share Capital and The meeting was consistent with the Company Law and Articles of Association. Directors, Supervisors and Senior Management attended the meeting. Profiles of Directors on the Company Board, Supervisory Board, Senior Management Staff

2008 Annual Auditor's Report of Shanghai Rural Commercial - Bank Co., Ltd., Report on Directors’ Performance of Shanghai Rural Commercial Bank Co., Ltd. in 2008, Report on Related- ture Party Transaction of Shanghai Rural Commercial Bank Co.,

Ltd. in 2008, Proposal of Proﬁts Distribution of Shanghai Rural Struc Governance Corporate Commercial Bank Co., Ltd. in 2008, Proposal of 2008 Work Report of Board of Directors of Shanghai Rural Commercial Bank Co., Ltd., Proposal of 2008 Work Report of Board of Supervisors of Shareholders Meeting Shanghai Rural Commercial Bank Co., Ltd., Proposal of Issuance of Subordinated Bonds of Shanghai Rural Commercial Bank Co., Ltd., Proposal of Special Authorization within the Amount in

Issuance of Subordinated Bonds of Shanghai Rural Commercial of Director

Bank Co., Ltd., Proposal of Mr. Li Xiulun’s Resignation from Report of the Company Board Director of Shanghai Rural Commercial Bank Co., Ltd., Proposal of Mr. Hu Pingxi’s Supplement as Directors of Shanghai Rural

Commercial Bank Co., Ltd. were approved at the meeting. Board Report of the Supervisory

II. Extraordinary Shareholders’ Meeting

The Company held the 1st extraordinary shareholders meeting Significant Events on September 8, 2009 on 16th floor Lantian Plaza, Zhongrong Biyu at No. 8, Yincheng Road in Shanghai. 62 Shareholders and their representatives attended the meeting, representing 2.53 billion shares and 67.55% of the total capital. It conformed to the Company Law and Articles of Association. Directors, Supervisors 2009 Big Annual Events and Senior Management attended the meeting. - Proposal of financial performance of SRCB in 2008, cum draft financial budget of 2009, Proposal of General Election of Board of Directors of Shanghai Rural Commercial Bank Co., Ltd. and Pro- Financial Report and Docu posal of General Election of Board of Supervisors of Shanghai ments Available for Inspection Rural Commercial Bank Co., Ltd. were examined and approved at the meeting. 44

Report of the Company Board of Directors

06 46

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Report of the Company Board of Directors Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders 1. Analysis of Overall Performance during the Period of the Report

1.1 Operating Income, Operating Profit, Net Profit, Cash and Cash Equivalent Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Unit: thousand RMB

Bank Items Current Period Last Period Variance Operating income 8,158,413 8,612,457 -5.27% Corporate Governance Struc Operating proﬁt 2,353,149 88,672 +2553.77% 1,973,483 740,805 +166.40% ture Net proﬁt(Parent Company) Increase in Cash and Equivalent -744,111 1,708,228 -

- Main reasons for vaiances: 1. Decrease in operating income was caused by decrease in interest-earning asset yields;

Shareholders Meeting Shareholders 2. Increase of operating profit and net profit attributable to shareholders of parent company was caused by significantly lower asset impairment for the reporting year. 1.2 Comparison of Total Assets, Shareholders’ Funds as at the end of the Period

Unit: thousand RMB

Report of the Company Board Board Company the of Report Group Bank Items Current Period Last Period Variance Current Period Last Period Variance of Director of Total Assets 212,250,359 173,327,345 22.46% 211,915,691 173,327,345 22.26% Shareholders’ Equity(Parent Company) 13,022,069 11,643,112 11.84% 13,024,347 11,643,112 11.86% Report of the Supervisory Supervisory the of Report Board 2. Business operation

2.1 Overview of business operation Significant Events Significant

2.1.1 Business operation The Company’s assets totaled RMB 211.916 billion as at the end of the reporting period, RMB 31.889 billion Key indicators higher than the end of the previous year, which was an

2009 Big Annual Events Annual Big 2009 During the reporting period, the company faced a se- increase of 22.26%. vere and complicated business environment, studied - Outstanding deposits were RMB 178.869 billion, repre- and implemented the scientific concept of develop- senting an increase of RMB 31.826 billion over the end of ment, insisted on implementing the State’s macro eco- the previous year, with the increase being 21.64%. nomic policy, focused on the two main tasks of business ments Available for Inspection for Available ments Financial Report and Docu and Report Financial development and risk control, sized up the situation, - Outstanding loans were RMB 118.539 billion, repre- positively responded, and completed the management senting an increase of RMB 25.807 billion over the end of tasks on the whole. the previous year with the increase of 27.83%. - 47 and Financial Performance Summary of Accounting Data Shareholders Profile

- As at the end of the reporting period, calculated as higher than the average growth rate of self-employed Changes of Share Capital and per the five categories, non-performing loans (last three loans. Systematic marketing to SMEs was promoted, the categories) of the Company were RMB 2.234 billion, an mutual platform of bank financing and the service plat- increase of RMB 109 million over the end of the previous form of the small business credit network were built to year, which was an increase of 5.13%; it accounted for further expand financing channels for SMEs. We actively Profiles of Directors on the Company Board, Supervisory 1.88%, 0.41 percentage points lower than the end of the participated in major government financed projects and Board, Senior Management Staff - previous year. increased the credit for outskirts infrastructure construction. Efforts were made to develop syndicated loans and - The Company's core net capital and net capital were financial advisory business, and the revenue of public ture RMB 11.609 billion and RMB 13.583 billion, respectively intermediary business doubled over the previous year. as at the end of the reporting period according to CBRC Product innovation was accelerated: Struc Governance Corporate statistics. The core capital adequacy ratio and capital adequacy ratio reached 10.21% and 11.95% respectively, 1) altogether 11 new credit products including M & A which were a decrease of 1.81 percentage points and an loans, affordable housing loans and low-cost housing

increase of 0.15 percentage points respectively over the loans were launched; Shareholders Meeting previous year. 2) 4 cash management products, namely credit check, - The pre-tax profit of RMB 2.488 billion was achieved, Nongbao card of organizations, corporate financial an increase of RMB 1.522 billion, or 157.56%. Net profit of management and Datongguan, were promoted, and of Director RMB 1.973 billion was achieved, RMB 1.232 billion higher,

3) the small business Xin Rong plan was integrated to Report of the Company Board an increase of 166.26%. meet the diversified financial needs of our customers. Development of corporate banking Development of personal banking Board Business transformation and restructuring was deep- During the reporting period the outstanding deposits ened, coordinated development and coordinated pro- Report of the Supervisory in domestic currency and foreign currency were RMB motion of public liability business, assets business and 86.094 billion, up RMB 13.8 billion over the beginning intermediary business were maintained. The business of the period; the outstanding personal loans were RMB development concept was determined that whenever 12.845 billion, a net increase of RMB 1.506 billion over you talk, you talk about deposit and whenever you act, Significant Events the beginning of the period; the funded loans were RMB you take deposit. Sustainable and rapid development of 16.182 billion, an increase of 257 percent over the pre- the Company’s liabilities was maintained, and the annu- vious year, among which the pure accumulation fund al growth rate reached 24.96%. The management of bal- loans accounted for 55% of the total amount in the city. anced credit growth was strengthened, credit resources 336,800 new debit cards were issued; the companies of the whole bank were effectively allocated, and the for investment fund cooperation increased to 11, with 2009 Big Annual Events annual growth rate reached 31.5%. The five major finan- more than 100 fund products to sell; the total amount - cial measures to support farmers, countryside and agri- of third-party funds were RMB 34,505,100; 50 types of culture in 2009 were implemented, and credit to farm- financial products were issued, with a total amount of ers, countryside and agriculture was provided to ensure RMB 2.15 billion, and the service fee of RMB 1,822,900 that the growth rate of agriculture-related loans was Financial Report and Docu ments Available for Inspection 48

was achieved. 1,584 new POS machines were added, veloped, and they were successfully issued in some ar- with the total POS settlement amount of RMB 10.032 eas of the city as well as a theme credit card to support billion; insurance sales at the counter reached RMB 436 agriculture and Xinnong card to flexibly support the Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company

Profiles of Directors on the the on Directors of Profiles million with the service fee earned of RMB 13.08 million. capital demands of farmers, countryside and agriculture. Product innovation was actively promoted, with up to Considering reform of government vehicles of the city, 8 types of innovative business, which were respectively the dedicated Xinfeng card was introduced to regulate related to liabilities, assets, bank cards and proxy ser- financial supervision and use. Shanghai travel card was vices. Saving bonds (electronic type) and mobile two- also issued in cooperation with the Shanghai Tourism Corporate Governance Struc way POS services were promoted. The insurance agency Bureau to promote tourism during Expo 2010. sales were further regulated and the qualification man- ture agement of insurance sales staff was enhanced. The risk management of POS business was further strengthened,

- prevention, control and investigation of POS business

Shareholders Meeting Shareholders related cases were implemented.

Development of international business

The Company’s international settlement business main- Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report tained an increase of 30% under the extremely difficult of Director of of Director of foreign trade situation, with the amount of annual settlement nearly US $1.5 billion. Documentary business further increased. The business benefits began to emerge when a certain volume of business was reached.

Report of the Supervisory Supervisory the of Report In August, eligibility for foreign exchange trading was

Board obtained and the business was officially launched. All Development of treasury business fundamental foreign exchange business products and service functions of commercial banks were achieved The Company carefully studied the changes in macro- except the products related to derivative products quali- economic policy. Stable development of treasury business was achieved by adjusting the business structure Significant Events Significant fication. The basic customer groups and a stable professional team were formed. As at the end of the reporting and active development of trading channels. Total period, over 300 Bank staff participated in various train- transaction volume of the year reached RMB 6.54 trillion, ings for foreign exchange business organized by the a year-on-year increase of RMB 0.24 trillion. Underwrit- Shanghai Banking Association, and 280 persons passed ing of various types of bonds reached RMB 92.288 bil- 2009 Big Annual Events Annual Big 2009 the examinations and obtained related certificates. lion. SRCB’s annual inter-bank market bond settlement ranked 9th in all of China, and the delivery volume of Development of credit card business share certificates ranked the 5th. Since August 2009, bilateral business was carried out for the inter-bank bond The Company issued 60,900 new cards, with 40.62% ments Available for Inspection for Available ments

Financial Report and Docu and Report Financial market to constantly improve the operational capabili- actively used. Total credit card transactions were RMB ties of trading accounts. Management strategies such 917 million for the year, and business income was RMB as risk control and duration reduction were adopted, 8,817,900. The Non-performing loans were controlled investment in credit bonds for high-grade corporates within 1.45%. Office cards and business cards were de-

- was timely increased and the investment opportunities 49 and Financial Performance Summary of Accounting Data brought by market changes were grasped. Financial and personal demand, priority was given to the key services were enhanced greatly. A total of 50 financing projects at the city and district level to expand domestic products were issued throughout the year and the type demand. The funding needs of the companies that do Shareholders Profile Changes of Share Capital and of products was enriched. The expected benefits were not conform to energy-saving and emission require- realized for expired products, and distribution and op- ments and that of the industries and the companies as- erations were in good condition. sociated with high energy consumption, high pollution and resource demands were restricted and prohibited. Profiles of Directors on the Company Board, Supervisory

Development of e-banking Second, the credit risk management mechanisms were Board, Senior Management Staff improved. Risk Management Directors of branches - Registered corporate e-bank users reached 9,172, an and sub-branches were appointed, a contact system of increase of 5,028 over the beginning of the period, up

business counseling inspection area was established, ture 121.3%. Personal e-banking was operated on a trial and the mechanism for cooperative management with baisis from October, and was formally launched on De- external professional organization was improved. Third, Struc Governance Corporate cember 25. As at the end of December, the registered credit IT systems were improved and operational risk personal users reached 4,213; registered corporate tele- was minimized. The public credit system CMIS Phase II phone banking users reached 51,978, an increase of 8,795 was optimized, and the private credit PLS system was over the beginning of the period, up 20.4%. 238 new

developed. Fourth, the 3-month special evaluation of Shareholders Meeting ATM were provided, bringing the total to 644. 63 new credit risk of corporate borrowers above RMB 20 mil- multimedia self-service terminal units were provided, lion was carried out, and the credit risk condition of the bringing the total to 272. System platform integration corporate lenders was assessed. Fifth, management of of corporate, personal and credit card e-banking was of Director loan draw-down was strengthened, risk factors were of Director started. The operation was simplified, the efficiency determined according to the risk condition of different Report of the Company Board was increased and service was improved by integration Report of the Company Board categories of business, and constraints were set for dif- of the user end of each business system, and signing ferent types of counterparties to control the credit risk function and statistical reporting. Self-help financial of the same industry. services were deepened for Expo 2010, and more ATMs Board were deployed. An e-banking market evaluation system

Internal control management Report of the Supervisory was studied and established, and the market evaluation system with the core of counter segregation was First, the operational risk management system was determined. The rules and regulations of E-bank were initially set up, the internal control and operational risk established and improved, the business links were management committee was restructured, and the cleared, the business processes was integrated, strict internal control functions of the two levels, head office, Significant Events business inspection was carried out for the branches branches and sub-branches, was strengthened; the op- and sub-branches, the business risk was avoided, and erational risk event data collection and risk point evalua- the e-banking system construction and risk prevention tion IT management tools were formed. Second, process systems were initially established. integration continued to be promoted, which basically

comprised the GRC (Governance, Risk management and 2009 Big Annual Events

Risk management Compliance) process management system file structure, - including the outline of business management, manage- First, the flow of credit was cleared and a unified policy ment methods and work instructions. Third, resources of credit risk was developed. In addition to the support were integrated and supervised and vertically integrat- for loans provided to SMEs, agriculture-related demand

ed audit management was implemented. Fourth, case Financial Report and Docu ments Available for Inspection 50

prevention and control was actively implemented, risk strengthened IT governance, standardized IT project point investigations and case investigations were con- management, strengthened information technology risk ducted, and the method of treatment of employee vio- management and information security management, Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company

Profiles of Directors on the the on Directors of Profiles lations was amended. Fifth, the evaluation and service and ensured the safe and stable operation of various function of internal audit was highlighted. Through sev- types of information systems; construction, upgrading eral comprehensive and specialized evaluations, a more and optimization of new and existing projects such as risk-oriented internal audit function was transformed. personal e-banking system, savings bonds, EDI Datong- Sixth, the disaster recovery plan for information systems guan, personal credit system, short message platform, Corporate Governance Struc at SRCB was further improved. extranet sites. We provided customers with more enriched and more convenient financial products and ture Compliance management financial services, constructed and optimized the ATM monitoring system, the risk pre-warning monitoring First, multi-level and multi-channel compliance training - system and the SAP financial management system, and was strengthened, case prevention and control knowl- Shareholders Meeting Shareholders further improved the business management and risk edge tests were carried out, professional management control capability of the Company. The Internal control of compliance was strengthened, the full-time compli- was strengthened, including process integration, IT con- ance manager system was fully implemented and an tingency plan development, system amendment, case improved compliance culture was created. Second, Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report prevention and control, operational management and feedback on supervision and control was implemented, anti-virus management. of Director of of Director of the error correction mechanism was improved, regulatory and institutional construction was strengthened, compliance management was deepened, business innovation was supported, and business development was

Report of the Supervisory Supervisory the of Report promoted. Third, process integration was strengthened,

Board phase II GRC process management on-line system was completed, and the process bank development was further promoted. Fourth, operational risk evaluation and environment develoopment was strengthened, the

Significant Events Significant operational risk management system was improved, the Instructions on Compliance and Operational Risk Reporting was established to clearly specify the way and procedure for compliance and operational risk reporting. Fifth, the Code of Practice of Compliance (2009 revi- Intermediary business 2009 Big Annual Events Annual Big 2009 sion), Common Legal Issues and Typical Case Analysis During the reporting period, the intermediary business of Commercial Banks (II) and the Method of Contract of the Company achieved rapid growth, with an annual Management of SRCB were worked out. The legal means service fees of RMB 268,930,000, which was an increase were standardized to effectively prevent compliance of 17.01% over the previous year. The service fee for ments Available for Inspection for Available ments

Financial Report and Docu and Report Financial risks. agency business reached RMB 176,370,000, up 19.58 % over the previous year and the service fee for settlement IT development and clearing reached RMB 87 million, an increased of SRCB optimized the technology organization structure, 10.65% over the previous year. The net income of the - 51 and Financial Performance Summary of Accounting Data intermediary business for the year was RMB 186,810,000, of employees of SRCB were continuously strengthened 4.76% higher than the previous year. by rotation training, job attachment, communication training, etc.. Chongyang Festival activities were orga- Shareholders Profile Changes of Share Capital and Development of branches nized, attention was paid to the retired workers and Mid-autumn Festival activities were organized to show 6 new branches of the bank were opened. The opening care for the single employees from other places. Vulner- of Jing’an sub-branch marked the official launch of the able groups were helped during the holiday, and several urban business development projects, and the network Profiles of Directors on the Company Board, Supervisory

problems were solved for employees. Board, Senior Management Staff

layout idea of one sub-branch in one area was steadily - implemented. 26 branches were renovated, 7 were 2.1.2 Operating income and type merged and 9 were downgraded. Standardized branch ture design was implemented at 112 branches, which en- Unit: thousand RMB hanced the branches' sales and service capabilities and Income Business type Struc Governance Corporate accelarated promotion of the new brand identity. As at Group Bank the end of the reporting period, total branches reached Loans 5,805,775 5,799,731 320. Interbanking lending and 47,979 47,979 deposits

Corporate culture construction Investment income 1,188,075 1,185,203 Shareholders Meeting Others 1,125,884 1,125,500 During the reporting period, the company promoted a Total 8,167,713 8,158,413 more people-oriented corporate culture from the stra- of Director tegic point of view, actively explored the way to develop of Director a people-friendly bank, and took ‘building the harmoni- Report of the Company Board 2.1.3 Markets shard of major products or service Report of the Company Board ous company’ as the responsibility to promote a harmonious society. First, the corporate culture was enriched, At the end of the reporting period, the outstanding RMB the 2nd trade union culture and arts festival and other deposits of the Company were RMB 178.7 billion and the diversified activities were launched to promote corpo- market share in Shanghai was 4.85%, ranked 9th. The Board outstanding loans were RMB 118.6 billion, and the mar- rate culture. Second, corporate culture was enhanced; Report of the Supervisory th two outstanding and one advanced contests were or- ket share in Shanghai was 5.21%, ranked 7 . Outstand- ganized, which helped to build a good atmosphere to ing personal consumer loans were RMB 10.062 billion, learn from expert people and to work as expert people. and that accounted for 2.37%in Shanghai, ranked 13th. Third, a more advanced concept of corporate culture The Company ranked 7th in the annual settlement of Significant Events was introduced. With the case prevention and control inter-bank market bonds, and the delivery volume of knowledge tests as the starting point, awareness for share certificates ranked 4th in al of China. Amongst the case prevention and control and responsibility of all ranking of bank financing products issuing capacity by employees was effectively enhanced. The e-learning the Institute of Trust and Financing of Southwest Univer- platform was also launched to provideemployees with

sity of Finance and Economics, the Company ranked the 2009 Big Annual Events new training channels. Fourth, corporate cohesion was

21st in China and 1st amongst the national rural credit - enhanced, emphasis was placed on back-up personnel system. and training, development of newly recruited employees, and the theoretical knowledge and practical ability Financial Report and Docu ments Available for Inspection 52

2.1.4 Top 5 Industry Exposures 2.1.5 Major oﬀ-balance sheet items and status

Year-end balanceRMB Percentage No. Industry Unit: thousand RMB ten thousand (%)

Board, Senior Management Staff Management Senior Board, Group Bank Company Board, Supervisory Supervisory Board, Company

Profiles of Directors on the the on Directors of Profiles 1 Real estate 21,678,255 18.29 Item Balance at Balance at Balance at Balance at 2 Manufacturing 19,258,216 16.25 the end of the end of the end of the end of Leasing and commercial 2009 2009 2008 2007 3 17,018,615 14.36 service Interest 833,410 833,410 679,737 544,252 receivable 4 Wholesale and Retail 6,696,200 5.65 Guarantees Corporate Governance Struc Water, Environment and 237,779 237,779 165,550 84,860 5 6,038,682 5.09 issued Public utilities

ture The Company formulated administration measures, operational procedures, authorization limits required se- Real estate

- curity or guarantees of exposure for guarantees issued, Manufacturing bank accepted bills, L/C opening etc, so as to reduce the Shareholders Meeting Shareholders Leasing and commercial service Wholesale and Retail risk of the aforementioned businesses. Water, Environment and Public utilities Others Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report of Director of of Director of

2.2 Major equity investments

Unit: thousand RMB Report of the Supervisory Supervisory the of Report Amount of Investment as Company name Term of Investment Shareholding percentage at the end of Period Board China Union Pay Open 0.24% 5,500 Rural Credit Bank FundsClearing Centre Open 6% 6,000 Shanghai Chongming Yangtze river Village Bank Co., Ltd. Open 51% 51,000

Significant Events Significant Shanghai Hu Yang Highway Development Co., Ltd. Open 35% 191,865

Shanghai Southeast Suburb Ring Highway Open 45% 158,627 Development Co., Ltd. Shanghai Jingyi Industry Development Co., Ltd. Open 20.45% 185,119

2009 Big Annual Events Annual Big 2009 2.3 Challenges during operation and solutions During the reporting period, the company began to implement the new accounting code, which is a challenge to SRCB belonging to the rural cooperative financial system. After over half a year preparation, with development of old and new accounting systems, close cooperation was carried out with related accounting firms, and further discussion

ments Available for Inspection for Available ments was carried out with strategic investors of the company on relevant issues to make the Company the pilot to adopt Financial Report and Docu and Report Financial new corporate accounting standards amongst the provincial rural financial institutions. As required by the cooperation department of CBRC, material relating to the experience was prepared for other provincial and municipal rural financial institutions for reference. - 53 and Financial Performance Summary of Accounting Data

During the reporting period, in order to prevent the further increased. Second, great efforts were made to international financial crisis and to promote healthy expand the trading channels and to complete business development of China’s financial market, the financial Shareholders Profile applications for foreign exchange spot trading(which Changes of Share Capital and regulatory authorities intensified supervision, and was officially launched in November), saving (electronic more requirements were put forward particularly with type) bonds (eligibility for access was obtained) and regard to capital adequacy, which limited the speed sales. Third, SRCB’s influence in the market was gradu- of the company’s business development and capital ally expanded, and bilateral business was carried out in Profiles of Directors on the Company Board, Supervisory expansion to a certain extent. Therefore, the company the inter-bank bond market, and the profit model and Board, Senior Management Staff - has targeted to develop its capital planning and issued risk management method of proprietary trading was ex- subordinated debt to add supplementary capital. At the plored. This created conditions for qualification as mar- beginning of the year, the company started preparation ket makers. Fourth, financing product issuing frequency ture of materials related to credit rating and submitted the was increased to capture the core customers with core application documents, which were approved. Although products, the types of products and structure of innova- Struc Governance Corporate the new policies of CBRC on subordinated debt caused a tive products was enriched, and we achieved customer certain impact on the issuing of subordinated debt, the management by segment to improve market competi- company visited the subscription customer to resolve tiveness.

difficulties and eventually achieved a good situation of Shareholders Meeting over-subscription. During the subordinated debt issu- 2.4 Risk Management Goal of Capital Adequacy Ratio ance, 80% of the bonds were sold to non-bank financial and Policies institutions; the issued interest rate of 5.3% was slightly The core capital management of the company is re- of Director lower than that of the subordinated debt issued during of Director flected in its capital adequacy and capital return ratios. the same period by other small and medium banks. Suc- Report of the Company Board The bank’s capital management strategy aims to sat- Report of the Company Board cessful issuance of the financial subordinated debt of isfy both external supervisory and shareholder return RMB 1.5 billion not only enabled the capital adequacy requirements, and to promote appropriate asset scale ratio of the company at the end of the reporting period

expansion in line with risk management parameters es- Board to return to a high level, which effectively alleviated the tablished by the company. In the reporting period, the pressure on capital, but also created favorable condi- Report of the Supervisory company set a goal of prudent capital adequacy, taking tions and ample space for rapid development of the into consideration regulatory requirements and its asset company in the future. structure, and ensured it reached this goal in taking into During the reporting period, moderately easy mon- account its risk weighted asset management. etary policy was implemented in China. The liquidity Significant Events In recent years, as the company developed its various in market was sufficient, however the rate of return on businesses lines at a steady pace, its capital require- capital was greatly decreased compared with 2008, and ments increased. To ensure its capital adequacy ratio the Company faced the challenges of rising market risk met regulatory requirements whilst delivering optimal and larger operating pressures. SRCB carefully studied returns to shareholders taking into account risk param- the changes in the macroeconomic environment and 2009 Big Annual Events eters, the company firstly supplied capital internally by policy, and adopted effective measures to cope with - improving its capital profit ratio, and secondly issued 1.5 the situation. First, the balance sheet structure was ad- billion long term subordinated debentures in the inter- justed and the proportion of high yielding assets was bank market to supply external capital. Financial Report and Docu ments Available for Inspection 54

3.1 Branches Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles No. Name Address Number of Outlets

1 HQ Branch 728 West Yan'an Rd, Changning District 1 2 Pudong Branch 1500 Century Avenue Pudong New Area 46 3 Minhang Branch 61 Xinjian Rd, Xinzhuang Town, Minhang District 24 Corporate Governance Struc 4 Jiading Branch 386 Tacheng Rd, Jiading District 23

ture 5 Baoshan Branch 1198 Mudanjiang Rd, Baoshan District 24 6 Nanhui Branch 5 Shaonian Rd, Huinan Town 29

- 7 Fengxian Branch 9780 Nanfeng Highway, Jinqiao Town 24

Shareholders Meeting Shareholders 8 Songjiang Branch 405 North Renmin Rd, Songjiang District 25 9 Jinshan Branch 505 West Weiqing Rd, Jinshan District 23 10 Qingpu Branch 399 Gongyuan Rd, Qingpu District 25 11 Chongming Branch 188 Beimen Rd, Chengqiao Town 30 Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report 12 Xuhui Branch 3 Zhaojiabang Rd,Xuhui District 12 13 Putuo Branch 599 Xincun Road, Putuo District 12 of Director of of Director of 14 Wujiaochang Branch 2721 Songhua River Rd, HongKou District 13 15 Changning Branch No.8, Lane 555 Gubei Rd,Changning District 6 16 Huangpu Branch 500 Guangdong Rd,Huangpu District 1

Report of the Supervisory Supervisory the of Report 17 Jing’an Branch 776 West Beijing Rd, Jing’an District 1

Board 18 Luban Branch 465 Xietu Rd, Xuhui District 1 Total 320

Significant Events Significant 3.2 Five-category classification of credit assets

Unit: thousand RMB

Beginning of the year End of the year Type Amount Percentage Amount Percentage 2009 Big Annual Events Annual Big 2009 Pass 7947137 85.70 10800726 91.06 Special mention 1113470 12.01 837451 7.06 Substandard 144130 1.55 153566 1.29

Doubtful 66738 0.72 67561 0.57 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial Loss 1733 0.02 2228 0.02

Total 9273208 100 11861532 100

Note: deferred income is not included in the loan amount. - 55 and Financial Performance Summary of Accounting Data

3.3 Provisions of various types The Company made various types of provisions for assets impairment in accordance with the Accounting Standards Shareholders Profile for Enterprises. See the following for details: Changes of Share Capital and

1. Asset impairment provisions include loans, off-balance-sheet credit assets, placements with financial institutions, due from other banks, purchase of resale financial assets, interest receivables, dividends receivable, other receivables, investments held to maturity, financial assets available for sale, investment in receivables, long-term equity Profiles of Directors on the Company Board, Supervisory

investments, investment real estate, fixed assets, construction in progress, intangible assets, debt repayment, etc. Board, Senior Management Staff - 2. The balance of the provisions for asset impairment of the Company as at December 31, 2009 was RMB 2,728,343,000. ture

3.4 Top 10 loan customers and their percentage of total loans Corporate Governance Struc Governance Corporate

Customer Name Loan Balance(RMB 10 thousand) Total Loan (%)

Shanghai Yuchang Real Estate Development Co., Ltd. 94420 0.80 Shanghai Jihui Property Management Co., Ltd. 93000 0.78 Shareholders Meeting Shanghai Pudong Dayu Water Works Development Co., Ltd. 70000 0.59

Shanghai Fengxian Construction Investment Co., Ltd 68000 0.57

Shanghai Nanhui City Construction Investment Co., Ltd 61000 0.51 of Director Shanghai Jinshan Urban Construction Investment Co., Ltd 60000 0.51 of Director

State-owned Assets Management Co., Ltd. of Putuo District, Shanghai 60000 0.51 Report of the Company Board Report of the Company Board Shanghai Huicheng Real Estate 60000 0.51

Shanghai Minhang Urban Construction Investment and Development Co., Ltd. 55000 0.46

Shanghai Pudong Construction Management Co., Ltd. 55000 0.46 Board Shanghai Hongxin Properties Co., Ltd. 55000 0.46 Report of the Supervisory

3.5 Credit Management of Group Customers

The company managed group clients, granted credit within relevant regulations, and supervised credit provided

to group clients so as to prevent duplication or overly-excessive lending at a group level. At the end of 2009, loans Significant Events granted to private business groups or their related clients amounted to RMB6,087.41 million, accounting for 5.13% of the total loan balance.

3.6 Subsidized loans accounting for over 20% of total loans as at the end of year

None during the Period. 2009 Big Annual Events - 3.7 Restructured and overdue loans

The balance of restructured loans was RMB 11.48 million as at the end of 2009, including RMB 9.42 million in restructured loans overdue for more than 90 days. Financial Report and Docu ments Available for Inspection 56

3.8 Average balance and interest rate of loans and de- 3.10 Non-performing loans as at the end of the year and posits on monthly basis actions taken

Unit: RMB Thousand Board, Senior Management Staff Management Senior Board, At the end of the reporting period, the total outstanding Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Bank loans were RMB 118.615 billion. Type Average Balance Average Interest Rate Based on the five-category loan classification, the pass- All Loans 109,891,550 6.20% type loans totaled RMB 108.007 billion, accounting for All Deposits 169,783,786 1.73% 91.06%, special-mention loans amounted to RMB 8.374 Corporate Governance Struc -Demand Deposit 87,395,461 0.55% billion, accounting for 7.06%. The other three types were -Fixed Deposit 82,388,325 2.98%

ture RMB 22.34 billion, accounting for 1.88%, an increase of RMB 109 million over the end of the previous year, with the proportion down by 0.41 percentage points. The

- 3.9 Major treasury bonds holding status during the re- absolute amount and relative proportion of non-per-

Shareholders Meeting Shareholders porting period forming loans showed respectively an increase and a de- Face Value crease, among which the sub-standard non-performing Type of Treasury Bonds (RMB Ten Maturity Coupon Thousand) Rate (%) loans increased by RMB 95 million, the doubtful loans 2001 non-paper based increased by RMB 9 million, and the loss loans increased treasury bond 15,000.00 2011.03-2021.10 2.82-3.85 Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report by RMB 5 million. Based on the four-category loan classi- 2002 non-paper based 42,000.00 2012.03-2012.07 2.70 of Director of of Director of treasury bond fication, the pass-type loans totaled RMB 116.802 billion, 2003 non-paper based accounting for 98.49%; The other three types were RMB treasury bond 125,000.00 2010.02-2018.10 2.66-4.18 1.789 billion, accounting for 1.51%, an increase of RMB 2004 non-paper based treasury bond 22,000.00 2011.05-2014.08 4.71-4.89 62 million over the end of the previous year, with the

Report of the Supervisory Supervisory the of Report 2005 non-paper based proportion down by 0.35%. The absolute amount and 86,000.00 2010.10-2012.11 2.14-3.01 treasury bond relative proportion of non-performing loans showed Board 2006 non-paper based treasury bond 166,000.00 2011.05-2016.03 2.40-2.89 respectively an increase and a decrease, among which 2007 non-paper based the overdue loans were RMB 143 million, decreased by 449,000.00 2010.04-2017.09 2.77-4.46 treasury bond RMB 30 million; sluggish loans were RMB 1.623 billion, 2008 non-paper based 266,000.00 2011.04-2038.05 2.64-4.50 increased by RMB 89 million; doubtful loans were RMB Significant Events Significant treasury bond 2009 non-paper based 23 million, increased by RMB 3 million. treasury bond 293,000.00 2010.04-2019.11 1.06-3.68 2006 certificated trea- As at the end of the reporting period, the recovered as- 763.42 2011.11 3.81 sury bond sets were RMB 542.23 million in total, representing a de- 2007 certificated trea- 2009 Big Annual Events Annual Big 2009 sury bond 23,225.86 2010.03-2012.12 3.39-6.34 crease of RMB 188.36 million over the beginning of the 2008 certificated trea- previous year. sury bond 1,411.12 2011.03-2013.12 5.17-6.34 2009 certificated trea- During the reporting period, non-performing loans of sury bond 8,501.90 2010.08-2014.06 2.60-4.00 RMB 22.14 million were written off.

ments Available for Inspection for Available ments 2009 savings Financial Report and Docu and Report Financial bond(electric) 3,459.24 2010.09-2012.11 2.60-3.73 The following actions were taken to deal with and to Total 1,501,361.54 reduce non-performing loans: first, monitoring and re- - 57 and Financial Performance Summary of Accounting Data porting the large amount of non-performing loans was guided by the department head to closely track and timely report the real-time situation, and the scope of monitoring was adjusted as per the feedback of the Supervision De- partment. Second, the settlement system with “1 +3” tracking and settlement mechanism of large non-performing Shareholders Profile Changes of Share Capital and loans was established. The responsibilities and responsible persons for settlement of non-performing loans were determined individually, and the process of settlement and solution were monitored on a monthly basis. Third, for the bad debt loans that could not be recovered after long-term settlement, preparation was made and strict examination and approval was carried out. The write-off work was conducted in a timely manner according to law and as Profiles of Directors on the Company Board, Supervisory

per the write-off policy. Fourth, the favorable opportunity for the economic region development was grasped, the Board, Senior Management Staff process of disposal of agricultural, industrial and business debt land, land disposal options and other repayment as- - sets were actively promoted. The non-interest bearing assets of SRCB were effectively reduced. ture 3.11 Debt Assets Corporate Governance Struc Governance Corporate Unit: RMB Ten Thousand

SRCB Branch Immovable Asset Movable Asset Equity Total Percentage HQ Branch 0.00 0.00 0.00 0.00 0.00%

Minghang sub branch 0.00 0.00 0.00 0.00 0.00% Shareholders Meeting Jiading sub branch 0.00 0.00 0.00 0.00 0.00%

Baoshan sub branch 3474.08 0.00 175.00 3649.08 6.73%

Nanhui sub branch 11504.71 0.00 347.40 11852.11 21.86% of Director Fengxian sub branch 19756.37 0.00 0.00 19756.37 36.44% of Director

Songjiang sub branch 650.74 0.00 0.00 650.74 1.20% Report of the Company Board Report of the Company Board Jinshan sub branch 0.00 0.00 157.28 157.28 0.29%

Qingpu sub branch 2339.75 0.00 0.00 2339.75 4.31%

Chongming sub branch 7954.50 205.55 636.00 8796.05 16.22% Board

Wujiaochang sub branch 940.00 0.00 1410.00 2350.00 4.33% Report of the Supervisory Xuhui sub branch 0.00 0.00 0.00 0.00 0.00%

Putuo sub branch 400.00 0.00 0.00 400.00 0.74%

Changning sub branch 2950.00 0.00 0.00 2950.00 5.44%

Pudong sub branch 1177.27 0.00 144.65 1321.92 2.44% Significant Events Huangpu sub branch 0.00 0.00 0.00 0.00 0.00%

Jing’an sub branch 0.00 0.00 0.00 0.00 0.00%

Total 51147.42 205.55 2870.33 54223.30 100%

3.12 Overdue payments that occurred during the Period of the Report 2009 Big Annual Events

None. - Financial Report and Docu ments Available for Inspection 58

3.13 Risks and countermeasures Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report The company faced the following main risks: credit risk, porate lenders was reviewed. Sixth, funds management was strengthened, the risk factors were determined of Director of of Director of market risk, liquidity risk, operational risk, legal risk, according to the risk condition of different categories reputation risk and strategic risk. of business, and constraints were set for different types Countermeasures against credit risk. First, the uniform of counterparties to control the credit risk of the same

Report of the Supervisory Supervisory the of Report policy of credit risk was developed; the credit loan se- industry. Seventh, the manager training class for occu- quences and risk policies of the types of priority inter- pational risks, large loans and other training programs Board vention, prudent intervention, restricted or prohibited were organized to train staff in risk management. intervention were specified. Second, the post-evaluation Countermeasures against market risk. The rules for man- mechanism was built for the existing system of credit agement and the method for management of market policy to improve implementation of policies and sys- Significant Events Significant risk pressure were developed to improve the overall tems. Third, the credit risk management mechanism framework and regulations for market risk management; was improved. The delegate system of Risk Directors of through the establishment of an index system for limits sub-branches and branches was implemented, the con- management of market risk, the daily measurement, tact system of inspection area of business support was monitoring and control were conducted for market risks. 2009 Big Annual Events Annual Big 2009 established and the coordination management mecha- The market risk management personnel and information nism of external agencies was improved. Fourth, credit system support capability were further strengthened. IT construction was strengthened to reduce operational risk. Public credit CMIS Phase II was Optimized and Countermeasures against liquidity risk. The rules for

ments Available for Inspection for Available ments transformed, and the new system of private credit PLS

Financial Report and Docu and Report Financial management of liquidity risk and the method for man- was developed. Fifth, the 3-month special evaluation of agement of liquidity risk pressure were developed to im- credit risk of corporate lenders of above RMB 20 million prove the daily monitoring of liquidity risk management, was carried out, and the credit risk condition of the cor- - 59 and Financial Performance Summary of Accounting Data to improve the reporting system of large sums of assets ment system so as to monitor the status of the reputa- and to carry out real-time monitoring of the situation of tion risk management of the Bank. The reputation risk Bank assets. Through daily liquidity risk monitoring and management system was gradually improved, the duties Shareholders Profile Changes of Share Capital and control, the liquidity risk of SRCB was timely managed. and responsibilities of each department and management team were specified, and the route for reputation Countermeasures against operational risk. First, the risk management, emergency response mechanisms, Strategy for Compliance and Operational Risk Manage- incentive mechanisms and construction of supporting

ment of SRCB was developed, and the management Profiles of Directors on the Company Board, Supervisory

information systems were specified. Board, Senior Management Staff system for compliance and operational risk covering all - assets, business, products and branches was formed. Countermeasures against strategic risk. The Board of Second, SRCB business classified directory and the type Directors of the Company took the responsibility for ture catalog of operational risk loss event were worked out strategic risk management, grasped the macroeconomic trends and the financial market environment, carried out

to complete the basic classification for a product tree. Struc Governance Corporate Third, the key risk indicator system of compliance and careful analysis of the advantages, abilities and weak- operational risk was initially establish, which was used to ness, worked out the Development Strategy of SRCB for monitor the risks that might cause potential losses and 2010-2012, clearly specified the strategic goals within an their control measures. Fourth, the risk warning system integrated system to avoid weaknesses and to imple- Shareholders Meeting for unusual transactions was established and risk-based, ment a differentiated orientation, which was favorable process-oriented supervision was implemented to pro- for future development of the company. Under the guid- mote continuous improvement of business processes ance of the development strategy, the implementation and to enhance monitoring results. Fifth, prevention strategies and development plan of the company during of Director of Director and control governance was carried out by SRCB based the coming three years in terms of capital management, Report of the Company Board on regulatory requirements. business development, risk management, talent devel- Report of the Company Board opment and information technology were formulated. Countermeasures against legal risk. GRC (Governance, These provided support and protection for implementa- Risk management and Compliance) process and system tion of development strategies. At the same time, with Board construction were taken as the starting point. The busi- the global financial crisis in 2009, the Board of Direc- Report of the Supervisory ness conditions were clearly specified to reduce the le- tors of the Company adhered to sound management gal risk hidden in the business. Modification of laws and and rational development, and worked out the annual regulations, and supervision of regulations was timely business plans and objectives in a scientific and pru- tracked. A brief report on compliance was prepared on dent manner, issued reasonable targets, improved the a weekly basis to deliver to the latest modifications of checking system, and ensured steady development of Significant Events the external legal environment in a timely manner. The the business. The Senior Management of the Company Company’s legal team management was strengthened. seriously implemented the development strategy and Countermeasures against reputation risk. The Board of annual business plan made by the Board of Directors, Directors of SRCB attached great importance to reputa- regularly submitted feedbacks on implementation, and 2009 Big Annual Events tion risk management. They studied the Guideline for put forward suggestions for improvement, effectively Management of Reputation Risk of Commercial Banks preventing strategic risk. - and explored to establish the reputation risk manage- Financial Report and Docu ments Available for Inspection 60

During the reporting period, an additional investment of RMB 51 million was provided to Shanghai Chongming Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles Changjiang Village and Town Bank Co., Ltd. and RMB 2.5 million to China Union Pay Co., Ltd.

5. Analysis of the ﬁnancial position and operating result of the Company Corporate Governance Struc

Unit: RMB Thousand ture The Bank Item 2009-12-31 2008-12-31 Increase Decrease Main Reasons - Total assets 211,915,691 173,327,345 22.26% Scale expansion Shareholders Meeting Shareholders

Impact of changes in accounting Long-term equity investment 598,449 711,699 -15.91% principles Bond investment 34,922,132 31,858,441 9.62% Increase of bond holdings

Fixed assets 2,175,870 1,518,168 43.32% Increase of investment in ﬁxed assets Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report Increase of deposits and initiative Total liabilities 198,891,344 161,684,304 23.01% liabilities business of Director of of Director of Owner’s equity 13,024,347 11,643,112 11.86% Increase of undistributed proﬁt

Operating profit 2,353,149 88,672 2553.77% Decrease of impairment of assets

Investment income 1,185,203 1,094,048 8.33% Increase of investment scale

Report of the Supervisory Supervisory the of Report Net profit attributable to Decrease of impairment of assets shareholder(s) of the parent com- 1,973,483 740,805 166.40% and impact of changes in accounting

Board pany principles

Significant Events Significant 6. Major asset loss of the company due to joint liabilities incurred by issuing guarantees to external parties

None 2009 Big Annual Events Annual Big 2009

7. Major asset loss of the company due to operational risk

ments Available for Inspection for Available ments None Financial Report and Docu and Report Financial - 61 and Financial Performance Summary of Accounting Data

8. Change of operating environment - The average outstanding daily deposits are not less than RMB 192 billion. The closing outstanding deposits

and macroeconomic policy and its Shareholders Profile reach RMB 205 billion, of which the saving deposits impact Changes of Share Capital and reach RMB 96 billion. In 2009, impacted by continuous interest rates cut of - Outstanding commercial loans are RMB 115.8 billion. the previous year carried out by the Central Bank, the credit coupon yield rate and the savings of the company - Fee income intermediate business is RMB 390 million, Profiles of Directors on the Company Board, Supervisory declined at the same time, but the yield declined faster accounting for 7% of operating income. Board, Senior Management Staff than the rate of interest payment. Meanwhile, capital - market showed excess liquidity and the market interest - Capital adequacy ratio is no less than 11%.

rate remained at a low level, which severely affected ture - Loan provisioning coverage is no less than 140%. commercial banks in their profitability. - The ratio of three types of non-performing loans after Struc Governance Corporate With the complex and severe economic situation, the 5 class categorization is controlled within 2%. company actively took measures to timely adjust the capital investment structure and the asset term struc- - The ratio of deposits and loans at the end period is ture, and actively developed innovative profit growth about 68%. Shareholders Meeting points. Meanwhile, the risks were strictly controlled to minimize the negative impact of the business environ- - The liquidity ratio at the end period is no less than ment and policies. 35%. of Director of Director (III) Major development measures for the new year Report of the Company Board Report of the Company Board 9. Business development plan for Corporate banking business the new year Implement the market orientation to enhance business

in the rural area, to develop in urban areas and to be Board (I) Guidance for business development in the new year based in Shanghai and spread around, adhere to dif- Report of the Supervisory Adhere to the scientific development concept to guide ferential treatment and preferential support with core of the work, thoroughly follow the guidance of the eco- efficiency, and achieve conversion of profitable growth nomic work conference of the central government and to make a good beginning for implementation of the Shanghai, adjust the structure, promote development, new development strategy. Construction of the platform Significant Events prevent risk, carry out strict management, focus on ser- will be taken as the starting point to carry out systematic vices, build good images, lay solid foundation, promote marketing and to develop the liabilities business. We will reform, and make a good beginning for overall imple- actively implement the national policy and grasp the mentation of the new three-year development strategy. credit issuing pace, encourage the development of farmers, countryside, agriculture and SME credit, further op- (II) Operational goal for the new year timize the credit scale and structure, maturity structure, 2009 Big Annual Events

industry structure, and take into account simultaneous - - Pre-provision profit RMB 3.08 billion, including provi- growth of size and efficiency. The international trade sions of RMB 1.18 billion, profit of RMB 1.9 billion, and financing, investment banking, guarantee business, after-tax net profit of RMB 1.5 billion. Return on assets the company financing services and cash management 0.65%, and the return on capital 11.24%. Financial Report and Docu

business will be taken as the key development areas to ments Available for Inspection 62

further expand the sources for non-interest revenue and accelerate market access for personal foreign exchange, realize optimal adjustment of profit mode and revenue settlement and remittances, expand the network busi- structure, coordinate development of liabilities, assets ness functions, and promote the products of interna- Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles and intermediate business. Establish the concept of in- tional payment with personal remittances as the main dustry finance, sort out and integrated a suite of small service. enterprise financing products, introduce support loans for fixed assets, shares as security for loans of listed com- Credit card business panies and other new products, further refine product

Corporate Governance Struc First, adhere to the principle of being regionalized, re- functions and establish core competitiveness. fined and differentiated. Combine the basic functions of

ture credit cards and large financial demand of the suburban Personal banking business markets, develop the marketable, complex and lucrative Adhere to the concept of business development and risk feature credit card products to continuously meet the fi- - management, promote development of personal asset nancial needs of suburban clients. Second, enhance the Shareholders Meeting Shareholders business in a sound and orderly manner, and further credit card brand of the company, increase revenue from expand and secure the sources for savings and funding intermediary business, expand the credit card function- giving full play to a network of interpersonal relation- ality, and improve service. Third, with the opportunity ship and geographic advantages through public-private of Expo 2010, strengthen development of the payment Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report interactions and business interactions. Deepen personal environment and the environment to use cards. Fourth, of Director of of Director of intermediary business, increase the strength and depth combine with the promotion plan for financial conve- of business cooperation, and gradually transform the nience store, and actively improve the services of credit businesses. Strengthen financial services to the com- cards of the people-friendly bank. munity and explore innovative channels for marketing

Report of the Supervisory Supervisory the of Report services. Treasury business

Board Continue to implement a prudent financial manage- International banking business ment strategy. With the main work to create products, In accordance with the principle to focus and con- expand markets, enhance management, control risk and centrate resources, further strengthen research and improve efficiency, efforts will be made to improve the

Significant Events Significant development of foreign exchange business products income from capital management. First, pay close at- and marketing. Focus on promotion of trade finance tention to economic performance and macroeconomic business, and promote rapid development of foreign policy changes, strengthen market research and analy- exchange business to build scale. Focus on business sis, optimize allocation structure of basic assets, improve restructuring, expand the proportion of documentary

2009 Big Annual Events Annual Big 2009 the capacity of trading activity to respond to market settlement business and increase the revenue from fluctuations and achieve maximum return on invest- intermediary business. Focus on the trade zones such ment. Second, continue to improve the management as Hongqiao, Jinqiao, Waigaoqiao Free Trade Zone and targets and monitoring system for market risk, liquidity Lujiazui Finance and Trade Zone with the major custom- risk and credit risk. Further improve the risk control capa- ments Available for Inspection for Available ments Financial Report and Docu and Report Financial ers of small and medium manufacturing enterprises and bility. Third, actively expand foreign exchange financing foreign-invested enterprises, while actively working to and operation of channels and launch the preparatory attract a number of large group customers, optimizing work for new products such as gold and others. For the the customer structure and actively developing high- financing business, further enhance the product design - quality customers. With the opportunity of Expo 2010, 63 and Financial Performance Summary of Accounting Data

and operational capacity, keep the operational concept of the Company and prepare the English web site; of being safe and sound, and make customize products strengthen the team and system construction of the customer service centre and promote E-banking busi- Shareholders Profile as per different needs of suburban and urban custom- Changes of Share Capital and ers, with the focus on personal financing and greatly ness of the Bank. expand the financing and industry financing sources. Integrate platforms to enrich customer resources. Risk management First, correctly understand the macroeconomic situ- Profiles of Directors on the Company Board, Supervisory Intermediary business ation, and prevent systemic risks. Second, speed up Board, Senior Management Staff - First, vigorously promote financial consulting, loan adjustment of the processing of credit and structure, commitments, corporate account overdrafts and other and maintain healthy development of credit business. ture business and take the lead to organize syndicated loans. Third, improve the relevant systems and enhance the Strengthen cooperation with the utilities to provide a ability of the company to control overall risks. Effectively Corporate Governance Struc Governance Corporate package of financial services programs. Second, pro- implement the Three Approaches and One Guideline of mote steady development of personal financing services the China Banking Regulatory Commission, strengthen and promote timely financing products linked to credit the combination of credit rating and credit customer financial assets. Expand funds and insurance agency approval, and promote unification of customer credit. sales, offer acceptance of certificate treasury national Fourth, strengthen inspections after draw-down, and Shareholders Meeting bonds and savings bonds, expand credit card functions, improve risk prevention capacity. Fifth, improve risk carry out feature services and improve returns on each management mechanisms, and gradually promote verti- card. Third, improve the counter replacement rate of cal risk management. Sixth, improve development of the of Director e-banking services, expand the effective number of reg- credit IT system, and reduce operational risks. Seventh, of Director Report of the Company Board istered customers and the trading volume, make efforts undertake concentrated review of loans, and control Report of the Company Board to increase the revenue. With integration of e-bank plat- the credit quality. Eighth, strengthen risk control of the form and promotion of new functions, and with SMEs industrial sectors, and set different constraints for different types of counterparties. and medium-to-high-end individual customers as the Board target audiences, vigorously develop e-banking busi- Report of the Supervisory ness. Strengthen rational deployment and operational Compliance management management of the self-service machine, and enhance Further consolidate the system and improve the various the transaction rate of each machine. mechanisms of compliance risk, operational risk, legal risk management, and enhance the effectiveness of risk E-banking business management. Explore the combination of internal con- Significant Events Establish an evaluation system for e-banking market- trol, management of operational risk and governance of ing, carry out publicity and promotion of e-banking, case prevention and control so as to prevent major com- enhance counter conversion rate of e-banking; deepen pliance and operational risks. First, continue to improve construction of means for self-service, initially complete the compliance risk management mechanism, and E-banking channels and platform integration; innovate further enhance the effectiveness of compliance man- 2009 Big Annual Events the feature services and highlight functions of E-bank; agement. Second, optimize the process with the focus - establish E-banking business system and risk control on customers, explore the process changes from a seg- system; complete the edition of the website in Chinese mented bank to a process-oriented bank, and study the conditions and the realization of moving of foreground, Financial Report and Docu ments Available for Inspection 64

receiving of the middle ground and concentration on IT construction the background. Third, use advanced operational risk SRCB will perfect its IT governance framework and man- management tools and concepts, adopt an informa- agement regulations, promote the implementation of IT Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles tion management platform to enhance the operational strategic planning, and fully exploit the role of informa- risk management environment, strengthen the profes- tion technology in supporting and promoting business sional management of operational risks; explore refined development and operation at management. At the management for operational risk management, and same time, SRCB will further construct its information take case prevention and control as the main goal for technology risk management system and advance in- Corporate Governance Struc operational risk management. Fourth, regulate the legal formation security management for the whole bank, so

ture means, minimize the legal risks, and provide legal sup- as to improve the level of information technology risk port for compliant and legal business operations. management. SRCB will carry out development of the three platforms, system monitoring management, net- - Internal control work monitoring management and safety monitoring Shareholders Meeting Shareholders Firstly, SRCB will continue to improve its internal control management, which will lay a foundation for the devel- environment, try to establish a comprehensive frame- opment of its IT platform. Meanwhile, SRCB will acceler- work for risk management, cultivate a favorable corpo- ate to advance the implementation of a new generation rate culture for internal control, regulate employees’ core accounting system and supporting interfaces, and Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report professional ethnics and perfect the internal control promote other system development, such as data ware- of Director of of Director of training mechanism. Secondly, SRCB will strive to im- house, enterprise service BUS and generally improve its prove the ability to identify and assess risk to establish projectand customer relationship management. In ad- a risk tolerance system and internal control index sys- dition, SRCB will finish the development of supporting tem for each business, gradually establish multi-level systems for innovative marketing service channels and Report of the Supervisory Supervisory the of Report reporting systems for early warning, perfect the risk create technical supporting systems for the convenient, people-friendly bank. SRCB will also support the imple-

Board self-evaluation mechanism, and specify the supervision and evaluation responsibility of audit and supervision mentation of cross-regional expansion strategy and department in relation to risk evaluation and manage- finish the support and transformation work for relevant ment. Thirdly, SRCB will improve the risk control ability, systems. Finally, SRCB will strengthen its security measures during the World Expo, and ensure the safe and Significant Events Significant finish the preparation of main business operation manual and internal control management manual, further stable operation of its systems. specify risk management responsibility and strengthen the security management of IT systems. Fourthly, SRCB will strengthen its information exchange and feedback, 2009 Big Annual Events Annual Big 2009 and specify the information reporting system of internal management in branches, as well as in head office. Fifth- ly, SRCB will improve the working mechanism of internal supervision and error correction, establish and perfect ments Available for Inspection for Available ments Financial Report and Docu and Report Financial supervision and the inspection system at different levels. Sixthly, SRCB will continue to launch the internal comprehensive assessment and internal appraisal, and perfect the internal assessment index system as well as

- the appraisal system. 65 and Financial Performance Summary of Accounting Data

Development of branches 10. Routine Work of the Board of Di- Taking advantage of the World Expo, SRCB will strength- rectors Shareholders Profile en the business outlets integration, transferring focus Changes of Share Capital and from physical development to capabilities and service 10.1 March 27, 2009, the following proposals were delib- development, and actively promote the construction of erated and passed at the 14th meeting of the 1st Board business outlets in the central urban area. Meanwhile, of Directors of SRCB: 2008 Annual Report on Activities SRCB will place emphasis on brand development, and

of the SRCB Board of Directors, 2008 Annual Report on Profiles of Directors on the Company Board, Supervisory will continue to advance the standardization of business Board, Senior Management Staff SRCB Directors’ Duty Performance, 2008 Annual Report - outlets. Based on providing service to the community, on Performance Assessment for Chairman of the Board residents as well as small and medium enterprises, SRCB and Senior Management, 2008 Annual Report on SRCB ture will also firmly promote its financial convenience bank Profit Distribution Plan, Approval Report of 2008 Annual (kiosks) to provide “convenient, fast and humanized” Auditor’s Report of SRCB, Approval Report of 2008 An- Corporate Governance Struc Governance Corporate service. In addition, SRCB will improve the management nual Report of SRCB, Approval Report of the Three Self ability of its electronic marketing service channels and Evaluation Report such as the Corporate Governance of comprehensively improve the profitability of its self- SRCB, Proposal on the Issuance Scheme of Subordinated service machines, such as ATM, POS and multimedia self- Bond, Proposal of Special Authorization within the Shareholders Meeting service terminal units, etc.. Finally, SRCB will commence Amount for the Issuance of Subordinated Bond of SRCB, the construction of cross-regional branches based on its Report on SRCB Disposal of AiJian Securities Held by innovative development. Shanghai Jingyi Industry Co. Ltd., Proposal of Mr. Li Xiu- lun’s Resignation from Director of SRCB, Proposal of Mr. of Director of Director Talent management Hu Pingxi’s Supplement as Directors of SRCB, Proposal of Report of the Company Board SRCB will promote comprehensive reform in human re- Holding 2008 SRCB Annual Shareholders’ Meeting, and Report of the Company Board sources management for the whole company, categorise the following proposals were heard during the meeting: jobs and set up unified job descriptions for employees. Report on 2008 Annual Operating Conditions of SRCB,

Meanwhile, evaluation and employment management 2008 Annual Report on Related Transactions of SRCB, Board based on business needs will be established to launch 2008 Report of Auditor’s Opinion on the Related Trans- Report of the Supervisory the experience evaluation and employment work. actions of SRCB, Report on Supplementary Explanation SRCB will perfect the performance evaluation system, of 2008 Annual Auditor’s Report of SRCB. strengthen the link between evaluation, incentive and restrictive mechanisms. The job and performance re- 10.2 On April 20, 2009, the 1st extraordinary meeting muneration system will be improved, with salary deter- of the 1st Board of Directors in 2009 deliberated and Significant Events mined by post, bonus determined by performance and passed the following proposals: Proposal of Mr. Hu aligned to the market. SRCB will strengthen the devel- Pingxi’s Appointment as Directors of SRCB, Proposal of opment of cadre and talent, so as to provide talent sup- Mr. Zhao Deyuan’s Resignation from Secretary of SRCB port for implementation of the three-year strategic plan. Board of Directors, Proposal of Mr. Liu Yongfen’s Ap- Focusing on business development and recruitment for the newly-built organization, SRCB will improve the pointment as Secretary of SRCB Board of Directors, Pro- 2009 Big Annual Events posal on Establishment of Organization Development quality and efficiency of recruitment. Finally, SRCB will - strengthen staff education and training, prepare courses Department, Electronic Banking Department, Financing for the e-learning platform, launch online training, and Center for Small Science and Technology Enterprises improve the overall quality of cadre and staff. in Head Office, and the following two proposals were heard in the meeting: Report on Implementation of the Financial Report and Docu ments Available for Inspection 66

Accounting Policy under the New Accounting Standard Recommendation of Members in 2nd Board of Directors and Accounting Adjustment of SRCB, Report on Reloca- for Shareholders’ Meeting, Proposal on Holding the 1st tion of Head Office to Zhongrong Biyu Lantian Plaza in Extraordinary Shareholders’ Meeting of SRCB, and the Report of the Company Board Board Company the of Report Report of the Company Board Board Company the of Report Pudong District. following three proposals were heard in the meeting: of Director of of Director of Report of Trial Audit Conducted by PwC on 2008 SRCB 10.3 On July 3, 2009, the 2nd extraordinary meeting Financial Statements, Report of the Technology Coop- of the 1st Board of Directors in 2009 deliberated and eration between SRCB and ANZ, 2008 Annual Report of passed Proposal on Purchase of Houses for Head Office Implementing the Supervision Opinions of CBRC Shang- and Production. Report of the Supervisory Supervisory the of Report hai Office ande Mistake Correction.

Board 10.4 On August 7, 2009, the 3rd extraordinary meeting 10.6 On September 2, 2009, the 4th extraordinary meet- of the 1st Board of Directors in 2009 deliberated and ing of the 1st Board of Directors deliberated and passed passed Proposal on Authorization of SRCB Subordinated Proposal on Adjustment of Candidates for Independent Bond within the Amount. Director in 2nd SRCB Board of Directors. Significant Events Significant 10.5 On August 14, 2009, the following proposals were 10.7 On September 8, 2009, the 1st meeting of the 2nd deliberated and passed on the 15th meeting of the 1st Board of Directors deliberated and passed Proposal on Board of Directors of SRCB: Report of Business Opera- Election of the Chairman and Vice Chairman for the 2nd tion in the First Half of 2009 and Operation Plan & Work- Board of Directors of SRCB, Proposal on Appointment of 2009 Big Annual Events Annual Big 2009 ing Point for the Second Half of 2009 of SRCB, Report of the President for SRCB, Proposal on Appointment of the 2008 Budget Execution and 2009 Financial Draft Budget Vice President and President Assistant for SRCB, Proposal of SRCB, Report of 2009 Capital Management Plan of on Appointment of the Secretary of Board of Director for SRCB, Report of Outlets Rearrangement of SRCB in 2009, SRCB, Proposal on Appointment of the Department Head

ments Available for Inspection for Available ments Proposal of Mr. Jin Jianhua’s Appointment as President Financial Report and Docu and Report Financial for the Department of Financial Plan, Risk Management, Assistant of SRCB, Proposal on Revocation of Depart- Compliance and Auditing, Proposal on Election of Special ment of Science and Technology and Establishment of Committees’ Members for the SRCB 2nd Board of Directors, Information Management Department and Business Proposal on Formulation of the Regulations on Job Re-

- Supporting Department in Head Office, Proposal on sponsibilities of the Principle Leaders of SRCB Head Office. 67 and Financial Performance Summary of Accounting Data

10.8 On December 4, 2009, the 2nd meeting of the 2nd 12. Preliminary Proposal on Profit Board of Directors deliberated and passed the following proposals: Proposal on 2010-2012 Development Strategy Distribution and Transfer of Capital Shareholders Profile Changes of Share Capital and of SRCB, Proposal on Revision of Procedures Rules for Surplus to Share Capital the Board of Directors, Proposal on Revision of Working Rules for Strategic Development Committee, Risk Man- The Company plans for profit distribution based on agement Committee, Audit Committee, Nomination and audited financial statements. According to the finan- Profiles of Directors on the

cial statements verified by an unqualified opinion from Company Board, Supervisory

Remuneration Committee, Related-Party Transactions Board, Senior Management Staff Committee of SRCB, Proposal on Formulation of Report- PricewaterhouseCoopers Zhong Tian Accounting Firm, - ing System of SRCB Management Information, Proposal the Company’s profit after taxation (during the period of

on Adjustment of the Remuneration Standard of Direc- report) is RMB 1,973,481,553.22. Accumulated unappro- ture tors and Supervisors, Proposal on Formulation of Market priated profit from previous year is RMB 2,242,355,841.85.

Appointment and Contract Management of Senior Man- Total profit available for distribution to shareholders is Struc Governance Corporate agement in SRCB, Proposal on Establishment of Medium RMB 4,215,837,395.07. and Long-term Incentive and Restrictive Mechanism of The proposed profit distribution in 2009 is as follows: Senior Management and Personnel at Key Posts, Report

of Loss from Disposal of Non Performing Loans and Debt (1) Transfer 10% of current year profit after taxation of Shareholders Meeting Assets in 2009, Proposal of Increasing Registered Capital RMB197,348,155.32 to compulsory surplus reserve to Shanghai Dingding Real Estate, Proposal of Determin- ing the Important Index such as Recovery Time of Infor- (2) Transfer 10% of total profit available to shareholders of RMB150,143,761.74 to discretionary surplus reserve. of Director mation System, Proposal on Establishment of Financial of Director Association in Head Office, and the meeting also heard Report of the Company Board (3) Make dividend payment of RMB 337,111,720.13 (in- Report of the Company Board the following three proposals: Report on Construction cluding tax) at 9% of Registered Share Capital. Conditions of the Urban Institutions of SRCB, Report on Schedule of Regular Meeting of the Board of Directors in After these allocations, surplus unappropriated profit is Board 2010, Report on Implementation of Three Methods and distributed in the next year.

One Guideline Conducted by China Banking Regulatory Report of the Supervisory Commission such as Interim Management Method of The above plan shall be reviewed by the Shareholders Fixed Assets Loans. Meeting and executed upon approval. Significant Events 11. Board’s Execution of Resolutions Approved by Shareholders Meeting

According to the resolution approved by the shareholders meeting, the Board has executed the 2008 profit 2009 Big Annual Events

distribution scheme. - Financial Report and Docu ments Available for Inspection 68

Report of the Board of Supervisors

07 70

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Report of the Board of Supervisors Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles

Corporate Governance Struc I. Activities of the Board of Supervi- sors during the reporting period ture

(I) Meetings held by the Board of Supervisors

- 1. On March 27, 2009, the 14th meeting of the 1st Board SRCB 2nd Board of Supervisors and Proposal on Formu-

Shareholders Meeting Shareholders of Supervisors deliberated and passed the 2008 Report lation of the Regulations on Job Responsibilities of the of the Board of Supervisors of SRCB, 2009 Plan for the Principle Leaders of SRCB Head Office . Board of Supervisors of SRCB, 2008 Report of Working 4. On November 4, 2009, the 1st extraordinary meeting Monitoring and Evaluation Report of SRCB, Approval of the 2nd Board of Supervisors in 2009 deliberated and

Report of the Company Board Board Company the of Report Report of 2008 Annual Auditor’s Report of SRCB and Ap- passed the Proposal on Appointment of Price Water- proval Report of 2008 Annual Report of SRCB. of Director of house Coopers (PWC) to Conduct Audit on 2009 Finan- 2. On August 14, 2009, the 15th meeting of the 1st Board cial Statements of SRCB. of Supervisors deliberated and passed the Report of the 5. On December 4, 2009, the 2nd meeting of the 2nd SRCB Board of Supervisors on Implementation of the Report of the Supervisory Supervisory the of Report Board of Supervisors deliberated and passed the Pro- Opinions of Shanghai Banking Regulatory Bureau on posal on Revision of Evaluation Methods for Duty Ex- Board Further Strengthening Monitoring and Evaluation Func- ecution of Supervisors in SRCB, Proposal on Revision of tion of the Board of Supervisors, Supervision Report of Working Rules of Audit Committee in SRCB, Proposal on the Financial Management Conditions in the first half of Adjustment of the Remuneration Standard of Chairman 2009 of SRCB, 2009 Report of SRCB on 1st Phase Moni- of the Board and Senior Management and Proposal on Significant Events Significant toring and Appraisal Report on Case Prevention, Pro- Formulation of Reporting System of SRCB Management posal on Reelection of the Board of Supervisors of SRCB. Information. 3. On September 8, 2009, the 1st meeting of the 2nd Board of Supervisors deliberated and passed the Pro- (II) Attendance at the Shareholders’ Meetings 2009 Big Annual Events Annual Big 2009 posal on Election of the Chairman for the 2nd Board of Supervisors attended all Shareholders’ Meetings. Supervisors of SRCB, 2008 Report of the SRCB Board of Supervisors, Proposal on Appointment of the Secretary (III) Attendance at the Board of Directors meetings for SRCB Board of Supervisors, Proposal on Composition During the reporting period, the supervisors attended ments Available for Inspection for Available ments

Financial Report and Docu and Report Financial of Special Committees for the SRCB 2nd Board of Super- the 14th and 15th meetings of the 1st Board of Directors, visors, Proposal on Approval of Selection for Chairman the 1st and 2nd extraordinary meetings of the 1st Board and Vice-chairman for the Special Committees of the of Directors, and the 2nd meeting of the 2nd Board of Directors. - 71 and Financial Performance Summary of Accounting Data Shareholders Profile Changes of Share Capital and Profiles of Directors on the Company Board, Supervisory Board, Senior Management Staff - ture

(IV) Supervision of execution of the Board of Directors lated parties’ transaction is controllable. Meanwhile, the Struc Governance Corporate and Senior Management Board of Supervisors put forward relevant opinions and 1. The Board of Supervisors launched special inspec- suggestions on the aspect of improving the manage- tions and performance reviews and appraised the ment of related party transactions and implementing performance of the Board of Directors and Senior Man- the working plan of the Related-party Transaction Com- Shareholders Meeting agement in 2008.The Board of Supervisors considered mittee. that, in 2008, the Company developed in alignment with 2. The Board of Supervisors monitored and appraised the scientific outlook on development, carried out as a the case prevention and governance program. In Au- of Director whole, insisted on implementing the state macro eco- gust 2009, the Board of Supervisors set up a monitoring nomic policy, took proactive measures to address the and appraisal group for case prevention to formulate Report of the Company Board changes of economic and financial situations at home a monitoring and appraising scheme, and it has made and abroad, and advanced the construction of a people- on-site and off-site monitoring as well as appraisal as to friendly bank, as well as adjustment of the business the 2009 1st phase case prevention and governance of Board structure. Besides, business innovation was accelerated, SRCB. The Board of Supervisors considered that senior Report of the Supervisory and operational benefit was further increased. As a re- management could now fully understand and effective- sult, various operational and administrative goals for the ly carry out the suggestions raised by the supervision year were achieved. Meanwhile, the Board of Supervi- department, and have a clear idea about the situations sors put forward relevant opinions and suggestions on faced by the case prevention. With defined objectives, the work of the Board of Directors and Senior Manage- clear concepts, powerful measures and responsibili- Significant Events ment in terms of developing business and correctly han- ties to the people, based on the relevant requirements dling the relationship between the parts and the whole. regulated by China Banking Regulatory Commission, In January 2009, the Board of Supervisors set up a spe- using the case study review, Senior Management can cial inspection group to formulate an inspection scheme launch a series of powerful, focused and effective case 2009 Big Annual Events and launch a special inspection on performance of the prevention work with measures in place while taking Related-party Transaction Committee of the Board of consideration of business characteristics of the company - Directors. The Board of Supervisors considered that, the and new situations we have faced in the work of case management of SRCB’s related parties’ transaction and prevention this year. Meanwhile, the Board of Supervi- the supervision management are fine, and the risk of re- sors put forward relevant opinions and suggestions Financial Report and Docu

on aspects of leadership, study review and employees’ ments Available for Inspection 72

thought tendencies in the work of case prevention. opinions and suggestions in relation to optimizing the internal management environment for error correction, In December 2009, the Board of Supervisors set up a further specifying and improving the conclusion of case Board, Senior Management Staff Management Senior Board,

Company Board, Supervisory Supervisory Board, Company monitoring and appraisal group for case prevention

Profiles of Directors on the the on Directors of Profiles prevention responsibilities, and further intensifying er- and error correction, and prepared a monitoring and ror correction in basic organizations. appraisal scheme to monitor and evaluate the work of case prevention and error correction of the Company. 3. The Board of Supervisors heard a report made by The Board of Supervisors considered that on the basis of Deloitte concerning “the external evaluation audit on in-

Corporate Governance Struc seriously studying and effectively carrying out relevant formation technology risk” of SRCB. In November 2009, supervision requirements, and in combination of the the Audit Committee of the Board of Supervisors also

ture actual situations of the company, as well as suggestions heard the report and suggested that Deloitte should concerning case prevention and error correction, the undertake in-depth communication with relevant de-

- Board of Directors and Senior Management made a partments regarding the auditor’s report, and reach consensus on various risks. For the risks, the Information

Shareholders Meeting Shareholders great progress with definite objectives, responsibilities in place, powerful measures and obvious achievement Management Department and Business Supporting in 2009. Long-term error correction mechanisms were Department should actively implement error correction, set up primarily to improve the employees’ awareness review the procedure and system from their own point of error correction, effectively prevent operational risk, of view, and implement error correction cooperation Report of the Company Board Board Company the of Report and this played a positive role in avoiding potential case with business departments involved. The Information

of Director of risks. Meanwhile, the Board of Supervisors put forward Management Department and Business Supporting De- Report of the Supervisory Supervisory the of Report Report of the Supervisory Supervisory the of Report Board Board Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 73 and Financial Performance Summary of Accounting Data partment should formulate suggestions and schemes on 5. The Board of Supervisors launched financial moni- error correction concerning various risks and report it to toring. In 2009, the Board of Supervisors carried out supervision department along with the auditor’s report. dynamic monitoring of the 2008 annual operational and Shareholders Profile Changes of Share Capital and financial conditions, and financial management condi- 4. The Company launched a special inspection on the tions in the first half of 2009. The Board of Supervisors 2008 annual financial report. In the first quarter of 2009, considered that the business of the Company continued the Board of Supervisors set up a special inspection to develop steadily, and the economic benefits were fur-

group for the 2008 annual financial report in order to Profiles of Directors on the Company Board, Supervisory

ther improved. In the first half of 2009, the Company in- Board, Senior Management Staff take a special inspection on the 2008 annual finance sisted to be guided by scientific development concept, - calculation and finance management. The Board of Su- effectively implemented the macro economic policy and pervisors considered that in 2008, the Board of Directors also focused on the two main areas of business develop- ture and Senior Management insisted on developing guid- ment and risk control. As a result, the Company’s deposit ance for the scientific development concept. As a result, and loan businesses both increased, and the risk control Struc Governance Corporate comprehensive operational benefit of the company was ability improved steadily. With the profit margin narrow- further increased and various operational and admin- ing down, the Company still achieved the operational istrative goals listed in the 2008 financial budge were goal of “finishing half of the task in the first half of the achieved. Meanwhile, the Board of Supervisors gave a

year”, which was a good result. Meanwhile, the Board of Shareholders Meeting feedback to management on the weak links in construc- Supervisors put forward relevant opinions and suggestion of the management system, reform mechanism and tions in relation to improving the performance appraisal system upgrading, and also raised corresponding opin- management system, and promoting the adjustment of ions and suggestions.

the organisational structure. of Director Report of the Company Board Board Board Report of the Supervisory Report of the Supervisory Significant Events 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection 74

6. The Board of Supervisors implemented closer super- anism was scientific and the procedure was legal. The

Board, Senior Management Staff Management Senior Board, vision over management and the important decisions of corporate governance was further perfected, and activi- Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles the company. Supervisors were also organized to make ties against laws, regulations and rules, or shareholder’s a survey on regional sub-branches, so as to obtain an interest were not detected when Directors and other in-depth understanding of the conditions of their basic senior management were performing their duties. organization. The relevant opinions and suggestions

Corporate Governance Struc raised were classified and reviewed by the Supervisors, (II) The reality of financial report and then they were reported to senior management and In the reporting period, the financial report reflected ture related departments in Head Office so as to obtain more the actual financial conditions and operating results of attention, which acted as a bridge for communication. the Company. The annual financial report was audited

- by Pricewaterhouse Coopers (PwC), and an unqualified

Shareholders Meeting Shareholders auditor’s report was issued. II. Independent opinions of the Board of Supervisors on some issues (III) The use of the money raised During the reporting period, as approved under the

Report of the Company Board Board Company the of Report (I) The operation of the Company Approval of China Banking Regulatory Commission for SRCB to Issue Subordinated Bonds (YJF [2009] No. 328) of Director of In the reporting period, the company operated in com- and the Decision of the People’s Bank of China on Ap- pliance with laws and developed steadily; the businesses proval of Administrative Licensing (YSCXZY Zi [2009] No. developed in an orderly manner; the asset quality im- 70), the Company issued subordinated bonds of RMB 1.5 proved step by step; the risk management and internal Report of the Supervisory Supervisory the of Report Report of the Supervisory Supervisory the of Report billion in the inter-bank bond market. The fund raised control strengthened continuously, and the operational through the subordinated bonds were used to replenish Board Board results improved significantly. The policy decision mech- the supplementary capital of the Company. Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 75 and Financial Performance Summary of Accounting Data

(IV) The purchase and disposal of assets (VII) Auditor’s report In the reporting period, the Company disposed of le- In 2009, the Company fully implemented the new ac- Shareholders Profile gal share investments held previously and gained an counting standards for business enterprises. Based on Changes of Share Capital and investment profit of RMB 3,064,000. According to the the new accounting standards for business enterprises, investment policy of the company, the company will not the company employed Pricewaterhouse Coopers to au- purchase legal shares proactively, and the legal shares dit the 2009 annual financial statements (including Bal- being held at present are those purchased by the coop- ance Sheet as at December 31, 2009, Income Statement, Profiles of Directors on the Company Board, Supervisory eration of different counties and districts in the period Statement of Cash Flow, Income Statement of Changes Board, Senior Management Staff - of rural credit cooperatives, prior to establishment of the in Equity and Notes to the Accounting Statements of company. In 2008, with equity division reform, most of 2009), and provided management proposals for internal the legal shares held by the Company went public, and control. ture the Company sold shares in the market. Legal shares held by the Company will continue to decrease gradu- (VIII) Execution of resolutions made in the Shareholders’ Struc Governance Corporate ally. Meeting In the reporting period, supervisors of the Company (V) Related parties transaction attended the meetings of the Board of Directors and Shareholders Meeting In the reporting period, related party transactions were Shareholders’ Meetings, and agreed with the content found to be fair and reasonable, and no transaction was of each report and proposal submitted by the Board of found to infringe the interests of shareholders or SRCB. Directors to the Shareholders’ Meeting. of Director (VI) Internal control In the reporting period, the Board of Supervisors has

monitored the execution of all resolutions made in the Report of the Company Board In the reporting period, the company continued to Shareholders’ Meeting. strengthen its internal control system, and further improve the integrity, reasonability and effectiveness of Board internal control. Board Report of the Supervisory Report of the Supervisory Significant Events 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection 76

08 78

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Significant Events Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders 1. Corporate social responsibility sibility list issued by China Enterprise News and Chinese Enterprise Research Center, and was awarded “2009 Chi- report nese Excellent Enterprise in Social Responsibility”. In the Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company

Profiles of Directors on the the on Directors of Profiles “2009 Chinese Financial and Marketing Selection” orga- In the reporting period, with all business going well and nized by the Chinese Banker, the Company was granted economic efficiency advancing rapidly, SRCB continued “2009 Best Corporate Social Responsibility Prize”. to take social responsibility as an important duty, and to build a people-friendly bank with a people-oriented (See more details in attachment 2009 Corporate Social

Corporate Governance Struc culture to serve the public. The company realized eco- Responsibility Report of SRCB) nomic responsibility with steady operations, took social

ture responsibility concerning peoples’ livelihood, and ful- filled its environmental responsibility with sustainable development. The company played a dutiful role in 2. Top Ten Shareholders and change - constructing the local economy, supporting “farmers, during the Period Shareholders Meeting Shareholders countryside and agriculture”, advancing small and medium enterprise (SMEs), serving Expo 2010, assisting the No change. community, rebuilding disaster areas, aiding the poor, saving energy and reducing its carbon emission, etc. Report of the Company Board Board Company the of Report 3. Significant litigation or arbitration Within the reporting period, the company was nomi- of Director of nated amongst the top 100 of corporate social respon- events

3.1 Non-credit litigation or arbitration

Report of the Supervisory Supervisory the of Report During the reporting period, SRCB had 14 non-credit cases (including those cases that the company was Board respondent or complainant) with about RMB 990,000 involved. The number of lawsuits was the same as 2008. The amount involved dropped to 0.03% of 2008, because there were no treasury bond compensation re- Significant Events Significant course lawsuits in 2009.

3.2 Lawsutis and Arbitration issues concerning credit At the end of the reporting period, verdicts had been 2009 Big Annual Events Annual Big 2009 passed relating to 298 lawsuits filed by SRCB relevant courts that had jurisdiction, concerning loans in the amount of RMB 462,895,300. Verdicts passed enabled the collection of monies amounting to RMB 239,894,000 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial by lawsuit.

By the end of the reporting period, verdicts had not yet been reached on a further 351 lawsuits filed by

- SRCB with courts, involving loans in the amount of RMB 79 and Financial Performance Summary of Accounting Data

1,530,532,500. During the period, however, monies collected on these cases amounted to RMB 141,369,500.

In 2009, the top 10 lawsuits that had no verdict are listed as follows, ranked by amounts. Shareholders Profile Changes of Share Capital and

Amount of Loan Granting Loans No Borrower Warrantor Overdue Date lawsuit (RMB Lawsuit Date Date retrieved 10,000)

1 Yihe Longbai Hotel, Shanghai -- 20030429 20040628 35000 910 20040628 Profiles of Directors on the Company Board, Supervisory

Hongxing Real Estate Development Board, Senior Management Staff 2 -- 20030513 20040326 30000 10 20040628 Company, Shanghai - Shanghai Huaxia Culture Tourism 3 District Development Company, -- 20041216 20071228 8240 1831.89 20071228 Shanghai ture Shanghai Ziwang Real Estate 4 -- 20050629 20070515 3500 1518 20071018 Company Limited Corporate Governance Struc Governance Corporate Shanghai Huaxia Shanghai Pudong Huaxia Industry Culture Tourism District 5 Company, Real Estate Development 20041216 20071228 3350 3350 20071228 Development Company, Company Shanghai Shanghai Huaxia Culture Tourism 6 District Development Company, -- 20041216 20071228 3000 0 20071228 Shanghai Shareholders Meeting Shanghai Huaxia Culture Tourism 7 District Development Company, -- 20041216 20071228 2600 0 20071228 Shanghai

8 Shanghai Wufeng Plastics Co.,Ltd -- 20081211 20090806 1973.41 0 20090904 of Director

Shanghai Jinshuaiwei Economy

9 -- 20080202 20090104 1882.60 0 20090303 Report of the Company Board Development Co.,Ltd Shanghai Lingzhong Industrial 10 -- 20080204 20090213 1812.87 0 20090622 Co.,Ltd Board Report of the Supervisory 4. Increase and decrease of registered capital, separation and merger

None. Significant Events

5. Related party transaction

At the end of the reporting year, there were two types of related party transactions, namely, credit related and other

related party transactions. The balance for related party transactions was RMB 1,467,473,900, including 5 related 2009 Big Annual Events

corporations (RMB 1,229,953,300), 13 entities (RMB 11,130,600) and 2 other related party transactions (RMB 226.39 - million).

All related transaction volume accounted for 12.18% the net capital and all related credit balance accounted for 10.30% the net capital. The largest related party amount relates to two related legal entities, namely Shanghai Financial Report and Docu ments Available for Inspection 80

Guosheng Group Ltd and Shanghai Tomorrow Square Co.,Ltd, with credit balance of RMB 896,220,000, comprising 7.43% of the net capital. Board, Senior Management Staff Management Senior Board,

Company Board, Supervisory Supervisory Board, Company SRCB’s Legal Entity Related Party Transactions Profiles of Directors on the the on Directors of Profiles

Unit: RMB ten thousand

Customer Loan at end of year Classiﬁcation Guarantee Shanghai Guosheng Group Ltd 50000 Normal Guaranty

Corporate Governance Struc Shanghai Tomorrow Square Co.,Ltd 39622 Normal Pledge Shanghai Yunfeng Group Ltd 16000 Normal Pledge ture Shanghai Shanxin Real Estate & Development Co.,Ltd 10373.33 Normal Pledge

Shanghai Greenland Auto Group Ltd 7000 Normal Pledge - Shareholders Meeting Shareholders

6. Shareholders Loans Report of the Company Board Board Company the of Report 6.1 Shareholders with a single loan balance exceeding 1% of net equity and total loan balance to a single borrower of Director of exceeding 5% of net equity

Unit: RMB ten thousand

Customer Loan at end of year Classiﬁcation Guarantee Report of the Supervisory Supervisory the of Report Shanghai Fenxian Construction Investment Co.,Ltd 35000 Normal Guaranty

Board Shanghai Fenxian Construction Investment Co.,Ltd 33000 Normal Guaranty

Shanghai Huixin Investment Operation Co.,Ltd 30000 Normal Guaranty

Shanghai Putuo State-owned Assets Operation Co.,Ltd 30000 Normal Guaranty

Shanghai Putuo State-owned Assets Operation Co.,Ltd 30000 Normal Guaranty Significant Events Significant Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 81 and Financial Performance Summary of Accounting Data

6.2 The shareholders, of which outstanding loans exceeded RMB 30 million

Unit: RMB ten thousand Shareholders Profile Changes of Share Capital and Outstanding Loans by Five-grade Client Name Product Type Security the End of 2009 Classiﬁcation Shanghai Fenxian Construction Investment 33000 Infrastructure Loan Pass Guarantee Co.,Ltd Shanghai Fengxian Construction Investment 35000 Infrastructure Loan Pass Guarantee Co., Ltd Profiles of Directors on the Company Board, Supervisory Shanghai Hui Xin Investment Operation Co.,Ltd 30000 Mid-term Working Capital Loan Pass Guarantee Board, Senior Management Staff - Shanghai Putuo State-owned Assets Operation 30000 Mid-term Working Capital Loan Pass Guarantee Co.,Ltd

Shanghai Putuo State-owned Assets Operation ture 30000 Infrastructure Loan Pass Guarantee Co.,Ltd Shanghai Yingfu Properties Limited 18000 Mid-term Working Capital Loan Notice Pledge Corporate Governance Struc Governance Corporate Shanghai Zhenda Industry (Group) Co.,Ltd 11000 Real Estate Development Loan Pass Pledge

Shanghai New Long March Group Co.,Ltd 10000 Real Estate Development Loan Pass Pledge

Shanghai Zhezhong (Group) Co., Ltd 10000 Short-term Working Capital Loan Pass Guarantee

Shanghai Wujiaochang (Group) Co.,Ltd 4500 Mid-term Working Capital Loan Pass Pledge Shareholders Meeting Shanghai Wujiaochang (Group) Co.,Ltd 3880 Short-term Working Capital Loan Pass Pledge Shanghai Sanlin Collective Assets Investment 3150 Short-term Working Capital Loan Pass Pledge Operation Management Co.,Ltd Shanghai Sanlin Collective Assets Investment Legal Person Operative

3850 Pass Pledge of Director Operation Management Co.,Ltd Housing Mortgage Shanghai Malu Asset Operation Co.,Ltd 6900 Short-term Working Capital Loan Notice Guarantee Pledge Report of the Company Board Shanghai Xuxing Asset Operation Co.,Ltd 5650 Short-term Working Capital Loan Notice Guarantee Pledge

Shanghai Kindly Enterprise Development Group 5500 Short-term Working Capital Loan Pass Pledge

Shanghai Gaodong Asset Operation Board 4510 Operative Property Pledge Loan Pass Pledge Management Co.,Ltd

Shanghai Xinqiao Economy Joint Company 4000 Short-term Working Capital Loan Pass Guarantee Report of the Supervisory

6.3 NPL by shareholders in accordance with the five classification system

None. Significant Events

6.4 NPL by related parties in accordance with the five classification system None. 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection 82

There were no major trusteeship, contract or lease issues during the reporting period. Apart from the financial Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company

Profiles of Directors on the the on Directors of Profiles guarantee business which falls within SRCB’s business scope as approved by the People’s Bank of China within the reporting period, SRCB had no other major guarantee issues requiring disclosure. SRCB had not entrusted any party to manage its cash during the reporting period.

SRCB’s various business contracts were about loan lawsuits during the reporting period, and no dispute over any ma- Corporate Governance Struc jor contracts occurred, other than the aforementioned lawsuits. ture

- 8. Appointment of auditors

Shareholders Meeting Shareholders SRCB appointed PricewaterhouseCoopers Zhong Tian Accounting Firm as its domestic auditor.

9. Penalty imposed on the Company, the Board of Directors, the Board of Su- Report of the Company Board Board Company the of Report pervisors and Senior Management of Director of

None. Report of the Supervisory Supervisory the of Report Board Significant Events Significant Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 83 and Financial Performance Summary of Accounting Data

10. Other matters to be publicized Shareholders Profile

(I) Business license acquired Changes of Share Capital and During the reporting period, the Company obtained spot exchange business qualiﬁcation, saving bonds (electronic) business, personal online banking business and credit card business license. Profiles of Directors on the Company Board, Supervisory

(II) The change of Directors and Supervisors Board, Senior Management Staff - See the “Change of Directors, Supervisors and Senior Management in the reporting period”.

(III) Post-date event ture None Corporate Governance Struc Governance Corporate

11. Change of Corporation Name Shareholders Meeting None. of Director Report of the Company Board Board Report of the Supervisory Significant Events Significant Events 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection

2009 Big Annual Events

09 86

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and 2009 Big Annual Events Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles January February March Corporate Governance Struc On January 8th, the Bank officially On February 7th, the Bank com- From March 5th to 13th, Mr. Hu Pingxi started using the short abbreviation menced up lantern festival retail took part in the 2nd meeting of the 11th ture “SRCB” in both Chinese and English banking promotion activity under the National People’s Conference. documents. unified slogan “Welcome Expo 2010 On March 27th, the Bank held the 14th - Shanghai, SRCB together with you” th st On January 8 , with the exclusive within the city. meeting of the 1 Board of Directors Shareholders Meeting Shareholders sponsorship of the Bank, the "SRCB as well as the 14th meeting of the 1st Cup" 2008 Shanghai Top Ten Youth On February 18th, Tu Guangshao, Board of Supervisors. Economic Figures Selection Contest Deputy Mayor and member of the st officially opened . CPC Municipal Standing Committee On March 31 , the Bank officially launched the “Xinka” business card

Report of the Company Board Board Company the of Report raised the curtain at the inauguration th th From Jan. 16 to Feb. 9 , the Bank ceremony of Shanghai Chongming system. of Director of held a credit card theme meeting Changjiang Village and Town Bank, called “Enjoy the new year happily, which is the first village and town and spend the lantern festival pros- bank in Shanghai. perously”. th Report of the Supervisory Supervisory the of Report On February 20 , Mr. Hu Pingxi was th On January 19 , the Bank launched appointed as the Party Secretary of Board ceremonial deposits’ lists featuring all the Bank. of the 12 Chinese Zodiac Animals. From February 26th to 27th, the Bank held its 2009 working meeting. Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial - 87 and Financial Performance Summary of Accounting Data Shareholders Profile Changes of Share Capital and

April May June Profiles of Directors on the Company Board, Supervisory Board, Senior Management Staff On April 7th, Chairman Hu Pingxi and From May 1st to the middle of May, the On June 3rd, the Bank held the 6th - President Hou Funing met with Mr. place of the Head Office moved from meeting of the 1st Trade Union Con-

Alistair Bulloch, the ANZ Bank CEO of No.728, Yan'an Road West to No.8 gress, in which the selection of em- ture north Asia, and the delegation. Middle Yincheng Road, Pudong New ployee Directors of the 2nd Board of

Area. Directors and employee Supervisors Struc Governance Corporate th On April 9 , the China Banking Regu- of the 2nd Board of Supervisors was th latory Commission of Shanghai had On May 8 , President Hou Funing met conducted. annual bilateral talks on regulatory is- with Mr. Nick Dean, the CTO of ANZ sues with the Bank for the year 2008. Asia Pacific Area, and a delegation. On June 5th, the Bank founded its e-

banking Department. Shareholders Meeting On April 14th, Chairman Hu Pingxi On May 13th, Tu Guangshao, Deputy held the 1st Quarter Regular Meeting. Mayor and member of the CPC Mu- On June 12th, the Bank started its hu- nicipal Standing Committee inspect- man resources management reform. th On April 20 , the Bank held 2008 ed and guided the Bank along with a Chairman Hu Pingxi delivered a pre- st Shareholders’ Meeting and 2009 1 delegation. pared speech. of Director interim meeting of the 1st Board of Report of the Company Board Directors. On May 15th, Chairman Hu Pingxi, By June 24th, the 2009 new savings President Hou Funing and Deputy deposits broke through RMB 10 bil- By the middle of April, the amount of Secretary Shen Xunfang met with Mr. lion. personal savings deposits of the Bank Greg Becker, CEO of American Silicon Board broke through RMB 80 billion. Valley Bank, and the delegation. Report of the Supervisory

On May 16th, Chairman Hu Pingxi and President Hou Funing took part in the Lujiazui Financial Forum. Chairman Hu Pingxi gave a speech at the forum Significant Events on “Finance promotes development — technology innovation and SME development”.

On May 21st, the Bank started to use

the new website (http://www.srcb. 2009 Big Annual Events com) corresponding with the short - English abbreviation (SRCB).

On May 26th, the Bank signed a strategy cooperation agreement on pro- Financial Report and Docu

duction, teaching and research with ments Available for Inspection Shanghai Finance University. 88

SRCB Annual Report 2009 Summary of Accounting Data Data Accounting of Summary and Financial Performance Financial and Changes of Share Capital and and Capital Share of Changes Shareholders Profile Shareholders July August September Board, Senior Management Staff Management Senior Board, Company Board, Supervisory Supervisory Board, Company Profiles of Directors on the the on Directors of Profiles On July 2nd, the Bank held the signing On August 3rd, on behalf of the Bank, On September 1st, the Bank launched 24/7 Eng- ceremony for offering exclusive ser- Deputy President Shen Xingbao lish hotline services. vices for projects concerning "Farm- signed the office building purchasing On September 2nd, the Bank was authorized ers, Countryside, and Agriculture" and contract with Shanghai Zhongrong to launch Electronic Savings Bond business by

Corporate Governance Struc it was attended by Tu Guangshao, Group. Ministry of Finance of PRC and People's Bank of China. Deputy Mayor and member of the th

ture CPC Municipal Standing Committee. On August 6 , the teller fingerprint On September 8th, Chairman Hu Pingxi held In the ceremony, the Bank signed identity system, which is researched the 1st interim Shareholders’ Meeting of 2009 and the 2nd Board of Directors and Board of related cooperation agreements with and developed by the Bank, was suc-

- Supervisors were elected. Bright Food Group and introduced cessfully tested at the Accounting De- Shareholders Meeting Shareholders measures to support farmers, coun- partment and the Sales Department On September 8th, Chairman Hu Pingxi held the 1st meeting of the 2nd Board of Directors. tryside, and agriculture. of Changning Sub-branch. Shen Huiqi, the Chairman of the Board of Super- th visors, held the 1st meeting of the 2nd Board of th On August 10 , the Bank launched On July 16 , the Bank founded its fi- Supervisors. nancing centre for high-tech SMEs at a new themed credit card program, Report of the Company Board Board Company the of Report On September 9th, the Bank officially launched its head office. "Shanghai Tourism Card". Electronic Savings Bond business in all of its of Director of th 246 outlets. On July 16th, the Binjiang Branch of On August 14 , Chairman Hu Pingxi st the Bank was opened. held the 15th meeting of the 1 Board On September 19th, Chinese corporate respon- of Directors. Shen Huiqi, the Chair- sibility list, which is launched by China Enter- From July 18th to 20th, the Bank held man of the Board of Supervisors, held prise News and Chinese Enterprise Research Report of the Supervisory Supervisory the of Report its midyear working meeting in which the 15th meeting of the 1st Board of Center, was unveiled in Beijing. The Bank was in the list and was awarded the title of “2009 Chairman Hu Pingxi delivered an im- Supervisors. Board Chinese Corporation with Excellent Social Re- portant speech. sponsibility”. On August 28th, President Hou Funing and Deputy Secretary Shen Xunfang On September 21st, the Bank launched Xin Nong Card. took part in the memorandum sign-

Significant Events Significant ing ceremony of Shanghai Small Busi- On September 22nd, “small loans help you real- ness Credit Network Service Platform ize your successful dream - bring the financial knowledge to the countryside theme activity in (pilot program) cooperation. 2009” was hosted by Shanghai Youth Working Committee in Finance and League Municipal Party Committee region division, was held in 2009 Big Annual Events Annual Big 2009 2009 Big Annual Events Annual Big 2009 Jinshan District with assistance from the Youth League committee of the Bank.

On September 26th, the new English website (http://www.srcb.com) was officially launched.

ments Available for Inspection for Available ments On September 29th, President Hou Funing, Financial Report and Docu and Report Financial Deputy Secretary Shen Xunfang, and Wu Guohua, assistant to the President met with Mr. Greg Becker, President of Silicon Valley Bank, and the delegation.

- On September 30th, Chairman Hu Pingxi and President Hou Funing met with Mr. Mike Smith, the CEO of ANZ Bank, and the delegation. 89 and Financial Performance Summary of Accounting Data

October November December Shareholders Profile Changes of Share Capital and

On October 16th and 17th, the Bank On November 1st, the Bank launched On December 2nd, the Bank issued held a strategy workshop to map out spot foreign exchange deals. RMB 1.5 billion of sub-debt on the the 2010-2012 development strategy National Inter-bank Bond Market, the In early November, the Bank launched and plan. first time such an action was taken by Profiles of Directors on the Company Board, Supervisory the Public Service Card and the Cor- Board, Senior Management Staff any rural bank in China. - On October 17th, a concert was held porate Card in Songjiang Sub-branch in Shanghai Concert Hall for the Bank and Wujiaochang Sub-branch respec- On December 2nd, the Bank granted nd staff and the 2 Culture and Art Festi- tively. RMB 1.45 million Energy Performance ture val was opened. Contracting management Project th th From Nov. 7 to 16 , Chairman Hu Loan to Shanghai Airserve corpora- Struc Governance Corporate th On October 19 , the Bank officially Pingxi and his delegation visited ANZ tion. This is the first Energy Perfor- launched Personal Online Banking on for 10 days. mance Contracting management a trial basis. Project loan issued in Shanghai, and it On November 12th, the Bank issued st was issued in cooperation with China

On October 21 , Chairman Hu Pingxi the first batch of Xin Nong Cards to Shareholders Meeting National Investment & Guarantee held the 3rd Quarter Regular Meeting. clients and held a meeting for the Corporation’s Shanghai Branch. introduction of the cards. From October 24th to 30th, the Bank On December 4th, Chairman Hu Pingxi held a credit knowledge propaganda On November 29th, the 2nd Culture nd

held the 2 meeting of the 2nd Board of Director week with the theme of “cherish and Art Festival for the staff and a of Directors. Shen Huiqi, Chairman of

credit record and improve credit con- dance contest was held at the Shang- Report of the Company Board the Board of Supervisors, held the 2nd sciousness” in all branches. hai Center. meeting of the 2nd Board of Supervi- On October 29th, the Bank signed a sors.

SME financing guarantee business Board On December 25th, the Bank officially contract with Shanghai Estate Guar- launched Personal Online Banking. Report of the Supervisory anty company. On December 29th, the Jing’an Sub- branch was opened. President Hu Pingxi and Gong Deqing, the Sec- retary of Jing'an District, together Significant Events raised the curtain at the inauguration ceremony of Jing’an Sub-branch. 2009 Big Annual Events 2009 Big Annual Events - Financial Report and Docu ments Available for Inspection 90

Corporate Governance Struc for Inspection ture - Shareholders Meeting Shareholders Report of the Company Board Board Company the of Report of Director of Report of the Supervisory Supervisory the of Report Board Significant Events Significant 2009 Big Annual Events Annual Big 2009 ments Available for Inspection for Available ments Financial Report and Docu and Report Financial

- 10 91

Financial Report and Documents Available and Financial Performance Summary of Accounting Data for Inspection Shareholders Profile Changes of Share Capital and

I. Financial report (see the attach- Profiles of Directors on the ment) Company Board, Supervisory Board, Senior Management Staff - (I) Auditor’s report

(II) Financial statement ture

(III) Notes to the financial statement Struc Governance Corporate Shareholders Meeting II. List of documents available for inspection

(I) The financial statement duly signed by legal repre- of Director

sentative, the President and the accounting institution Report of the Company Board principal.

(II) The original copy of auditor's report duly signed and Board sealed by the accounting firm and certified public ac-

countants. Report of the Supervisory

(III) The annual report duly signed by the Chairman of the Board of Directors.

(IV) The original copies of documents and announce- Significant Events ments of the Company disclosed in Jiefang Daily, Shang- hai Financial News and Shanghai Securities News, etc. during the reporting period.

(V) The Articles of Association. 2009 Big Annual Events

(VI) 2009 Corporate Social Responsibility Report of SRCB - (see the attachment) Financial Report and Docu ments Available for Inspection 076

SRCB Financial Report 2009 01

FINANCIAL STATEMENTS AND REPORT OF THE AUDITORS FOR THE YEAR ENDED 31 DECEMBER 2009

Contents Report of the auditors 02 Consolidated and Bank’s balance sheets 04 Consolidated and Bank’s income statements 06 Consolidated and Bank’s cash flow statements 06 Consolidated statement of changes in Shareholders’ equity 09 Bank’s statement of changes in Shareholders’ equity 10 Notes to financial statements 11 02

SRCB Financial Report 2009

Report of the auditors PwC ZT Shen Zi (2010) No. 20955

To Shareholders of Shanghai Rural Commercial Bank Co. Ltd: We have audited the accompanying financial statements of Shanghai Rural Commercial Bank Co. Ltd (the “Bank”), which comprise the consolidated and the Bank’s balance sheets as at 31 December 2009, and the consolidated and the Bank’s income statements, the consolidated and the Bank’s cash flows statements and the consolidated and the Bank’s statements of changes in equity for the year ended 31 December 2009 and notes to these financial statements.

Management’s Responsibility for the Financial Statements The management of the bank is responsible for the preparation of 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 combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, 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 policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 03

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 consolidated and the Bank’s financial position as of 31 December 2009, and of their financial performance and their cash flows for the year then ended in accordance with the Accounting Standards for Business Enter- prises. 04

SRCB Financial Report 2009

CONSOLIDATED AND THE BANK’S BALANCE SHEETS AS AT 31 DECEMBER 2009 (All amounts expressed in thousands of Rmb unless otherwise stated)

Group Bank Assets Notes 31 December 2009 31 December2009 31 December2008

Cash and deposits with the central bank 7.1 31,294,365 31,248,471 25,943,184

Deposits with other banks 7.2 3,178,794 3,178,794 5,217,982

Placement with other banks 7.3 - - 415,000

Trading assets 7.4 129,279 129,279 10,619 Financial assets purchased under resale agree- 7.5 10,515,156 10,515,156 5,755,701 ments Interest receivables 7.6 828,630 828,630 846,474

Loans and advances 7.7 116,579,757 116,343,251 91,201,231

Financial assets classified as available-for-sale 7.8 10,472,022 10,472,022 10,256,679

Securities classified as held-to-maturity 7.9 26,740,279 26,637,282 21,907,343

Securities classified as loans and receivables 7.10 3,222,712 3,222,712 1,243,082

Long-term equity investment 7.11 547,449 598,449 554,228

Investment properties 7.12 4,138,013 4,138,013 4,228,441

Fixed assets 7.13 3,029,674 3,029,629 1,243,251

Deferred tax assets 7.14 717,260 717,260 789,432

Other asset 7.15 856,969 856,743 769,739

Total Assets 212,250,359 211,915,691 170,382,386 05

Group Bank Liabilities Notes 31 December2009 31 December2009 31 December2008

Due to other banks and financial institutions 7.16 224,272 300,673 405,402

Financial assets sold under repurchased agreements 7.17 6,523,000 6,523,000 -

Due to customers 7.18 179,234,051 178,868,758 147,079,579

Deposits from wealth management products 7.19 700,965 700,965 808,170

Employee benefits payable 7.20 98,970 98,582 87,823

Taxes payable 7.21 672,693 672,544 202,271

Interest payable 7.22 2,870,529 2,870,134 2,423,547

Provision 7.23 262,140 262,140 273,172

Subordinated debt 7.24 1,500,000 1,500,000 -

Deferred tax liabilities 7.14 134,885 134,885 188,500

Other liabilities 7.25 6,959,973 6,959,663 7,696,535

Total Liabilities 199,181,478 198,891,344 159,164,999

Shareholders’ Equity

Share capital 7.26 3,745,686 3,745,686 3,745,686

Capital surplus 7.27 1,563,574 1,563,574 1,430,443

Surplus reserve 7.28 873,708 873,708 478,295

General banking reserve 7.29 2,625,540 2,625,540 2,625,540

Undistributed profits 7.30 4,213,561 4,215,839 2,937,423 Total Equity attributable to equity holders of 13,022,069 13,024,347 11,217,387 the Bank Minority interest 46,812 - -

Total Shareholders’ Equity 13,068,881 13,024,347 11,217,387

Total Liabilities and Shareholders’ Equity 212,250,359 211,915,691 170,382,386

The accompanying notes form an integral part of these financial statements.

Hu Ping Xi Hou Fu Ning Cheng Yi Hua Chairman President Person in charge of accounting department 06

SRCB Financial Report 2009

CONSOLIDATED AND THE BANK’S INCOME STATE- MENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (All amounts expressed in thousands of Rmb unless otherwise stated)

Group Bank

Notes 2009 2009 2008

1.Operating Income 5,027,289 5,018,656 5,349,223 Net interest income 4,999,054 4,990,378 5,323,841

Interest income 7.31 8,057,236 8,048,016 8,798,287

Interest expense 7.31 (3,058,182) (3,057,638) (3,474,446)

Net fee and commission income 186,763 186,806 178,332

Fee and commission income 7.32 269,005 268,925 229,852

Fee and commission expenses 7.32 (82,242) (82,119) (51,520)

Investment loss 7.33 (190,846) (190,846) (171,289)

Including:share of losses of associates (9,279) (9,279) (28,118)

Fair value gains 363 363 131

Foreign exchange gains/(losses) 9,988 9,988 (3,617)

Other operating income 21,967 21,967 21,825

2.Operating Expense (2,679,606) (2,665,507) (2,309,816)

Business tax and levies (202,398) (202,077) (210,229)

Operating expenses 7.34 (2,100,099) (2,088,710) (1,782,860)

Asset impairment losses 7.35 (278,247) (275,858) (226,298)

Other operating expenses (98,862) (98,862) (90,429)

3.Operating Profit 2,347,683 2,353,149 3,039,407

Non-operating income 7.36 139,393 138,393 895,924

Non-operating expenses 7.37 (3,352) (3,352) (5,511)

4.Total Profit 2,483,724 2,488,190 3,929,820

Less: Income tax 7.38 (514,707) (514,707) (279,017)

5.Net Profit 1,969,017 1,973,483 3,650,803

Attributable to equity holders of the Bank 1,971,205 1,973,483 3,650,803

Minority interest (2,188) - -

6.Other comprehensive income 7.39 133,131 133,131 180,517

7.Total Comprehensive income 2,102,148 2,106,614 3,831,320

Attributable to equity holders of the Bank 2,104,336 2,106,614 3,831,320

Minority interest (2,188) - -

The accompanying notes form an integral part of these financial statements.

Hu Ping Xi Hou Fu Ning Cheng Yi Hua Chairman President Person in charge of accounting department 07

CONSOLIDATED AND THE BANK’S INCOME STATEMENTS- FOR THE YEAR ENDED 31 DECEMBER 2009 (All amounts expressed in thousands of Rmb unless otherwise stated)

Group Bank Items Notes 2009 2009 2008

1.Cash flows from operating activities: Net increase in customer deposits and due to 31,973,342 31,684,450 17,155,976 other banks Net increase in deposits from wealth manage- - - 808,170 ment products Net decrease in assets purchased under resale - - 280,547 agreements Net increase in assets sold under repurchase 6,523,000 6,523,000 - agreement

Net decrease in placement with other banks 415,000 415,000 395,000

Interest received 6,686,138 6,679,790 7,339,169

Fee and commission received 269,004 268,925 229,852 Cash received relating to other operating activi- 159,212 158,438 290,663 ties Sub-total of cash inflows 46,025,696 45,729,603 26,499,377

Net increase in loans and advances (25,705,045) (25,466,150) (10,416,067) Net increase in deposits with the central bank (3,979,543) (4,010,210) (3,500,619) and other banks Net increase in assets purchased under resale (4,759,455) (4,759,455) - agreements Net decrease in assets sold under repurchase - - (3,631,536) agreement Net decrease in deposits from wealth manage- (107,205) (107,205) - ment products Interest paid (2,611,200) (2,611,051) (2,549,152)

Fee and commission paid (82,241) (82,119) (51,520)

Payment of Staff payroll and welfare (1,342,041) (1,338,667) (1,324,086)

The accompanying notes form an integral part of these financial statements.

Hu Ping Xi Hou Fu Ning Cheng Yi Hua Chairman President Person in charge of accounting department 08

SRCB Financial Report 2009

Group Bank Items Notes 2009 2009 2008

Payment of taxes (228,127) (227,954) (614,527)

Cash paid relating to other operating activities (1,330,531) (1,323,219) (623,715)

Sub-total of cash outflows (40,145,388) (39,926,030) (22,711,222)

Net cash flows from operating activities 7.40 5,880,308 5,803,573 3,788,155

2.Cash flows from investing activities: Cash flows received from disposal of invest- 16,387,621 16,387,621 12,430,517 ments

Net cash received from disposal of fixed assets, 107,645 107,645 74,067 intangible assets and other long-term assets

Cash received from returns on 1,029,867 1,026,995 753,009 investments Sub-total of cash inflows 17,525,133 17,522,261 13,257,593

Cash paid for investments (23,358,798) (23,255,802) (15,111,649)

Investment in for subsidiaries - (51,000) - Cash paid for purchase of fixed assets, intan- (1,963,539) (1,963,489) (426,477) gible assets and other long-term assets Sub-total of cash outflows (25,322,337) (25,270,291) (15,538,126)

Net cash flows from investing activities (7,797,204) (7,748,030) (2,280,533)

3.Cash flows from financing activities:

Cash received from equity investment 49,000 - - Including:Subsidiaries’s cash received from 49,000 - - Minority Shareholders Cash received from issuing bonds 1,500,000 1,500,000 -

Dividend paid (299,654) (299,654) (257,161)

Net cash flows from financing activities 1,249,346 1,200,346 (257,161) 4.Influence of exchange rate flux on cash and cash - - - equivalents 5.Net (decrease)/increase in cash and cash equiva- (667,550) (744,111) 1,250,461 lents Add: Cash and cash equivalents at beginning of 9,176,362 9,176,362 7,925,901 year 6.Cash and cash equivalents 8,508,812 8,432,251 9,176,362

The accompanying notes form an integral part of these financial statements.

Hu Ping Xi Hou Fu Ning Cheng Yi Hua Chairman President Person in charge of accounting department 09

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEAR END- ED 31 DECEMBER 2009 (All amounts expressed in thousands of Rmb unless otherwise stated)

Total Share Attributable to equity holders of the bank Minority interes -holders’ Equity General bank- Items Undistributed Share capital Capital surplus Surplus reserve ing profits Note 7.26 Note 7.27 Note 7.28 reserve Note 7.30 Note 7.29 Balance at 1 January 2009 3,745,686 1,430,443 478,295 2,625,540 2,937,423 - 11,217,387 Net profit of 2009 - - - - 1,971,205 (2,188) 1,969,017 Other Comprehensive - 133,131 - - - - 133,131 income Capital contribution from - - - - - 49,000 49,000 shareholders Profit appropriation 1. Transfer to surplus - - 395,413 - (395,413) - - reserve 2. Cash dividends - - - - (299,654) - (299,654)

Balance at 31 December 2009 3,745,686 1,563,574 873,708 2,625,540 4,213,561 46,812 13,068,881

The accompanying notes form an integral part of these financial statements.

Hu Ping Xi Hou Fu Ning Cheng Yi Hua Chairman President Person in charge of accounting department 10

SRCB Financial Report 2009

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQ- UITYFOR THE YEAR ENDED 31 DECEMBER 2009 (All amounts expressed in thousands of Rmb unless otherwise stated)

Total Sharehold- Attributable to equity holders of the bank ers’ Equity Items General Undistributed Share capital Capital surplus Surplus reserve banking reserve profits Note 7.26 Note 7.27 Note 7.28 Note 7.29 Note 7.30 Balance at 1 January 2008 3,745,686 1,241,923 377,241 2,623,304 638,384 8,626,538 R e t r o a c t i v e a d j u s t m e n t s – F i r s t - t i m e a d o - 8,003 - (10,970) (993,533) (996,500) p t i o n o f CAS (N o t e 2) Restated balance at 1 January 2008 3,745,686 1,249,926 377,241 2,612,334 (355,149) 7,630,038

Net profit of 2008 3,650,803 3,650,803

Other comprehensive income - 180,517 - - - 180,517

Profit appropriation

1. Transfer to surplus reserve - 101,054 - (101,054) -

2. Transfer to general banking reserve - - - 13,206 - 13,206

3. C a s h d i v i d e n d s - - - (257,177) (257,177) Balance at 1 January 2009 and 1 Janu- 3,745,686 1,430,443 478,295 2,625,540 2,937,423 11,217,387 ary 2008 Net profit of 2008 - - - - 1,973,483 1,973,483

Other comprehensive income - 133,131 - - - 133,131

Profit appropriation

1. Transfer to surplus reserve - - 395,413 - (395,413) -

2. Cash dividends - - - - (299,654) (299,654)

Balance at 31 December 2009 3,745,686 1,563,574 873,708 2,625,540 4,215,839 13,024,347

The accompanying notes form an integral part of these financial statements.

Hu Ping Xi Hou Fu Ning Cheng Yi Hua Chairman President Person in charge of accounting department 11

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DE- CEMBER 2009 (All amounts expressed in thousands of Rmb unless otherwise stated)

1 GENERAL INFORMATION Shanghai Rural Commercial Bank Co., Ltd. (the "Bank") is a joint-stock commercial bank reconstructed from the former Shanghai Rural Credit Cooperatives, including 1 municipal cooperative agency, 14 county-level cooperative agencies and 219 credit cooperatives sub-agencies. The Bank obtained its finance approval license No. G10312900H0001 from China Banking Regulatory Commission (“CBRC”) on 22 August 2005, and obtained its business license (No. 3100001007291) from Shanghai Municipal Administration of Industry and Commerce on 23 August 2005. Wan Long (Shanghai) Certified Public Accountants has verified the initial registered capital of Rmb 3,000,294 thousand and issued the Wan Kuai Ye Zi (2005) No.1738 Capital Verification Report. In accordance with Yin Jian Fu (2007) No. 356, "Approval on Shanghai Rural Commercial Bank Company Limited equity investment from Australia and New Zealand Banking Group Limited in Shanghai" issued by CBRC, the registered capital of the Bank was increased to Rmb 3,745,686 thousand. The additional capital contribution has been verified by Wan Long (Shanghai) Certified Public Accountants, and the Wan Kuai Yan Zi (2007) No. 1149 Capital Verification Report was issued. The Bank obtained updated business license No. 310000000088142 from Shanghai Municipal Administration of Industry and Commerce on 14 January 2008. The Bank made equity investment in Shanghai Chongming Yangtze River Village Bank Co. Ltd. (“the Vil- lage Bank”) which formally commenced operation on 18 February 2009. The registered capital of the Vil- lage Bank is RMB100 million, and the Bank contributed RMB 51 million, accounting for 51% of the equity interest. As the controlling shareholder, the Bank starts to prepare consolidated financial statements from 2009. The Bank and its subsidiary are collectived referred to as the "Group". The Bank’s main business activities include: domestic deposits and short-term, mid-term and long-term loans, domestic and foreign settlements, bill acceptance and discount, government bonds distributing, redeeming and underwriting as an agency of government, government bonds and banking notes trading, inter-bank borrowing and lending, bank card services, foreign currency deposits, loans and remittance, international settlements, inter-bank foreign currency borrowing and lending, credit investigation, consultation and assurance businesses, funds collection and commissioning, custodian service, purchase and sales of foreign currency (versus Rmb) and other business activities approved by the CBRC. As at 31 December 2009, the bank has Pudong branch and 15 county-level branches and 320 sub-branches in addition to head office and functional departments. The Bank's main regulatory authorities are the China Banking Regulatory Commission and its Shanghai Branch. These financial statements were authorised for issue by the board of directors on 26 March 2010.

2 BASIS OF PREPARATION

2.1 First-time adoption of Accounting Standards for Business Enterprises (“CAS”) Prior to 1 January 2009, the Bank prepared its financial statements in accordance with accounting regulations applicable to Rural Credit Associaties (hereafter referred to as “Previous Accounting Standards and System”). From 1 January 2009, the Ministry of Finance of the Peple’s Republic of China (“MOF”) promulgated the reviesed “Accounting Standards for Business Enterprises-Basic Standard” and 38 revised and newly issued specific sdandards (New “CAS”). On 29 December 2007, the MOF further issued “Transitional Guidance for unlisted banks in China to implement New CAS” (CAIKUAI [2007] No.16). The Bank adopted 12

SRCB Financial Report 2009

New CAS on 1 January 2009.The financial statements for the year ended 31 December 2009 are the Bank’s first set of financial statements which are prepared under New CAS. Upon first-time adoption of New CAS on 1 January 2009, the Bank has made retrospective adjustments to its prior year’s financial statements in accordance with CAS 38-First-time adoption of New CAS and “Tran- sitional Guidance for unlisted banks in China to implement New CAS” (CAIKUAI [2007]No.16) and consequently, the comparative financial statements for the year ended 31 December 2008 have been restated. The major adjustments made to the prior years’ financial statements are as follows.

1 January 2008 2008 31 December 2008 Shareholders’ equity Net profit Shareholders’ equity Amounts reported in 2008 under previous ac- 8,626,538 740,805 11,643,112 counting standards Adjustments - Allowance for impairment losses of financial (867,025) 240,230 (626,795) assets(1) - Allowance for impairment losses of fore- (23,749) (161,262) (185,011) closed assets (2) - Allowance for impairment losses of long-term (6,420) - (6,420) equity investment (2) - Allowance for impairment losses of non- (1,060,677) 2,756,064 (819,898) performing debt investments (3) - Fair value measurement for available-for-sale 186,973 17,706 436,758 investments(4) - Deferred income tax (5) 598,867 (44,862) 489,663

- Ajustments of interest income and expense(6) 190,974 106,166 297,140

- Others (15,443) (4,044) (11,162)

Aggregated amounts of restatement (996,500) 2,909,998 (425,725)

Amount in 2008 under CAS 7,630,038 3,650,803 11,217,387

(1) The Bank classified the loans and made provisions for individual loans and other specific provisions in accordance with “Loan Classification Guidelines” issued by PBOC. The bank also made a general provision through profit before tax for risky credit assets such as loans, inter-bank placements and reserve repos in accordance with “Administrative Rules on provision for Bad Debts for Financial Enterprises” issued by MOF(CAIKUAI [2005]49号].Upon first-time adoption date of New CAS, the bank reassessed the allowance for impairment losses of its loans ,inter-bank placements and reserve repos in accordance with CAS22- Fi- nancial Assets Recognition and Impairment and CAIKUAI[2007]No.16 and made retrospective adjustment accordingly. (2) The Bank did not make provison for forclosed assets and long-term equity investments under previous accounting. Upon first-time adoption, the Bank reassessed impairments of foreclosed assets and long- term equity investments in accordance with CAS 8 and CAIKUAI [2007] No.16. Prior years’ amounts were retrospectively adjusted accordingly. (3) The Bank classified non-performing debt investments which were illegally misappropriated by some security companies as bonds investment and did not make impairment provisions under previous accounting standards. Upon first-time adoption, the Bank reclassed these non-performing investments as loans and receivables and reassessed their impairment in accordance with CAS22- Financial Assets Rec- 13

ognition and Impairment and CAIKUAI [2007] No.16 and made retrospective adjustment accordingly. (4) Upon first-time adoption of New CAS, the Bank classified its financial assets into “financial assets at fair value through profit and loss” , ”held-to-maturity investments”, ”loans and receivables” and “available-for- sale financial assets” and measured its financial assets classified as “financial assets at fair value through profit and loss” and “available-for-sale financial assets at fair value” in accordance with CAS22 .Prior years’ amounts were retrospectively adjusted accordingly. (5) Upon first-time adoption of New CAS, the Bank recognised deferred tax assets and liabilities arising from differences between the carrying amounts of an asset or liability and their respective tax bases and retrospectively adjusted prior years’ financial statements. (6) The Bank’s quarterly interest income for loans and interest expenses for deposits last month were recognised up to 20th of last month in each quarter and the interest income and expenses for the period from 21st of last month in each quarter to the end of the quarter were recognised in next quarter. Upon first-time adoption, the Bank recognises interest income and expenses using effective interest method on accrual basis and Prior years’ amounts were retrospectively adjusted accordingly.

2.2 Other basis of preparation Assets and liabilities are measured under the historical cost convention unless otherwise stated measurement convention such as fair value, net realizable value and present value.

3 STATEMENT OF COMPLIANCE WITH THE ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES The financial statements of the Bank for the year ended 31 December 2009 truly and completely present the financial position as of 31 December 2009 and the operating results, cash flows and other information for the year then ended of the Group and the Bank in compliance with the Accounting Standards for Busi- ness Enterprises.

4 PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

4.1 Principal accounting policies

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

4.12 Function currency The Group uses Rmb as its functional currency.

4.13 Foreign currency translation Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Rmb at the stipulated exchange rates at the balance sheet date. 14

SRCB Financial Report 2009

Exchange differences arising from these translations are in income statement. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated into Rmb at the spot exchange rates prevailing on transaction dates.

4.14 Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise assets balances with original maturities of three months or less from the date of acquisition including: cash, non-restricted balances with the central bank, deposits with other banks and placement with other banks.

4.15 Financial assets and liabilities

Classification, recognition and measurement of financial assets and liabilities

(1) Financial assets and liabilities at fair value through profit or loss This category includes: financial assets and liabilities held for trading and those designated at fair value through profit or loss at inception. A financial asset or liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling, repurchasing or redemption in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Financial assets and liabilities are designated at fair value through profit or loss when: • doing so significantly reduces measurement inconsistencies of the gain and losses recognized in the income statements which resulted from the different measurement basis of these financial assets and liabilities; • certain financial assets (liabilities) or portfolios that are managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis. Financial assets and liabilities at fair value through profit or loss are measured at fair value at the initial recognition and subsequent balance sheet dates, and changes in fair value are reported in income statement.

(2) 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 the central bank, deposits with other banks and financial institutions, placement with other banks, reverse repos, loans and advances and investment securities classified as loans and receivables. When the Bank provides funds or services directly to customers and does not intend to sell the receivables, the Bank classifies such financial assets as loans and receivables and recognises them at fair value plus transaction costs at initial recognition. At subsequent balance sheet dates, such assets are measured at amortised cost using effective interest method less any impairment allowances. 15

(3) Held-to-maturity financial assets Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has both the positive intention and the ability to hold to maturity. Such financial assets are recognized at fair value plus related transaction costs at time of acquisition, and are measured at amortized cost using the effective interest method less any impairment allowance subsequently. Except for specific situations such as disposal of insignificant amount of held-to-maturity investments at a date sufficiently close to maturity date, if the Bank fails to hold such investments through their maturities or reclassifies a portion of held-to-maturity investments into available-for-sale prior to their maturities, the Bank shall reclassify the entire held-to-maturity portfolio into available-for-sale investments at fair value and the Bank is further prohibited to designate any investments as held-to-maturity during the following two financial years.

(4) Available-for-sale financial assets Financial assets classified as available-for-sale are those that are either designated as such or are not classified in any of the other categories. They are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Such financial assets are recognized at fair value plus related transaction costs at time of acquisition, and are subsequently measured at fair value at balance sheet dates. Gains and losses arising from changes in the fair value of financial assets classified as available-for-sale financial assets are recognized directly in equity after deducting tax impact, until the financial assets are de-recognized or impaired at which time the cumulative gain or loss previously recognized in equity should be recognized in the income statement.

(5) Other financial liabilities Other financial liabilities are comprised of due to other banks and financial institutions, due to customers, borrowings from other banks, and assets sold under repurchase agreement. Other financial liabilities including borrowings are measured at fair value less transaction costs at the initial recognition, and are presented at actual costs incurred net off accumulated amortisation in balance sheet. The difference between the amount actually received less transaction costs and the amount should be paid on maturity day is recognized over the life of the borrowings’ period using the effective interest method.

De-recognition of financial assets Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or transferred and the Bank has transferred substantially all risks and rewards of ownership. In 2005, the People's Bank of China issued special bills to the Bank in exchange for certain non-performing assets of the Bank. The Bank derecognized these non-performing assets with total contractual value of Rmb 2,120,914 thousand and recorded them as off-balance-sheet items in accordance with Yin Jian Ban Tong [2003] No.83 "CBRC’s notice on accounting for exchange of non-performing assets with special Central bank bills at rural credit association." The original book value of the derecognized non-perform- 16

SRCB Financial Report 2009

ing assets was approximately same as the fair market value of the special Central bank bills. In addition, Shanghai Municipal Government also injected cash and land use rights to the Bank through its wholly owned state-assets management company in exchange for the Bank’s non-performing assets with the contract value of Rmb 5,510,577 thousand in 2005. These assets were also derecognized in accordance with the above Yin Jian Ban Tong [2003] No. 83, and were accounted for as off-balance-sheet items. The original book value of the derecognized non-performing assets was approximately same as amount of cash injected and the estimated fair value of the land use rights. The land use rights acquired by the Bank were recognized as investment properties by the Bank. Accounting policies related to the investment properties are described in Note 4.1.10, and are further elaborated in Note 4.2.5 as a significant accounting estimate. The special Central bank bills were due on 31 December 2007, and were repaid on 1 April 2008 as scheduled. At the bills’ settlement date, the cumulative proceeds received by the Bank on disposal of those corresponding non-performing assets transferred out in 2005 was recorded by the Bank as a liability. As at 31 December 2008, total proceeds received by the Bank amounted to Rmb 393,772 thousand. In accordance with the above Yin Jian Ban Tong [2003] No. 83, such proceeds received by the Bank was reclassified as allowance for loan impairment in the amount of Rmb 360,352 thousand and allowance for impairment of security investment classified as loans and receivables in the amount of Rmb 33,420 thousand. In 2009, the Bank received proceeds from collection of non-performing assets in amount of Rmb 48,537 thousand and recorded them as allowance for loan impairment. The proceeds received from disposal of non-performing assets in relation to asset exchange with Shang- hai Municipal Government were also accounted for as a liability by the Bank with reference to the above Yin Jian Ban Tong [2003] No. 83. In 2008, according to Cai Zhu Hu Jian [2008] No. 166 "Report of the inspection on quality of accounting information of Shanghai Rural Commercial Bank Co., Ltd. for the year of 2007” issued by Shanghai Commissioners’ Office of the Ministry of Finance, such proceeds were accounted for as non-operating income by the Bank. In 2009 and 2008, the Bank recognised such non-operating income in the amount of Rmb 35,410 thousand and Rmb 805,302 thousand respectively.

Fair value of financial assets and financial liabilities Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The fair values of quoted investments in active markets are based on current bid prices. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. If the market for a financial asset is not active, the Bank establishes fair value by using valuation techniques. Valuation techniques include using recent arm's length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. 17

4.16 Impairment of financial assets

(1) Assets carried at amortised cost The Group assesses periodically whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The major criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: (i) significant financial difficulty of the issuer or obligor; (ii) a breach of contract, such as a default or delinquency in interest or principal payments; (iii) the Bank, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the Bank would not otherwise consider; (iv) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; (v) the disappearance of an active market for that financial asset because of financial difficulties of the issuer; (vi) 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. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in income statement. In practice, the Bank will also determine the fair value of the financial assets with the observed market value and assessed the impairment loss with that fair value. 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. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar and relevant credit risk characteristics. Those characteristics are relevant to the estimation of fu- 18

SRCB Financial Report 2009

ture 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. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and 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 exist currently. Estimates of the portfolio's future cash flow should reflect changes related to the observed data of the phase change with the changes in direction and consistency. Expected to reduce differences between estimated losses and the actual losses, the Group performs periodic review of the theory and hypothesis of the expected future cash flow. When a loan is unrecoverable, it is written off against the related allowance on impairment losses. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the Impairment losses for loans and advances in the income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement.

(2) Assets carried at fair value The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in income statement, is removed from equity and recognized in the income statement. 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 recognized in the income statement, the impairment loss is reversed through the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement.

4.17 Assets purchased under resale agreements (“Reverse repos”) and assets sold under repurchase agreements (“Repos”) Reverse repo refers to the agreement under which the Group purchases an asset (eg. Security, loan and bill) at a fixed price with an obligation to resell it to the same counterparty at a pre-determined price at a specified date. Such assets are recorded at actual amounts paid at acquisition and presented in “Assets purchased under resale agreement”. Repo refers to the agreement under which the Group sells an asset (eg. security, loan and bill) at a fixed 19

price with an obligation to repurchase it from the same counterparty at a pre-determined price at a specified date. Repos are recorded at the actual amounts received and presented in “Assets sold under repurchase agreements”. The difference between sale and repurchase price is treated as interest income or expenses and recognized over the life of the agreement using the effective interest method.

4.18 Offsetting financial instruments Financial assets and financial liabilities are separately presented in the balance sheet without any offsetting, except when: (i) there is a legally enforceable right to set off the recognized amounts; (ii) there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

4.19 Long-term equity investments Long-term equity investments comprise the Bank’s long-term equity investments in its associates as well as the long-term equity 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.

(1) Subsidiaries Subsidiary is an enterprise that the Bank can control. Control is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its operating activities. The bank also considers transferable bonds and other potential vote rights in determining if the Bank has controlling power. Investments in subsidiaries shall be accounted for using the cost method in the individual financial statements of parent company, while in preparing the consolidated financial statements, investments in subsidiaries shall be adjusted using the equity method. Long-term equity investments using the cost method shall be measured at initial investment cost. The Bank recognises investment income when the investee distributes cash dividend or profit.

(2) Associates Associates are all investees that the Group has significant influence on their financial and operating policies. Investments in associates are accounted for using the equity method. Where the initial investment cost exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially measured at cost. Where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current period and the cost of the long-term equity investment is adjusted accordingly. When using the equity method of accounting, the Group recognised the investment income based on its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of the long-term equity investment together with any long-term 20

SRCB Financial Report 2009

interests that, in substance, form part of the investor’s net investment in the investee are reduced to zero. However, if the Group has obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standards on contingencies, the Group continues to recognise the investment losses and the provision. For changes in owner’s equity of the investee other than those arising from its net profit or loss, the Group record directly in capital surplus its proportion, provided that the Group’s proportion of shareholding in the investee remains unchanged. The carrying amount of the investment is reduced by the Group’s share of the profit or cash dividends declared by an investee. The unrealised profits or losses arising from the intra-group transactions between the Group and its investees are eliminated to the extent of the Group’s interest in the investees, on the basis of which the investment gain or losses are recognised. The loss on the intra-group transaction between the Group and its investees, of which the nature is asset impairment, is recognised in full amount, and the relevant unrealised gain or loss is not allowed to be eliminated.

(3) Other long-term equity investments Other long-term equity investments where the Bank does not have control, joint control or significant influence over the investee, and which are not quoted in an active market and whose fair value cannot be reliably measured are accounted for using the cost method.

4.1.10 Investment properties Land use rights and buildings held to earn rentals or for the purpose of disposal upon appreciation in value which is not occupied by the Bank are classified as investment properties. Investment properties are initially recognized at cost. Subsequent costs are included in the asset’s carrying amount, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. Otherwise, the subsequent costs are expensed immedi- ately. Investment properties are subsequently measured at cost. Depreciation or amortisation is calculated on the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives as follows:

Estimated Estimated Annual useful lives residual value depreciation rate Land use rights 50 years - 2%

If investment properties are used for the Bank’s own operations, they should be reclassified to fixed assets or intangible assets when there is a change. If the self-owned property is held to earn rentals or for capital appreciation, they should be reclassified to investment property when there is such change. When such reclassification occurs, the assets are recognised at cost. The Bank reviews the residual values, useful lives and depreciation (amortisation) method and makes appropriate adjustments on an annual basis. When the Bank disposes or ceases to use the investment property, or does not expect to further benefit from the investment property, the Bank derecognises the investment properties. Proceeds from sale, transfer or disposal of the investment property is recorded in profit or loss after deducting carrying value 21

and related taxes.

4.1.11 Fixed assets Fixed assets are properties, decorations, office equipment and motel vehicles that are used for operation purpose and have useful lives of more than one year. Properties mainly comprise land and office buildings of the branches and sub-branches, as well as real estate held by the Bank for the purpose of rental income or capital appreciation, or both, mainly buildings that have been rent or that are ready for disposal. Office equipment does not include computers and printers used for operation purpose, as according to Order No 3 “Measures for implementation of financial management for city commercial banks and city credit cooperatives” issued by the State Administration of Taxation, applicable from 1 July, 2002, computers and printers are recorded as low-priced and perishable articles upon purchase date regardless of their cost amount. Fixed assets are stated at cost less accumulated depreciation and provision for impairment. Cost includes expenditures that are directly attributable to the acquisition of the items. Subsequent expenditures are capitalized, as appropriate, only when it is probable that future economic benefits in excess of the original assessment of performance will flow to the Bank and the cost of the item can be measured reliably. Capitalized expenditures arising from major reconstruction, expansion and improvement are depreciated using the straight-line method over the remaining useful lives of the fixed assets. Capitalized expenditures arising from the renovation of fixed assets are depreciated on the straight- line basis over the expected beneficial periods, and all other related subsequent costs are expensed when incurred. Depreciation is calculated on a straight-line method to allocate the cost of assets to their estimated residual values over their estimated useful lives. For the fixed assets being provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives. The estimated useful lives, estimated residual values expressed as a percentage of cost and annual depreciation rates are as follows:

Annual Estimated useful lives Estimated residual value depreciation rate Houses and buildings 20 years 5% 4.75% Motor vehicles 5 years 5% 19% Electronic equipments 5 years 5% 19% Machines 5-10 years 5% 9.5%~19% Others 5 years 5% 19%

The Bank reviews the residual value, useful lives and depreciation method of fixed assets and makes appropriate adjustments on an annual basis. When fixed assets are sold, transferred, disposed of or damaged, gains and losses on disposal are determined by the Bank the proceeds with the carrying amount of the assets, adjusted by related taxes and expenses, and are included in non-operating income or expenses. 22

SRCB Financial Report 2009

4.1.12 Construction in progress Construction in progress is recorded at actual cost. Cost comprises construction cost and other direct costs. Borrowing costs on specific borrowings for financing the construction or acquisition of fixed assets are capitalized as part of the cost of the fixed assets until the assets are ready for their intended use. Con- struction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month.

4.1.13 Intangible assets Intangible assets mainly include software.

(1) Software Intangible assets is initially recorded at cost Expenditures related to intangible assets are capitalized, as appropriate, only when it is probable that future economic benefits in excess of the original assessment of performance will flow to the Bank and the cost of the item can be measured reliably, and all other related costs are expensed when incurred. When intangible assets are ready for their intended use, they are amortized using a straight-line method according to useful lives and the anticipated realization way of related economic benefits. Software is amortized using a straight-line method within 5 years.

(2) Periodically review of the useful lives and amortization methods The Bank reviews the useful lives and amortization method of intangible assets with limited useful lives and makes appropriate adjustments on an annual basis.

4.1.14 Long-term prepaid expenses Long-term prepaid expenses include the expenditure for improvements to fixed assets under operating lease and other prepayments incurred but should be borne by the current and subsequent periods and amortised over more than one year. Long-term prepaid expenses are amortised on the straight-line basis over the expected beneficial period and are presented at cost net of accumulated amortisation.

4.1.15 Foreclosed assets Foreclosed assets are recognized at lower of net book value of corresponding loans and advances and their fair value less estimated costs to sell on the date of foreclosure. Subsequently foreclosed assets are measured at the lower of their cost and estimated fair value less cost to sell. The difference between net proceeds from disposal of foreclosed assets and its book value are recorded in non-operating income or expenses.

4.1.16 Impairment of non-financial asset Fixed assets or other non-financial assets are reviewed for impairment if there are indications of impairment. If the carrying value of such assets is higher than the recoverable amount, the excess is recognized as an impairment loss. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. 23

Provision for impairment is determined on individual basis. If it is not possible to estimate the recoverable amount of the individual asset, the Bank shall determine the recoverable amount of the cash-generating unit to which the asset belongs (the asset’s cash-generating unit). An asset’s cash-generating unit is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Once an impairment loss is recognised, it shall not be reversed in subsequent periods.

4.1.17 Employee Benefits Employee benefits mainly consist of salary, bonus, allowance and subsidy, staff welfare funds, housing subsidies, social insurance and housing fund, labour union funds and staff education funds and any other employee related expenses. Employee benefits are recognised in the period of services rendered, and are capitalised in costs of assets or charged to income statement based on expected benefits generated from services rendered by employees. The Bank participates in social security plans managed by government authorities, including pension, medical, housing and other welfare benefits. According to the relevant regulations, the premiums and welfare benefit contributions are calculated based on percentages of the total salary of employees, subject to a certain ceiling, and are paid to the labour and social welfare authorities. Contributions to the plans are expensed as incurred. The Bank provides retirement benefits to certain employees who have accepted an early retirement arrangement prior to the normal retirement date, as approved by the management. The Bank has recorded a liability for its obligation to these early retired employees. The present value of the liability is determined through estimated future cash payments discounted by interest rates of government bonds that have terms to maturity similar to the Bank's future payment obligations under the early retirement arrangements. In addition to social security plans, the Bank further pays pension subsidies on a monthly basis to employees who had retired from the Bank as of 31 December 2009 or will reach normal retirement ages before the end of 2010. The Bank has recorded the payment obligation of pension subsidies to these employees as a liability. This future payment obligation is measured at its present value, that is, the future cash outflow is discounted using the interest rate of government bonds which have similar terms to the pension liability. Such liability is presented as a provision on the balance sheet.

4.1.18 Deferred income taxes 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). Deferred tax asset is recognised for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax law. No deferred tax liability is recognised for a temporary difference arising from the initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognised for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss) At the balance sheet date, deferred tax assets and deferred 24

SRCB Financial Report 2009

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 only recognised for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, deductible losses and tax credits can be utilised. Deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, joint ventures and associates, except where the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries, joint ventures and associates will be reversed 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 liabilities are offset when: • The deferred taxes are relate to the same tax payer within the group and same fiscal authority, and; • That tax payer has a legally enforceable right to offset current tax assets against current tax liabilities.

4.1.19 Interest income and expenses Interest income and expense for all interest-bearing financial instruments are recognised within ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method. The effective interest method is a method of 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 using its effective interest rate. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (e.g., prepayment options, call options and similar options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, such as transaction costs and all other premiums or discounts. If the cash flows are unable to estimate, the Bank shall use contractual cash flows in the entire contract period. 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.

4.1.20 Fee and commission income Fees and commissions are generally recognized on an accrual basis when the related service has been provided. 25

4.1.21 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the leaser are classified as operating leases. The Bank entered into various operating lease agreements to rent Head Of- fice and branches’ offices and facilities. The total payments made under operating leases are charged to the income statement on a straight-line basis over the period of the leases.

4.1.22 Contingent liabilities and acceptances A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank. It can also be a present obligation arising from past events that is not recognized 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 recognized as a provision but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognized as a provision. Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be settled simultaneously with the reimbursement from the customers. Ac- ceptances are accounted for as off-balance sheet transactions and are disclosed as contingent liabilities and commitments.

4.1.23 Financial guarantee contracts The Group has the following types of financial guarantee contracts: letters of credit and letters of guarantee. These financial guarantee contracts provide for specified payments to be made to reimburse the holder for losses incurred when the guaranteed parties default under the original or modified terms of the specified debt instruments. The Group initially recognizes all financial guarantee contracts at fair value in the balance sheet. Subse- quently, they are carried at the higher of amortised carrying value or the provision required meeting the Branch’s guarantee obligation. The changes in carrying value are recorded in the income statement. The contractual amounts of financial guarantee contracts are disclosed as off-balance sheet items.

4.1.24 Provisions Provisions for pending litigation, restructuring and loss contract are recognized when the Group has a present obligation as a result of past transactions or events, and it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Future operating losses are not recognized as provisions. Provisions are initially determined using best estimates based on historical experience, taking into consideration the risks, uncertainties and discount effect related to contingencies. Where the effect of discounting future cash flow is significant, provisions shall be determined by discounting the related future cash flows. The carrying amount of provisions is reviewed, and adjusted if appropriate, to reflect the best estimates at each balance sheet date. 26

SRCB Financial Report 2009

4.1.25 Fiduciary activities The Group commonly acts as a trustee, or in other fiduciary capacities, that result in its holding or managing assets on behalf of its customers. Storage and repayment duty and income from managing assets are not recognized in the Group’s financial statements. The Group administers entrusted loans on behalf of third-party lenders. In this regard, the Group grants loans to borrowers, as agent, at the direction of the third-party lenders, who fund these loans. The Group has been contracted by these third-party lenders to manage the administration and collection of these loans on their behalf. The third-party lenders determine both the underwriting criteria for and all terms of the entrusted loans including their purposes, amounts, interest rates and repayment schedule. The Group charges a commission related to its activities in connection with the entrusted loans which is recognised rateably over the period the service is provided, but the risk of loss is borne by the third-party lenders.

4.1.26 Preparation of consolidated financial statements Subsidiaries are fully consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries. The financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Bank during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and subsidiaries. All significant inter-group 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 period not held by the Bank are recognised as minority interests and presented separately in the consolidated balance sheet within equity and net profits respectively.

4.1.27 Segment reporting The Group identifies operating segments based on the internal organisation structure, management requirements and the internal reporting system, and discloses segment information of reportable segments determined on the basis of operating segments. An operating segment is a component of the Group that satisfies all of the following conditions: (1) the component is able to earn revenues and incur expenses from ordinary activities; (2) whose operating results are regularly reviewed by the Group’s management to make decisions about resources to be allocated to the segment and to assess its performance, and (3) for which the information on financial position, operating results and cash flows is available to the Group. If two or more operating segments have similar economic characteristics, and satisfy certain conditions, they are aggregated into a single operating segment. The Group is engaged predominantly in banking and related financial activities. It comprises corporate banking, retail banking, treasury and other classes of business. Corporate banking mainly comprises corporate loans, bills, trade finance, corporate deposits and remittance. Retail banking mainly comprises retail loans, retail deposits, credit card and remittance. 27

Treasury mainly comprises money market placements and takings, investment in securities, and securities sold subject to linked repurchase agreements (‘repos’). The ‘Others’ business segment mainly comprises items which cannot be categorized in the above business segments.

4.2 Critical accounting estimates and judgments in applying accounting policies The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements. 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 require material adjustments to the estimates referred to below.

4.2.1 Allowance for impairment losses on loans and advances The Group regularly reviews its loan portfolios to assess impairment except that there are known situation demonstrates impairment losses have occurred. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group (e.g. payment delinquency or default), or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. The Group regularly assesses impairment for non financial assets. If there is any evidence that indicates the possibility of asset impairment, the recoverable amount of the asset shall be estimated. The recoverable amount shall be determined based on the fair value of an asset less the cost of disposal or the present value of the projected future cash flow of the asset, whichever is higher. If there is no sales agreement and no active market for the asset, the estimated fair value of an asset less the cost of disposal shall be determined based on the best available information. The said value may be estimated by reference to the latest transaction prices or outcomes for similar assets in the same sector. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

4.2.2 Fair value of financial instruments The fair value of financial instruments that is not quoted in active markets is determined by using valuation techniques. To the extent practical, cash flow models use only observable data, however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. 28

SRCB Financial Report 2009

4.2.3 Held-to-maturity investments The Bank classifies non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than, for the specific circumstances, for example, selling an insignificant amount close to maturity, it will be required to reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value not amortised cost.

4.2.4 Income taxes Significant estimates are required in determining the provision for income tax. There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Bank recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. In particular, the deductibility of certain items in the PRC is subject to tax authority’s approval. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made.

4.2.5 Investment properties The land use rights which were acquired by the bank in exchange for the Bank’s non-performing assets with Shanghai Municipal Government during the restructuring of the Bank in 2005 were recognized as investment properties by the Bank, which consist of land of Nonggongshang Haifeng Farm. According to normal practice, approval from related government authorities should be obtained upon disposal of such agricultural lands. The Bank appointed Shanghai Wanlong Assets Valuation Co., Ltd. to value the lands in 2008, and the major valuation approaches and significant valuation assumptions are listed as follows: (a) As there is no active market for the allocated agricultural land, it would be difficult to use the market comparison approach. Therefore, the income approach is adopted, and the additional land transfer fee will not be levied by relevant authorities as it is assumed that the current usage of the land stays unchanged. (b) For the portion of industrial land and the residential land, the market comparison approach is adopted, and land transfer fee is deducted from the value of these lands according to related local regulations. (c) The Bank has full legal rights on these lands. It is assumed that there will be no disagreements from with relevant government authorities upon disposal of the land. Consequently, the value of the land is not affected by the uncertainty of government approval. In 2009, the Bank has reviewed these key approaches and assumptions and concluded there is no significant impairment on the value of the land. The Bank reviews these key approaches and assumptions on periodical basis to assess whether there will be significant impact on the value of the land due to change in these assumptions. If future events indicate that these assumptions are not valid, the valuation result may change significantly. 29

5 TAXATION

5.1 Corporate income tax On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the Peo- ple’s Republic of China (the “new CIT Law”), which has been effective from 1 January 2008. Under the new CIT Law, the corporate income tax rate applicable to the Bank from 1 January, 2008 was reduced from 33% to 25%. The applicable tax rate is 25% for 2009.

5.2 Business tax In accordance with Cai Shui [2006] No. 46, the “Notice on the extension of the taxation policy period related to rural credit cooperatives in the pilot areas” issued by the Ministry of Finance and the State Admin- istration of Taxation on 14 May, 2006, the Bank’s business tax is levied at 3% of total taxable income from 1 January, 2004. In 2009, the applicable tax rate for the Bank is 3% (2008: 3%).The applicable business tax rate for the subsidiary is 5%.

5.3 Urban construction tax The Bank applies the rates of urban construction tax at 1%, 5%, or 7% of business tax according to the different location of tax payers.

5.4 Educational surcharge The rate of educational surcharge applicable to the Group is 3% of total business tax.

6 SUBSIDIARIES The subsidiary was included in the scope of consolidated financial statements as 31 December 2009.

Voting right Registration Registered Share of equity percentage of location Capita interest of the Bank the Bank Shanghai Chongming Yangtze River Town Shanghai 100,000,000 51% 51% Bank Co.Ltd. (a)

(a) Please refer to Note1 for subsidiaries’ information. 30

SRCB Financial Report 2009

7 NOTES TO THE FINANCIAL STATEMENTS

7.1 Cash and deposits with the central bank

Group Bank

31 December 2009 31 December 2009 31 December 2008

Cash 1,331,941 1,331,780 1,183,141 Restricted reserve deposits with the central 23,976,246 23,930,513 19,658,209 bank Balances with the central bank other than 5,984,640 5,984,640 4,039,163 restricted reserve deposits Special deposit with the central bank - - 1,060,925

Others 1,538 1,538 1,746

31,294,365 31,248,471 25,943,184

The Bank is required to maintain statuary deposit reserves with PBOC. Such statutory deposit reserves are not available for use by the Bank for its day-to-day operations. As at 31 December 2009, the Bank’s reserve ratio for customer deposits denominated in Rmb is 13.5% (31 December, 2008: 13.5%) and reserve ratio for deposits denominated in foreign currencies is 5% (31 December 2008: 5 %). Interest rate for Rmb deposit reserve was 1.62% (2008: 1.62%) and foreign currency deposit reserve is not interest-bearing. The balances with the central bank other than restricted reserve deposit are the amount deposited in PBOC for settlement purpose. Special deposit with the central bank is one year time deposit placed in the central bank by the Bank. The balance has been transferred to balances with the central bank other than restricted reserve deposit at its due date of 1 April 2009. On 1 December 2005, PBOC swapped the Bank’s non-performing assets with its special central bank bills amounting to Rmb 2.122 billion issued to the Bank. The Bank derecognized relevant financial assets and recorded them as off-balance-sheet items according to Yin Jian Ban Tong [2003] No.83. The special PBOC bills were due in March 2008, and were repaid by PBOC on 1 April, 2008. Half amount of repayment amounting to 1.061 billion is recorded as the balances with central bank other than restricted reserve deposit and the remaining half of Rmb 1.061 billion was recorded as special deposit with central bank at an annual interest rate of 3.15% according to instruction from PBOC and was settled on 1 April 2009.

7.2 Deposits with other banks

Group and Bank Bank

31 December 2009 31 December 2008

Deposits with domestic banks 3,059,131 5,140,701

Deposits with overseas banks 119,663 76,937

Others - 344

3,178,794 5,217,982 31

7.3 Placements with other banks

Group and Bank Bank

31 December 2009 31 December 2008

Placements with domestic banks - 415,000

7.4 Trading assets

Group and Bank Bank

31 December 2009 31 December 2008

Government bonds 31,058 -

Financial bonds 98,221 10,619

129,279 10,619

7.5 Financial assets purchased under resale agreements

Group and Bank Bank

31 December 2009 31 December 2008

Securities purchased under resale agreements 6,793,200 3,221,764

Bills purchased under resale agreements 3,721,956 2,434,637

Loans purchased under resale agreements - 99,300

10,515,156 5,755,701

7.6 Interest receivables

Group and Bank Bank

31 December 2009 31 December 2008

Held-to-maturity investments 355,788 367,132

Loans and advances 323,586 319,825

Available for sale financial assets 87,265 86,875

Deposit with other banks 17,847 43,122

Securities investments classified as loans and receivables 29,220 16,557

Deposits with the central bank 12,773 11,512

Financial assets purchased under resale agreements 1,123 690

Placement with other banks - 666

Trading assets 1,028 95

828,630 846,474 32

SRCB Financial Report 2009

7.7 Loans and advances

Group Bank

31 December 2009 31 December 2009 31 December 2008

Retail loans and advances

Personal mortgage loans 11,138,335 11,134,520 9,284,016

Personal consumption loans 765,103 765,103 710,274

Farmer loans 845,812 809,682 1,213,708

Others 135,353 135,353 132,121

12,844,603 12,844,658 11,340,119

Corporate loans and advances

Loans 94,774,261 94,575,311 71,903,017

Discounted bills 11,118,925 11,118,925 9,887,062

105,893,186 105,694,236 81,790,079

Gross 118,777,789 118,538,894 93,130,198

Invidivually assessed provision (958,698) (958,698) (920,742)

Collectively assessed provision (1,236,945) (1,008,225)

Total (Note7.7(5)) (2,195,643) (1,928,967)

Net 116,579,757 116,343,251 91,201,231

(1) Industry sector

Group Bank

31 December 2009 31 December 2009 31 December 2008

Amount % Amount % Amount % Real estate 21,678,255 18.25 21,678,255 18.29 16,495,439 17.71 Manufacturing 19,258,216 16.21 19,258,216 16.25 18,508,046 19.87 Rental and commercial services 17,018,615 14.33 17,018,615 14.36 11,167,334 11.99 Wholesale and retail 6,696,200 5.64 6,696,200 5.65 5,341,758 5.74

Water environmental and public utilities 6,038,682 5.08 6,038,682 5.09 5,022,460 5.39

Construction 5,560,896 4.68 5,560,896 4.69 4,046,134 4.34 Residential and other services 2,350,554 1.98 2,350,554 1.98 1,996,630 2.14 Transportation, storage and post 2,251,061 1.90 2,251,061 1.90 1,929,712 2.07 Farming, forest, herd and fishery 1,340,941 1.12 1,141,991 0.96 1,356,991 1.46 Hotel and restaurant 1,527,840 1.29 1,527,840 1.29 1,328,200 1.43 Others 2,254,651 1.90 2,254,651 1.90 2,719,813 2.92 Sub-total 85,975,911 72.38 85,776,961 72.36 69,912,517 75.06 Loans purchased from other financial 8,798,350 7.41 8,798,350 7.42 1,990,500 2.14 institutions(a) 33

Group Bank

31 December 2009 31 December 2009 31 December 2008

Amount % Amount % Amount % Retail Loans 12,884,603 10.85 12,844,658 10.84 11,340,119 12.18 Bills accepted by other banks 11,046,342 9.30 11,046,342 9.32 9,859,547 10.59 Bills accepted by corporates 72,583 0.06 72,583 0.06 27,515 0.03 Discount bills 11,118,925 9.36 11,118,925 9.38 9,887,062 10.62 Total, gross 118,777,789 100 118,538,894 100 93,130,198 100

(2) Types of borrower

Group Bank

31 December 2009 31 December 2009 31 December 2008

Amount % Amount % Amount % Joint-stock enterprises 34,355,848 28.92 34,355,848 28.98 17,321,709 18.60 State-owned enterprises 19,429,946 16.36 19,429,946 16.39 18,743,843 20.12 Private enterprises 15,753,419 13.26 15,753,419 13.29 18,467,249 19.83 Collectively owned enterprises 10,500,194 8.84 10,301,244 8.69 9,273,763 9.96 Foreign invested enterprises 3,728,069 3.14 3,728,069 3.15 3,947,081 4.24 Others 2,208,435 1.86 2,208,435 1.86 2,158,872 2.32 Sub-total 85,975,911 72.38 85,776,961 72.36 69,912,517 75.07 Loans purchased from other financial 8,798,350 7.41 8,798,350 7.42 1,990,500 2.14 institutions(a) Retail Loans 12,884,603 10.85 12,844,658 10.84 11,340,119 12.18 Discount bills 11,118,925 9.36 11,118,925 9.38 9,887,062 10.62 Total, gross 118,777,789 100 118,538,894 100 93,130,198 100

Note (a), The Bank purchased these loans from other commercial banks in 2009 with credit risk retained by transferors accounting to the contract terms.

(3) Type of securities

Group Bank

31 December 2009 31 December 2009 31 December 2008

Clean loans 9,743,195 9,727,695 7,167,380

Guaranted loans 32,572,383 32,500,383 24,140,137

Collateralized loans 64,572,112 64,420,717 51,478,031

Pledge Loans 11,890,099 11,890,099 10,344,650

Total, gross 118,777,789 118,538,894 93,130,198 34

SRCB Financial Report 2009

(4) Loans and advances past due

31 December 2009 (Group and Bank) Past due up to Past due 90 days Past due 1-3 Past due over 3 Total 90 days - 1 year years years Clean loans 270,590 235,448 729,090 404,152 1,639,280

Guaranteed loans 10,142 104,228 215,582 51,991 381,943

Collateralized loans - - 1,810 52,585 54,395

Pledge loans 5,693 1,405 717 1,036 8,851

Total 286,425 341,081 947,199 509,764 2,084,469

31 December 2008 ( Bank) Past due up to Past due 90 Past due 1-3 Past due over 3 Total 90 days days - 1 year years years Clean loans 433,434 856,959 275,294 368,282 1,933,969

Guaranteed loans 72,781 231,546 118,677 36,819 459,823

Collateralized loans 463 - 51,000 1,585 53,048

Pledge loans 6,263 1,216 1,452 1,948 10,879

Total 512,941 1,089,721 446,423 408,634 2,457,719

(5) Allowance for impairment losses on loans and advances

2009 (Group)

Individually assessed Collectively assessed Total

At 1 January 2009 (920,742) (1,008,225) (1,928,967) Reversal charge for the year (Note 7.35) (95,410) (182,572) (277,982) Transfer from liability as a result of collection of non- - (48,537) (48,537) performing assets transferred out（Note 4.15) Recovery of loans which had been previously written off (19,371) - (19,371)

Write off 22,142 - 22,142

Unwind of discount on allowance 54,683 - 54,683 At 31 December 2009 (958,698) (1,239,334) (2,198,032) 35

2009 (Bank)

Individually assessed Collectively assessed Total

At 1 January 2009 (920,742) (1,008,225) (1,928,967)

Reversal charge for the year (Note 7.35) (95,410) (180,183) (275,593) Transfer from liability as a result of collection of non- - (48,537) (48,537) performing assets transferred out (Note 4.1.5) Recovery of loans previously written off (19,371) - (19,371)

Write off 22,142 - 22,142

Unwind of discount on allowance 54,683 - 54,683

At 31 December 2009 (958,698) (1,236,945) (2,195,643)

2008 (Bank)

Individually assessed Collectively assessed Total

At 1 January 2009 (895,275) (842,413) (1,737,688)

Reversal charge for the year (Note 7.35) (161,523) 193,437 31,914 Transfer from liability as a result of collection of non- - (360,352) (360,352) performing assets transferred out (Note 4.1.5) Recovery of loans previously written off (18,899) - (18,899)

Write off 106,638 1,103 107,741

Unwind of discount on allowance 48,317 - 48,317

At 31 December 2009 (920,742) (1,008,225) (1,928,967)

7.8 Financial assets classified as available-for-sale

Group and Bank Bank

31 December 2009 31 December 2008

Debt securities

Government bonds 1,170,355 1,439,338

Financial bonds 3,733,906 3,710,007

Corporate bonds 746,647 1,218,752

Central bank bills 2,131,047 2,965,742

7,781,955 9,333,839

Equity investment (Note1) 1,190,067 922,840

Wealth management products issued by other banks 1,500,000 -

10,472,022 10,256,679 36

SRCB Financial Report 2009

Group and Bank Bank

31 December 2009 31 December 2008 At 1 January 2009 10,256,679 6,324,068 Debt-to-equity swap (Note 1) - 723,529 Additions 12,843,246 9,886,912 Sale and redemption (12,805,411) (6,904,346) Gains on changes in fair value 177,508 226,516 At 31 December 2009 10,472,022 10,256,679

Note1: In 2008, the Bank acquired equity investment in Dingding Real Estate Development Co., Ltd. through restructuring its amount due from Huaxin Security Co., Ltd. of Rmb 1.209 billion together with corresponding impairment provision of Rmb 486 million. Such investment is classified as financial assets classified as available-for-sale.

7.9 Securities classified as held-to-maturity Securities classified as held-to-maturity are measured at amortised cost and the fair value is also provided in Note 13.5 for reference.

Group Bank

31 December 2009 31 December 2009 31 December 2008

Government bonds 13,502,223 13,461,596 12,900,713

Financial bonds 4,875,208 4,833,619 4,007,585

Corporate bonds 2,366,880 2,346,099 2,999,221

Central bank bills 5,995,968 5,995,968 1,999,824

26,740,279 26,637,282 21,907,343

本集团本银行

2009 2009 2008

At 1 January 2009 21,907,343 21,907,343 19,829,906

Additions 8,174,116 8,071,119 4,485,000

Redemption (3,341,180) (3,341,180) (2,407,563)

At 31 December 2009 26,740,279 26,637,282 21,907,343 37

7.10 Security investment classified as loans and receivables Securities classified as loans and receivables are measured at amortised cost and the fair value is also provided in Note 13.5 for reference.

Group and Bank Bank

31 December 2009 31 December 2008 Bearing bonds 373,615 256,582 Receivables from security companies 932,710 1,173,612 Wealth management products purchased from other banks 2,103,479 - 3,409,804 1,430,194 Less: Impairment allowance (187,092) (187,112) Net 3,222,712 1,243,082

Bearing Receivables from secu- Wealth management Group and Bank Total bonds rity companies products At 1 January 2009 256,582 1,173,612 - 1,430,194

Additions 117,033 128 2,103,479 2,220,640

Redemption or collections - (241,030) - (241,030)

At 31 December 2009 373,615 932,710 2,103,479 3,409,804

Impairment

At 1 January 2009 - (187,112) - (187,112)

Reversal (Note 7.35) - 20 - 20

At 31 December 2009 - (187,092) - (187,092)

Net

At 31 December 2009 373,615 745,618 2,103,479 3,222,712 38

SRCB Financial Report 2009

Bearing Receivables from secu- Special Central bank Bank Total bonds rity companies bills (Note7.1) At 1 January 2008 226,090 5,833,767 2,121,850 8,181,707

Additions 30,492 3,346 - 33,838

Written off - (3,180,942) - (3,180,942)

Debt to equity swap - (1,209,329) - (1,209,329)

Redemption or collections - (273,230) (2,121,850) (2,395,080)

At 31 December 2008 256,582 1,173,612 - 1,430,194

Impairment

At 1 January 2008 - (3,567,625) - (3,567,625)

Charge for the year (Note 7.35) - (252,810) - (252,810)

Transferred from liability (Note 4.1.5) - (33,420) - (33,420)

Written off - 3,180,942 - 3,180,942

Debt to equity swap - 485,801 - 485,801

At 31 December 2008 - (187,112) - (187,112)

Net

At 31 December 2008 256,582 986,500 - 1,243,082

Note 1: Prior to the establishment of the Bank, government bonds of the former rural credit cooperatives which were placed with cus- todians including Nanfang Security Co., Ltd, Fuyou Security Co., Ltd, Dapeng Security Co., Ltd, Yinhe Security Co., Ltd, Huaxin Security Co., Ltd, Minzu Security Co., Ltd and Hualong Security Co., Ltd were misappropriated or improperly disposed by those security companies. The Bank lost its right to receive principal and interest of these government bonds on their maturities. As a legal consequence, the Bank has the legal right to claim payments from these security companies equivalent to principals and interests of the bonds. Among these security companies, Nanfang Security Co., Ltd, Fuyou Security Co., Ltd and Dapeng Security Co., Ltd had been requested by CSRC to terminate the businesses. These three security companies are currently in the stage of liquidation and the Bank still has the legal rights to collect payments from these companies. As a result, the Bank classifies such misappropriated bond investments as receivables from the security companies. In 2008, the Bank had written off the outstanding amount due from Fuyou Security Co., Ltd. of Rmb 3.18 billion following the approval by the Board of Directors, and reclassified amount due from Huaxin Security Co., Ltd. of Rmb 1.209 billion together with corresponding impairment provision of Rmb 486 million to equity investment to Dingding Real Estate Development Co., Ltd. as a result of debt restructuring which was classfied as available for sale financial assets.

7.11 Long-term equity investment

Group Company

31December 2009 31December 2009 31December 2009

Subsidiary(a) - 51,000 -

Joint venture (b) 535,611 535,611 544,890

Other long-term equity investment (c) 18,258 18,258 15,758

Less: impairment (6,420) (6,420) (6,420)

547,449 598,449 554,228 39

(a) Subsidiary Please refer to Note 1 for the subsidiary information.

(b) Joint venture

31 December 2009 2009

Registrat- Nature of Registered Shares Percentage Total Total Operation ion place business capital held of voting rate assets liabilities income Net income Settle non- Shanghai Jingyi Industry performing Shanghai 1,794,500 20.45 20.45 1,105,508 200,280 - - Development Co., Ltd assets of Aijian Security Shanghai Hu Yang Highway Highway Shanghai 550,000 35 35 1,966,687 1,418,504 129,713 8,110 Development Co., Ltd management Shanghai Southeast Suburb Highway Ring Highway Development Shanghai 552,000 45 45 1,962,688 1,610,182 115,347 (28,511) management Co., Ltd 5,034,883 3,228,966 245,060 (20,401)

Investments in Joint venture are listed as follows:

Net profit/(loss) Initial investment 31 December by equity method 31 December cost 2008 adjustment 2009 Shanghai Jingyi Industry Development Co., Ltd 367,000 185,119 - 185,119

Shanghai Hu Yang Highway Development Co., Ltd 192,500 189,026 2,839 191,865 Shanghai Southeast Suburb Ring Highway Development 248,400 170,745 (12,118) 158,627 Co., Ltd 544,890 (9,279) 535,611

Group and Bank 31 December 31 December 2008 Additions 2009

Clearing center of rural commercial banks 6,000 - 6,000

China Union Pay 3,000 2,500 5,500

Kangqiao Industrial Company 3,000 - 3,000

Kangqiao Development Zone 2,500 - 2,500

Kangqiao Investment 920 - 920

Bank of Shanghai 338 - 338

15,758 2,500 18,258 40

SRCB Financial Report 2009

(d) Impairment

Group and Bank Bank Other long-term equity investment 31 December 2009 31 December 2008

Kangqiao Industrial Company (3,000) (3,000)

Kangqiao Development Zone (2,500) (2,500)

Kangqiao Investment (920) (920)

(6,420) (6,420)

7.12 Investment properties

2009 Group and Bank

Land use right

Cost

At 1 January 2009 4,521,417

Additions -

At 31 December 2009 4,521,417

Accumulated depreciation

At 1 January 2009 (292,976)

Add: Additions (90,428)

At 31 December 2009 (383,404)

Net

At 31 December 2009 4,138,013

2008 Company

Land use right

Cost

At 1 January 2008 4,521,417

Additions -

At 31 December 2008 4,521,417

Accumulated depreciation

At 1 January 2008 (202,547)

Add: Additions (90,429)

At 31 December 2008 (292,976)

Net

At 31 December 2008 4,228,441 41

The investment properties are the investment on the land use rights of Nonggongshang Haifeng Farm, which was acquired by the Bank from Shanghai Municipal Government during reconstruction process in exchange for its non-performing assets. The cost of this land use right of Rmb 4,521,417 thousand is determined by the bank at the book value of the non-performing assets transferred out which was similar to the result of valuation by Shanghai Real Estate Valuation Firm Co., Ltd. The Bank has performed valuation of the land use right this year and the result is Rmb 4,296,748 thousand. Therefore, the management does not believe there is impairment in the value of land at 31 December 2008 based on the assumptions stated in Note 4.2.

7.13 Fixed assets

Group Company

31 December 2009 31 December 2009 31 December 2008

Cost 2,950,995 2,950,945 1,569,323

Accumulated depreciation (775,080) (775,075) (682,675)

Net 2,175,915 2,175,870 886,648

Construction in progress(“CIP” ) 853,759 853,759 356,603

Total 3,029,629 1,243,251

Fixed assets movement:

Group Motor Electronic Office Building Machinery Total Vehicle equipment equipment Cost

At 1 January 2009 1,167,462 44,080 258,045 88,563 11,173 1,569,323

Add: Additions - 10,316 32,138 22,845 6,316 71,615

Transferred from CIP 1,268,616 - 72,390 - - 1,341,006

Less: Disposals (13,822) (2,357) (10,204) (4,366) (200) (30,949)

At 31 December 2009 2,422,256 52,039 352,369 107,042 17,289 2,950,995

Accumulated depreciation

At 1 January 2009 (435,689) (31,216) (156,347) (53,279) (6,144) (682,675)

Add: Additions (64,680) (5,948) (36,590) (8,351) (1,865) (117,434)

Less: Disposals 8,468 2,328 10,116 3,966 151 25,029

At 31 December 2009 (491,901) (34,836) (182,821) (57,664) (7,858) (775,080)

Net book value

At 31 December 2009 1,930,355 17,203 169,548 49,378 9,431 2,175,915 42

SRCB Financial Report 2009

Bank Motor Electronic Office Building Machinery Total Vehicle equipment equipment Cost

At 1 January 2008 1,138,652 43,453 209,435 81,335 9,623 1,482,498

Add: Additions 41,465 3,340 48,450 15,316 2,041 110,612

Transferred from CIP 28,464 - 3,582 - - 32,046

Less: Disposals (41,119) (2,713) (3,422) (8,088) (491) (55,833)

At 31 December 2008 1,167,462 44,080 258,045 88,563 11,173 1,569,323

Add: Additions - 10,316 32,133 22,845 6,271 71,565

Transferred from CIP 1,268,616 - 72,390 - - 1,341,006

Less: Disposals (13,822) (2,357) (10,204) (4,366) (200) (30,949)

At 31 December 2009 2,422,256 52,039 352,364 107,042 17,244 2,950,945

Accumulated depreciation

At 1 January 2008 (382,811) (27,939) (133,662) (54,135) (5,383) (603,930)

Add: Additions (67,248) (5,924) (25,966) (7,079) (1,116) (107,333)

Less: Disposals 14,370 2,647 3,281 7,935 355 28,588

At 31 December 2008 (435,689) (31,216) (156,347) (53,279) (6,144) (682,675)

Add: Additions (64,680) (5,948) (36,590) (8,351) (1,860) (117,429)

Less: Disposals 8,468 2,328 10,116 3,966 151 25,029

At 31 December 2009 (491,901) (34,836) (182,821) (57,664) (7,853) (775,075)

Net book value

At 31 December 2008 731,773 12,864 101,698 35,284 5,029 886,648

At 31 December 2009 1,930,355 17,203 169,543 49,378 9,391 2,175,870

As at 31 December 2009, the Bank had not obtained any ownership certificates of the buildings with the carrying amount of Rmb 115,470 thousand and net book value of Rmb 41,647 thousand (at 31 December 2008: cost Rmb 150,392 thousand and net book value Rmb 63,647 thousand). In addition , the Bank had not obtained the complete ownership certificates of the buildings with the carrying amount of Rmb 90,679 thousand and net book value Rmb 21,894 thousand at 31 December 2009 (at 31 December 2008: cost Rmb 131,262 thousand and net book value Rmb 41,634 thousand). The Bank’s management believes that lack of such ownership certificates do not have substantial negative impact on the Bank’s business operations and financial conditions. As at the date of these financial statements, the Bank is still in the process of obtaining full legal titles of these properties. 43

Movement of construction in progress:

Group and Bank Bank

2009 2008 Balance at 1 January 356,603 109,963 Additions 1,858,141 315,864 Transfer to fixed assets (1,341,006) (32,046) Transfer to long-term prepaid expenses (19,979) (37,178) Balance at 31 December 853,759 356,603

7.14 Deferred income tax assets and liabilities Deferred income taxes is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements using tax rate of 25% (31 December 2008: 25%). The movement in the net deferred income tax is as follows:

Group and Bank Bank 2009 2008 At 1 January 600,932 674,634 Income statement credit /(charge) (Note 7.38) 25,820 (13,530) Capital surplus Fair value measurement of available-for-sale investments (49,911) (52,274) Disposal of available-for-sale investments 5,534 (7,898) At 31 December 582,375 600,932

Deferred income tax assets and liabilities consist of the following items:

(a) Deferred income tax assets

Group and Bank Bank

31 December 2009 31 December 2008 Deferred income tax Deferred income tax Temporary differences Temporary differences assets assets Provision for impaired loans and advances 694,658 2,778,629 768,940 3,075,759 Share of net losses of investees under 22,602 90,408 20,282 81,129 equity method Other temporary differences - - 210 840

717,260 2,869,037 789,432 3,157,728 44

SRCB Financial Report 2009

(b) Deferred income tax liabilities

Group and Bank Bank

31 December 2009 31 December 2008 Deferred income tax Deferred income tax Temporary differences Temporary differences assets assets

Unrealized gain of available-for-sale (108,719) (434,877) (64,342) (257,369)

Unrealized gain of trading securities (91) (363) (33) (131)

Other temporary differences (26,075) (104,300) (124,125) (496,499)

(134,885) (539,540) (188,500) (753,999)

Net 582,375 2,329,497 600,932 2,403,729

Income statement credit / (charge) consist of the following items:

Group and Bank Bank

31 December 2009 31 December 2008

Provision for impaired loans and advances (74,282) (616,683)

Share of net losses of investee companies recognized by equity method 2,320 7,029

Reversal of deferred tax liabilities arising from overstated interest expenses in - 628,821 prior years (Note 1) Other temporary differences 97,782 (32,697)

25,820 (13,530)

Note 1: Before the restructuring of the Bank, under relevant financial management regulations applicable to rural credit cooperatives, the subsidiary agencies and sub-agencies accrued interest expenses of customer deposits using the average balance of each type of deposits and specific interest rates determined by PBOC applicable to each type of deposit. However, actual payment of deposit interest is calculated using the benchmark interest rate published by PBOC applicable to all commercial banks in China. As a result, there was temporary difference arising from cumulative interest payables of Rmb 2,515,285 thousand for which the Bank had no obligation to pay at time of establishment. In accordance with Cai Zhu Hu Jian [2008] No. 166 "Report of the inspection on quality of accounting information of Shanghai Rural Commercial Bank Co., Ltd. for the year of 2007” issued by Shanghai Commis- sioners’ Office of the Ministry of Finance 1 December 2008, the Bank settled additional taxes arsing from the adjustments on prior years’ financial statements raised by inspection team. The inspection team from did not request the Bank to pay further tax on previous years’ accumulated interest expense, consequently the Bank deems that after settlement of additional taxes arising from adjustments raised by inspection team, the deferred tax liabilities of Rmb 628,821 thousand recognised by the Bank in prior years based on applicable tax rate of 25% would be no longer required and therefore was reversed by the Bank in 2008. 45

7.15 Other assets

Group Bank

31 December 2009 31 December 2009 31 December 2008

Other receivables and prepayments (a) 584,301 584,075 378,314

Less: Bad debt provision (a) (30,834) (31,264)

Foreclosed assets (b) 542,233 730,589 Less: Impairment allowance for foreclosed (308,354) (358,717) assets (b) Long-term prepaid expenses (c) 32,920 32,920 31,124

Intangible assets (d) 36,703 19,693

856,969 856,743 769,739

(a) Other receivables and prepayments

Group Bank

31 December 2009 31 December 2009 31 December 2008

Intra-city bills under collection 26,714 26,714 40,692

Prepaid legal expenses 46,633 46,633 21,383

Rental deposits 12,295 12,295 4,080

Prepayment for equity investments 178,983 178,983 173,500

Others 319,676 319,450 138,659

584,301 584,075 378,314

Less: Bad debt provision (30,834) (30,834) (31,264)

553,467 553,241 347,050

(b) Foreclosed assets

Group and Bank Company

31 December 2009 31 December 2008

Buildings 115,095 159,700

Land used right 416,700 556,166

Machinery 2,056 3,836

Others 8,382 10,887

542,233 730,589

Less: Impairment allowance for foreclosed assets (308,354) (358,717)

233,879 371,872 46

SRCB Financial Report 2009

Group and Bank Company

31 December 2009 31 December 2008

Prepaid rental expenses 1,925 -

Decoration expenses of rented buildings 20,706 17,348

Development expenses 10,289 13,776

32,920 31,124

(d) Intangible assets

Group and Bank Company

2009 2008

Software Software

Cost

Balance at 1 January 26,182 12,176

Add: Additions 23,368 14,006

Balance at 31 December 49,550 26,182

Accumulated amortization

Balance at 1 January (6,489) (2,915)

Add: Additions (6,358) (3,574)

Balance at 31 December (12,847) (6,489)

Net book value

Balance at 1 January 19,693 9,261

Balance at 31 December 36,703 19,693

7.16 Due to other banks and financial institutions

Group Bank

31 December 2009 31 December 2009 31 December 2009

Deposits from other banks 68,910 145,311 401,379

Deposits from security firms - - 37

Deposits from insurance companies 63 63 285

Deposits from other financial institutions 155,299 155,299 3,701

224,272 300,673 405,402 47

7.17 Assets sold under repurchase agreement

Group and Bank Bank

31 December 2009 31 December 2008

Securities sold under repurchase agreements 6,523,000 -

7.18 Due to customers

Group Bank

31 December 2009 31 December 2009 31 December 2008

Corporate demand deposits 77,653,224 77,345,417 61,232,405

Corporate time deposits 11,545,948 11,510,948 11,192,348

Individual demand deposits 13,178,485 13,175,367 9,766,182

Individual time deposits 72,937,951 72,918,863 62,412,263

Pledged deposits 1,026,755 1,026,755 811,451

Other deposits 2,891,688 2,891,408 1,664,930

179,234,051 178,868,758 147,079,579

As at 31 December 2009, included in pledged deposits were deposits of Rmb 13,145 thousand and Rmb 115,742 thousand respectively as collateral for commitments under letters of credit and Rmb 719,803 thousand bank acceptances issued, (As at 31 December 2008, included in pledged deposits were deposits of Rmb 3,842 thousand and Rmb 90,085 thousand respectively as collateral for commitments under letters of credit and Rmb 552,571 thousand bank acceptances issued).

7.19 Deposits from wealth management products

Group and Bank Company

31 December 2009 31 December 2008

Deposits from principal guaranteed wealth management products 700,965 808,170

The Bank issued several series of principal guaranteed wealth management products to individual investors starting from March 2008. The proceeds from such wealth management fund are invested in bonds and bills. The proceeds from wealth management products and corresponding investments are recorded as the Bank’s liabilities and assets in the financial statements respectively. 48

SRCB Financial Report 2009

7.20 Staff payroll and welfare payable

Group Bank

31 December 2009 31 December 2009 31 December 2008

Salary, bonus, allowance and subsidy 87,873 87,485 87,534

Staff welfare funds 11,097 289

98,970 98,582 87,823

7.21 Taxes payable

Group Bank

31 December 2009 31 December 2009 31 December 2008

Income tax 523,617 523,617 99,272

Business tax and surcharges 51,884 51,735 52,261

Withholding individual income tax 69,232 69,232 37,780

Others 27,960 27,960 12,958

672,693 672,544 202,271

7.22 Interest payables

Group Bank

31 December 2009 31 December 2009 31 December 2008

Due to customers 2,863,284 2,862,889 2,422,585

Assets sold under repurchase agreement 438 438 830

Due to other banks 273 273 132

Securities 6,534 6,534 -

2,870,529 2,870,134 2,423,547

7.23 Provisions Retirement welfare obligations are as follows:

Group and Bank Bank

2009 2008

Retirement welfare obligations 262,140 273,172 49

In addition to the basic social security benefits organised by government, the Bank provides supplementary post-employment benefits to those retired employees and certain early retired employees who met certain conditions and existing employees who are expected to retire from the Bank prior to 31 Decem- ber 2010. Meanwhile, the Bank provides certain benefits to early retired employees prior to their respective normal retirement age. The Bank recognises retirement obligations based on actuarial result. Actuarial assumptions are as follows:

2009 2008

Discount rate 4.10% 3.00%

Average basic pension annual growth rate 8.00% 8.00%

Annual growth rate of living cost and welfare during early retirement period 3.60% 4.50%

Commercial medicare premium annual growth rate 8.00% 8.00%

Resignation rate 0.00% 0.00%

Normal retirement age:

-Male 60 60

-Female 50 / 55 50 / 55 CLA 2000-03: Mortality rate China’s life insurance annuity life table 2000-03

Future mortality assumptions are determined Chinese Life Insurance Historical Life table that is the public statistic information in China.

7.24 Subordinated debt

Group and bank Bank

2009 2008

Subordinated debt 1,500,000 -

The Bank issued a 10-year fixed-rate subordinated debt with the face value of RMB 1.5 billion in Novem- ber 2009.The annual interest rate of the bonds is 5.3% for the first year to fifth year, and is 8.3% from the sixth year. According to the terms of issue, the banks can choose to redeem the bonds at the end of the first five years at par value. The repayment of subordinated debt is after the other general obligations, and prior to the Bank's shareholders. Under related regulations, subordinated debt can be included in supplementary capital in the calculation of capital adequacy ratio. As of 31 December 2009, no default in subordinated debt principal and interest payment or other obligations has occurred. The subordinated bonds have no security. 50

SRCB Financial Report 2009

7.25 Other liabilities

Group Bank

31 December 2009 31 December 2009 31 December 2008

Outward remittance 6,575,842 6,575,842 7,445,526

Funds under settlement process 85,664 85,664 72,790

Education funds 39,803 39,803 39,803

ANZ technical assistance fund 32,578 32,578 28,056

Suspense long-term unclaimed deposits 25,561 25,561 30,082 Suspense credits -relocation compensation 88,553 88,553 - (Note 1) Social welfare and individual income tax 6,252 6,252 11,226

Others 105,720 105,410 69,052

6,959,973 6,959,663 7,696,535

Note1: The Bank received relocation compensation from government to make up for the losses and expenses to be incurred during the relocation.

7.26 Share capital Bank

31 December 2009 31 December 2008

Number of shares issued (thousands) 3,745,686 3,745,686

Paid-in capital 3,745,686 3,745,686

31 December 2009 31 December 2008 Types of shareholder Number of shares Number of shares (%) (%) issued (thousands)) issued (thousands)) Legal person shares 2,247,052 59.99 2,247,052 59.99

Individuals shares 753,242 20.11 753,242 20.11

Foreign investors shares 745,392 19.90 745,392 19.90

3,745,686 100.00 3,745,686 100.00

7.27 Capital surplus

Group and Bank Capital premium Others Total

1 January 2009 1,237,416 193,027 1,430,443

Addition - 133,131 133,131

31 December 2009 1,237,416 326,158 1,563,574 51

Bank Capital premium Others Total

1 January 2008 1,237,416 12,510 1,249,926

Addition - 180,517 180,517

31 December 2008 1,237,416 193,027 1,430,443

Movement of other capital surplus is as follows:

Group and Bank Bank

2009 2008

At 1 January 193,027 12,510

Gains from changes in fair value of available-for-sale securities 199,645 209,097

The change of fair value (49,911) (52,274)

Transferred to net loss on disposal of available-for-sale securities (22,137) 31,592

Disposal of available-for-sale 5,534 (7,898)

At 31 December 326,158 193,027

7.28 Surplus reserve

Group and Bank Statutory reserve Discretionary reserve Total

1 January 2009 355,908 122,387 478,295

Distribution of profit of year 2008 74,080 321,333 395,413

31 December 2009 429,988 443,720 873,708

Bank Statutory reserve Discretionary reserve Total

1 January 2008 318,692 58,549 377,241

Profit appropriation of year 2007 37,216 63,838 101,054

31 December 2008 355,908 122,387 478,295

In accordance with the PRC regulations, 10% of the net profit of the Bank, as determined by the statutory financial statements, is required to be transferred to statutory reserve until such time when this reserve represents 50% of the share capital of the Bank. The Bank makes appropriation to discretionary reserve after appropriating to statutory reserve. Discre- tionary reserve could be used to make up for prior year’s losses or transfer to share capital upon approval by shareholders. 52

SRCB Financial Report 2009

7.29 General banking reserve

Group and Bank Bank

2009 2008 At 1 January 2,625,540 2,612,334 Addition - 13,206 At 31 December 2,625,540 2,625,540

Pursuant to Circulars No.49 and No.90 issued by MOF in 2005 (the “MOF Circulars”), effective from 1 July, 2005, banks and certain other financial institutions in the PRC, including the Bank, are required to maintain adequate allowances for impairment losses against their risk assets. In addition, a general reserve should be established through the appropriation of retained earnings. This general reserve should form part of the shareholders’ equity of financial institutions. As a guiding principle, the balance of general reserve should not be less than 1% of the aggregate amount of all risk assets.

7.30 Retained earnings In accordance with relevant regulations, the Bank makes appropriations of its net profit in statutory financial statements. On 26 March 2010, the directors proposed the following appropriations to the Bank’s net profit of 2009: 1. Appropriations to statutory reserve of Rmb 197,348 thousand and discretionary reserve of Rmb 150,144 thousand; Cash dividend ratio of 9% per capital stock to common stock shareholders, and total cash dividend of Rmb 337,112 thousand (before tax) towards all shareholders. 2. The board of directors determined to appropriate to additional statuary reserve of Rmb 253,295 thousand and additional discretionary reserve of Rmb 2,263,757 thousand to further strengthen the Bank’s capital base. These proposals will be discussed and approved in shareholders annual general meeting. 53

7.31 Net interest income

Group Bank

2009 2009 2008

Loans 5,805,775 5,799,731 6,384,073

Rediscount 341,322 341,322 368,671

Security investments 1,378,921 1,376,049 1,273,577

Deposits with the central bank 385,367 385,063 420,838

Placement with other banks 4,977 4,977 172,119

Financial assets purchased under resale agreements 93,140 93,140 67,971

Deposits with other banks 43,002 43,002 68,403

Discounted bills 4,732 4,732 16,843

Others - - 25,792

Interest income 8,057,236 8,048,016 8,798,287

Due to customers (2,930,392) (2,929,068) (3,136,316)

Bond issued (6,534) (6,534) -

Due to other banks and financial institutions (10,993) (11,773) (11,422)

Borrowings from other banks (3,325) (3,325) (16,130)

Assets sold under repurchase agreement (80,609) (80,609) (260,000)

Rediscount (21,770) (21,770) (50,578)

Others (4,559) (4,559) -

Interest expense (3,058,182) (3,057,638) (3,474,446)

Net interest income 4,999,054 4,990,378 5,323,841

Interest income accrued on impaired financial assets is Rmb 54,683 thousand for the year ended 31 De- cember 2009 (2008: Rmb 48, 317 thousand). 54

SRCB Financial Report 2009

7.32 Net fee and commission income

Group Bank

2009 2009 2008

Agency commissions 176,415 176,372 147,488

Settlement and clearing fees 87,034 86,997 78,631

Asset management fees 1,933 1,933 3,733

Others 3,623 3,623 -

Fee and commission income 269,005 268,925 229,852

Agency commission expenses (8,856) (8,736) (4,633)

Fund collecting commissioning service charges (73) -

Other agency commission expenses (51,051) (51,051) (31,261)

Settlement and clearing fees (13,743) (13,047)

Broker commissions expenses (8,516) (2,579)

Fee and commission expense (82,242) (82,119) (51,520)

Net fee and commission income 186,763 186,806 178,332

7.33 Investment losses

Group and Bank Bank

2009 2008

Disposal of trading assets (205,021) (113,688)

Disposal of financial instruments classified as available-for-sale 22,137 (31,592)

Investment losses of long-term equity investment (9,279) (28,118)

Dividend income 1,317 2,109

(190,846) (171,289) 55

7.34 Operating expenses

Group Bank

2009 2009 2008

Staff costs (1,342,156) (1,338,394) (1,176,683)

Depreciation of fixed assets (117,434) (117,429) (107,333)

Amortization of Low-value consumables (27,102) (26,811) (21,692)

Supervision charges (11,925) (11,925) (766)

Rental expenses (47,872) (46,872) (44,741)

Entertainment expenses (65,705) (65,493) (56,033)

Advertisement expenses (15,048) (14,856) (16,132)

Post and telecommunication expenses (52,013) (51,956) (45,846)

Transportation expenses (39,355) (39,172) (40,935)

Equipment maintenance and cash transportation expenses (68,852) (68,735) (53,439)

Safeguard and insurance expenses (26,899) (26,846) (21,931)

Conference and office expenses (93,270) (92,401) (64,915)

Travelling expenses (49,710) (49,349) (44,029)

Water and electricity (27,100) (27,016) (23,728)

Repairing expenses (55,518) (55,469) (21,078)

Others (60,140) (55,986) (43,578)

(2,100,099) (2,088,710) (1,782,860)

Staff costs comprise the follows:

Group Bank

2009 2009 2008

Salaries and bonus (865,513) (862,565) (696,843)

Welfare and education fund (40,764) (40,764) (78,762)

Other welfare (21,641) (21,641) (19,124)

Housing fund (87,223) (87,053) (65,536)

Unemployment insurance (246,870) (246,396) (196,371)

Housing allowance (80,145) (79,975) (120,047)

(1,342,156) (1,338,394) (1,176,683) 56

SRCB Financial Report 2009

7.35 Impairment losses

Group Bank

2009 2009 2008 Reversal / (charge) of provision for impaired loans and (277,982) (275,593) 31,914 advances to customers (Note7.7(5)) (Charge) / reversal of provision for impaired loans and 20 20 (252,810) receivables (Note7.10) Reversal of provision for financial assets classified as available- - - 537 for-sale Provision for bad debt (5,778) (5,778) (4,677) Reversal / (Charge) of provision for impairment of foreclosed 5,493 5,493 (1,262) assets (278,247) (275,858) (226,298)

7.36 Non-operating income

Group Bank

2009 2009 2008 Gain on recovery of non-performing assets transferred to 35,410 35,410 805,302 Shanghai Municipal Government (Note 4.1.5) Recovery of certain non-performing assets previously written 15,438 15,438 17,706 off Gains on disposal and physical inspection of fixed assets 1,003 1,003 28,640

Gains on disposal of foreclosed assets 68,294 68,294 17,833

Gains on disposal of long-term unclaimed deposits 2,712 2,712 2,410

Others 15,536 24,033

139,393 138,393 895,924

7.37 Non-operating expenses

Group and Bank Bank

2009 2008

Losses on disposal of fixed assets 414) ( (304)

Losses on disposal of foreclosed assets (941) (44)

Donations - (2,200)

Others (1,997) (2,963)

(3,352) (5,511) 57

7.38 Income tax expense

Group Bank

2009 2009 2008

Current income tax (540,527) (540,527) (265,487)

Deferred tax benefit/(expenses) (Note 7.14) 25,820 25,820 (13,530)

(514,707) (514,707) (279,017)

The actual income tax expense differs from the theoretical amount that would arise using the basic tax rate. Major reconciliation items are listed as follows:

Group Bank

2009 2009 2008

Profit before income tax 2,483,724 2,488,189 3,929,820 Provision for income tax calculated at the applicable rate of (620,931) (622,047) (982,455) 25% Effect of income not subject to tax 114,165 114,165 105,906

Post-tax dividend income 329 204

Effect of expenses not deductible for tax purposes (22,685) (22,679) (29,232) Reversal of deferred tax liability arising from over accrual of - - 628,821 interest expenses in prior years (Note 7.14) Other adjustments 15,525 (2,261)

Income tax expense (514,707) (279,017)

7.39 Other Comprehensive income

Group and Bank Bank

2009 2008

Unrealised gains on fair value measurement of available-for-sale investments 199,645 209,097

Less: Effect of income tax (49,911) (52,274)

Transfer to net profit upon disposal (16,603) 23,694

133,131 180,517

7.40 Notes of cash flows

1 Cash and cash equivalents

Group Bank

31 December 2009 31 December 2009 31 December 2008

Cash in hand 1,331,941 1,331,780 1,183,141

Non-restricted deposits with the central bank 5,986,178 5,986,178 4,040,909 Deposits with other banks with original maturity day within 3 1,190,693 1,114,293 3,952,312 months Cash and cash equivalents as at 31 December 8,508,812 8,432,251 9,176,362 58

SRCB Financial Report 2009

2 Cash flows from operating activities

Group Bank Items Note 2009 2009 2008

Net profit: 1,969,017 1,973,483 3,650,803

Add(Less) Impairment loss 7.35 278,247 275,858 226,298

Depreciation of fixed assets 7.34 117,433 117,429 107,333

Amortization of intangible asset 6,358 6,358 3,575

Amortization of long-term prepaid expenses 14,268 10,542 8,099

Amortization of investment properties 90,428 90,428 90,429 Gains on disposal of fixed assets and foreclose 7.36 (67,942) (67,942) (46,821) assets 7.37 Fair value losses (363) (363) (131)

Investment income (1,188,075) (1,185,203) (1,102,288)

Interest expenses for bonds issued 7.31 6,534 6,534 -

Net decrease of deferred tax assets 7.14 72,172 72,172 609,553

Increase on operating receivable (34,052,652) (33,764,071) (14,621,523)

Increase on operating payable 38,634,883 38,268,348 14,862,828

Net cash provided from operating activities 5,880,308 5,803,573 3,788,155

3 Investing and financing activities that do not involve cash receipts and payments

Group Bank

2009 2009 2008

- - -

4 Net increase in cash and cash equivalents:

Group Bank

2009 2009 2008

Cash and cash equivalents at end of year 8,508,812 8,432,251 9,176,362

Less: cash and cash equivalents at beginning of year 9,176,362 9,176,362 7,925,901

Net increase in cash and cash equivalents (667,550) (744,111) 1,250,461 59

8 SEGMENT REPORTING

2009 (Group) Corporation Personal Treasury Un-allocated Elimination Total banking banking Operating income 3,893,508 455,934 646,062 31,785 - 5,027,289 Interest income 5,275,418 2,548,598 2,165,813 - (1,932,593) 8,057,236

Interest expense (1,510,366) (2,165,882) (1,314,527) - 1,932,593 (3,058,182)

Net fee and commission income 118,468 73,218 (13,499) 8,576 - 186,763

Investment income/(loss) - - (192,088) 1,242 - (190,846)

Fair value gains/(losses) - - 363 - - 363

Foreign exchange gains/(losses) 9,988 - - - - 9,988

Other operating income - - - 21,967 - 21,967

Operating expenses (1,445,569) (406,069) (520,173) (307,795) - (2,679,606)

Business tax and levies (171,897) (23,710) (5,769) (1,022) - (202,398)

Operating expense (994,676) (388,866) (514,404) (202,153) - (2,100,099)

Impairment charge for credit losses (278,996) 6,507 - (5,758) - (278,247)

Other operating expense - - - (98,862) - (98,862)

Operating proﬁt 2,447,939 49,865 125,889 (276,010) - 2,347,683

Add: Net non-operating income 1,000 - - 138,393 - 139,393

Less: Net non-operating expense - - - (3,352) - (3,352)

Total proﬁt 2,448,939 49,865 125,889 (140,969) - 2,483,724

Total assets 99,070,099 16,262,163 83,937,899 12,980,198 - 212,250,359

Total liabilities (98,942,455) (87,962,697) (8,256,041) (4,020,285) - (199,181,478)

2009 (Bank) Corporation Personal Treasury Un-allocated Elimination Total banking banking Operating income 3,887,747 455,934 643,190 31,785 - 5,018,656 Interest income 5,269,070 2,548,598 2,162,941 - (1,932,593) 8,048,016

Interest expense (1,509,822) (2,165,882) (1,314,527) - 1,932,593 (3,057,638)

Net fee and commission income 118,511 73,218 (13,499) 8,576 - 186,806

Investment income/(loss) - - (192,088) 1,242 - (190,846)

Fair value gains/(losses) - - 363 - - 363

Foreign exchange gain/(losses) 9,988 - - - - 9,988

Other operating income - - - 21,967 - 21,967

Operating expenses (1,431,470) (406,069) (520,173) (307,795) - (2,665,507)

Business tax and levies (171,576) (23,710) (5,769) (1,022) - (202,077) 60

SRCB Financial Report 2009

2009 (Bank) Corporation Personal Treasury Un-allocated Elimination Total banking banking Operating expense (983,287) (388,866) (514,404) (202,153) - (2,088,710)

Impairment charge for credit losses (276,607) 6,507 - (5,758) - (275,858)

Other operating expense - - - (98,862) - (98,862)

Operating profit 2,456,277 49,865 123,017 (276,010) - 2,353,149

Add: Net non-operating income - - - 138,393 - 138,393

Less: Net non-operating expense - - - (3,352) - (3,352)

Total profit 2,456,277 49,865 123,017 (140,969) - 2,488,190

Total assets 98,838,428 16,262,163 83,834,902 12,980,198 - 211,915,691

Total liabilities (98,652,321) (87,962,697) (8,256,041) (4,020,285) - (198,891,344)

2008 (Bank) Corporation Personal Treasury Un-allocated Elimination Total banking banking Operating income 3,753,864 627,771 939,183 28,405 - 5,349,223 Interest income 5,496,252 2,687,133 2,393,536 - (1,778,634) 8,798,287

Interest expense (1,845,497) (2,106,498) (1,301,085) - 1,778,634 (3,474,446)

缺 - - (171,289) - (171,289)

Net fee and commission income 106,726 47,136 17,890 6,580 - 178,332

Investment income/(loss) - - (171,289) - - (171,289)

Fair value gains/(losses) - - 131 - - 131

Foreign exchange gain/(losses) (3,617) - - - - (3,617)

Other operating income - - - 21,825 - 21,825

Operating expenses (720,366) (511,576) (544,134) (533,740) - (2,309,816)

Business tax and levies (168,803) (29,073) (11,431) (922) - (210,229)

Operating expenses (759,902) (304,816) (532,703) (185,439) - (1,782,860)

Impairment charge for credit losses 208,339 (177,687) - (256,950) - (226,298)

Other operating expense - - - (90,429) - (90,429)

Operating profit 3,033,498 116,195 395,049 (505,335) - 3,039,407

Add: Net non-operating income 895,924 - 895,924

Less: Net non-operating expense (5,511) - (5,511)

Total profit 3,033,498 116,195 395,049 385,078 - 3,929,820 Total assets 83,501,923 14,954,291 67,672,379 4,253,793 - 170,382,386 Total liabilities (78,796,480) (78,169,363) (1,214,569) (984,587) - (159,164,999) 61

9 CONTINGENT LIABILITIES AND COMMITMENTS

9.1 Off-balance sheet items

Group and Bank Bank

31 December 2009 31 December 2008

Letters of credit issued 19,780 1,536

Letters of guarantee issued 237,779 165,550

Acceptances 1,460,664 1,443,073

Unused credit card facility 872,063 403,899

2,590,286 2,014,058

9.2 Operating lease commitments

Future minimum lease payments under non-cancellable operating leases are as follows:

Group Bank

31 December 2009 31 December 2009 31 December 2008

Within 1 year 166,807 162,567 96,134

Within 1 year to 5 years 93,435 89,955 66,169

Above 5 years 304,328 295,608 203,133

304,328 295,608 203,133

9.3 Pledged assets

Certain assets are pledged as collateral under repurchase agreements with other banks and financial institutions. For repurchase agreements pledged by discounts bills or repurchase agreement conducted out of PBOC platform pledged by securities, acceptors are entitled to sell or to repledge related assets again but for repurchase agreement conducted through PBOC platform, acceptors are not entitled to sell or repledge the underlying assets.

Group and Bank Bank Under repo agreements 31 December 2009 31 December 2008

Investment securities 6,523,000 -

9.4 Capital commitments

Group and Bank Bank

31 December 2009 31 December 2008

Contracted but not paid 128,066 587,471

Approved but not contracted 1,952,214 680,880

2,080,280 1,268,351 62

SRCB Financial Report 2009

The above capital commitments are related to office building constructions and fixed assets purchases. The management believes the future financial capability can enable the bank to fulfil these commitments requirement.

9.5 Certificate Treasury Bond redemption commitments

The Bank is entrusted by the MOF to underwrite certain Certificate Treasury Bonds. The investors of Cer- tificate Treasury Bonds have a right to redeem the bonds at par any time prior to maturity and the Bank is committed to redeem those bonds. The redemption price is the principal value of the Certificate Treasury Bonds plus unpaid interest.

The Bank's redemption commitments, representing the principal value of the bonds underwritten and sold by the Bank, amounted to Rmb 1639 million at 31 December 2009 (31 December 2008: Rmb 964 million). The original maturities of these bonds vary from 3 to 5 years.

9.6 Legal proceedings

There was no significant legal proceeding outstanding against the Bank at 31 December 2009 (Neither in 31 December 2008).

10 FIDUCIARY ACTIVITIES The Bank provides custodian and trust services to its customers. Assets held by the Bank under custodian and trust services are not included in the balance sheet. As at 31 December 2009, the balance of entrusted loans amounted to RMB 8.552 billion, (31 December 2008: 7.08 billion)

11 EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE There was no significant event subsequent to the balance sheet date that requires additional disclosure at 26 March 2010.

12 RELATED PARTIES AND RELATED PARTY TRANSATIONS

12.1 Related party relationship

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

During the reporting period, the Group did not have any related parties who controlled the Group or were controlled by the Group. The related parties who have significant influence over the Group include key management personnel (including directors and senior management personnel) and their close family members, as well as entities that are controlled, joint controlled or significantly influenced by key management personnel and their close family members, and shareholders who have significant influence 63

over the Group’s operating and finance policies.

Shareholders who have significant influence over the Group include following shareholders who hold more than 5% of equity shares of the Group:

Percentage of total Name of entity Main business shares ANZ Banking (Group) Co., Ltd. Banking 19.90%

Shanghai International (Group) Co., Ltd Investment 8.01%

Shanghai State-owned Assets management Co., Ltd 资本运作、实业投资 8.01%

Shanghai Dragon Investment Co., Ltd Investment 8.01%

Shanghai Greenland (Group) Co., Ltd Real estate development 5.34%

Entities which are significantly influenced by key management personnel and their close family members:

Name of entity Main business

Shanghai International Trust Co. Ltd. Trust business Shanghai Guoxin Investment Development Co. Ltd. Investment

Shanghai Anda Bill Delivery Co. Ltd. Bill deliver service

12.2 Related party transactions and balance

The major transactions entered into by the Group with its related parties are loans, deposits, borrowing and lending and securities investment. The transactions related parties follow commercial terms ar- ranged in the ordinary course of the Group’s business and the same pricing principle.

(1) Loan and advances:

31 December 2009 31 December 2008

Shanghai Dragon Investment Co., Ltd 896,220 600,000

Shanghai Shenghui Investment Co., Ltd - 270,000

Shanghai Greenland (Group) Co., Ltd 210,000 130,000

Shanghai Shan Xin Property Co., Ltd 103,733 113,000

Key management personnel and close family members: 11,131 13,510

Total 1,221,084 1,126,510

In 2009, companies which are significantly influenced by key management personnel in common with the Group had no loans from SRCB.

2009 2008

Interest income 28,124 31,694 64

SRCB Financial Report 2009

(2) Deposits

31 December 2009 31 December 2008

Shareholders with more than 5% of equity shares 1,972 11,830

Companies with common key management personnel of the Group 54,606 10,696

56,578 22,526

2009 2008

Interest expenses 401 145

(3) Related party borrowing and lending transactions

31 December 2009 31 December 2008

Related party placement - ANZ Banking (Group) Co., Ltd. - 275,000

2009 2008

Interest Income 3,518 8,920

(4) Security investment:

31 December 2009 31 December 2008

nvestment in bonds issued by Shanghai Guosheng (Group) Co., Ltd 200,000 -

2009 2008

Interest expenses 302 -

(5) Acceptance of guarantee provided by related parties

Shanghai Shan Xin Property Co. Ltd. provided guarantee of Rmb 30,000 thousand for individual commercial property loans. These loans will be transferred to mortgage loans when the properties are completed. As 31 December 2009, the loan balance is Rmb 26,390 thousand, all within guarantee period.

(6) Other credit business with related parties

The Group issued bank acceptances for Shanghai Greenland (Group) Co., Ltd in the amount of Rmb 20 million. The terms of the acceptances are from 31 July 2009 to 31 January 2010. Shanghai Greenland (Group) Co., Ltd has placed a margin deposit of Rmb 10 million with the Bank.

(7) Transaction with key management personal:

The loans extended to key management personnel amounting to Rmb 11,131 thousand as at 31 Decem- ber 2009 (31 December 2008: RMB 13,510 thousand) have been included in the above amount disclosure in Note 12.2 (1). 65

Salaries and other short-term benefits paid to the key management for the year ended 31 December 2009 amounted to Rmb 8,600 thousand (2008: Rmb 8,139 thousand). No post-employment benefits, termina- tion benefits or other long-term benefits are provided to the key management during 2008 (2007: Nil).

(8) Subsidiaries

31 December 2009 31 December 2008

Due to other banks and ﬁnancial institutions 76,400 -

The transactions with subsidiaries have been eliminated in the consolidated financial statements.

Please refer to Note 1 for the subsidiary’s information.

13 FINANCIAL RISK MANAGEMENT

13.1 Overview

The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the inherent risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Bank’s financial performance.

The Bank’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to- date information systems.

The Board of Directors provides strategy for overall risk management. The senior management of the Bank establishes related risk management policies and procedures under the strategy approved by the Board, including written policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk. Such risk policies and procedures are carried out by various departments at Head Office. In addition, internal audit department is responsible for the independent review of risk management and internal control over credit operations.

The most important types of business risk are credit risk, liquidity risk and market risk. Market risk includes currency risk and interest rate risk.

13.2 Credit risk

The Bank takes on exposure to credit risk, which is the risk that counterparty may fail to discharge an obligation, resulting in financial losses to the Bank. Significant changes in the economy, or in a particular industry segment that represents a concentration in the Bank’s portfolio, could result in losses that are different from those provided for at the balance sheet date. If the counterparties of the transaction are focused on the same industries or geographic region, the credit risk increases. Credit exposures arise principally in loans and advances, debt securities and due from banks and other financial institutions. There is also credit risk in off-balance sheet financial arrangements such as loan commitments. The majority of 66

SRCB Financial Report 2009

the Bank’s operation is located within Shanghai, the PRC. This represents a concentration of credit risk, through which the Bank is exposed to the general economic conditions in this area. Management closely monitors its exposure to credit risk. Risk management department at Head Office centrally coordinates the Bank’s credit risk management functions and communicates with the Bank’s senior management. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to individual borrowers. Such risks are monitored on a regular basis and subject to an annual review.

(1) Credit risk measurement

(i) Loans and advances and off balance exposures

The Group uses a five-grade classification system to manage the quality of its loan portfolio. Such classification system is based on “the Guidance on Credit Risk Classification” (”the Guidance”) issued by CBRC. Under the Group’s own system and the CBRC guidance, the Group classifies its credit assets and off- balance sheet credit exposures into five categories, which are namely pass, special mention, substandard, doubtful and loss. The last three categories are also classified as “non-performing”.

The core definition of the Bank’s credit asset classification is as follows:

Pass:The borrower is able to fulfil the contractual obligations, and there is no uncertainty that principal and interest can be paid on time.

Special Mention:The borrower is able to make current due payments, but there exist some potential factors that may have negative impact on the borrower’s future payments.

Substandard:The borrower's repayment ability has been in doubt and its normal income cannot repay the loan principle and interest in full. Losses may be incurred by the Bank, even with the enforcement of guarantees and collateral.

Doubtful:The borrower cannot repay the principal and the interest in full. Significant losses will be incurred even with the enforcement of guarantees and collateral.

Loss:After taking into consideration all possible recovery actions and necessary legal procedures, the principal and interest are unable to be collected, or only a very small portion of principal and interest can be collected.

(ii) Debt securities

The Group manages bond and other bill's credit risks through limiting investment bond's credit rating. For foreign currency securities, only those with ratings (by Standard & Poor or equivalent agencies) equivalent to or higher than A- can be invested. Investments in Rmb debt securities are limited to government bonds, bills issued by PBOC, bonds issued by the State’s policy banks and other Rmb bonds and short term commercial papers with credit rating equivalent to or above A- assigned by rating agencies recognised by PBOC. Besides, the Group continuously monitors the changes of the issuers’ credit rating. 67

(iii) Loans to other banks and financial institutions

Head Office reviews and monitors the credit risk of individual financial institutions on regularly basis. Limits are placed for each individual bank or non-banking financial institution which has the business relationship with the Group.

(2) Risk limit control and mitigation policies

The Group manages limits and controls concentrations of credit risk wherever they are identified in particular, to individual counterparties and groups, and to industries and regions.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risks accepted in relation to single borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.

Some other specific control and mitigation measures are outlined below:

(i) Collateral

The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of collateral, which is common practice. The Group implements guidelines on the acceptance of specific classes of collateral. The principal of types collateral for loans and advances are:

● Mortgages over residential properties;

● Charges over business assets such as premises, inventory and accounts receivable;

● Charges over financial instruments such as debt securities and equities.

Value of collaterals is usually required to be assessed by professional evaluator designated by the Group. To mitigate the credit risk, the Group sets limit on the loan-to-value ratio for difference types of collateral. The principal collateral types for corporate loans and retail loans are as follows:

Maximum loan-to- Collateral value ratio Time deposit 90%

PRC treasury bonds 90%

Commercial building and factory 70%

Housing and land use rights 70%

The Group will evaluate the financial condition, credit history and ability to meet obligations of the guarantor on regular basis. 68

SRCB Financial Report 2009

Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured.

(ii) Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that The Group will make payments in event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. In some cases, such as those situations where the amount of credit commitment exceeds the original credit limit, guarantee deposits are received by the Group to lessen the credit risks related to certain of these commitments provided by the Group. The Group's potential amount of credit risk is equivalent to the total amount of credit commitments.

(3) Impairment and provisioning policies

Impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the balance sheet date where there is objective evidence of impairment.

The objective evidences of impairment, as detailed in the Group’s accounting policies, are as follows: ● Delinquency in contractual payments of principal or interest; ● Cash ﬂow diﬃculties experienced by the borrower (e.g. equity ratio, net income percentage of sales); ● Breach of loan covenants or conditions; ● Initiation of bankruptcy proceedings; ● Deterioration of the borrower’s competitive position; and ● Downgrading below Special Mention rating.

The Group’s policy requires the review of individual financial assets that are above materiality thresholds at least quarterly or more regularly when individual circumstances occur. Impairment allowances on individually significant accounts are determined by an evaluation of the incurred loss at balance sheet date on a case-by-case basis. The assessment normally encompasses valuation of collateral held (including re- confirmation of its enforceability) and the anticipated net realisable value of individual assets.

Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are individually below materiality thresholds; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience, experienced judgment and statistical techniques. 69

(4) Maximum exposure to credit risk before collateral held or other credit enhancements

Group Bank

31 December 2009 31 December 2009 31 December 2008

Credit risk exposures relating to balance sheet items:

Deposits with other banks 3,178,794 3,178,794 5,217,982

Placement with other banks - - 415,000

Trading assets 129,279 129,279 10,619

Financial assets purchased under resale agreements 10,515,156 10,515,156 5,755,701

Interest receivables 828,630 828,630 846,474

Loans and advances 116,579,757 116,343,251 91,201,231

Financial assets classiﬁed as available-for-sale 9,281,955 9,281,955 9,333,839

Securities classiﬁed as held-to-maturity 26,740,279 26,637,282 21,907,343

Securities classiﬁed as loans and receivables 3,222,712 3,222,712 1,243,082

Other assets 553,467 553,241 347,050

Subtotal 171,030,029 170,690,300 136,278,321

Credit risk exposures relating to balance sheet items:：

Letters of credit issued 19,780 19,780 1,536

Letters of guarantee issued 237,779 237,779 165,550

Acceptances 1,460,664 1,460,664 1,443,073

Unused credit card facility 872,063 872,063 403,899

Subtotal 2,590,286 2,590,286 2,014,058

Total 175,408,605 175,069,102 139,769,447

The above table represents a worse case scenario of credit risk exposure to the Group and the Bank at 31 December 2009 and 2008, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet.

As shown above, loans and advances account for 68% of the total maximum on-balance-sheet exposure (31 December 2008: 66%).

(5) Lending to other banks and financial assets purchased under resale agreements

Group and Bank Bank

31 December 2009 31 December 2008

Neither past due nor impaired 10,515,156 6,170,701 70

SRCB Financial Report 2009

(6) Loans and advances

Group Bank

31 December 2009 31 December 2009 31 December 2008

Neither past due nor impaired(a) 116,234,751 115,995,856 90,253,268

Past due but not impaired(b) 309,485 602,783

Impaired(c) 2,233,553 2,274,147

Gross 118,538,894 93,130,198

Less: provision (2,195,643) (1,928,967)

Net 116,343,251 91,201,231

Total impairment provision for loans and advances amounted to Rmb 2.198 billion (31 December 2008: Rmb 1.929 billion), of which Rmb 959 million (31 December 2008: Rmb 921 million) represents individually assessed provision and the remaining amount of Rmb 1.2 billion (31 December 2008: Rmb 1.0 billion) represents collectively assessed provision. Further information of impairment allowance for loans and advances to banks and to customers is provided in Note 7.7.

(a) Loans and advances neither past due or impaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the five-grade classification system adopted by the Group.

Group 31 December 2009 Corporate loans Retail loans Total

Pass 95,482,022 12,466,758 107,948,780

Special mention 8,285,971 - 8,285,971

103,767,993 12,466,758 116,234,751

Bank 31 December 2009 Corporate loans Retail loans Total

Pass 95,283,072 12,426,813 107,709,885

Special mention 8,285,971 - 8,285,971

103,569,043 12,426,813 115,995,856

Bank 31 December 2008 Corporate loans Retail loans Total

Pass 67,059,240 10,776,777 77,836,017

Special mention 12,408,829 8,422 12,417,251

79,468,069 10,785,199 90,253,268 71

(b) Loans and advances past due but not impaired:

Past due up Past due 30 - Past due 60-90 Past due over Group and Bank Total to 30 days 60 days days 90 days 31 December 2009

Corporate loans 3,000 2,565 953 34,000 40,518

Retail loans 167,813 64,719 27,221 9,214 268,967

170,813 67,284 28,174 43,214 309,485

Past due up Past due 30 - Past due 60-90 Past due over Bank Total to 30 days 60 days days 90 days 31 December 2008

Corporate loans 16,350 20,400 160,372 9,260 206,382

Retail loans 269,519 67,431 36,298 23,153 396,401

285,869 87,831 196,670 32,413 602,783

At the inception of loans, the Group will appoint independent evaluators to determine the fair value of collaterals. The Group will review the value of collaterals when there is objective evidence of impairment of loan.

As of 31 December 2009, fair value of collaterals of past due but not impaired corporate loans amounted to Rmb 116 million and that of retail loans amounted to Rmb 471 million respectively (31 December 2008: Rmb 198 million and 742 million respectively).

Group and Bank Bank

31 December 2009 31 December 2008

Corporate loans 2,084,675 2,115,629

Retail loans 148,878 158,518

2,233,553 2,274,147

As of 31 December 2009, fair value of collaterals of impaired corporate loans amounted to Rmb 3,332 billion and that of retail loans amounted to Rmb 233 million respectively (31 December 2008: Rmb 2.974bil- lion and 285 million respectively).

As at 31 December 2009, the Group performed individual assessment for individually significant impaired loans and made provisions of Rmb 959 million (31 December 2008: Rmb 921 million) after considering the value of collaterals. The Group has also provided Rmb 123 million (31 December 2008: Rmb 105 million) for individually insignificant impaired loans based on collective assessment at portfolio level.

The majority of the Group’s retail loans are mortgage loans. At 31 December 2009, mortgage loans account for approximately 87% (31 December 2008: 82%) of the total retail loans. The Group strictly complies with the mortgage loan regulations issued by PBOC and CBRC, under which the loan principal should not exceed 70% of the value of residential properties. The Group adopts the five-grade classifica- 72

SRCB Financial Report 2009

tion system to assess the credit quality of the portfolio of loans and advances through considering factors such as percentage of value of collaterals to loan balance, due days, repayments ability and wish of borrowers so as to prevent from losses.

The Group has made a provision of Rmb 171 million against impaired retail loans at 31 December 2009 (31 December 2008: Rmb 178 million).

(d) Loans and advances renegotiated

Renegotiated loans represent the loans whose original contract repayment terms have been modified as a result of the deterioration of borrowers’ financial conditions or inability to repay the loans according to contractual terms. At 31 December 2009, the renegotiated loans held by the Group amounted to Rmb 11 million (31 December 2008: Rmb 13 million).

(7) Securities investment

The tables below analyse the Group’s investment securities by external rating agencies (S&P or equivalent agencies for foreign currency investments and rating agencies recognised by PBOC for Rmb investment securities).

Group Loans and receiv- Trading assets Available for sale Held to maturity Securities ables Total (Note7.4) (Note7.8) (Note7.9) (Note7.10) 31 December 2009 AAA- to AAA+ - 1,020,083 2,565,076 - 3,585,159 AA- to AA+ - 610,021 600,878 - 1,210,899 A+ - 48,428 142,679 - 191,107 A-1 - 153,908 100,782 - 254,690 No rated: - - - - - Government bonds 31,058 1,170,355 13,502,223 373,615 15,077,251 Bonds issued by central bank - 2,131,047 5,995,968 - 8,127,015 Bonds issued by policy banks 98,221 2,648,113 3,272,820 - 6,019,154 Bonds issued by other banks - - 559,853 - 559,853 Other bonds - - - 745,618 745,618 Wealth management products purchased from - 1,500,000 - 2,103,479 3,603,479 other banks 129,279 9,281,955 26,740,279 3,222,712 39,374,225 73

(7) Securities investment

Bank Loans and receiv- Trading assets Available for sale Held to maturity Securities ables Total (Note7.4) (Note7.8) (Note7.9) (Note7.10) 31 December 2009

AAA- to AAA+ - 1,020,083 2,565,076 - 3,585,159

AA- to AA+ - 610,021 580,097 - 1,190,118

A+ - 48,428 101,090 - 149,518

A-1 - 153,908 100,782 - 254,690

No rated: - - - - -

Government bonds 31,058 1,170,355 13,461,596 373,615 15,036,624 Bonds issued by central - 2,131,047 5,995,968 - 8,127,015 bank Bonds issued by policy banks 98,221 2,648,113 3,272,820 - 6,019,154

Bonds issued by other banks - - 559,853 - 559,853

Other bonds - - - 745,618 745,618 Wealth management products purchased from - 1,500,000 - 2,103,479 3,603,479 other banks 129,279 9,281,955 26,637,282 3,222,712 39,271,228

Bank Loans and receiv- Trading assets Available for sale Held to maturity Securities ables Total (Note7.4) (Note7.8) (Note7.9) (Note7.10) 31 December 2008

AAA- to AAA+ - 1,256,000 2,749,220 - 4,005,220

AA- to AA+ - 323,222 130,001 - 453,223

A+ - - 120,000 - 120,000

A-1 - 244,844 - - 244,844

No rated:

Government bonds - 1,439,338 12,900,713 256,582 14,596,633 Bonds issued by central - 2,965,742 1,999,824 - 4,965,566 bank Bonds issued by policy banks 10,619 3,104,693 3,447,731 - 6,563,043

Bonds issued by other banks - - 559,854 - 559,854

Other bonds - - - 986,500 986,500 Wealth management products purchased from other 10,619 9,333,839 21,907,343 1,243,082 32,494,883 banks 129,279 9,281,955 26,637,282 3,222,712 39,271,228 74

SRCB Financial Report 2009

(8) Foreclosed assets

At 31 December 2009, the breakdown and book value of foreclosed assets are as follows:

Group and Bank Bank

31 December 2009 31 December 2008

Property and buildings 115,095 159,700

Land use rights 416,700 556,166

Machinery 2,056 3,836

Others 8,382 10,887

542,233 730,589

Less: provision (308,354) (358,717)

233,879 371,872

All foreclosed assets will be sold as soon as practicable. Foreclosed assets are classified in the balance sheet within other assets, (Note 7.15).

13.3 Market risk

The Group takes on exposure to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, foreign exchange rates, commodity price and equity prices.

The Group separates exposures to market risk into either trading or non-trading portfolios. The trading portfolio consists of positions in financial instruments held with trading intent with customers or other participants in the market. The non-trading portfolio consists of interest rate risk management of assets and liabilities, and foreign currency and equity prices risk of financial instruments which are hold to maturity and available for sale.

Currently, the Planning and Finance Department takes responsibility of monitoring and controlling the market risk of non-trading accounts in the Bank. The Financial Market Department is responsible for market risk management of trading and non-trading accounts within their domain. Also, The Group has established the daily, monthly and quarterly report system of market risk, monitoring and analysing market risk changes and limits on net and gross positions conditions by the two departments, and reports are presented to the top management regularly.

(1) Measurement

At present, the Group uses sensitivity analysis to assess its risk exposures to the movement of interest rate and exchange rate. The Group calculates the gap between interest-earning assets and interest-bearing liabilities that would be matured or re-priced during a certain period. The Group further assesses the impact from expected movement of benchmark or market interest rates as well as exchange rates on its earnings. 75

(2) Currency Risk

The Group takes on exposure to the effects of fluctuations in the prevailing levels of exchange rate on its financial position and cash flows.

The Group’s principle in controlling exchange rate risk is to match its assets and liabilities in each currency and to maintain exchange rate risk within established limits. The Group has set risk limits according to the guidelines established by the Asset Liability Management Committee, the relevant regulatory requirements, and management’s assessment of the current market condition. The Group also manages its foreign capital sources and usage of foreign currencies to minimize potential currency mismatches.

The table below summarizes the Group’s exposure to foreign currency exchange rate risk at the end of each reporting period. Included in the table are the Group’s assets and liabilities at carrying amounts in Rmb, categorized by the original currency.

Group

31 December 2009 RMB USD Other currencies Total

Assets

Cash and deposits with the central bank 31,271,327 17,817 5,221 31,294,365

Deposits with other banks 2,797,008 314,978 66,808 3,178,794

Placement with other banks - - - -

Trading assets 129,279 - - 129,279 Financial assets purchased under resale 10,515,156 - - 10,515,156 agreements Interest receivables 826,976 1,654 - 828,630

Loans and advances 116,556,957 22,800 - 116,579,757 Financial assets classified as available-for- 10,472,022 - - 10,472,022 sale Securities classified as held-to-maturity 26,740,279 - - 26,740,279

Securities classified as loans and receivables 3,222,712 - - 3,222,712

Long-term equity investments 547,449 - - 547,449

Investment properties 4,138,013 - - 4,138,013

Fixed assets 3,029,674 - - 3,029,674

Deferred income tax assets 717,260 - - 717,260

Other assets 856,802 167 - 856,969

Total assets 211,820,914 357,416 72,029 212,250,359

Liabilities

Due to other banks and financial institutions 224,272 - - 224,272 Financial assets sold under repurchased 6,523,000 - - 6,523,000 agreements Due to customers 179,077,959 140,467 15,625 179,234,051 Deposits from wealth management prod- 700,965 - - 700,965 ucts 76

SRCB Financial Report 2009

Group

31 December 2009 RMB USD Other currencies Total

Staﬀ payroll and welfare payable 98,970 - - 98,970

Taxes payable 672,693 - - 672,693

Interest payable 2,870,282 230 17 2,870,529

Provision 262,140 - - 262,140

Bonds payable 1,500,000 - - 1,500,000

Deferred income tax liabilities 134,885 - - 134,885

Other liabilities 6,918,098 9,198 32,677 6,959,973

Total Liabilities 198,983,264 149,895 48,319 199,181,478

Net on-balance sheet position 12,837,650 207,521 23,710 13,068,881 Financial guarantees and credit related 2,570,506 18,699 1,081 2,590,286 commitments

Bank

31 December 2009 RMB USD Other currencies Total

Assets

Cash and deposits with the central bank 31,225,433 17,817 5,221 31,248,471

Deposits with other banks 2,797,008 314,978 66,808 3,178,794

Placement with other banks - - - -

Trading assets 129,279 - - 129,279 Financial assets purchased under 10,515,156 - - 10,515,156 resale agreements Interest receivables 826,976 1,654 - 828,630

Loans and advances 116,320,451 22,800 - 116,343,251 Financial assets classiﬁed as available-for- 10,472,022 - - 10,472,022 sale Securities classiﬁed as held-to-maturity 26,637,282 - - 26,637,282

Securities classiﬁed as loans and receivables 3,222,712 - - 3,222,712

Long-term equity investments 598,449 - - 598,449

Investment properties 4,138,013 - - 4,138,013

Fixed assets 3,029,629 - - 3,029,629

Deferred income tax assets 717,260 - - 717,260

Other assets 856,576 167 - 856,743

Total assets 211,486,246 357,416 72,029 211,915,691

Liabilities

Due to other banks and ﬁnancial institutions 300,673 - - 300,673 Financial assets sold under repurchased 6,523,000 - - 6,523,000 agreements Due to customers 178,712,666 140,467 15,625 178,868,758 77

Bank

31 December 2009 RMB USD Other currencies Total Deposits from wealth management 700,965 - - 700,965 products Staﬀ payroll and welfare payable 98,582 - - 98,582

Taxes payable 672,544 - - 672,544

Interest payable 2,869,887 230 17 2,870,134

Provision 262,140 - - 262,140

Bonds payable 1,500,000 - - 1,500,000

Deferred income tax liabilities 134,885 - - 134,885

Other liabilities 6,917,788 9,198 32,677 6,959,663

Total Liabilities 198,693,130 149,895 48,319 198,891,344

Net on-balance sheet position 12,793,116 207,521 23,710 13,024,347 Financial guarantees and credit related 2,570,506 18,699 1,081 2,590,286 commitments

Bank

31 December 2008 RMB USD Other currencies Total

Assets

Cash and deposits with the central bank 25,900,186 38,886 4,112 25,943,184

Deposits with other banks 4,964,586 205,649 47,747 5,217,982

Placement with other banks 415,000 - - 415,000

Trading assets 10,619 - - 10,619 Financial assets purchased under 5,755,701 - - 5,755,701 resale agreements Interest receivables 846,071 403 - 846,474

Loans and advances 91,142,678 58,553 - 91,201,231 Financial assets classiﬁed as available-for- 10,256,679 - - 10,256,679 sale Securities classiﬁed as held-to-maturity 21,907,343 - - 21,907,343

Securities classiﬁed as loans and receivables 1,243,082 - - 1,243,082

Long-term equity investments 554,228 - - 554,228

Investment properties 4,228,441 - - 4,228,441

Fixed assets 1,243,251 - - 1,243,251

Deferred income tax assets 789,432 - - 789,432

Other assets 769,572 167 - 769,739

Total assets 170,026,869 303,658 51,859 170,382,386

Liabilities

Due to other banks and ﬁnancial institutions 405,402 - - 405,402

Due to customers 146,962,903 100,724 15,592 147,079,579 78

SRCB Financial Report 2009

Bank

31 December 2008 RMB USD Other currencies Total Deposits from wealth management 808,170 808,170 products Staﬀ payroll and welfare payable 87,823 - - 87,823

Taxes payable 202,271 - - 202,271

Interest payable 2,423,418 120 9 2,423,547

Provision 273,172 - - 273,172

Deferred income tax liabilities 188,500 - - 188,500

Other liabilities 7,603,397 57,240 35,898 7,696,535

Total Liabilities 158,955,056 158,084 51,859 159,164,999

Net on-balance sheet position 11,071,813 145,574 - 11,217,387 Financial guarantees and credit related 2,012,942 1,116 - 2,014,058 commitments

The table below illustrates the potential impact of an appreciation or depreciation of foreign exchange against Rmb by 1% on the Group’s total profit / (loss):

Group Bank

31 December 2009 31 December 2009 31 December2008

Appreciation against Rmb by 1% 2,312 2,312 1,456

Depreciation against Rmb by 1% (2,312) (2,312) (1,456)

The Group makes following assumptions in performing the above analysis:

a. There are no significant changes to the Group’s business operations after balance sheet date;

b. Customers’ reactions to the exchange rate movements are not considered;

c. Impact on the marketing prices of assets and liabilities is not considered;

d.The necessary actions to be taken by the Group in response to exchange rate movements are not considered.

Due to these limitations of the Group’s approach, actual impact on the Group’s net income from exchange rate fluctuation may vary from the analysis above.

(3) Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. 79

Interest margins may increase as a result of such changes, but may reduce or create losses in the event that unexpected movements arise. The Group operates its business predominantly in mainland China under the interest rate scheme regulated by the PBOC. PBOC has historically adjusted its benchmark interest rates for loans and deposits in the same direction and at the same time (though not necessarily by the same increment).

According to the regulations of PBOC, loan interest rates can be set with a floor of 10% below the corresponding PBOC benchmark interest rates. Interest rates for discounted bills are market driven. However, such interest rates cannot be set below the PBOC interest rate for re-discounted bills. Interest rate of customer deposit cannot be set above the PBOC benchmark interest rate.

The Group takes actions to shorten the re-pricing time lag and duration of investments, in order to reduce the interest rate exposure. At the same time, The Group pays close attention to interest rate movements, performs the scenario analysis and adjusts interest rate of loans and deposits as appropriate.

The table below summarizes the Group’s exposures to interest rate risks. The table presents the Group’s assets and liabilities at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates.

Group Within 3 3-12 Non-interest 31 December 2009 1-5 years Over 5 years Total months months bearing Assets

Cash and deposits with the central bank 29,950,375 - - - 1,343,990 31,294,365

Deposits with other banks 2,921,665 252,129 - - 5,000 3,178,794

Placement with other banks ------

Trading assets - - 99,634 29,645 - 129,279 Financial assets purchased under resale 9,572,387 942,769 - - - 10,515,156 agreements Loans and advances 39,098,068 74,842,364 2,233,642 405,683 - 116,579,757 Financial assets classiﬁed as available-for- 2,247,824 2,551,335 3,286,603 1,196,193 1,190,067 10,472,022 sale Securities classiﬁed as held-to-maturity 25,784,555 380,082 193,168 382,474 - 26,740,279

Securities classiﬁed as held-to-maturity 2,140,349 132,434 204,311 - 745,618 3,222,712

Other assets - - - - 10,117,995 10,117,995

Total assets 111,715,223 79,101,113 6,017,358 2,013,995 13,402,670 212,250,359

Liabilities

Due to other banks and ﬁnancial institutions 224,272 - - - - 224,272 Financial assets sold under repurchased 6,523,000 - - - - 6,523,000 agreements Due to customers 117,920,282 41,245,725 20,055,629 2 12,413 179,234,051 Deposits from wealth management 578,985 121,980 - - - 700,965 products Deferred income tax liabilities 1,500,000 - - - - 1,500,000

Other liabilities 5,806 - - - 10,993,384 10,999,190

Total Liabilities 126,752,345 41,367,705 20,055,629 2 11,005,797 199,181,478

Net interest re-pricing gap (15,037,122) 37,733,408 (14,038,271) 2,013,993 2,396,873 13,068,881 80

SRCB Financial Report 2009

Bank Within 3 3-12 Non-interest 31 December 2009 1-5 years Over 5 years Total months months bearing Assets

Cash and deposits with the central bank 29,904,642 - - - 1,343,829 31,248,471

Deposits with other banks 2,921,665 252,129 - - 5,000 3,178,794

Placement with other banks ------

Trading assets - - 99,634 29,645 - 129,279 Financial assets purchased under resale 9,572,387 942,769 - - - 10,515,156 agreements Loans and advances 39,098,068 74,664,953 2,183,362 396,868 - 116,343,251 Financial assets classiﬁed as available-for- 2,247,824 2,551,335 3,286,603 1,196,193 1,190,067 10,472,022 sale Securities classiﬁed as held-to-maturity 25,784,555 380,082 193,168 279,477 - 26,637,282

Securities classiﬁed as held-to-maturity 2,140,349 132,434 204,311 - 745,618 3,222,712

Other assets - - - - 10,168,724 10,168,724

Total assets 111,669,490 78,923,702 5,967,078 1,902,183 13,453,238 211,915,691

Liabilities

Due to other banks and ﬁnancial institutions 300,673 - - - - 300,673 Financial assets sold under repurchased 6,523,000 - - - - 6,523,000 agreements Due to customers 117,609,077 41,191,637 20,055,629 2 12,413 178,868,758 Deposits from wealth management 578,985 121,980 - - - 700,965 products Deferred income tax liabilities 1,500,000 - - - - 1,500,000

Other liabilities 5,806 - - - 10,992,142 10,997,948

Total Liabilities 126,517,541 41,313,617 20,055,629 2 11,004,555 198,891,344

Net interest re-pricing gap (14,848,051) 37,610,085 (14,088,551) 1,902,181 2,448,683 13,024,347

Bank Within 3 3-12 Non-interest 31 December 2008 1-5 years Over 5 years Total months months bearing Assets

Cash and deposits with the central bank 24,755,363 - - - 1,187,821 25,943,184

Deposits with other banks 4,285,609 926,512 - - 5,861 5,217,982

Placement with other banks 290,000 125,000 - - - 415,000

Trading assets - 10,619 - - - 10,619 Financial assets purchased under resale 4,946,199 809,502 - - - 5,755,701 agreements Loans and advances 31,302,900 57,610,948 571,800 - 1,715,583 91,201,231 Financial assets classiﬁed as available-for- 1,969,886 7,363,953 - - 922,840 10,256,679 sale 81

Bank Within 3 3-12 Non-interest 31 December 2008 1-5 years Over 5 years Total months months bearing Securities classiﬁed as held-to-maturity 6,377,562 15,529,781 - - - 21,907,343

Securities classiﬁed as held-to-maturity - 12,496 244,086 - 986,500 1,243,082

Other assets - - - - 8,605,010 8,605,010

Total assets 75,083,615 81,059,270 815,886 - 13,423,615 170,382,386

Liabilities

Due to other banks and ﬁnancial institutions 405,402 - - - - 405,402 Financial assets sold under repurchased 94,069,463 35,963,123 16,371,630 675,363 - 147,079,579 agreements Due to customers 573,233 234,937 - - - 808,170 Deposits from wealth management 16,971 - - - 10,854,877 10,871,848 products Deferred income tax liabilities 95,065,069 36,198,060 16,371,630 675,363 10,854,877 159,164,999

Other liabilities (19,981,454) 44,861,210 (15,555,744) (675,363) 2,568,738 11,217,387

The table below illustrates the potential impact from a simple 100 basis point move of interest rate to the financial position of the Group at 31 December on the Bank’s reported net interest income in the coming year:

Group Bank

31 December 2009 31 December 2009 31 December 2008

+ 100 basis point parallel move in all yield curves 9,925 11,117 (6,608)

- 100 basis point parallel move in all yield curves (9,925) (11,117) 6,608

In performing the above analysis, the Group has made following assumptions: a. There are no significant changes in business operations after balance sheet date; b. The impacts on different assets and liabilities are same; c. All interest re-priced assets and liabilities are re-priced in the middle of each specified time period; d. Customers’ responses to interest rate movement are not considered; e. Impact from interest rate movement on market prices of assets and liabilities are not considered; f. Impact from interest rate movement on off-balance sheet items are not considered; g. The necessary actions to be taken by the Bank in response to the interest rate movements are not considered

Due to these limitations to the Group’s approach, actual impact from interest rate fluctuation may vary from the analysis above. 82

SRCB Financial Report 2009

13.4 Liquidity risk

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from margin and other calls on cash settled derivatives. The Group does not maintain cash resources to meet all of these needs, as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The management sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of interbank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.

The Group is required to maintain certain percentage of Rmb and foreign currency customer deposits with the PBOC, which are restricted for the Group’s daily operation. (Note 7.1)

In addition, the Group limits its loan to deposit ratio at below 75% as required by the PBOC.

The matching and controlled mismatching of the maturities of assets and liabilities is fundamental to the management of the Group. It is unusual for banks ever to be completely matched since business transactions are often of uncertain terms and of different types. An unmatched position potentially enhances profitability, but also increases the risk of losses.

The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and exchange rates.

The Group provides guarantees and issues letters of credit based on a third party’s creditworthiness and deposit amount. Liquidity requirements to support calls under guarantees and letters of credit are con- siderably less than the amounts under commitments because the Group does not generally expect the third party to draw funds under those agreements. 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.

(i) Non-derivative cash flows of financial assets and liabilities

The table below presents the cash flows receivables and payable under non-derivative financial assets and liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Group manages the inherent liquidity risk based on expected undiscounted cash inflows. 83

Group Within 31 December 2009 1-3 months 3-12 months 1-5 years Over 5 years Total 1 months Liabilities

Due to other banks and ﬁnancial institutions 224,272 - - - - 224,272 Financial assets sold under repurchased 6,526,534 - - - - 6,526,534 agreements Due to customers 102,997,009 15,594,501 42,675,418 22,557,009 2 183,823,939 Deposits from wealth management 76,874 506,338 124,157 - - 707,369 products Bonds issued 6,752 13,504 60,768 324,099 1,905,123 2,310,246

Other ﬁnancial liabilities 6,575,842 - - - - 6,575,842

Total liabilities (contractual maturity dates) 116,407,283 16,114,343 42,860,343 22,881,108 1,905,125 200,168,202

Cash and deposits with the central bank 31,294,365 - - - - 31,294,365

Deposits with other banks 1,787,703 1,159,698 256,138 - - 3,203,539

Placement with other banks ------

Trading assets - - 3,875 111,364 31,065 146,304 Financial assets purchased under resale 7,330,494 2,262,824 949,545 - - 10,542,863 agreements Loans and advances 6,039,160 11,821,051 47,891,967 48,618,188 20,467,904 134,838,270 Financial assets classiﬁed as available-for- 982,100 889,056 2,584,513 4,533,870 2,538,269 11,527,808 sale Securities classiﬁed as held-to-maturity 4,038,710 1,937,807 3,827,264 14,107,661 6,182,996 30,094,438

Securities classiﬁed as loans and receivables 946,802 144,199 232,627 - 1,323,628

Other ﬁnancial assets 553,241 - - - - 553,241

Total assets (contractual maturity dates) 52,025,773 19,017,238 55,657,501 67,603,710 29,220,234 223,524,456

Net cash ﬂows (64,381,510) 2,902,895 12,797,158 44,722,602 27,315,109 23,356,254 84

SRCB Financial Report 2009

Bank Within 31 December 2009 1-3 months 3-12 months 1-5 years Over 5 years Total 1 months Liabilities

Due to other banks and ﬁnancial institutions 300,673 - - - - 300,673 Financial assets sold under repurchased 6,526,534 - - - - 6,526,534 agreements Due to customers 102,685,804 15,594,501 42,621,330 22,557,009 2 183,458,646 Deposits from wealth management 76,874 506,338 124,157 - - 707,369 products Bonds issued 6,752 13,504 60,768 324,099 1,905,123 2,310,246

Other ﬁnancial liabilities 6,575,842 - - - - 6,575,842

Total liabilities (contractual maturity dates) 116,172,479 16,114,343 42,806,255 22,881,108 1,905,125 199,879,310

Cash and deposits with the central bank 31,248,471 - - - - 31,248,471

Deposits with other banks 1,787,703 1,159,698 256,138 - - 3,203,539

Placement with other banks ------

Trading assets - - 3,875 111,364 31,065 146,304 Financial assets purchased under resale 7,330,494 2,262,824 949,545 - - 10,542,863 agreements Loans and advances 6,039,147 11,789,184 47,720,977 48,575,824 20,463,617 134,588,749 Financial assets classiﬁed as available-for- 982,100 889,056 2,584,513 4,533,870 2,538,269 11,527,808 sale Securities classiﬁed as held-to-maturity 4,038,710 1,937,807 3,827,264 14,107,661 6,079,999 29,991,441

Securities classiﬁed as loans and receivables 946,802 144,199 232,627 - 1,323,628

Other ﬁnancial assets 553,241 - - - - 553,241

Total assets (contractual maturity dates) 51,979,866 18,985,371 55,486,511 67,561,346 29,112,950 223,126,044

Net cash ﬂows (64,192,613) 2,871,028 12,680,256 44,680,238 27,207,825 23,246,734

Bank Within 31 December 2008 1-3 months 3-12 months 1-5 years Over 5 years Total 1 months Liabilities

Due to other banks and ﬁnancial institutions - 405,402 - - - 405,402

Due to customers 7,663,694 88,127,829 38,103,402 18,667,259 - 152,562,184 Deposits from wealth management 9,708 562,074 71,599 214,470 - 857,851 products Other ﬁnancial liabilities 7,445,526 - - - - 7,445,526

Total liabilities (contractual maturity dates) 15,118,928 89,095,305 38,175,001 18,881,729 - 161,270,963

其他金融负债 6,575,842 - - - - 6,575,842

金融负债合计(合同到期日) 116,172,479 16,114,343 42,806,255 22,881,108 1,905,125 199,879,310

Cash and deposits with the central bank 25,976,603 - - - - 25,976,603

Deposits with other banks 3,958,537 358,020 957,366 - - 5,273,923 85

Bank Within 31 December 2008 1-3 months 3-12 months 1-5 years Over 5 years Total 1 months Placement with other banks 100,489 194,894 128,318 - - 423,701

Trading assets - 10,619 - - - 10,619 Financial assets purchased under resale 4,205,850 746,850 817,797 - - 5,770,497 agreements Loans and advances 4,194,596 10,181,999 42,194,901 31,762,114 13,458,429 101,792,039 Financial assets classiﬁed as available-for- 462,583 149,246 2,344,362 5,797,919 2,805,740 11,559,850 sale Securities classiﬁed as held-to-maturity 47,442 454,981 3,243,056 15,916,015 5,368,702 25,030,196

Securities classiﬁed as loans and receivables - - 13,767 1,268,113 - 1,281,880

Other ﬁnancial assets 347,050 - - - - 347,050

Total assets (contractual maturity dates) 39,293,150 12,096,609 49,699,567 54,744,161 21,632,871 177,466,358

Net cash ﬂows 24,174,222 (76,998,696) 11,524,566 35,862,432 21,632,871 16,195,395

(ii) Off-balance sheet items

Group No later than 1 31 December 2009 1-5 years Over 5 years Total year Letters of credit issued 19,780 - - 19,780

Letters of guarantee issued 103,218 134,561 - 237,779

Acceptances 1,460,664 - - 1,460,664

Unused credit card facility 872,063 - - 872,063

Operating lease commitments 44,086 166,807 93,435 304,328

Capital commitments 305,950 1,774,330 - 2,080,280

Total 2,805,761 2,075,698 93,435 4,974,894

Bank No later than 1 31 December 2009 1-5 years Over 5 years Total year Letters of credit issued 19,780 - - 19,780

Letters of guarantee issued 103,218 134,561 - 237,779

Acceptances 1,460,664 - - 1,460,664

Unused credit card facility 872,063 - - 872,063

Operating lease commitments 43,086 162,567 89,955 295,608

Capital commitments 305,950 1,774,330 - 2,080,280

Total 2,804,761 2,071,458 89,955 4,966,174 86

SRCB Financial Report 2009

Bank No later than 1 31 December 2008 1-5 years Over 5 years Total year Letters of credit issued 1,536 - - 1,536

Letters of guarantee issued 146,682 18,868 165,550

Acceptances 1,443,073 - - 1,443,073

Unused credit card facility 403,899 - - 403,899

Operating lease commitments 40,830 96,134 66,169 203,133

Capital commitments 116,400 1,151,951 - 1,268,351

Total 2,152,420 1,266,953 66,169 3,485,542

13.5 Fair value of financial assets and liabilities

Fair value is determined based on available information in the market that is related to the financial instruments at specific point of time. Estimation is based on following methods and assumption:

(i) Cash and due from other banks and financial institutions, Deposit with the central bank, Deposits with other banks, Due to other banks and financial institutions.

Given that maturities of these financial assets and liabilities are either short-term or re-priced more than once every year, or their interest rats are flexible, the carrying amount approximates the fair value.

(ii) Securities classified as loans and receivables and held-to-maturity

Fair value of securities classified as loans and receivables and held-to-maturity is based on quoted market price. If a quoted market price is not available, cash flow mode can be used. In certain circumstances, the Group uses prices of recent transaction in the market, price to earning ratios or price to cash flow ratios that can reflect the specific condition of the issuer as appropriate.

(iii) Loans and advances

Because interest rate of Rmb denominated loans is fluctuated along with PBOC interest rate and interest rate of loans denominated in foreign exchange are generally floating rates, fair value is close to carrying value.

(iv) Customer deposits

The fair value of checking, savings and money market accounts is the amount payable on demand at the reporting date. The estimated fair value of fixed interest-bearing deposits and placements without quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity.

(v) Resale and repurchase agreements

The underlying of resale and repurchase agreements comprise investment securities, discounted bills and loans to customers. The fair value of those short-term financing arrangements approximates to their car- 87

rying value.

(vi) Bonds issued

Fair value of subordinated debt is primarily base on quoted market price. If quoted market price is not available, the fair value is determined using discounted cash flow model with reference to the yield of similar bonds which have the similar remaining terms through maturities.

The table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Group’s balance sheet at their fair value, of which the respective carrying values are different from fair value at 31 December 2009.

Group 31 December 2009

Fair value Carrying value Financial assets Securities classiﬁed as held-to-maturity 26,989,256 26,740,279

Investment securities– loans and receivables 3,433,717 3,222,712

Financial liabilities

Customer deposits (184,869,934) (182,096,940)

Bonds issued (1,418,324) (1,500,000)

Bank 31 December 2009

Fair value Carrying value

Financial assets

Securities classiﬁed as held-to-maturity 26,886,259 26,637,282

Investment securities– loans and receivables 3,433,717 3,222,712

Financial liabilities

Customer deposits (184,504,641) (181,731,647)

Bonds issued (1,418,324) (1,500,000)

Bank 31 December 2008

公允价值账面价值

Financial assets

Securities classiﬁed as held-to-maturity 22,927,125 21,907,343

Investment securities– loans and receivables 1,465,111 1,243,082

Financial liabilities

Customer deposits (150,366,840) (149,519,136)

Note: Carrying value of customer deposits include deposits and interest payable for these deposits. 88

SRCB Financial Report 2009

13.6 Capital management

The Bank's capital management focuses on monitoring of the Capital Adequacy Ratio (CAR) and Return on Capital, aiming to comply with the regulatory requirements, reflect the expected shareholders' return, support the business expansion and strengthen the risk management function. In 2008, the Bank establishes its CAR target based on regulatory capital requirement and its risk profile, and monitors the CAR against the target by means of setting limits and other necessary procedures.

The Bank’s business has experienced a steady growth in recent years, which continuously increases the need on capital. To comply with regulatory capital requirement and maximize the shareholders’ return, the Bank has supplemented its capital base through retaining profits generated internally.

The Bank calculates and discloses Capital Adequacy Ratio in accordance with “The Rules on Capital Ad- equacy Ratios of Commercial Banks” as amended by CBRC on 28 December 2006 and other regulatory requirements.

The table below summarises the composition of regulatory capital and the ratios of the Bank at 31 De- cember 2009:

31 December 2009 31 December 2008

Core capital

Share capital 3,745,686 3,745,686

Capital surplus 1,563,574 1,430,443

Statutory reserve 873,708 478,295

General banking reserve 2,625,540 2,625,540

Retained earnings 4,215,837 2,937,423

Adjustment:

Unrealized gain of available-for-sale securities(i) (326,158) (193,027)

Unrealized gain of trading securities(i) (272) (98)

Cash dividends(ii) (337,112) (299,655)

Sub-total 12,360,803 10,724,607

Less: 50% of equity investment and 50% of investment properties (752,072) (278,824)

Net core capital 11,608,731 10,445,783 89

31 December 2009 31 December 2008

Supplementary Capital

Collectively assessed impairment provision (iii) 1,114,089 908,561

Long-term subordinated debts 1,500,000 -

Unrealized gain of available-for-sale securities (i) 163,079 96,513

Unrealized gain of trading securities (i) 272 98

Sub-total 2,777,440 1,005,172

Total capital 15,138,243 11,729,779

Less: Equity investments and investment properties (1,504,144) (557,648)

Subordinated bonds issued by other banks (50,811) -

Net capital 13,583,288 11,172,131

(i) In accordance with “Notice issued by CBRC regarding calculation of Capital Adequacy Ratios for Banks adopting China Accounting Standard” (Yin Jian Fa [2007] No.82):

If the cumulative effect of fair value measurement of the trading securities is a gain, the unrealized gain should be deducted from the Tier 1 capital and added into the Tier 2 capital. If the cumulative effect of fair value measurement of trading securities is a loss, no adjustment should be applied.

If the cumulative effect of fair value measurement of the available-for-sale securities is a gain, the unrealized gain should be deducted from core capital and up to fifty percent of the unrealized gain could be added into supplementary capital. If the cumulative effect of fair value measurement of available-for-sale securities is a loss, no adjustment should be applied.

(ii) In accordance with guidance from CBRC, the Bank has excluded estimated cash dividends as part of profit appropriation from retained earnings.

(iii) Represent collectively assessed provision for non-impaired loans.

31 December 2009 31 December 2008

Risk-weighted assets:

On-balance sheet 112,459,326 91,688,796

Oﬀ-balance sheet 1,240,242 928,465

Total risk-weighted assets 113,699,568 92,617,261

Core Capital adequacy ratio 10.21% 11.28%

Total capital adequacy ratio 11.95% 12.06%

2009 Social Responsibility Report Contents

01 Our social responsibility perspective

02 To fulfill social responsibilities during steady operation

14 Shouldering social responsibility to focus on people’s livelihoods Fulfill the Environmental

24 Responsibility with Sustainable Development Ideas

28 Annual awards 01

Integrating Responsibility in Every Aspect

Our social responsibility perspective

I. Development strategy II. Goals of social responsibility Corporate vision: to construct a diligent, pragmatic, and SRCB will repay society while obtaining reasonable re- creative workforce, and to build SRCB into a bank that turns by shouldering responsibilities and obligations for provides convenient and satisfactory services to the stakeholders, such as the client, shareholders, employ- public. ees, cooperative partners, communities and the natural environment, so as to promote harmony and progress of Market positioning: to expand business to the urban the corporation as well as society. area while strengthening the business provided to the suburban area; to radiate the influence to the neighbor- ing area while basing itself in Shanghai.

Business policy: to operate business steadily in compliance with laws and regulations with a long view; to be creative with SRCB’s own characteristics.

Phased development goal: in the next three years, SRCB will focus on scientific development and learn from the advanced listed banks to achieve the goals to expand business in urban areas in the first year, operate businesses in areas out of Shanghai in two years, and lay foundation for listing in three years. In this way, SRCB will grow into a regional convenient bank with complete corporate governance, proper structural layout, complete business function, abundant capital, superior management, controllable risks, and excellent performance. 202

SRCB Social Responsibility Report 2009 033

To fulfill social responsibilities during steady operation 04

SRCB Social Responsibility Report 2009

To fulfill social responsibilities during steady operation

I. Maintaining growth, preventing risks, and for maintaining growth and preventing risks, and to providing services to agriculture, rural areas, develop scientific and reasonable credit provisions. and peasants as well as small and medium- Based on the services to small and medium enterprises, sized enterprises agricultural demands, and personal loans, SRCB gives priority in providing credit to important projects at both In active response to impacts brought by the global fi- the municipal and district levels that are launched to nancial crisis in 2009, SRCB stuck to the macro-economic expand domestic demands. Unusual financing demands policy of “expanding domestic demands, maintaining of industries and corporations and their subsidiaries that economic growth, and adjusting the structure”, sup- do not conform to energy-conserving and emission- ported local economic development of Shanghai, and reducing policies and are of high energy consumption, met demands of “agriculture, rural areas, and peas- heavy pollution, and high resource consumption are ants” as well as the small and medium-sized enterprises limited and denied. for financing. SRCB has always believed in providing timely help, pulling together in the time of trouble, (I) Serving local economic development to promote and strengthening cooperation between banks and growth enterprises to weather through difficult times. Setting 1. Supporting municipal construction and social pro- the basic goal of maintaining growth and preventing grams risks, SRCB achieved good performance in accelerating development and risk control through careful organiza- Supporting the construction of the Expo site. In 2009, tion and the employees’ working together as one. By SRCB was one of the banks that provided loans for the the end of 2009, outstanding loans were RMB 118.539 construction of pavilions at the Expo site; a loan of billion, RMB 25.807 billion (27.83%) higher compared to RMB 400 million was provided. Financial support was last year. SRCB promulgated the 2009 credit provision also provided for the rebuilding of Nanchezhan Road, and risk policies to specify the general requirements a supporting project for Expo 2010. The loan amount exceeded RMB 1 billion. Supporting the improvement of transportation facilities. In 2009, SRCB loaned RMB 600 million to the Jinshan branch railway renovation project. A loan of RMB 420 million was provided for the rebuilding of roads surrounding the northern square of Shanghai Railway Station; a loan amounting to RMB 300 million was provided to the Dalu Line Phase II of Shanghai Inland Waterways; and credit of RMB 240 million was granted to Songze Elevated Road Project. In the mean time, SRCB provided strong financial support to the urban rail transit construction of Shanghai, including credit of RMB 200 million granted to the construction of the south section of Rail Transit Line 11, and credit of RMB 500 million granted for the relocation of the Fengx- ian Section of Rail Transit Line 5.

Supporting reconstruction of old area and construction of economically affordable houses. For the construction 05

and relocation housing project of Changqiao Commu- virtually for free. Accordingly, most banking services are nity in Xuhui District, credit support of RMB 399 million provided even on holidays and on weekends to ensure was provided and the loan was granted in full; credit of timely payment of social security. In addition, SRCB does RMB 1.172 billion was provided for the construction of not charge social security clients commission fees for economically affordable houses in Xuhui District and drawing money from the ATM of any other bank. Changning District and this loan amounted to RMB 605 Processing the housing accumulation fund loan as million. agent. As the demands for personal housing accumula- Supporting the pilot project of rural land transfer. SRCB tion fund loan is growing, SRCB overcame the disadvan- developed a special products “house site loan” for the tages including heavy workload, high client demands, first 15 approved pilot projects concerning concentrated and small profits, and cooperated actively with Shang- house site transfer in municipalities on the list. This pro- hai Housing Accumulation Fund Management Center vided substantial support to the house site transfer pilot and Shanghai Estate Guaranty Co., Ltd. to provide all project. Loans to 8 such projects amounted to RMB 1.953 supporting services. To improve service quality and ef- billion, accounting for more than 90% of such loans ficiency, each regional sub-branch of SRCB provided granted throughout the municipality. Currently, some such service. Exclusive access was provided to optimize house site transfer projects began to repay their loans, working procedures, to strengthen the special services as they obtained profit from the land transfer. provided by the regional housing accumulation fund management sub-centers and the estate guaranty com- To provide convenience for social security, to contribute panies, and to facilitate our clients in an all-round man- to society. SRCB communicated and cooperated with ner. SRCB processed a total of 59,148 pure housing accu- social security bureau and paid pensions of RMB 690 mulation fund loans as the agent last year and extended million as agent during the year, paid RMB 2.911 billion housing accumulation fund loans of RMB 16.182 billion, for social security in small towns, endowment insurance an increase of 257% compared to 2008, accounting for of RMB 1.973 for rural populations, unemployment in- 55% of the housing accumulation fund loan extended surance of RMB 48 million, and occupational pension of throughout Shanghai. RMB 34.413 billion. In providing the above services, SRCB invested corresponding human and material resources 06

SRCB Social Responsibility Report 2009

2. To realize ongoing increase in tax payments and governments, and shouldered the social responsibili- shareholder returns. ties of serving agriculture, rural areas, and peasants In the face of a complicated operating environment, during 2009. As the main force in providing agriculture- SRCB continued to study the scientific outlook on devel- supporting financial services, SRCB ensured strong opment and put it into practice and stick to macro-eco- support to agriculture, rural areas, and peasants in capi- nomic policies in 2009. Under the support and direction tal, services, and products. At the beginning of 2009, of Shanghai Municipal Committee of CPC, Shanghai Mu- SRCB formulated the Credit Provision and Risk Policy of nicipal Government, and supervision departments, SRCB Shanghai Rural Commercial Bank, which clearly required focused on the two main areas of business development support to agricultural and related production, to in- and risk control. Giving full consideration to the situa- crease farmer’s income, to focus on promoting construction and responding actively, SRCB achieved remarkable tion of new rural areas, and to increase the involvement performance and realized continual increase in tax pay- of agriculture-supporting loans. It also proposed prior ment and shareholder return. In 2009, SRCB obtained involvement of loans in specialized and industrialized pre-tax book profit of RMB 2.488 billion, increasing production and operation of agriculture, loans that sup- 157.56% compared to the end of last year, return on port peasants to carry out modern agricultural produc- equity of 16.28%, increasing 9.78 percentage points, net tion and operation, and loans that are used to support asset value per share of RMB 3.48 increased 16.38%, and infrastructure construction in rural areas. SRCB extended net capital at the end of the year was RMB 13.583 billion, loans of RMB 25.459 billion to support agriculture, rural increasing 25.1%. Shareholder’s equity also increased areas, and peasants by the end of Dec 31, 2009, which by 11.86% compared to last year, which reflected signifi- accounted for more than 25% of the total self-support cantly enhanced business capacity. SRCB paid corporate loans. income tax of RMB 360 million, which was 59.29% more To strengthen financial services and promote the rural than last year. SRCB also awarded a total bonuses of RMB financial eco-environment construction. To further 337.112 million (before tax), 12.5% higher than last year. implement the work deployed by Shanghai Municipal Committee of CPC and Shanghai Municipal Government (II) Providing agri-related services and emphasizing re- about speeding up the establishment of a new pattern sponsibilities to boost business in suburban areas of urban and rural integration in economic and social SRCB has implemented a policy of providing agri-related development in Shanghai, and to advance the imple- financial services, as promulgated by central and local mentation of ‘Several Opinions on Financial Support to Development of Agriculture, Rural Areas, and Peasants

20000 17458万元

15000

10000

6027万元 5000

0 2009 年初 2009 年末 07

satisfy the reasonable demands of agricultural production with all efforts. By applying minimum loan management to the scale of agriculture-supporting loans and no upper limit control, SCRB ensured that the growing rate of agricultural loans was higher than last year and made efforts to increase the proportion of agriculture- related loans to total loans. Secondly, benchmark preferential interest rates or lower interest rates were offered for loans to businesses that support agriculture, rural areas, and peasants, which reduced the financing costs of enterprises and persons involved in agricultural and in Shanghai’, SRCB hosted the signing ceremony of “spe- grain production. cialized financial services to support agriculture, rural Supporting agricultural leading enterprises to boost areas, and peasants”. Accordingly, SRCB provided financ- agricultural industrialization development. Based on the ing supporting to three municipal-level agricultural list of leading enterprises at both municipal and district leading enterprises, such as Bright Food (Group) Co., Ltd. levels in agricultural industrialization, as accredited by and Shanghai Qingmei Natural Food Co., Ltd., and three related departments of the Municipal Government, new countryside construction units, including Fengxian SRCB performed investigation of the financing demands Modern Agricultural Park. Tu Guangshao, Deputy Mayor of enterprises, and developed corresponding products and member of the Standing Committee of Shanghai with preferential loan interest rates especially to support Municipal Committee of CPC, and other leaders attend- business development of these enterprises. In 2009, ed the signing ceremony. At the ceremony, Shanghai SRCB granted 56 leading enterprises at both municipal Agricultural Commission and SRCB announced the list and district levels with credit of RMB 1.142 billion, and of “second 64 creditable specialized peasants’ coop- signed agreements of financing intent worth of about eratives” of Shanghai that were granted special credit RMB 1 billion with three municipal-level agriculture-re- support. Together with the “first creditable specialized lated leading enterprises, including Bright Food (Group) peasants’ cooperatives”, the number of such coopera- Co., Ltd. and Shanghai Qingmei Food Co., Ltd., as well tives has grown to a considerable size by reaching 100. as three new countryside construction units including The outstanding loans extended by SRCB to specialized Fengxian Modern Agricultural Park. peasants’ cooperatives reached RMB 313.13 million by Dec 31, 2009, RMB 111.74 million (55.48%) higher than Expanding agriculture support coverage by relying on the beginning of the year. the financial risk compensation mechanism. SRCB increased its support for policy-based loans to peasants’ SRCB was also the first to develop special loans for fam- cooperatives by continuing to rely on the increasingly ily farms in China, which actively supported family farms mature ‘agricultural credit risk compensation mecha- to carry out agricultural production by means of credit nism’ provided by municipal and district governments. loans. Pilot loan projects are being carried out in Songji- In the mean time, SRCB continued to strengthen its sup- ang District. port for commercial loans extended to specialized peas- Adopting preferential interest rate while ensuring the ants’ cooperatives by means of mortgage, guaranteed scale of agri-related loans. Firstly, SRCB boosted the from district and county agricultural guarantee centers, loans extended for agricultural and grain production, to and other guarantees from third parties. Supported by 08

SRCB Social Responsibility Report 2009

the three special loan products, i.e., loan to specialized card. In order to further improve agri-related financial peasants’ cooperatives, credit loan to specialized peas- services, SRCB designed and issued Xinnong credit card ants’ cooperatives under Anxin agricultural insurance, in 2009. As the first credit card focussed on agriculture and loan to specialized peasants’ cooperatives under support in China, Xinnong Card is a credit card product the guarantee of China National Investment & Guaranty tailored for creditable specialized peasants’ cooperatives Co., Ltd., SRCB formed a pattern in which the policy- accredited jointly by Shanghai Agricultural Commission based loans and commercial loans combined together and SRCB. The limit of the card is an agriculture-related and complemented each other. SRCB managed to real- credit line for clients. The card is used by the card-holder ize extensive coverage over agricultural households and in agriculture-related production, operation, and con- rural economic organizations that were in urgent need sumption (e.g. purchase of production materials and of loans. The outstanding loans from the three special produces). It strongly facilitates the financing of special- loan products against the guaranty fund of RMB 50 mil- ized peasants’ cooperatives for agriculture-related pro- lion provided against municipal revenue was as much as duction and operation. RMB 174.58 million by Dec 31, 2009; an increase of RMB Thirdly, SRCB developed agriculture-related financial 114.31 million(189.66%) higher than the beginning of the products. To facilitate agri-related clients with safer in- year. vestment channels, SRCB issued Xinyi Financial, the first Enhancing product innovation and further improving 2009 Xinnong Renminbi financial product on Sep 21, the services to agriculture, rural areas, and peasants. 2009, which was a guaranteed return financial product with a yearly rate of return of 2.88% at maturity. As it Firstly, SRCB developed a rural social security payment met the investment characteristics and risk preference card. With this payment card, developed together with of the agri-related client group, the product received Shanghai Municipal Rural Social Security Center, premi- warm market response, and raised funds of RMB 44.565 ums for rural social endowment insurance can be paid million. without cash, so as to ensure the safety and internal control of the rural social security fund. In 2009, the Fourthly, SRCB developed personal agriculture-related rural social security payment card was promoted in Pu- loans steadily. Based on the concept of agriculture- dong District, Fengxian District, and Minhang District. related, SRCB extended the meaning of agriculture, rural Combining the personal card and bankbook services, areas, and peasants, and steadily developed personal SRCB offered a packaged service integrating collection agriculture-related loan services. In 2009, personal and payment of rural social security funds and payment agriculture-related loans extended totaled more than of premiums. Rural social security services are now RMB 400 million. Meanwhile, considering the earnings provided in 7 out of the total 9 districts and counties of harvest time accounts for the majority of peasants’ throughout Shanghai. Meanwhile, as an importance income, SRCB provided preferential repayment methods force in providing rural financial services, SRCB will con- for rural residents who purchased houses. Accordingly, tinue to provide better services concerning small town loan principal was repaid by installment yearly. In this insurance, rural social security, and endowment for land- way, SRCB tried to coordinate the income of peasants in loss peasants. During the year, Pudong District, Nanhui time with repayment expenditures. District, Chongming District, and Fengxian District were the first to launch pilot projects for personal payments (III) To boost the development of small and medium- of rural social security. sized enterprises and promote innovation Loans to SMEs continue to grow. As a commercial bank Secondly, SRCB issued an agricultural-related credit 09

based in Shanghai, SRCB always considers SMEs to be its “Xinrong Financing Plan for SMEs”, which meets the life priority clients. SRCB emphasizes boosting the growth cycle demands of enterprises. In this way, SRCB made all of secured loans to SMEs against property or guaran- efforts to satisfy the diversified financing demands of tor, and moderately expanding loans to well-run SMEs SMEs to the greatest extent. where property mortgage or guarantee is not applied. Establishment of a financing center for small and medi- This supports the establishment, growth, and steadily um-sized technological enterprises. In July 2009, SRCB development of SMEs. By the end of 2009, the outstand- established a specialized financing center for small and ing credit loans issued to SMEs against property or guar- medium-sized technological enterprises, and developed antor was RMB 18.8 billion, RMB 1.4 billion more than at innovative credit loan products like pilot equity-pledg- the beginning of the year. ing loan and purchase-order financing, to as to help im- Business policy preference towards SMEs. Firstly, the risk prove the financing environment of small and medium- weighting coefficient of policy-based guarantee servic- sized technological enterprises. In October, SRCB signed es, such as credit loan issuing against property or guar- a strategic cooperation agreement with Shanghai New antor to small enterprises and loans issued against China High Technology Service Center, according to which a National Investment & Guaranty Co., Ltd., and real estate platform will be established through cooperation with guarantee services will be adjusted, to provide more government to provide small and medium-sized tech- capacity for SME businesses. In the mean time, SRCB re- nological enterprises with good financial services. newed its cooperation agreement with Shanghai Estate To actively participate in SME financial service activities. Guaranty Co., Ltd.. The two companies will strengthen Firstly, SRCB actively participated in the Conference on their cooperation in financing guarantees for SMEs on Shanghai Financial Services to SMEs, which was spon- the sound basis of our previous cooperation. Secondly, sored by Shanghai Financial Association and co-spon- SRCB promulgated special assessment methods and sored by Shanghai General Headquarters of the People’s rewarding measures for the issuing of credit loans to Bank of China, financial supervision departments, and SMEs, so as to boost the initiatives of sub-branches New Pudong District Government. At the conference, and marketing personnel. Thirdly, loan size allocation SRCB presented seven series of SME financial products is preferential to branches and sub-branches that have and was widely appraised for its banking and financial remarkable growth in credit loan services to SMEs. consultation services to SME clients who were partici- To improve and perfect existing products and develop pating in the conference. Secondly, SRCB organized the new products. Firstly, documenting the service flow of existing products, such as credit loan issuing against property guarantor to SMEs, was carried out and SME loan approval authority was transferred to a lower level within a reasonable range, to meet the characteristics of SMEs’ requirements for simple loan procedures and short approval time. Secondly, SRCB developed a series of SME financing products, such as loans on account receivables, corporation overdraft, bills discounting, credit extension against bills pledged, and credit extension against check. At the 2009 SME Financial Service Conference, SRCB officially issued SME product mix plan, 10

SRCB Social Responsibility Report 2009

branches and sub-branches to participate in regional campaigns of the “SME Financial Services Exhibition Tour”, which was hosted by Shanghai Municipal Office for Coordination of the Development of SMEs. Thirdly, SRCB participated in the Financial Service Conference in Shanghai on Banking to Support Small and Medium- sized Technological Enterprises and Technological Fi- nancial Service, which was sponsored by Shanghai Bank- ing Regulatory Bureau. At the conference, marketing activities oriented at small and medium-sized technological enterprises were launched. Fourthly, SRCB actively shouldered social responsibility for energy conservation and emission reduction and promoted its “green credit loan”. SRCB participated in energy performance contracting, which was vigorously promoted by the Shanghai Municipal Government, Shanghai Municipal compliance via three-level compliance training, i.e., to Commission of Economy and Informatization, Shanghai personnel with the Compliance Department, all compli- Municipal Advisory Committee on Energy Performance ance personnel in SRCB, and the entire staff. Fourthly, Contracting, and actively raised finances for energy per- SRCB standardised legal actions to reduce and mitigate formance contracting projects. The Financing Center for legal risks. Small and Medium-sized Enterprises extended its first To perfect risk control. Firstly, to maintain growth and loan on energy performance contracting to Shanghai prevent risks and given the macro-economic situation Air-serve Air Conditioning System Service Co., Ltd.. In and policy changes, SRCB adjusted its optimized the this way, SRCB provided strong financial support to the credit loan policies and extended credit scientifically. government for new energy-conserving commercial in- Specialized credit risk examination was carried out on novation. loans above RMB 20 million and risk control measures were implemented one by one to consolidate the foun- (IV) To continue to strengthen risk control and prevent dation of loan management. Success was achieved in illegal cases the pilot Risk Manager assignment system, and hence To fully implement a full-time compliance manager sys- enhanced the execution of credit system policies. Sec- tem. Firstly, SRCB implemented a full-time compliance ondly, SRCB improved its market risk and liquidity risk manager system to strengthen specialized manage- management mechanisms and promoted the development. Targeting at “healthy business development un- ment of an asset and liability management system. Pres- der the support of compliance”, SRCB achieved the goal sure tests and research was also performed. Liquidity of value creation by compliance through identifying, ratio, core liability dependency, liquidity gap ratio, and controlling, and neutralizing compliance risks in busi- Renminbi excess reserves rate were all controlled within ness and products. Secondly, SRCB continued to carry the range of regulatory requirements. Thirdly, SRCB per- out process reengineering of all services and businesses, fected its operational risk management framework and to explore the application of results of previous process specified reporting procedures and a roadmap for op- mapping. Thirdly, SRCB cultivated a stronger compliance erational risks and compliance risks. SRCB also strength- culture. SRCB cultivated employees’ consciousness of ened interaction with regulatory authorities, improved 11

information feedback and internal control rectification Compliance Manager system, and vertical audit man- and correction mechanisms, and intensified its efforts to agement were all piloted so as to establish a specialized support business innovation with compliance. Compila- multi-level risk prevention and control system. Thirdly, tion and evaluation of process system documentation SRCB promulgated or modified its internal control ex- was carried out, and deposit and cash transaction manu- amination methods, illegal case prevention and control als were issued. examination methods, and regulations on punishment of regulation-violating behaviors so as to enhance and To strengthen internal control management. Firstly, reinforce the effect of examination on internal control SRCB further clarified the responsibilities of the Board of management. Fourthly, SRCB strengthened its interac- Directors, Board of Supervisors, and Senior Management tion with regulatory authorities and completed the and gradually improved and regulated its governance information feedback and internal control rectification mechanisms for operation, separation and balance of and correction mechanism. Fifthly, SRCB made and powers. Secondly, SRCB further specified the responsi- implemented a three-year illegal case prevention and bility of departments at different levels in internal con- control plan in line with the working requirements for trol system development. The Chief Accountant assign- the three levels of “regulation, intensification, and pro- ment system, Risk Manager assignment system, full-time 12

SRCB Social Responsibility Report 2009

motion”. Every level signed the document of illegal case ment and headquarters office after the relocation of the prevention and control responsibility. “Looking-back” headquarters. In 2010, SRCB will separate Wujiaochang in-depth inspection was implemented and extensive Sub-branch and establish Hongkou, Yangpu, and Zhabei publicity and education were launched to specify the Sub-branches, to realize the branch layout structure of illegal case prevention and control responsibilities of “one sub-branch in one district”. every department and employees. (II) To make business innovation to meet clients’ needs II. To have consumers in heart and create value 1. New project development for clients Unit rural social security payment card. In line with the (I) Expanding branch layout to urban area spirit of Notice of General Office of Shanghai Municipal Government on Forwarding of Measures on Financial Orderly adjustment of branches was made according to Management of Social Security Fund of Shanghai Mu- the development requirements for branch optimization nicipality Promulgated by Shanghai Municipal Finance and adjustment. In 2009, 47 branches were adjusted, Bureau and Other Two Departments (HFBF [2006] No. among which, 7 new branches were established, 16 34) and in order to cooperate with Shanghai Municipal were relocated, 9 were relocated and renamed, 6 termi- Rural Social Security Center in effective implementa- nated their business, and 9 were closed. tion of management of rural social endowment insur- On the basis of strengthening business in suburban ance, to realize premium payment without cash, and to areas, SRCB intensified its effort to expand into urban improve management efficiency of rural social security areas in 2009. Establishment of Jing’an and Luwan fund, SRCB and Shanghai Municipal Rural Social Security branches filled the gap in outlet layout in the downtown Center developed and issued jointly the unit rural social area. Establishment of Binjiang Sub-branch solved the security payment card. problems due to different location of business depart- Office card. SRCB cooperated with district and county 13

finance bureaux and budget units to develop the office such as business trips and procurement. Equipped with card product, which was based on the treasury single functions of paying by card, transferring, and settle- account system and realized reimbursement of office- ment, it satisfies the financial management demands of related consumption by means of authorized payment the enterprises and public institutions. via treasury’s single account by the budget units. Loan to specialized farmers’ cooperatives under Anxin Shanghai travel card. As a practical project to serve the agricultural insurance. Under the support and guidance Expo 2010, SRCB issued UnionPay single-currency travel of governmental departments including Shanghai Fi- credit card with which the card-holder is entitled to nancial Service Office, Shanghai Municipal Agricultural preferential discount in over 100 stores. The card also Commission, and Shanghai Municipal Finance Bureau, notably promoted the reputation of SRCB remarkably. SRCB laid the emphasis on financial services to specialized farmers’ cooperatives, and joined efforts with Anxin Xinfeng card. Credit card with dynamic credit facility adjustment, discount for consumption in specific stores, and encashment limit. Designed and developed in coordination with state-financed vehicle management in Shanghai and reform of state-financed transportation subsidy for specific groups. The pilot Xinfeng card project in Changning District was successful and the project will be promoted to other central districts. This card will be the special card for reform of state-financed vehicles in Shanghai.

Business card. As the first business credit issued by SRCB, it is a Renminbi credit card without encashment function that is provided to enterprises and public institutions to facilitate their payment for business activities 14

SRCB Social Responsibility Report 2009

24小时客户服务热线

Agricultural Insurance Co., Ltd. to innovate loan services payment settlements in the current rural economy, large to specialized farmers’ cooperatives under micro-credit amounts of purchasing fund settlements between co- guarantee insurance (i.e. loan to specialized farmers’ operatives and peasants, large numbers of transactions, cooperatives under Anxin agricultural insurance). Re- complicated procedures of cash payment, and scattered payment of loans with micro-credit insurance policies transaction places, SRCB issued a bilateral POS service of Anxin agricultural insurance as the secondary repay- in 2009. Based on the POS data processing platform of ment source expanded the guarantee channels on loans SRCB, this service achieved data exchange through fixed to specialized farmers’ cooperatives. It combined loan telephone lines or wireless communication networks. funds with agricultural production and activities of the In this way, transactions can be made in fixed places cooperatives to expand agriculture-supporting financial with telephone lines, but the payment by card and service tools. fund transfer can also be made in the areas covered by wireless networks with POS devices. POS devices can Equity-pledged credit services and purchase-order be carried around to complete fund transfer between financing services for non-listed companies. After exten- the SRCB accounts and personal debit accounts. Use of sive market research, SRCB broke its traditional service mobile bilateral POS reduces concerns on cash man- mode and vigorously developed credit products that agement in previous agricultural products purchasing were suitable for small and medium-sized technological enterprises. Considering that most small and medium- sized technological enterprises are asset-light and lack mortgageable assets acceptable to banks, SRCB developed two innovative credit products, namely, equity- pledge credit service and purchase-order financing service for non-listed companies. These two products were appraised and well-received by small and medium-sized technological enterprises after their issuing.

2. New service promotion

Bilateral POS service. In order the solve problems within 15

procedures and satisfies the requirements of enterprises more comprehensive and convenient services to clients for portable payment, for transactions without cash, for so as to timely acquaint them with account information liquidity, and for instant receipt of funds. It is an effec- and ensure transaction security. tive solution promoted by SRCB after understanding the Introduction of e-banking credential pre-generation local economy and the payment characteristics of the system. In order to solve the problem that e-banking rural economy. It is a significant advancement for SRCB services of different editions were different in credential “on the road of establishing modernized new rural pay- application procedures, SRCB introduced the e-banking ment methods”. credential pre-generation system of CFCA to unify the “Xinrong financing plan for SMEs”. As a regional con- management and operation of USBKEY. The credential venient bank that provides services to SMEs and com- pre-generation system offers convenience and safety in munity residents, SRCB launched “Xinrong Financing e-banking credential utilization. Users receive creden- Plan for SMEs” in 2009. Fully combined with the multiple tials at the branches and do not have to download it by factors of enterprises including life cycle, credit rank, themselves. Therefore, the credential is applicable as and industrial characteristics, the Plan flexibly makes soon as it is received. use of the product mix of credit extension against Pilot project of new international receipts and payments property guarantor for SMEs supplemented by other declaration system. A new statistic and monitoring sys- financial products. It provides diversified and integrated tem of international receipts and payments is now used services to various SME clients to meet their varied and for data collection, comprehensive inquiry, and statisti- individualized financial demands at different stage of cal analysis and declaration of international receipts and development. In this way, the Plan increases the linkages payments. To actively cooperate with the State Admin- of clients into SRCB, enhances cross-selling of products, istration of Foreign Exchange in preparing for the pilot strengthens the market competitiveness of SRCB, and project of “new international receipts and payments realizes the goal of win-win of the bank and enterprises. declaration system”, SRCB assigned the Information- Convenient home loan services for pre-owned houses. In 2009, SRCB cooperated with real estate websites and provided a comprehensive one-stop service that integrated selling and buying transactions of pre- owned houses and value-added loan services. Services include loans required for selling and buying pre-owned houses, releasing house information, inquiring house information, and concluding the transaction in stages from house inspection and evaluation, fund supervision, ownership transfer, mortgage registration, and loan extension in the final stage.

(III) Technology upgrades to improve the system Establishment of short message service platform. Ac- count information notification service through short messages is provided, and identifying code for personal e-banking transactions are also sent through short messages. The establishment of an SMS platform provides 16

SRCB Social Responsibility Report 2009

managment Department to develop and test the bank III. Protecting employees’ rights and interests interface program under the pre-condition that func- and providing development opportunities tions of SRCB’s business system were intact. The interface program was officially put into operation in late (I) Strengthening incentive mechanism and starting hu- November, 2009, and it further shortened the time limit man resource reform for corporate clients’ international receipt and payment In order to establish a new market-oriented and com- declarations. petitive human resource management mechanism, provide broader development opportunities to em- (IV) Perfection of client services to improve service lev- ployees to realize their personal value, and provide els human resource support required for the development Services in English are provided 24 hours and 7 days a of the Company, SRCB started comprehensive reform week. In order to improve the service quality, serve the in human resources management. The reform involves Expo 2010, and provide all-round services to foreign cli- three aspects: to expand the vocational development ents, the Service Center provides services in English 24 channels for employees and encourage their growth by hours and 7 days a week. A consultancy and complaint developing an employee job grade system; to reduce green channel is also established to ensure timely ac- egalitarianism and strengthen incentive and restraint ceptance and response to complaints. mechanisms by completing a performance appraisal system; and to strengthen the incentive of remuneration Completion of telephone banking function. SRCB con- distribution and effectively improve the effect of human tinued to enrich the type of telephone banking services, resources management by adjusting the remuneration and provided new business operation functions, namely distribution system. savings bonds (electronic) purchase by telephone banking and collection of bank and corporate statements (II) Perfection of employee representative convention through operator system. system and making the best of the convention Construction of customer service disaster recovery In 2009, the employee representative convention of system. A customer service disaster recovery system SRCB was in normal operation, played a significant role, was established to strengthen the initiatives and contin- and effectively promoted the democratic management gency response capability of SRCB in handling contin- of SRCB. Taking its own situation into consideration, gencies which occurred in the Service Center. Disaster SRCB continued to implement the simple and efficient recovery drills were carried out to familiarize the em- organizational structure of combining the trade union ployees at different posts with contingency responses. representative assembly and the employee representa- 17

tive convention. The employee representative conven- (III) Standardizing labor contract management tion of the Head Office was held once in 2009, at which to develop harmonious labor relations the Regulation of SRCB on Treatment of Employees In 2009, SRCB renewed and revised the employee labor Violating Regulations and related work reports and ex- contracts, further standardized the content of contract amination methods were discussed, modified, and ap- and the signing and renewal procedures of, and en- proved after review. Employee’s Director to the second hanced the management of labor contracts, to protect Board of Directors and Employee’s Supervisor to the the rights and interests of employees. second Board of Supervisors were elected. In the mean time, SRCB participated actively in the yearly cadre performance appraisal organized by the Human Resource Department, optimised the democratic supervision function of the employee representative convention, and organized the activity of rationalization proposal to collecte the wisdom of the employees. 18

SRCB Social Responsibility Report 2009 19

Shouldering social responsibility to focus on people’s livelihoods 20

SRCB Social Responsibility Report 2009

Shouldering social responsibility to focus on people’s livelihoods

I. Social responsibility in major social events (I) Facing the international financial crisis with all efforts

In 2009, the world economy turned down under the con- strong support to the growth of the economy. Inheriting tinued impact of the American financial crisis. Influenced and developing its service tradition, SRCB strengthened by the down turn, exports shrank, and some import and its financial support to the weaker links in the economy export enterprises faced a difficult operating envion- and in doing so supported people’s livelihoods. Agri- ment. Under such circumstances, SRCB shouldered its related loans reached RMB 25.459 billion, accounting corporate social responsibilities decisively, Including for 25% of all self-support loans. In particular, loans to undertaking comprehensive investigation into the af- specialized farmers’ cooperatives increased by RMB 110 fected enterprises to which loans were extended given million, an increase of of 55.48%. Loans to SMEs totaled the flow-on effects and the characteristics of the finan- RMB 61.5 billion, including outstanding credit issued to cial and economic crisis. SRCB learned about these cus- SMEs against property guarantees of RMB 18.8 billion, tomers’ production and operationed situations in detail an increase of 8% against the trend. and provided well-targeted suggestions and practical To cope with the continuing impact of the financial crisis financing plans to help the enterprises to overcome dif- on the economic development of China, the central gov- ficulties and effectively curb the obvious rise in related ernment adopted active fiscal policies and moderately credit risk. Under the pre-condition of sticking to strict loose monetary policy to achieve the goal of “maintain- risk control, SRCB increased the credit extension, and ex- ing growth, expanding domestic demand, and adjusting tended self-support loans of RMB 17.391 billion to give the economic structure”, so that the economy would develop in a positive direction. As a primary dealer in open market operations of the People’s Bank, SRCB ful- filled its responsibility and participated actively in open market operations. It underwrote 46 issues of central bank bills in the year, with nominal value of RMB 60.37 billion. SRCB participated in one repurchase transaction in the open market for RMB 50 million. In addition, as a member of underwriting team for treasury bonds, certificated bonds, and savings bonds (electronic), as well as the member of the underwriting team on financial bonds issued by the China Development Bank, China Eximbank, and Agricultural Development Bank of China, SRCB actively expanded its distribution channels. The cumulative amount of bonds underwritten was over RMB 30 billion for the year, which provided financial support to the implementation of macro-economic policy and economic development in the face of the crisis.

To strengthen its business capacity and improve its risk resistance capacity in facing the financial crisis, SRCB successfully issued subordinated bonds of RMB 1.5 billion in the inter-bank bond market on Dec 2, 2009, to supplement its supplementary capital. The successful issuing of subordinated bonds marked a new break- 21

through in supplementary capital and optimizing its capital structure. It also laid a solid foundation for SRCB to deepen its system mechanism reform, to enhance profitability, and to increase the return on capital, as well as for further development.

(II) Celebration of the 60th anniversary of the founding of the People’s Republic of China National Day of 2009 was the 60th anniversary of the foundation of the People’s Republic of China. To ensure that the celebration activities proceeded smoothly and safely and create a jubilant, peaceful, and safe environment, SRCB stuck to the requirements of the Party Com- mittee at higher levels and regulatory departments. All plans, carried out contingency response drill activities, employees and management paid high attention and and improved the capability of the business outlets in were well-prepared for security during the National Day responding to those contingencies. SRCB carried out holidays to maintain financial and social stability and safety examination on the information system of the provide quality financial services to clients. In this way, bank and purchased key support services at critical pe- SRCB ensured the normal operation of businesses dur- riods from service providers to ensure safety and stable ing the holidays. operation of the information system during the National Firstly, SRCB launched publicity and education on Day holiday. SRCB deployed security workers during the security during the National Day holiday and imple- holiday to ensure security of the bank. mented specific measures on security rectification. SRCB Secondly, SRCB made more effort to ensure the smooth- strengthened its management of security at business ness of the complaint channels and strengthened exam- outlets and improved the quality of the security workers ination and resolution of conflicts and disputes. Respon- on duty to ensure safe operation of all business outlets. sibilities were specified and implemented to eliminate SRCB revised and completed contingency response and resolve problems and hazards that may affect social and financial stability. Leaders at different levels and the Communist Party and Youth League organizations visited employees at the work level to understand their needs and implemented measures to help the needy, and to ensure that the needy families and retirees would have a happy holiday.

Thirdly, SRCB ensured that there were enough business outlets open for business during the holiday. SRCB also further standardized business procedures and improved service quality and efficiency to provide convenient and quality services to clients.

In addition, SRCB held the employees’ concert themed on “celebrating National Day and the coming Expo 22

SRCB Social Responsibility Report 2009

2010” in the Shanghai Concert Hall on Oct 17, 2009. Art to further clarify the responsibility and time limit for was expressed in multiple forms at the concert, which handling complaints. was large in size and exquisite in performance. It exerted Active participation in activities to welcome Expo 2010. a favorable influence on the employees and enriched In response to the “three-fifth” collective campaign to their spiritual life. welcome Expo 2010, SRCB participated in the “community campaign of anti-fake currency” organized by (III) Strengthening financial services to welcome Expo Shanghai Municipal Financial Ethics Promotion Office in 2010 joint effort with functional departments of the People’s Promotion of branch construction. Firstly, light boxes Bank of China on May 5, 2009. It was responsible for at the doors of over 300 outlets were replaced in com- anti-fake currency education to financial consumers in pliance with the standards specified in Visual Image 8 residential communities and did its duty to improve Identification Manual of SRCB to beautify the outlook financial knowledge. SRCB also participated in the col- of the outlets. Secondly, over 130 outlets were re- lective campaign of “one-hundred-day ethics promo- decorated, relocated or reconstructed to upgrade their tion to welcome the Expo 2010” and launched voluntary service hardware. Thirdly, SRCB established Jing’an and services themed on “being civilized from small things” Luwan sub-branches in the downtown area, and 12 self- and “clean home”. service banking outlets were open to businesses in the downtown area to fill service gaps. Fourthly, more self- Making efforts to improve the payments environment. service banking tools were deployed including 238 ATM SRCB opened altogether 25 business outlets providing machines and 63 multi-medium self-service terminals to personal foreign exchange services by the end of 2009. facilitate financial services for Expo 2010. II. Social responsibility for people’s livelihood Strengthening financial services to welcome Expo 2010. Firstly, SRCB strengthened its examination of financial (I) On the basis of community-based people- friendly services provided by the outlets during Expo and em- bank phasis was placed on outlets in the Expo area. Secondly, The Company set up financial convenient outlets with SRCB strengthened training to the outlets on counter staggered and late services for the convenience of cus- services to improve service quality. Thirdly, lobby man- tomers who cannot avail of the bank’s financial services agers were deployed in the outlets in the Expo area to during normal work hours, and this received high praise improve service standards. Fourthly, SRCB promulgated from nearby residents. the Business Outlet Service Standardization Manual and In 2009, in order to build an interactive relationship with organized employees to study it carefully. Fifthly, SRCB the neighborhood streets and neighborhood commit- strengthen the management of complaints from clients 23

tees, the financially convenient bank launched financial actively launched the building of banks in villages and service activities with the theme of “publicizing and towns, which is the very embodiment of deeply imple- popularizing financial knowledge, serving the people’s menting the requirements of the Municipal Committee production and domestic life and jointly constructing a and Municipal Government, further supporting the harmonious community”. construction of a new socialist countryside, speeding up the innovation of financial organizations in the city, and The Company has 3 financial convienience outlets re- actively exploring self-development. The Company will spectively in Caoxi Road of Xuhui District, Longbai of support the Chongming Changjiang Village and Town Minhang District, and Renmin Road East of Nanhui Dis- Bank with its own experience in management, techno- trict, whose personal financial businesses in deposits, logical platforms, business procedures, and talent intro- personal loans and financial management have made duction. a progress compared with that of 2008. The balance of profit and loss has been primarily achieved, and the overall operation was acceptable.

(II) Making up for the gaps in suburban financial services The Company always stands its ground on providing service in the outer suburbs. Although the economic benefits of some business outlets in these areas are low, while the operation and maintenance cost is high, the company continues to preserve these business outlets, such as Xiaozhen and Liansheng in Qingpu District, to provide daily financial services, so as to meet the financial service requirements of the residents in the outer suburbs, and to avoid financial service gaps. The Com- pany assumes these social responsibilities and is widely acknowledged by the local government and the general population.

On February 18, 2009, the Company and 5 local companies in Chongming County jointly set up the first village and town bank in Shanghai, the Shanghai Chongming Changjiang Village and Town Bank. The Company pro- 24

SRCB Social Responsibility Report 2009

(III) Popularizing financial knowledge in the community seriously damaged in Dujiangyan. Secondly, in 2009, Du- The Company has actively brought financial knowledge jiangyan Municipal Rural Credit Cooperative transferred to the countryside. In September 2009, the company a ten-year construction loan for infrastructure worth participated in the theme activity sponsored by the about RMB 290 million to the company, which promoted Shanghai Youth Working Committee in Finance and the development of local livelihood projects. Thirdly, League Municipal Party Committee regional division, the company expressed concern for the needy workers with the theme of “small loans help you realize your in Dujiangyan Municipal Rural Credit Cooperative and successful dream - bring financial knowledge to the consolation money of RMB 100,000 was sent to them. countryside theme activity in 2009”. The Company also Fourthly, the Company assisted Dujiangyan Municipal proactively signed a financial service agreement with Rural Credit Cooperative to develop employee training representatives of young entrepreneurs in suburbs rec- programs, and training classes for account managers ommended by the League Municipal Party Committee, were conducted twice with trainees numbering over 20 endeavored to meet the financing requirements for people. young people to start careers, created a better financing The company helped needy people and expressed its environment, and injected new vitality to the devel- concerns. Introduced by the Shanghai Youth Working opment of a new socialist countryside. The Company Committee in Finance, the company offered one-to-one also provided financial advisory services, such as the assistance to Guanghui Village, Xuanqiao Town, Original introduction of micro-credit, interpretation of financing Nanhui District. With total investment of RMB 200,000, policies, and consultation for individual financial man- the company helped the underdeveloped village to agement to the young entrepreneurs and league cadres construct infrastructure and to improve the appearance who attended the activity. of the village.

The Company actively took part in the “2009 SRCB pub- The Company supported the comprehensive manage- lic financial management and investment education ment of social security as well as the construction of a activity series”. In order to guide investors to establish a stable society, and continued to donate RMB 500,000 as healthy and correct investment philosophy and further a “special fund for brave acts” to the Office of Shanghai deepen the education work of the investors, the com- Comprehensive Management of Social Security from pany actively participated in the “2009 SRCB public fi- 2007 to 2011. nancial management and investment education activity series”. In light of its own situation, from August 29 - 30, 2009, the Company launched the SRCB public financial management and investment education activity and brought its financial services to the countryside.

(IV) Attending charitable activities whole heartedly The Company took an active part in reconstruction work after the Wenchuan Earthquake. Firstly, the Company assisted in constructing bank outlets destroyed during the earthquake. It is planned to invest a total of RMB 10 million over 3 years especially for rehabilitation and reconstruction of the municipal cooperatives business outlets 25

(V) Developing education for citizens on credit knowl- Questionnaire on Credit Knowledge on its portal site for edge the clients to download. In order to build a sound payment environment for Expo 2010, further improve citizen’s awareness of using (VI) Publicity against money laundering and currency ATM cards and credit awareness, and to promote a new- forgery round of development in the bankcard industry in the The Company launched a special publicity activity on city, on June 20, 2009, the Company participated in the anti-money laundering in combination with the large- “2009 incentive promotions of UnionPay card swiping in scale activity of the Lantern Festival. Through distribut- Shanghai for celebrating the 2010 World Expo and the ing the brochure Knowledge about Anti-Money Laun- 60th anniversary of the founding of the People’s Repub- dering issued by the People’s Bank of China, arranging lic of China” jointly organized by Shanghai head office stands for advisory services and electronically displaying of the People’s Bank of China, Shanghai Municipal Eco- the slogan concerning anti-money laundering, the Com- nomic and Informatization Commission, and Shanghai pany created a good atmosphere to effectively mobilize Banking Association. The latest credit cards issued by society to strike and boycott money laundering. During the Company were displayed during the activity and the the activity, 16 campaign sites were set up and 2,000 knowledge about card usage was publicized to citizens. brochures were distributed. The event was highly and unanimously appraised by rel- Taking advantage of the large-scale anti-fake currency evant leaders and clients. publicity campaign in May, the company publicized On October 24, 2009, in answer to the requirements of anti-money-laundering knowledge to the public to- “popularizing credit knowledge and improving social gether with anti-fake currency knowledge. Through this credit awareness” of the People’s Bank of China, the publicity, the public’s awareness about the importance Company launched a week-long credit knowledge of preventing money laundering was improved. publicity activity with the theme of “cherishing credit The Company promoted publicity regarding anti-fake records and improving credit consciousness” in all busi- currency in communities to welcome the Expo 2010. In ness outlets. During this period, all business outlets of answer to the “anti-fake currency attitude in the com- the company publicized credit knowledge by means of munity” introduced by the Shanghai Civilization Office continuously broadcasting publicized scrolls and videos, of Financial Authority, Shanghai Head Office of the Peo- putting up posters, displaying and distributing informa- ple’s Bank of China, and Shanghai Oriental Digital Com- tion, and providing on-site advice, which achieved a munity, on May 5, 2009, the company launched “Wel- good social impact. Besides, the Company published the come the Expo 2010, anti-fake currency attitude in the 26

SRCB Social Responsibility Report 2009

community” activity in communities such as Baoshan, of the actual situations, during the marketing period of Fengxian, Jiading, Jinshan, Qingpu, Nanhui, Pudong, holidays or the publicity activities on Old People’s Day, and Songjiang. This improved the social popularity of all branches and sub-branches launched a series of anti- fake money identification skills, and was well-received fake currency activities, such as distributing anti-fake by residents of the communities. Besides, the company currency brochures, providing advisory services about cooperated with the neighborhood committees of Yu- fake currency and rules for recognizing fake currency. eyang Street, Yixiangju, Zhonglouxin Village, and Song- nansi Village and jointly built publicity stations for anti- (VII) Recruiting new staff and expanding human re- fake currency activities, so as to promote these kinds of sources activities in those communities in the future. In 2009, when the influence of the international financial Flexible and diverse types of publicity activities for crisis had not faded and the number of college gradu- fighting fake currency were launched. The company ates increased again, employment of graduates got displayed anti-fake currency brochures in the waiting much attention from all circles of society. The Company halls of each business outlet and posted publicity post- actively responded to the call of Party and State, and ers about anti-fake currency to guide the urban and bravely assumed its responsibilities. In consideration of rural citizens to protect the Renminbi. This was in line its business development and distribution of its busi- with the principle of “proceeding from protecting the ness outlets, the company employed over 200 graduates interests of mass people, focusing on the town, facing from various colleges and universities. the countryside, learning from the experience of one place to lead the whole area, and advancing steadily”. Citizens mastered the simple method of recognizing fake currency, such as “first to look, secondly to listen, and thirdly to touch”, and learned general knowledge about anti-fake currency as well as national laws and regulations concerning Renminbi management. In light 27

III. Social responsibilities in corporate culture The development of corporate culture is an important embodiment and an effective way to cultivate corporate spirit, and form the core competitiveness of the enterprise. In 2009, the company insisted on a people- focused concept, actively explored the people-friendly bank, and aimed to develop a harmonious enterprise to promote the development of a harmonious society.

(I) Training for employees

Starting e-learning electronic training platform: The electronic training platform officially launched in May 2009 provides staff with a brand-new training channel. The courseware comprises 19 courses such as Profes- sional ethnics for accountants, Expo English, Compli- ance knowledge, Personal foreign exchange sale and purchase business training, Financial statement analysis, English language for counter staff, English languages Financial markets and products, etc. Online training signage for Expo counters, window service quality of consisting of 75 class hours in total was developed. 3,167 the Expo outlets, service management of the branch employees of the Bank attended online classes with 4.39 manager in Expo outlets, training for hall managers, courses attended per person and online learning time training on personal foreign currency exchange, train- of 11.89 hours per person, deepening employees’ training on trade finance, and anti-counterfeiting training on ing in financial services. Based on the financial service foreign currencies, so as to comprehensively enhance requirements of Expo, the company actively promoted the financial service level and ability of the staff of the the training plan concerning Expo 2010, which included Bank. Meanwhile, the company attached great attention 28

SRCB Social Responsibility Report 2009

to the occupational skill appraisal of tellers. 1,517 em- mote employees’ vocational quality. For middle man- ployees registered for the Level-IV Banking Teller Quali- agement, taking advantage of the high-quality training fication Examination and 1,387 of them took part in the organizations and teaching resources, the company examination, among which 137 passed Level-IV and 13 provided a training plan series, consisting of central- passed Level-III. ized training or lectures organized for those who took a break from work, book reading, and communication Strengthening the training and education on case activities organized annually, and weekend seminars or- prevention. In 2009, the Company emphasized “case ganized by Shanghai Cadre Training Center. For special prevention” training, and developed multilevel compli- talent and new employees, the company continuously ance training via traditional face-to-face training, special improved their theoretical knowledge ability as well as training and discussion on case prevention provided to practical ability through job rotation, internships, and cadres in posts relating to management, credit, audit, communication practice, which improved the team spir- and supervision. In training for new employees, occu- it of staff. The company held 4-phase traditional or on- pational ethics education and compliance training were line training classes running 36 class hours for financial also strengthened. Compliance tests were organized for managers. The training content included basic financial the whole Bank. 99.45% of the accountants in the Bank planning, financial markets and products, market analy- took part in an online test concerning occupational eth- sis, development and maintenance of customers, etc.. ics and 98.99% of them passed. 4,680 employees participated in an online test concerning case prevention and (II) Colorful activities concerning corporate culture 99% of them passed. In 2009, the Company held the 2nd Culture and Art Fes- Holding corporate on-job training. For the employees in tival for staff with the theme of “celebrate National Day Corporate Banking, in 2009 the company organized dis- and welcome Expo 2010”.A series of high-participation cussion classes for professional risk managers, and train- activities were organized, such as a special concert for ing for financial managers, Presidents in sub-branches, the staff, special dance competition, flower arrangement as well as the Office Director, so as to continuously pro- competition, photo competition, and a painting and calligraphy works competition. Nearly 2,000 employees were engaged in the activities, which enriched the staff’s cultural life and revealed achievements of the corporate culture development.

The Company actively participated in a boat race, bas- ketball match and swimming race organized by Shang- hai financial authority, and took part in the “drilling every week” activity and fire protection drilling held by the street community, which showed a favorable social image.

(III) Paying attention to the employees and strengthening the cohesive affinity of the Company The company cares for young employees. In 2009, the league organization of the company organized colorful activities to strengthen the cohesive affinity of the com- 29

pany and boost the development of young employees. Colloquiums for the young employees were held to understand the thoughts of youngsters as well as to inspire them. Colloquiums for the parents and home-visits were launched to promote the healthy growth of young employees.

The Company cares for needy employees. During the Spring Festival or in cold winter or hot summer, cadres at every level always express their concern for employees. The cadres care about the working and living conditions

of employees and helps them to settle difficulties, try- ing to make them feel the warmth of the Bank as a big family. During the last Spring Festival, the Company representatives paid visits to 335 employees and delivered money to support them.

The company also organized recreational activities during the Double Ninth Festival and the Mid-Autumn Festival to send warm regards to the retired workers and single employees. 30

SRCB Social Responsibility Report 2009 31

Fulfill the Environmental Responsibility with Sustainable Development Ideas 32

SRCB Social Responsibility Report 2009

Fulfill the Environmental Responsibility with Sustainable Development Ideas

I. Presentation of environmental protection policy 1. Credit policy 10 global solar cell manufacturers and the top 3 in Chi- With the background of a complicated financial situa- na. The company provided RMB 1,200 million financial tion and severe business environment, the company ran letter of guarantee deposit to promote its development business actively based on the national industry policy, in manufacturing photovoltaic power generation equip- and credit policy with appropriate development speed, ments. and it was prohibited to provide loans to companies Shanghai Aeolon Wind Energy Technology Develop- which were not compliant with energy conservation and ment Co., Ltd. was registered in December, 2007. After emission reduction requirements. For “high pollution, 2010 the Aeolon Phase 3 is complete, there will be 12 high energy consumption and high investment” indus- production lines. And the annual output will be 800 sets tries and those companies which were on the energy (1.2 million MW supporting capacity) with RMB 1 billion conservation and emission reduction key list, the Bank sales volume. The Bank provided RMB 10 million credit prohibited providing loans and withdrew existing loan loan to ensure part of the liquidity needs, and the Bank from them quickly. is giving more support to this company.

2. Project cases The Bank launched the first Energy Performance Con- tracting management project financing. On Oct. 30th, According to the environment and energy conservation 2009, the Company granted RMB 1.45 million Loan to credit policies, the company actively participated in Shanghai Airserve Corporation. As an advanced energy many large-scale projects, such as a photovoltaic power management method globally, Energy Performance generation project, solar cell project and a comprehen- Contracting management is a new energy conservation sive management of river course environment project, service mechanism which charges a reduced fee for all so as to improve energy efficiency, protect the city energy conservation costs. It reduces operation costs as environment, reduce green gas emission, as well as to well as improving energy efficiency. advance energy conservation work.

In 2008, the sales volume of JA Solar Holdings Co., Ltd. was RMB 5.5 billion, and the all year sales volume of solar cell was 277MW. JA Solar Holdings is among the top 33

II. Advocating green working style III. Modern financial tools promotion In May 2009, considering insufficient working area and Personal Online Banking was officially launched on conditions, the Company prudently chose and then December 25th, 2009. The main function consists of ac- moved headquarters to Pudong New Area. The original count information inquiry, time deposits, remittances, headquarters was so small that some departments had payment of utility charges, mobile recharge, wealth to work outside. The decoration of new headquarters management product sales, credit card repayments and was guide by economical and environmental protection customer service, etc. The most attractive highlight is principles, and the working area is functional and practi- to use advanced “double channels and double factors” cal. In the new building, the headquarters is co-located certification measures, which enhanced online banking toghther with management such as administrative security. management and system operation maintenance, etc. Online banking is a milestone accomplishment of the The new headquarters further raises the efficiency and first round of e-banking arrangements and five “firsts”: effectiveness of resource utilization. i.e. first bank adapting “double channels and double Furthermore, the company continued to increase and factors” certification measures, first bank providing au- strengthen its office automation, and the idea of pa- tomatic transfer service, first rural cooperative financial perless office went through all departments. Within institution providing prefabricated certificate function, the year, staff used the Internet to deliver and receive first rural cooperative financial institution providing full more than 5,000 documents, which not only improved e-banking services (including personal online banking, the working efficiency but also saved lots of paper and corporate online banking, credit card online banking, printing resources. general edition and professional edition),and first rural cooperative financial institution adopting e-banking centralized management. 34

SRCB Social Responsibility Report 2009 35

Annual awards 36

SRCB Social Responsibility Report 2009

Annual awards

Awards in 2009

Host organization Awards Category

China Government Securities Deposi- 2009 Excellent Clearing member tory Trust & Clearing Co. Ltd. 2009 National Interbank Market Trade Volume Top China Foreign Exchange Trade Center 100 Shanghai Bureau of China Banking The 3rd of 2009 Financial Market Monitor & Examina- Regulatory Commission tion 2009 CUP Cards Excellent Selling Bank in Shanghai China UnionPay area The Shanghai headquarters of People’s The 1st Prize in Financial Institutions Statistics Exami- Bank of China nation of Chinese-funded Corporate Banks The Shanghai headquarters of People’s Excellent Institution in Interest Rate Motoring Financial Bank of China service The Shanghai headquarters of People’s The No. 1 of Shanghai Payment and Settlement Busi- Bank of China ness Quality Examination Consolidated Award 2009 The 3rd in Anti-counterfeit RMB Currency Team and The Shanghai headquarters of People’s rd the 3 in Anti-counterfeit Foreign Currency Team of Bank of China the Fifth Anti-counterfeit Skills Competition The Shanghai headquarters of People’s The 2nd Saving Bonds Statistical Analysis of Examina- Bank of China tion 2009 Shanghai Bureau of State Administra- The 1st Prize of Shanghai International Revenue & tion of Foreign Exchange Expenditure Declaration Work 2009 Shanghai Bureau of State Administra- The 2nd of Shanghai Exchange Settlement and Sales tion of Foreign Exchange Statistics Work 2009 China Communist Youth League Shang- Excellent Organization in Shanghai Financial Youth hai Committee Serving EXPO Achievements Contest Shanghai Human Resources and Social Others Security Bureau, Shanghai General La- Excellent Organization of Shanghai Vocational skills bor Union and China Communist Youth Contest 2009 League Shanghai Committee The 340th within global banks basing on the tier 1 The Banker Top 1000 World Banks 2009 capital and the 17th within selected Chinese com- Bank ranking mercial banks Shanghai Rural Commercial Bank

All copy right reserved by Shanghai Rural Commercial Bank. It is not allowed to transfer and reprint without permission. Welcome to put forward your suggestion and advice.

Annual Report Annual Report 2009

Appendix Financial Report Social Responsibility Report Shanghai Rural Commercial Bank Address: No.8 middle yincheng road shanghai Tel:86-21-38576666 Fax:86-21-50105085

Welcome to dial our 24-hour customer service hotline 86-21-962999 or login our website www.srcb.com Shanghai Rural Commercial Bank

All copy right reserved by Shanghai Rural Commercial Bank. It is not allowed to transfer and reprint without permission. Welcome to put forward your suggestion and advice.

Annual Report Annual Report 2009

Appendix Financial Report Social Responsibility Report Shanghai Rural Commercial Bank Address: No.8 middle yincheng road shanghai Tel:86-21-38576666 Fax:86-21-50105085

Welcome to dial our 24-hour customer service hotline 86-21-962999 or login our website www.srcb.com