2017 Interim Report Bank of Qingdao Co., Ltd. 青島銀行股份有限公司 (A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 3866) IMPORTANT NOTICE 1. The Board of Directors, Board of Supervisors, Directors, Supervisors and senior management of the Bank assure that the information in this report contains no false records, misleading statements or material omissions, and shall be liable jointly and severally for the authenticity, accuracy and completeness of the information in this report. 2. The proposal on the 2017 Interim Report of Bank of Qingdao Co., Ltd. was considered and approved at the 30th meeting of the sixth session of the Board of Directors of the Bank held on 18 August 2017. There were 15 Directors eligible for attending the meeting, of whom 13 Directors attended the meeting. 3. The interim financial report for the six months ended 30 June 2017 of the Company is prepared in accordance with the applicable disclosure provisions of the Hong Kong Listing Rules, including compliance with International Accounting Standard 34, Interim Financial Reporting and have been reviewed by the audit committee of the Bank and by the KPMG in accordance with the Hong Kong Standard on Review Engagements 2410. The interim financial report for the six months ended 30 June 2017 has not been audited. 4. The financial information set out in this report is prepared on a consolidated basis in accordance with the International Financial Reporting Standards and expressed in Renminbi, unless otherwise stated. 5. The Bank’s chairman Mr. Guo Shaoquan, president Mr. Wang Lin, vice president in charge of financial work Mr. Yang Fengjiang and head of planning and finance Mr. Wang Bo assure the authenticity and completeness of this report. 6. No profit distribution and no transfer from capital reserve to share capital were made by the Bank in 2017 during the interim period. 7. This report contains certain forward-looking statements about the financial conditions, operating results and business developments of the Company. The report uses the words “will”, “may”, “strive”, “plan” and similar wording to express forward-looking statements. These statements are made based on current plans, estimates and projections, and although the Company believes that the expectations reflected in these forward-looking statements are reasonable, the Company cannot assure that these expectations will be attained or confirmed to be correct and therefore they do not constitute substantive undertakings of the Company. Investors should not unduly rely on such statements, and should be aware of investment risks. Please note that these forward-looking statements are related to future events or future financial, business or other performance of the Company, and are subject to certain uncertainties which may cause the actual results to differ substantially. Board of Directors of Bank of Qingdao Co., Ltd. Contents Chapter I CORPORATE INFORMATION 2 Chapter II FINANCIAL HIGHLIGHTS 3 Chapter III MANAGEMENT DISCUSSION AND ANALYSIS 6 Chapter IV SIGNIFICANT EVENTS 66 Chapter V CHANGES IN SHARE CAPITAL AND INFORMATION ON SHAREHOLDERS 69 Chapter VI DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT, EMPLOYEES AND INSTITUTIONS 78 Chapter VII CORPORATE GOVERNANCE REPORT 88 Chapter VIII REVIEW REPORT 91 Chapter IX UNAUDITED INTERIM FINANCIAL REPORT 92 Chapter X UNAUDITED SUPPLEMENTARY FINANCIAL INFORMATION 163 DEFINITIONS 167 Bank of Qingdao Co., Ltd. 2017 Interim Report 1 CHAPTER I CORPORATE INFORMATION Legal name in Chinese: Overseas auditor: 青島銀行股份有限公司 KPMG (Abbreviation: 青島銀行) 8th Floor, Prince’s Building, 10 Chater Road, Central, Hong Kong Legal name in English: BANK OF QINGDAO CO., LTD. Domestic auditor: (Abbreviation: BANK OF QINGDAO) KPMG Huazhen LLP 8th Floor, KPMG Tower, Oriental Plaza, Legal representative: Guo Shaoquan 1 East Chang An Avenue, Authorized representatives: Guo Shaoquan, Lu Lan Dongcheng District, Beijing Secretary to the Board: Lu Lan Joint company secretaries: Lu Lan, Lai Siu Kuen Legal adviser as to PRC law: King & Wood Mallesons Beijing Registered and office address: No. 68, Hong Kong Middle Road, Legal adviser as to Hong Kong law: Shinan District, Qingdao, Clifford Chance Shandong Province, PRC Registrar for H shares: Office of Board of Directors & Supervisors Computershare Hong Kong Investor Services Limited Address: No. 68, Hong Kong Middle Road, Shops 1712-1716, 17th Floor, Hopewell Centre, Shinan District, Qingdao, Shandong Province, PRC 183 Queen’s Road East, Wanchai, Hong Kong Postal code: 266071 Telephone: +86 (532) 85709728 Registrar for domestic shares: Fax: +86 (532) 85709725 China Securities Depository and Email: [email protected] Clearing Corporation Limited No. 17 Taipingqiao Avenue, Xicheng District, Principal place of business in Hong Kong: Beijing 36th Floor, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong Newspapers designated by the Bank for information disclosure: Company website: http://www.qdccb.com/ China Securities Journal Stock exchange on which H shares are listed: Website for information disclosure The Stock Exchange of Hong Kong Limited by the Bank: Stock name: BQD Website of the Bank Stock code: 3866 (http://www.qdccb.com/) HKExnews website of the Hong Kong Stock Exchange Unified Social Credit Code: (http://www.hkexnews.hk/) 91370200264609602K Date of first registration: 15 November 1996 Date of change of registration: 6 May 2016 Financial licence institution number: B0170H237020001 Bank of Qingdao Co., Ltd. 2 2017 Interim Report CHAPTER II FINANCIAL HIGHLIGHTS 2.1 FINANCIAL DATA January to January to Year-on-year Item June 2017 June 2016 change Business performance (RMB’000) Change (%) Net interest income 2,344,567 2,446,882 (4.18) Net fee and commission income 518,194 473,746 9.38 Net trading (losses)/gains, net (losses)/ gains arising from investments and other operating income, net (27,567) 50,000 (155.13) Operating income 2,835,194 2,970,628 (4.56) Operating expenses (792,826) (954,192) (16.91) Impairment losses (400,050) (381,558) 4.85 Profit before taxation 1,642,318 1,634,878 0.46 Net profit 1,278,760 1,261,528 1.37 Net profit attributable to equity shareholders of the Bank 1,275,799 1,261,528 1.13 Net cash flows used in operating activities (44,570,903) (614,414) 7,154.21 Change Basic earnings per share (RMB) 0.31 0.31 – 2.2 FINANCIAL INDICATORS January to January to Year-on-year Item June 2017 June 2016 change Profitability indicators (%) Change Return on average total asset (annualised) 0.91 1.28 (0.37) Return on average equity (annualised) 14.44 14.98 (0.54) Net interest spread (annualised) 1.62 2.17 (0.55) Net interest margin (annualised) 1.79 2.36 (0.57) Net fee and commission income to operating income 18.28 15.95 2.33 Cost-to-income ratio 26.94 28.43 (1.49) Bank of Qingdao Co., Ltd. 2017 Interim Report 3 CHAPTER II FINANCIAL HIGHLIGHTS Change from 30 June 31 December the end of Item 2017 2016 last year Scale indicators (RMB’000) Change (%) Total assets 281,976,231 277,988,106 1.43 Of which: loans and advances to customers, net 92,079,084 84,864,849 8.50 Total liabilities 263,787,759 260,352,133 1.32 Of which: deposits from customers 157,297,114 141,604,761 11.08 Share capital 4,058,713 4,058,713 – Equity attributable to the equity shareholders of the Bank 17,695,511 17,635,973 0.34 Total equity 18,188,472 17,635,973 3.13 Change Net assets per share attributable to shareholders of the Bank (RMB) 4.36 4.35 0.01 Asset quality indicators (%) Change Non-performing loan ratio 1.69 1.36 0.33 Provision coverage ratio 152.17 194.01 (41.84) Loan provision ratio 2.57 2.64 (0.07) Indicators of capital adequacy ratio (%) Change Core tier-one capital adequacy ratio 10.16 10.08 0.08 Tier-one capital adequacy ratio 10.17 10.08 0.09 Capital adequacy ratio 13.67 12.00 1.67 Total equity to total assets 6.45 6.34 0.11 Other indicators (%) Change Liquidity coverage ratio 159.35 101.24 58.11 Liquidity ratio 47.03 53.48 (6.45) Percentage of loans to the single largest customer 6.26 5.29 0.97 Percentage of loans to the top ten customers 38.73 36.99 1.74 Bank of Qingdao Co., Ltd. 4 2017 Interim Report CHAPTER II FINANCIAL HIGHLIGHTS Notes: (1) Net loans and advances to customers = the amount of total loan – provision for impairment (2) Return on average total assets = net profit/average balance of total assets at the beginning and at the end of the period (3) Return on average equity = net profit attributable to the equity shareholders of the Bank/average balance of equity attributable to equity shareholders of the Bank at the beginning and at the end of the period (4) Net interest spread = average yield on interest-earning assets – average cost of interest-bearing liabilities (5) Net interest margin = net interest income/average interest-earning assets (6) Net fee and commission income to operating income = net fee and commission income/operating income (7) Cost-to-income ratio = (operating expenses – tax and surcharges)/operating income (8) Basic earnings per share = net profit attributable to equity shareholders of the Bank/weighted average number of ordinary shares (9) The capital adequacy ratio and other relevant indicators listed in the above table were calculated in accordance with the Regulations Governing Capital of Commercial Banks (Provisional) and other relevant regulatory regulations Bank of Qingdao Co., Ltd. 2017 Interim Report 5 CHAPTER III MANAGEMENT DISCUSSION AND ANALYSIS 3.1 REVIEW OF THE ECONOMIC AND FINANCIAL ENVIRONMENT AND POLICIES In the first half of 2017, the economy was generally stabilized across the globe and seen steady recovery especially in the European and American areas.