Stock Code: 2388 BOC Hong Kong (Holdings) Limited Annual Report 2009 52/F Bank of China Tower, 1 Garden Road, Hong Kong Website: www.bochk.com Solid FOUNDatIONS for SUSTAINABLE GROWTH Annual Report 2009 Theme Hong Kong’s modern cityscape is complemented by its wealth of natural resources. The formation of these world-class rock and geological features takes hundred million of years. Hong Kong Geopark helps ensure that our future generations will be able to enjoy the legacy of these beautiful natural wonders. The Group takes great pleasure in pioneering the “Hong Kong Geopark Charity Green Walk”, a key focus of our Corporate Social Responsibility (CSR) programme in the year ahead. Our commitment to CSR is at the heart of our long-term competitiveness, enabling younger generations to enjoy the natural environment we are endowed with, and contributing to the sustainable development of the economy, society and environment as a whole. By embracing CSR, we reinforce our vision of becoming the premier bank of choice and creating greater value for our customers, shareholders and employees. OUR VISION TO BE YOUR PREMIER BANK OUR MISSION OUR CORE VALUES Build Social Responsibility customer satisfaction and provide quality We care for and contribute to our communities and professional service Performance Offer We measure results and reward achievement rewarding career opportunities and cultivate staff commitment Integrity We uphold trustworthiness and business ethics Create values and deliver superior returns to Respect shareholders We cherish every individual Innovation Combining the initials of mission and We encourage creativity core values, we have Teamwork BOC SPIRIT We work together to succeed Be environmentally friendly for our better future: As a good corporate citizen, we do not use lamination as normally adopted by the industry in our Annual Report 2009. Instead, we use varnishing, an environmentally friendly technique. The whole report is also printed on recyclable and elemental chlorine-free paper. This demonstrates our efforts in working for the betterment of our future generations. TdA – concept and design www.tda.com.hk CONTENTS Financial Highlights 2 Five-Year Financial Summary 3 Chairman’s Statement 6 Chief Executive’s Report 8 Management’s Discussion and Analysis 16 Corporate Information 58 Board of Directors and Senior Management 59 Report of the Directors 64 Corporate Governance 72 Investor Relations 83 Corporate Social Responsibility 90 Some of the Awards and Recognition 102 Financial Section 104 Appendix – Subsidiaries of the Company 243 Definitions 246 Branch Network & Corporate Banking Centres 249 BOC Hong Kong (Holdings) Limited (“the Company”) was incorporated in Hong Kong on 12 September 2001 to hold the entire equity interest in Bank of China (Hong Kong) Limited (“BOCHK”), its principal operating subsidiary. Bank of China Limited holds a substantial part of its interests in the shares of the Company through BOC Hong Kong (BVI) Limited, an indirect wholly owned subsidiary of Bank of China Limited. BOCHK is a leading commercial banking group in Hong Kong. With over 270 branches and 480 ATMs and other delivery channels in Hong Kong, BOCHK and its subsidiaries offer a comprehensive range of financial products and services to individual and corporate customers. BOCHK is one of the three note issuing banks in Hong Kong. In addition, the BOCHK Group (comprising BOCHK, Nanyang Commercial Bank and Chiyu Banking Corporation) and its subsidiaries have 23 branches and sub-branches in the Mainland of China to provide cross- border banking services to customers in Hong Kong and the Mainland. BOCHK is appointed by the People’s Bank of China as the Clearing Bank for Renminbi (RMB) business in Hong Kong. The Company began trading on the main board of the Stock Exchange of Hong Kong on 25 July 2002, with stock code “2388”, ADR OTC Symbol: “BHKLY”. FINANCIAL HIGHLIGHTS 2009 2008 Change For the year HK$’m HK$’m +/(-)% Net operating income before impairment allowances 26,055 25,526 2.07 Operating profit 15,104 4,182 261.17 Profit before taxation 16,724 4,078 310.10 Profit for the year 14,046 3,007 367.11 Profit attributable to the equity holders of the Company 13,725 3,343 310.56 Per share HK$ HK$ +/(-)% Earnings per share 1.2981 0.3162 310.56 Dividend per share 0.8550 0.4380 95.21 At year-end HK$’m HK$’m +/(-)% Capital and reserves attributable to the equity holders of the Company 102,902 82,719 24.40 Issued and fully paid share capital 52,864 52,864 – Total assets 1,212,791 1,147,244 5.71 Financial ratios % % Return on average total assets1 1.19 0.27 Return on average capital and reserves attributable to the equity holders of the Company2 14.79 3.81 Cost to income ratio 46.60 34.36 Loan to deposit ratio3 60.98 56.74 Average liquidity ratio4 40.18 41.74 Capital adequacy ratio5 16.85 16.17 Profit for the year 1. Return on average total assets = Daily average balance of total assets 2. Return on average capital and reserves attributable to the equity holders of the Company Profit attributable to the equity holders of the Company = Average of the beginning and ending balance of capital and reserves attributable to the equity holders of the Company 3. Loan to deposit ratio is calculated as at year end. Loan represents gross advances to customers. Deposit also includes structured deposits reported as “Financial liabilities at fair value through profit or loss”. 4. Average liquidity ratio is calculated as the simple average of each calendar month’s average liquidity ratio of BOCHK for the year. 5. Capital adequacy ratio is computed on the consolidated basis that comprises the positions of BOCHK and certain subsidiaries specified by the HKMA for its regulatory purposes and in accordance with the Banking (Capital) Rules. Profit attributable to the Total assets Capital and reserves equity holders of the attributable to the equity Company holders of the Company HK$’m HK$’m HK$’m 18,000 1,400,000 120,000 15,000 1,200,000 100,000 1,000,000 12,000 80,000 800,000 9,000 60,000 600,000 6,000 40,000 400,000 3,000 200,000 20,000 0 0 0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 2 BOC Hong Kong (Holdings) Limited Annual Report 2009 FIVE-YEAR FINANCIAL SUMMARY The financial information of the Group for the last five years commencing from 1 January 2005 is summarised below: 2009 2008 2007 2006 20052 For the year HK$’m HK$’m HK$’m HK$’m HK$’m Net operating income before impairment allowances 26,055 25,526 27,254 21,309 18,158 Operating profit 15,104 4,182 18,033 16,545 15,052 Profit before taxation 16,724 4,078 19,126 17,139 16,502 Profit for the year 14,046 3,007 15,817 14,284 13,856 Profit attributable to the equity holders of the Company 13,725 3,343 15,446 14,007 13,596 Per share HK$ HK$ HK$ HK$ HK$ Earnings per share 1.2981 0.3162 1.4609 1.3248 1.2859 At year-end HK$’m HK$’m HK$’m HK$’m HK$’m Advances and other accounts 527,135 469,493 420,234 352,858 338,403 Total assets 1,212,791 1,147,244 1,067,637 928,953 831,002 Daily average balance of total assets 1,178,513 1,099,198 1,032,577 915,900 831,789 Deposits from customers1 844,453 811,516 799,565 703,776 639,031 Total liabilities 1,107,156 1,062,712 972,579 842,313 749,289 Issued and fully paid share capital 52,864 52,864 52,864 52,864 52,864 Capital and reserves attributable to the equity holders of the Company 102,902 82,719 92,842 84,655 79,935 Financial ratios % % % % % Return on average total assets 1.19 0.27 1.53 1.56 1.67 Cost to income ratio 46.60 34.36 28.52 30.78 31.75 Loan to deposit ratio1 60.98 56.74 51.66 49.32 52.27 1. Deposits from customers also include structured deposits reported as “Financial liabilities at fair value through profit or loss”. 2. In June 2006, the Company acquired a 51% shareholding of an under common control entity, BOC Life. The financial statements have been prepared in accordance with the principles of merger accounting as set out in Accounting Guideline 5 “Merger accounting for common control combinations” issued by the HKICPA. The comparative amounts for the year 2005 have been restated in accordance with the principles for merger accounting to present the result and assets of the Group as if such combination had occurred from the date when the Company and BOC Life first came under common control. Advances and other accounts Deposits from customers HK$’m HK$’m 600,000 1,000,000 500,000 800,000 400,000 600,000 300,000 400,000 200,000 200,000 100,000 0 0 05 06 07 08 09 05 06 07 08 09 Annual Report 2009 BOC Hong Kong (Holdings) Limited 3 The launch ceremony of RMB 6 billion Sovereign Bonds by the Central Government in Hong Kong was held at 70/F of Bank of China Tower. 矗 立 OUtstanding CHAIRMAn’s STATEMENT An uncertain economic environment made 2009 a vision “to be a top-quality financial services group with an challenging year for the entire banking industry but the extensive base in Hong Kong, a solid presence in China and opportunities we captured were greater than ever.