INDUSTRIAL BANK CO.,LTD. INDUSTRIAL THE FIRST EPFI IN CHINA GREAT BANK LEADS TO A GREAT LIFE ANNUAL Add: No. 154 Hudong Road, Fuzhou, Fujian, P.R.C T e l : (86)591-87839338 R E F a x : (86)591-87842633 P P. C : 350003 O R www.cib.com.cn T ANNUAL REPORT THE FIRST EQUATOR PRINCIPLES FINANCIAL INSTITUTION (EPFI) IN CHINA 02 INDUSTRIAL BANK Important Notice The Company’s Board of Directors, Board of Supervisors, directors, supervisors and senior management members hereby warrant that the information contained in this report is free from false representation, misleading statement or material omission, and assume joint and several liabilities. The Company’s 2017 annual report and its abstract were reviewed and approved at the 8th meeting of the 9th session of the Board of Directors on April 24, 2018. The financial data and indicators contained in this annual report were prepared in compliance with the PRC Generally Accepted Accounting Principles. Unless otherwise specified, they represented the consolidated data, and the monetary sums expressed in RMB in this annual report. Deloitte Touche Tohmatsu Certified Public Accountants LLP has audited the Company’s 2017 financial statements in accordance with the Chinese Auditing Standards (“CAS”) and has issued a standard auditors’ report with unqualified opinions. The Company’s chairman Gao Jianping, president Tao Yiping and general manager of the financial department Li Jian hereby warrant that the financial statements in the 2017 annual report are true, accurate and complete. The plan of dividends distribution for ordinary shares for the reporting period considered by the Board of Directors: based on the total capital of 20,774,190,751 shares, cash dividend of RMB6.50 (inclusive of tax) should be distributed for every 10 ordinary shares. The plan of dividends distribution for preferred shares is as follows: proposed dividends for preferred shares are RMB1.482 billion in total. Of which, the total nominal value of the preferred shares of “Industrial Bank P1” is RMB13 billion, and proposed dividends to be paid for 2017 are RMB780 million with an annual dividend yield of 6%; the total nominal value of the preferred shares of “Industrial Bank P2” is RMB13 billion, and proposed dividends to be paid for 2017 are RMB702 million with an annual dividend yield of 5.40%. Investors are advised to read the full content of this annual report carefully. Prospective and forward-looking statements regarding future financial conditions, operating performance, business development and business plan contained in this report do not constitute any substantive commitment of the Company to investors. Investors should pay attention to investment risks. The Board of Directors specially reminds investors that the risk factors the Company is subject to have been listed in detail in this report. Please refer to “Operation Discussion and Analysis” for risk factor the Company is subject to and the risk management analysis. CONTENTS Important Notice 02 Chairman’s Statement 05 President’s Report 06 Definitions 09 Corporate Profile and Key Financial Indicators 12 Business Overview of the Company 19 Operation Discussion and Analysis 23 Significant Issues 76 Share Capital Changes and Shareholders of Ordinary Shares 84 Matters Regarding Preferred Shares 91 Directors, Supervisors, Senior Management Members and Employees 94 Corporate Governance 109 Financial Statements 115 Documents Available for Inspection 115 Appendix: Auditors' Report and Financial Statements 116 04 INDUSTRIAL BANK 2017 ANNUAL REPORT 05 Chairman’s Statement The year 2017 marks a year of high importance to the development of China’s financial industry. During the year, the 19th National Congress of the Communist Party of China (CPC) and the national financial work conference were held, at which the government confirmed a series of important deployments for China’s financial work. “Finance was determined as a core competency of China”, and to build a moderately prosperous society, China needs to “prevent and eliminate major risks, particularly prevent and control financial risks”. The primary objectives of China’s financial work for the moment and over a certain period of time ahead include “serving the real economy, preventing and controlling financial risks, and deepening the financial reform”. The positioning and priority of China’s financial industry became increasingly clear, which facilitated the long-term sustainable development of the industry. During the year, we endeavored to thoroughly understand and implemented the central government’s spirits in our operation and management, steadily moved forward, and achieved better than expected developments. Industrial Bank was founded amid China’s reform, and it has constantly pursued the governance model that fits itself through reform. During the year, we have kept abreast of the times, and further deepened the reform of corporate governance system and mechanism. We incorporated the CPC’s leadership into every process of the Company’s corporate governance in terms of articles of association, ensuring that the CPC committee can play a key political role in the Company’s decision making over major issues. In addition, functions of the Board of Directors, the Board of Supervisors, senior management and other governance organs were brought into play efficiently, and the corporate governance structure with clear division of labor and sound coordination was further enhanced. Through non-public issuance of A shares, the Group’s capital strength was boosted and shareholding structure was further stabilized. The top three shareholders jointly control over 40% stake of the Company, reflecting that the Company is solidly controlled by state-owned enterprises, and a corporate governance basis that facilitates sustainable development has been laid down. We aligned ourselves with China’s financial reform process, further reformed our mechanism, enhanced our expertise and efficiency, reduced number of management layers, streamlined our organizations and established a differentiated authorization mechanism, thereby making employees’ authorities better match their accountabilities, improving the soundness of business procedures and enhancing the Company’s efficiency. Industrial Bank has been developing in a market-oriented environment and growing rapidly by adapting to the market conditions. We have always considered delivering solid returns and creating value as our ultimate business goals. During the year, the market entered a new normal with tight balance. Financial regulation was tightened across the board. We followed the market trends and adapted to other changes, and proactively slowed down our asset expansion after pragmatically assessing the implementation of our strategic plans. By the end of the year, total assets amounted to RMB6.42 trillion, up 5.44% from the year-beginning level; net profit attributable to the parent company reached RMB57.2 billion, representing a year-on-year growth of 6.22%. Our strategy reiterated the basic function of financial services, and we enhanced our capabilities in serving the real economy, particularly the new-economy sectors. We further pushed forward the operational transformation, and optimized the structure of assets and liabilities. By the end of the year, our deposits and loans increased by RMB392.1 billion and RMB350.9 billion respectively, representing a year-on-year increase of 14.55% and 16.87% respectively. Such growths are better than most of similar banks. We insisted on our strategy of differentiation. In addition to solidifying our primary corporate finance business, we also looked to build a cornerstone retail finance business. We continued to differentiate our investment banking and financial market businesses, with the brand awareness of our green finance, investment banking, Bank-to-Bank Platform, and inclusive finance businesses being further strengthened. We also established the concept of “compliance creates value”, and further strengthened the internal risk management. We have comprehensively reviewed credit status of assets both on and off the balance sheet, made adequate provisions and disposed the non-performing assets in a market-oriented manner. By the end of the year, the non-performing loan (NPL) ratio, provision-to-loan ratio, and provision coverage ratio were at the best level among major banks, which provided a safety cushion for the sustainable and innovation-driven development of the Company, and further boosted our growth momentum of superior quality. Industrial Bank has always served customers with sincere attitudes and grown together with customers. During the process, the Company continuously improved itself. We actively responded to the changes in customer demand and expanded our service coverage. We have formed ourselves into a comprehensive financial service group with banking business as the core. We continued to strengthen the collaborative linkage between different group members and enhance related mechanism, so as to unswervingly combine different business units into an integrated one that can meet various customer needs. We have followed the footprints of customers. We expanded our geographical coverage to position us in line with the national “One Belt, One Road” strategy. The planning and building of our branch in Lhasa, which is our last branch in autonomous regions, has been approved, which marks completion of our direct branch layout across domestic market. The Hong Kong branch is growing with good momentum, and has accumulated