Stock Code: 2388 Driving Excellence on New Grounds Annual Report 2014 BOC Hong Kong (Holdings) Limited Hong Kong BOC 52/F Bank of China Tower, 1 Garden Road, Hong Kong www.bochk.com Annual Report 2014 This version of the 2014 Annual Report will be replaced by the printed version available around mid April 2015. Our Vision is to be YOUR PREMIER BANK Our Mission is to customer satisfaction and provide quality Build and professional service rewarding career opportunities and cultivate Offer staff commitment values and deliver superior returns to Create shareholders Our Core Values are Social We care for and contribute to our Responsibility communities We measure results and reward Performance achievement We uphold trustworthiness and Integrity business ethics Respect We cherish every individual Innovation We encourage creativity Teamwork We work together to succeed Combining the initials of mission and core values, we have BOC SPIRIT 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 260 branches, more than 600 ATMs and other delivery channels in Hong Kong, BOCHK and its subsidiaries offer a comprehensive range of financial products and services to personal and corporate customers. BOCHK is one of the three note issuing banks in Hong Kong and also the Clearing Bank for Renminbi business in Hong Kong. In addition, the BOCHK Group (comprising BOCHK, Nanyang Commercial Bank and Chiyu Banking Corporation) and its subsidiaries have 42 branches and sub-branches in the Mainland of China to provide cross-border banking services to customers in Hong Kong and the Mainland. 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”. Theme Contents 2014 marked another year of success for the Group Financial Highlights 2 with record high results. The cover of the annual report Five-Year Financial Summary 3 features an illuminated Bank of China Tower to represent Chairman’s Statement 6 our ongoing pursuit of excellence and commitment to Chief Executive’s Report 8 sustainable growth. This is reflected in our theme for this Management’s Discussion and Analysis 16 year’s annual report, Driving Excellence on New Grounds. Corporate Information 48 Board of Directors and Senior Management 50 We are also committed to further enhancing the customer Report of the Directors 59 experience by offering the diverse range of services and Corporate Governance 64 products via different platforms for our personal and Investor Relations 85 corporate clients. Corporate Social Responsibility 94 Awards and Recognition 104 Looking ahead, by capitalising on our solid foundation Financial Section 108 and strong franchise, the Group will be proactive in Appendix – Subsidiaries of the Company 292 taking advantage of new opportunities to create greater value Definitions 294 for our customers, shareholders, employees and the Branch Network & Corporate Banking Centres 297 community. We will remain focused on Serving Society, Delivering Excellence and contributing to the enhancement of Hong Kong as an international financial hub and its long-term economic development. Financial Highlights 2014 2013 Change For the year HK$’m HK$’m +/(-)% Net operating income before impairment allowances 44,282 40,313 9.8 Operating profit 30,260 27,493 10.1 Profit before taxation 30,663 27,793 10.3 Profit for the year 25,105 23,075 8.8 Profit attributable to the equity holders of the Company 24,577 22,252 10.4 Per share HK$ HK$ +/(-)% Basic earnings per share 2.3246 2.1046 10.4 Dividend per share 1.1200 1.0100 10.9 At year-end HK$’m HK$’m +/(-)% Capital and reserves attributable to the equity holders of the Company 176,714 158,813 11.3 Issued and fully paid share capital 52,864 52,864 – Total assets 2,189,367 2,046,936 7.0 Financial ratios % % Return on average total assets1 1.19 1.22 Return on average shareholders’ equity2 14.65 14.37 Cost to income ratio 29.29 29.97 Loan to deposit ratio3 64.79 64.63 Average liquidity ratio4 42.17 37.93 Total capital ratio5 17.51 15.80 Profit for the year 1. Return on average total assets = Daily average balance of total assets 2. Return on average shareholders’ equity 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 represents deposits from customers including 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. Total capital ratio is computed on the consolidated basis for regulatory purposes that comprises the positions of BOCHK and certain subsidiaries specified by the HKMA in accordance with the Banking (Capital) Rules. Profit attributable to the equity Total assets Capital and reserves attributable to holders of the Company the equity holders of the Company HK$’m HK$’m HK$’m 24,577 2,500,000 200,000 25,000 2,189,367 176,714 20,000 2,000,000 160,000 15,000 1,500,000 120,000 10,000 1,000,000 80,000 5,000 500,000 40,000 0 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2 BOC Hong Kong (Holdings) Limited Annual Report 2014 Five-Year Financial Summary The financial information of the Group for the last five years commencing from 1 January 2010 is summarised below: 2014 2013 2012 2011 2010 For the year HK$’m HK$’m HK$’m HK$’m HK$’m Net operating income before impairment allowances 44,282 40,313 35,617 30,846 27,508 Operating profit 30,260 27,493 23,499 22,478 18,239 Profit before taxation 30,663 27,793 25,521 24,680 19,742 Profit for the year 25,105 23,075 21,547 20,813 16,690 Profit attributable to the equity holders of the Company 24,577 22,252 20,930 20,430 16,196 Per share HK$ HK$ HK$ HK$ HK$ Basic earnings per share 2.3246 2.1046 1.9796 1.9323 1.5319 At year-end HK$’m HK$’m HK$’m HK$’m HK$’m Advances and other accounts 1,014,129 924,943 819,739 755,229 645,424 Total assets 2,189,367 2,046,936 1,830,763 1,738,510 1,661,040 Daily average balance of total assets 2,112,622 1,890,403 1,734,388 1,823,989 1,382,121 Deposits from customers1 1,483,224 1,327,980 1,229,131 1,146,590 1,027,267 Total liabilities 2,007,895 1,883,928 1,675,689 1,605,327 1,542,751 Issued and fully paid share capital 52,864 52,864 52,864 52,864 52,864 Capital and reserves attributable to the equity holders of the Company 176,714 158,813 150,969 129,765 115,181 Financial ratios % % % % % Return on average total assets 1.19 1.22 1.24 1.14 1.21 Cost to income ratio 29.29 29.97 31.61 25.49 34.84 Loan to deposit ratio 64.79 64.63 63.32 61.00 59.69 1. Deposits from customers include structured deposits reported as “Financial liabilities at fair value through profit or loss”. Advances and Deposits from other accounts customers HK$’m HK$’m 1,483,224 1,200,000 1,500,000 1,014,129 1,000,000 1,200,000 800,000 900,000 600,000 600,000 400,000 200,000 300,000 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 BOC Hong Kong (Holdings) Limited Annual Report 2014 3 Efficient e-Banking Service Chairman’s Statement TIAN Guoli Chairman In 2014 we saw continued volatility in global financial markets, and record of achieving long-term profitability from our core particularly in the last quarter of the year. The US was set to businesses, BOCHK was named the Strongest Bank 2014 in Asia normalise its monetary policy, while weakened economic Pacific and Hong Kong by The Asian Banker. momentum in Europe and Japan prompted further quantitative easing measures. This, coupled with plummeting oil prices, Our operating philosophy has always been based on innovation heightened market anxiety. The Mainland economy grew at and improving customer experience. During the year, we catered a more modest pace, and declining demand in Hong Kong for the increasingly diverse needs of customers, emphasising hindered domestic GDP growth, although local residential close coordination among our business units, product innovation property transactions picked up towards the year end. For and an enhanced customer segmentation strategy. Our expertise Hong Kong banks, the acceleration in RMB internationalisation in wealth management also continued to deepen, which created new business opportunities. Against the backdrop enabled us to attract high quality customers and further elevated of a complex and fast-changing environment, our financial recognition of our brand. At the same time, we continued to take strength enabled us to withstand the testing challenges of the advantage of the latest trends in information technology.