Huishang Bank Annual Report Carry Foward the Tradition of Anhui Merchants and Build Huishang Bank into a Modern Bank Huishang Bank Annual Report 2006 Management team Chairman/Dai Hedi Chairman of Board of President/Li He Supervisors/Zhang Zhen Huishang Bank Annual Report 2006 Management team Vice Chairman of Board of Secretary of the Discipline Vice Chairman/ Supervisors/ Committee/Zhang Renfu Vice Chairman/Xu Demei Vice Chairman/Zhao Jice Wu Xiufang Li Xiaowan Vice President/ Vice President/ Vice President/ Vice President/Ci Yaping Wang Guisheng Zou Guangming Gao guangcheng Huishang Bank Annual Report 2006 Contents Tfdujpo!2ĂImportant Notice Tfdujpo!3ĂCorporate Information 1 Tfdujpo!4ĂSummary of Accounting and Financial Data 2 Tfdujpo!5ĂChanges in Equity and Shareholders 8 Tfdujpo!6ĂDirectors, Supervisors, Senior Management and Staff 11 Tfdujpo!7ĂCorporate Governance 19 Tfdujpo!8ĂGeneral Meeting of Shareholders 24 Tfdujpo!9ĂReport of the Board of Directors 25 Tfdujpo!:ĂReport of the Board of Supervisors 41 Tfdujpo!21ĂSignificant Events 44 Tfdujpo!22ĂFinancial Statements and Documents for Reference 48 Huishang Bank Annual Report 2006 Important Notice The Board of Directors and the Board of Supervisors of the Corporation and its directors, supervisors and senior management warrant that there are no false presentations or misleading statements contained in, or material omissions from, this report, and severally and jointly accept responsibility for the authenticity, accuracy and completeness of the information contained in this report. The text and the summary of the 2006 Annual Report of Huishang Bank were reviewed and adopted at the 9th Board Meeting of the Corporation’s First Board of Directors. 15 supervisors were required to attend the meeting and 14 directors were present. The financial statements for 2006 prepared in accordance with the Generally Accepted Accounting Principles of the People's Republic of China (PRC GAAP) have been audited by PricewaterhouseCoo- pers. The firm has issued unqualified audit opinions. The special-purpose financial statements for 2006 prepared in accordance with selected International Financial Reporting Standards (“IFRS”, refer to Note II of special-purpose financial statements for detail basis of preparation) have been audited by PricewaterhouseCoopers. The firm has issued unqualified audit opinions. Board of Directors, Huishang Bank Corporation Limited Huishang Bank Annual Report 2006 Corporate Information Huishang Bank Corporation Limited Annual Report 2006 Corporate Information I. Legally Incorporated Name (in Chinese): ࣫ฆᆀႜࠣݻᆶ၌ࠅິ Legally Incorporated Name (in English): HUISHANG BANK CORPORATION LIMITED (Abbreviated English Name: HUISHANG BANK, hereinafter known as “the Corporation”) II. Legal Representative: DAI Hedi III. Contact address: Office of the Board of Directors, Block A, Tianhui Building, No. 79, Anqing Road, Hefei, China Tel: +86-551-2667781 Fax: +86-551-2667787 IV. Registered address: No. 79, Anqing Road, Hefei, China Office address: No. 79, Anqing Road, Hefei City Postal code: 230001 V. Other related information Date of incorporation: December 28, 2005 Business license number: 3400001300154 Tax registration number: Guo-Shui-Wan-Zi 340103148974661 Di-Shui-He-Zi 340103148974661 Appointed Domestic and Foreign Auditors: PricewaterhouseCoopers Address: 11/F PricewaterhouseCoopers Center, 202 Hu Bin Road, Shanghai, PRC 1 Huishang Bank Corporation Limited Annual Report 2006 Summary of Accounting and Financial Data I. Major Financial Data at end of the Reporting Period (I) PRC GAAP Unit: RMB 1,000 Item Year 2006 Year 2005 Profit from Core Business 1,523,716 442,311 Profit from Other Business 1,055 1,739 Return on Investment 298,268 214,840 Operating Profit 906,856 313,897 Net Non-operating Income/Expenses 12,516 (988) Total Profit before Provision for Assets Impairment or Loan Losses 919,372 312,909 Total Profit after Provision for Assets Impairment or Loan Losses 519,372 271,078 Net Profit 288,495 220,709 Net Cash Inflow from Operating Activities 4,144,578 - Net Increase in Cash and Cash Equivalents 373,684 - (II) Special-purpose Financial Statements under IFRS Unit: RMB 1,000 Item Year 2006 Pre-tax Profit 901,800 Net Profit 559,953 Net Cash Inflow From Operating Activities 4,842,866 Net Increase in Cash and Cash Equivalents 373,684 2 Huishang Bank Corporation Limited Annual Report 2006 Summary of Accounting and Financial Data II. Major Accounting Data and Financial Indicators at the End of the Reporting Period Item Year 2006 PRC GAAP Year 2005 PRC GAAP Income from Core Business (RMB 1,000) 2,656,103 865,300 Net Profit (RMB 1,000) 288,495 220,709 Total Assets (RMB 1,000) 70,362,183 48,651,435 Total Deposit Balance (RMB 1,000) 62,944,992 43,368,982 Total Loan Balance (RMB 1,000) 44,212,706 30,486,800 Shareholder’s Equity (RMB 1,000) 3,151,931 2,172,608 Year-end Earnings Per Share (RMB) 0.10 0.10 Weighted Average Earnings Per Share (RMB) 0.12 - Year-end Net Asset per Share (RMB) 1.14 1.03 Net Cash Inflow per Share from Operating Activities (RMB) 1.49 - Cost/Income Ratio (%) 43.84 47.30 Year-end Return on Net Assets (%) 9.15 10.16 Weighted Average Return on Net Assets (%) 10.84 - 3 Huishang Bank Corporation Limited Annual Report 2006 Summary of Accounting and Financial Data III. Key Financial Data for the Reporting Period and the Discrepan- cies between PRC GAAP and IFRS Unit: RMB 1,000 Item Net Profit for Net Assets for the Year 2006 the Year 2006 Financial Statements under PRC GAAP 288,495 3,151,931 Adjustments under the IFRS Year-end Interest Receivables on Short-term Debt Securities 40,356 48,437 Addition of Loan Loss Provision 404,590 (441,938) Additional Provision for Bad Debt and Other Assets (22,985) (161,755) Revaluation Surplus on Trading and Available-for-sale Debt Securities 4,592 77,780 Reversal of Interest Income from Bill Discount and Rediscount (34,541) (66,654) Transfer of Assets and Liabilities Related to RMB Assets Management (3,451) (3,451) Product into the Balance Sheet and Accrue Interest Expense Recognized Deferred Income Tax (110,970) 266,100 Provision for Contingent Liabilities (1,550) (1,550) Reversed Interest Income (Expense) from Securities Reverse (5,262) (4,640) Repurchase/Repurchase Provision for Early Retirement Benefits 679 (58,871) Subtotal Adjustments 271,458 (346,542) Special-purpose Financial Statements under IFRS 559,953 2,805,389 Note: 1. In the special-purpose financial statements under IFRS, full reserves for impairments of loans and other assets have been made in accordance with IFRS. In the financial statements under PRC GAAP, general provision and specific provision are made in accordance with “Notice on Printing and Distributing ‘Administrative Measures for the Withdrawal of Reserves for Non-performing Debts of Financial Enterprises’” (NO.49 [2005] of the MOF) issued by the Ministry of Finance of the PRC, and other related regulations. 2.Interest income/expense from/for security repurchase/ (reverse repurchase), bill discount and bill rediscount are accounted for on the accrual basis under IFRS and on the cash basis under PRC GAAP. 3. Trading securities and available-for-sale securities are stated at fair value under IFRS and amortized face value under PRC GAAP. 4 Huishang Bank Corporation Limited Annual Report 2006 Summary of Accounting and Financial Data IV. Loan Loss Provision in the Reporting Period (I) PRC GAAP Unit: RMB 1,000 Item Year 2006 Year 2005 Opening Balance 476,086 176,914 General Provision from the Income Statement of the Year in the Reporting Period 58,748 - Specific Provision from the Income Statement of the Year in the Reporting Period 341,252 41,831 Recovery in the Reporting Period 4,890 - Write-off in the Reporting Period (137,662) (46,674) Transfer Bad Debt Provision - (49,783) Issue of Share - 353,798 Closing Balance 743,314 476,086 (II) Special-purpose Financial Statements under IFRS Unit: RMB 1,000 Item Year 2006 Opening Balance 1,322,615 Provision from the Income Statement of the Year in the Reporting Period 15,929 Write-off in the Reporting Period (137,662) Unwind of Discount on Allowance (15,629) Closing Balance 1,185,253 V. Supplementary Financial Data as at the End of the Reporting Period Unit: RMB 1,000 Item Year 2006 PRC GAAP Year 2005 PRC GAAP Total Liabilities 67,210,252 46,478,827 Total Deposits 62,944,992 43,368,982 Including: Long-term Deposits 3,970,971 2,677,776 Total Borrowing from Banks 9,020 65,586 Total Loans 44,212,706 30,486,800 Including: Short-term Loans 19,760,470 15,484,833 Bill Discount and Trade Finance 10,227,238 5,593,567 Medium and Long-term Loans 13,398,159 8,570,464 Overdue Loans 189,867 155,224 Idle Loans 573,938 642,260 Bad Loans 63,034 40,452 5 Huishang Bank Corporation Limited Annual Report 2006 Summary of Accounting and Financial Data VI. Appendix to the Income Statement (I) PRC GAAP Item Profit in the Return on Net Assets Earnings per Share (RMB) Reporting Period (%) Weighted Weighted (RMB 1,000) Year end Average Year End Average Profit from Core Business 1,523,716 48.34 57.23 0.55 0.68 Operating Profit 906,856 28.77 34.06 0.33 0.40 Net Profit 288,495 9.15 10.84 0.10 0.13 (II) Special-purpose Financial Statements under IFRS Item Profit in the Reporting Earnings per Share (RMB) Period (RMB 1,000) Year End Weighted Average Pre-tax Profit 901,800 0.33 0.40 Net Profit 559,953 0.20 0.25 VII. Supplementary Financial Indicators as at the End of the Report- ing Period Item Benchmark ratio Year 2006 Year 2005 Core Capital (RMB 1,000) - 3,151,931 2,172,608 Supplementary Capital (RMB 1,000) - 44,213 30,487 Capital Adequacy Ratio (%) Ľ 8 8.10 6.53 Core Capital Adequacy Ratio (%) Ľ 4 6.97 5.32 Liquidity Ratio (%) Ľ 25 39.58 27.36 Loan to Deposit Ratio (%) ļ 75 70.24 70.30 Money Market Ratio (%) Borrowing ļ 4 0.01 0.15 Lending ļ 8 0.06 0.12 Borrowing from Overseas (%) ļ 100 - - Ratio of Non-performing Loans (NPLs) (%) ļ 15 3.20 6.03 Interest Collection Ratio (%) - 99.95 - Ratio of loans to Top 1 Customer (%) ļ 10 15.91 31.48 Ratio of loans to Top 10 Customer (%) ļ 50 114.92 206.42 6 Huishang Bank Corporation Limited Annual Report 2006 Summary of Accounting and Financial Data VIII.