Stock Code: 2388 BOC Hong Kong (Holdings) Limited PROACTIVE Annual Report 2010 Management for Sustainable GROWTH 52/F Bank of China Tower, 1 Garden Road, Hong Kong Annual Report Website: www.bochk.com 2010 The printed version of the 2010 Annual Report of the Company will replace this version in mid April 2011 BOC Hong Kong (Holdings) Limited (“the Company”) was incorporated in Hong Kong on 12 Technology People 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 nearly 270 branches, 530 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 25 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. On 13 July 2010, BOCHK was authorised as the Clearing Bank of RMB banknotes business for the Taiwan region. 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”. 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 TdA – concept and design www.tda.com.hk Nature Contents Financial Highlights 2 Five-Year Financial Summary 3 Chairman’s Statement 6 Chief Executive’s Report 8 Management’s Discussion & Analysis 16 Corporate Information 56 Board of Directors and Senior Management 57 Report of the Directors 62 Corporate Governance 70 Investor Relations 82 Corporate Social Responsibility 90 Theme Awards and Recognition 102 Advanced technology and nature can work in equanimity for the benefit of mankind. By making a harmonious blend of these Financial Section 104 important aspects of modern life, we aim to create more value for customers and shareholders while contributing to the Appendix – Subsidiaries of the Company 258 sustainable development of society. Through the innovative use of information Definitions 262 technology, the Group continues to enhance our products and services, transcending the boundaries of time and Branch Network & Corporate Banking Centres 265 space, to better serve our corporate and individual customers in Hong Kong, the Mainland of China and overseas. At the same time, we care for the environment that we serve. Our commitment to Corporate Social Responsibility (CSR), as reflected by our support of Hong Kong National Geopark, is a valuable component of our long-term competitiveness. Annual Report 2010 BOC Hong Kong (Holdings) Limited 1 FINANCIAL HIGHLIGHTS 2010 20096 Change For the year HK$’m HK$’m +/(-)% Net operating income before impairment allowances 27,508 26,055 5.58 Operating profit 18,239 15,104 20.76 Profit before taxation 19,742 16,724 18.05 Profit for the year 16,690 14,251 17.11 Profit attributable to the equity holders of the Company 16,196 13,930 16.27 Per share HK$ HK$ +/(-)% Earnings per share 1.5319 1.3175 16.27 Dividend per share 0.9720 0.8550 13.68 At year-end HK$’m HK$’m +/(-)% Capital and reserves attributable to the equity holders of the Company 115,181 104,179 10.56 Issued and fully paid share capital 52,864 52,864 – Total assets 1,661,040 1,212,794 36.96 Financial ratios % % Return on average total assets1 1.21 1.21 Return on average capital and reserves attributable to the equity holders of the Company2 14.77 14.83 Cost to income ratio 34.84 46.60 Loan to deposit ratio3 59.69 60.98 Average liquidity ratio4 38.77 40.18 Capital adequacy ratio5 16.14 16.85 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 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. 6. Certain comparative amounts have been restated to reflect the early adoption of HKAS 12 (Amendment) “Income Taxes”. 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$’m 18,000 1,800,000 120,000 15,000 1,500,000 100,000 12,000 1,200,000 80,000 9,000 900,000 60,000 6,000 600,000 40,000 3,000 300,000 20,000 0 0 0 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 2 BOC Hong Kong (Holdings) Limited Annual Report 2010 FIVE-YEAR FINANCIAL SUMMARY The financial information of the Group for the last five years commencing from 1 January 2006 is summarised below: 2010 20092 20082 20072 20062 For the year HK$’m HK$’m HK$’m HK$’m HK$’m Net operating income before impairment allowances 27,508 26,055 25,526 27,254 21,309 Operating profit 18,239 15,104 4,182 18,033 16,545 Profit before taxation 19,742 16,724 4,078 19,126 17,139 Profit for the year 16,690 14,251 2,977 15,883 14,269 Profit attributable to the equity holders of the Company 16,196 13,930 3,313 15,512 13,992 Per share HK$ HK$ HK$ HK$ HK$ Earnings per share 1.5319 1.3175 0.3134 1.4672 1.3234 At year-end HK$’m HK$’m HK$’m HK$’m HK$’m Advances and other accounts 645,424 527,135 469,493 420,234 352,858 Total assets 1,661,040 1,212,794 1,147,245 1,067,637 928,953 Daily average balance of total assets 1,382,121 1,177,294 1,099,198 1,032,577 915,900 Deposits from customers1 1,027,267 844,453 811,516 799,565 703,776 Total liabilities 1,542,751 1,105,879 1,061,695 971,540 841,401 Issued and fully paid share capital 52,864 52,864 52,864 52,864 52,864 Capital and reserves attributable to the equity holders of the Company 115,181 104,179 83,734 93,879 85,565 Financial ratios % % % % % Return on average total assets 1.21 1.21 0.27 1.54 1.56 Cost to income ratio 34.84 46.60 34.36 28.52 30.78 Loan to deposit ratio1 59.69 60.98 56.74 51.66 49.32 1. Deposits from customers include structured deposits reported as “Financial liabilities at fair value through profit or loss”. 2. Certain comparative amounts have been restated to reflect the early adoption of HKAS 12 (Amendment) “Income Taxes”. Advances and other accounts Deposits from customers HK$’m HK$’m 800,000 1,200,000 700,000 1,000,000 600,000 800,000 500,000 400,000 600,000 300,000 400,000 200,000 200,000 100,000 0 0 06 07 08 09 10 06 07 08 09 10 Annual Report 2010 BOC Hong Kong (Holdings) Limited 3 OFFERING QUALITY SERVICES TO YOU CHAIRMAn’s STATEMENT I am pleased to report that the Group delivered record results loan ratio further improving to 0.14% from 0.34% at end in 2010, with both net operating income before impairment 2009. allowances and profit attributable to shareholders achieving new highs since our listing. The Group’s net operating income Second, we adopted a proactive approach in managing our before impairment allowances increased by 5.6% year-on-year capital and liquidity. We firmly believe that a strong capital to HK$27,508 million, despite pressure from low interest rates and liquidity position is key to support business growth and intense competition. Operating profit before impairment and to ensure our competitiveness. As at end 2010, we allowances increased by 28.8% to HK$17,924 million. The remained well-capitalised with consolidated capital adequacy Group’s profit attributable to shareholders increased by 16.3% ratio standing comfortably at 16.14% and core capital ratio year-on-year to HK$16,196 million or HK$1.5319 per share.