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Banking Newsletter Analysis of China’s Top 10 Listed Banks’ Results for the Third Quarter of 2014

November 2014

www.pwccn.com

Editor-in-chief: Elaine Wang

Deputy-editor-in-chief: Ray Chen, Jeff Deng

Special focus: Ray Chen

Macro review: Jeff Deng

Operating performance: Elsie Gao, Ray Chen

Financial position and capital management: Jo Liu, Emma Zhang, Daisy Wu, Elsie Gao

Banking Newsletter Editorial Team:

Advisory Board:

Raymond Yung, Jimmy Leung, Margarita Ho, and Richard Zhu

普华永道

Introduction

We are pleased to present the 21st edition of our Banking Newsletter, a quarterly publication showing PwC’s analysis of China’s Top 10 Listed Banks’ performance.

The Top 10 Listed Banks, as defined by the China Banking Regulatory Commission (CBRC), are:

Large commercial banks

Industrial and Commercial Bank of China Limited (ICBC)

China Construction Bank Corporation (CCB)

Agricultural Bank of China Limited (ABC)

Bank of China Limited (BOC)

Bank of Communications Co., Ltd. (BOCOM)

Joint-stock commercial banks (JSCBs)

China Merchants Bank Co., Ltd. (CMB)

Shanghai Pudong Development Bank Co., Ltd (SPDB)

Industrial Bank Corporation Limited (CIB)

China CITIC Bank Corporation Limited (CITIC)

China Minsheng Banking Corporation Limited (CMBC)

The newsletter presents the financial position and operating performance of the Top 10 Listed Banks in the first three quarters of 2014. The total assets of the Top 10 Listed Banks by the end of the third quarter of 2014 accounted for 74.32% of China’s commercial banking sector. The Top 10 Listed Banks are presented according to the size of their total assets as of 31 December 2013.

Unless otherwise noted, all of the information in the Newsletter was obtained from publicly available sources (e.g. annual reports of listed banks and statistics from regulators). All the figures are prepared according to PRC Accounting Standards and stated in RMB (except for ratios).

For more information, please ask your PwC contacts or any of the Banking and Capital Markets Contacts listed in the Appendix.

November 2014 3

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普华永道

Table of Contents

Special focus: Overview of the Top 10 Listed Banks’ cross-boarder M&A activities 5

Macro overview 11

Analysis of operating performance 15

Analysis of financial position and capital management 19

Appendix 29

4 November 2014 Banking Newsletter

PwC

普华永道 5

Special focus ： Overview of the Top 10 Listed Banks’ cross-border M&A activities

• 2014: momentum regained

• Seeking controlling interests, eyes on emerging markets

• Features and risk factors for M&A

• Overview of Top 10 Listed Banks’ cross-boarder M&A

November 2014

5

Banking Newsletter

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普华永道 6 November 2014

2014: momentum regained

If history is a guide, a global presence and diversified business portfolio have helped many international banks to thrive. That is why cross-border mergers & acquisitions (M&A) have been a vital part of Chinese commercial banks’ global strategy.

Another robust year by number of deals

Since 2006, Chinese banks have accelerated the pace of cross-border M&A, with both amount and volume increasing significantly. The number of deals for Chinese banks reached a record high in 2008. In the last two years, M&A activities have been gathering pace again, with the number of deals in 2014 hitting another record.

Graph 1 Cross-border M&A Deals by Amount and Volume

ICBC the most active buyer

Among the Top 10 Listed Banks, the largest tended to be most active in M&A markets. ICBC, the world’s largest bank by market capitalisation, is the most active buyer. Compared to setting up overseas networks, M&A is a more effective way of expanding overseas. ICBC prefers to grow its international business through M&A.

Graph 2 Cross-border M&A Amounts and Volume by Banks

0

1

2

3

4

5

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Amount Volume

Amount (In millions) Volume (No. of deals)

Source: Annual reports and other disclosures of the Top 10 Listed Banks

0

2

4

6

8

10

12

-

10,000

20,000

30,000

40,000

50,000

60,000

ICBC CCB BOC CMB SPDB CMBC

Amount Volume



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普华永道 7 November 2014

Seeking controlling interests, eyes on emerging markets

Seeking controlling interests

A close examination of the Top 10 Listed Banks’ overseas M&A activities reveals that most banks prefer to acquire controlling interests. As a majority shareholder, banks can better leverage deals to strengthen their existing operations and avoid the risk of losing say. ICBC is a typical example, as most of its 10 M&A deals closed with it gaining controlling interest, except for the acquisition of Standard Bank of South Africa and SinoPac Holdings (of Taiwan) due to regulatory restrictions.

Graph 3 Cross-boarder M&A Deals by Holding Structure

Eyes on neighbouring area & emerging markets

Before 2006, Top 10 Listed Banks’ cross-boarder M&A were mainly in Greater China region and neighbouring areas like Southeast Asia, with small scale and less frequent. Since 2006, their M&A scope have expanded to America, Europe and Africa. The development pattern can be summarised as: rapid growth in Hong Kong, Macau and Taiwan, decent presence in Europe, active expansion in Southeast Asia, increased focus on emerging markets such as South America Africa.

Graph 4 Cross-boarder M&A Deals by Geographical Regions

70%

30%

With controlling interest

With non-controllinginterest


0

1

2

3

4

5

6

7

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

HK, Macau& Taiwan

NorthAmerica

Europe SoutheastAsia

SouthAmerica

Africa

Amount Volume



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普华永道

Features and risk factors for M&A

8 November 2014

Features

With their corporate clients’ needs for financial services increasing, the Top 10 Listed Banks’ cross-border M&A activities are becoming more diversified, sophisticated and comprehensive:

CCB acquired a 72.00% stake in Banco Industrial e Comercial S.A. in 2014, which is the largest M&A deal with controlling interest for a Chinese bank;

SPDB acquired South Asia Investment Management Limited in Hong Kong in 2014;

CMB managed to get a wide range of licenses for securities, insurance, futures and trust business in Hong Kong by acquiring 53.1o% interest in Wing Lung Bank, marking the beginning of the bank’s business diversification in 2008;

ICBC acquired a 20.00% stake in Standard Bank of South Africa in 2006, which is the largest M&A deal with non-controlling interest for a Chinese bank;

BOC acquired Singapore Aircraft Leasing Enterprise Pte. Ltd at the end of 2006, and Heritage Fund Management in 2008.

Risk factors

Not all M&As ended up as expected, due to the inherent risks and complexity of each deal. A number of risk factors need to be considered:

Inadequate information obtained due to insufficient preliminary investigation and weak due diligence;

Insufficient diversification due to incomprehensive assessment;

Higher acquisition costs as a result of inappropriate timing;

Acquisition of non-controlling interest leads to the risk of losing say;

Synergy after M&A cannot be properly identified and realised;

Challenges of employee integration due to cultural differences between entities;

Failure of management integration after merger causes problems in operations;

Fluctuation of regulatory indicators, eg. capital adequacy, due to M&A;

Burden of compliance risks, as banking is a highly regulated industry.

Should you require any further information, or wish to further discuss cross-border M&A related matters, please do not hesitate to contact Mr. Nelson Lou, Advisory (M&A) Partner, at +86 (10) 6533 2003.

Banking Newsletter

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普华永道

Overview of Top 10 Listed Banks’ cross-boarder M&A

9

An overview of Top 10 Listed Banks’ cross-boarder M&A deals as follow:

November 2014

Listed

banks Year Price Acquiree Economy %

Controlling

interest?

ICBC 2006 No data Bank Halim Indonesia Indonesia 90.00% Yes

ICBC 2007 USD5.46 billion Standard Bank of South Africa South Africa 20.00% No

ICBC 2007 MOP4.68 billion Seng Heng Bank of Macau Macau 79.93% Yes

ICBC 2010 CAD15.71 million

Industrial and Commercial Bank

of China Canada (the former

Bank of East Asia Canada)

Canada 70.00%

10.00% Yes

ICBC 2011 USD140 million Bank of East Asia United States United States 80.00% Yes

ICBC 2011 THB3.55 billion ACL Bank of Thailand Thailand 97.24% Yes

ICBC 2011 USD600 million Standard Bank of Argentina Argentina 80.00% Yes

ICBC 2013 TWD18.7 billion SinoPac Holdings(Bank SinoPac) Taiwan 20.00% No

ICBC 2014 USD770 million Standard Bank Plc United Kingdom 60.00% Yes

ICBC 2014 USD316 million Tekstil Bankası A.Ş. Turkey 75.50% Yes

CCB 2006 HKD9.71 billion Bank of America Asia Hong Kong 100.00% Yes

CCB 2009 USD70 million AIG Finance (Hong Kong)

Limited Hong Kong 100.00% Yes

CCB 2013 USD100 million VTB Capital Russia 0.60% No

CCB 2014 BRL1.621 billion Banco Industrial e Comercial

S.A. Brazil 72.00% Yes

BOC 2006 USD965 million Singapore Aircraft Leasing

Enterprise Pte. Ltd Singapore 100.00% Yes

BOC 2008 EUR236 million La Compagnie Financiere

Edmond de Rothschild Banque France 20.00% No

BOC 2008 CHF9 million Heritage Fund Management Swiss 30.00% No

CMBC 2008 USD126 million United Commercial Bank(UCBH) United States 9.90% No

CMB 2008 HKD19.3 billion Wing Lung Bank Ltd. Hong Kong 53.12% Yes

SPDB 2014 HKD8.5 million South Asia Investment

Management Limited Hong Kong 100.00% Yes

Source:: Annual Report of Top 10 Listed Banks and Related Announcements

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November 2014 Banking Newsletter

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November 2014

普华永道 11

Macro overview

• China’s economy feeling the pinch, while growth continued to slow globally

• Interest rates fluctuated despite ample liquidity


PwC

普华永道

China’s economy feeling the pinch, while growth continued to slow globally

The global economy continued to recover at different paces in 3Q 2014: the US economy recovered sufficiently to end quantitative easing (QE); Japan’s output is weak; Europe is on the brink of recession.

China’s growth was still the strongest among emerging economies. Gross Domestic Product (GDP) growth in the first three quarter of 2014 remained 7.40%, the same as for the first two quarters. On a quarterly basis, growth in 2014 Q3 slowed slightly to 7.30% from 7.50% in 2Q.

While China’s growth remained stable, investment and consumption slowed in the first three quarters.

Real estate experienced the most significant slowdown in 3Q 2014, which led to the policy easing by People’s Bank of China (PBoC) and China Banking Regulatory Commission (CBRC) to lift purchasing restrictions and review the definition of “second house”. Mortgage-backed securities (MBS) were encouraged, too.

12 November 2014

Graph 5 China Quarterly GDP Growth Trend

Graph 6 FAI, Real estate Investment and Retail Sales Growth

1998 Q2, 7.20% 2009 Q1,

6.60%

2014 Q3, 7.30%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Source：National Bureau of Statistics

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

Retail sales

Real estate investment

Growth continue to slow

Source：National Bureau of Statistics

Fixed assets investment

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普华永道

Liquidity ample; interest rates fluctuated slightly

Price levels were stable in 3Q 2014, with ample liquidity in the market. Open market operations of PBoC show that the bank had been pumping cash into the market (the amount of money injected was greater than that taken out) in the previous two quarters, with the net amount injected in 3Q totalling 173 billion.

PBoC recently disclosed it provided a Medium-term Lending Facility (MLF) of 500 billion to large commercial banks and the largest joint-stock banks in September, aiming at bring down borrowing costs and overall financing rates.

Market interest rates

fluctuated slightly in 3Q

2014. Weighted average

Shanghai interbank offering

rate (SHIBOR) and bond-

pledged repos went down

slightly in September but

still higher than it was in

June.

13 November 2014

Graph 8 Weighted-average SHIBOR and Bond-pledged repo rate

Graph 7 Net Effect of Open Market Operations by PBoC

Note: The amount in the above graph is the net value of open market operations, i.e. the difference

between money injected (maturity of central bank bills and repo agreements, reverse repos) and

money taken out (repo agreements, issuing of central bank bills and maturity of reverse repos). A

positive amount implies net money injection and negative indicates net money take-out.

-6

503

814

127

-706

533

355

-68

-524

369

173

(900)

(700)

(500)

(300)

(100)

100

300

500

700

900

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

In billions

2013 2014

Source： China Foreign Exchange Trade System

2%

3%

4%

5%

6%

7%

SHIBOR bond-pledged repo

Source： China Foreign Exchange Trade System

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普华永道

Banking Newsletter

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PwC 14 November 2014

普华永道 15

Analysis of operating performance

• Profit growth slowed; cost control remained strong

• ROE dropped by 0.58 ppts QoQ; NIM narrowed slightly

• Negative growth for intermediary business


PwC

普华永道

Profit growth slowed; cost control remained strong

In 3Q 2014, the Top 10

Listed Banks realised

aggregate net profit of RMB

301.2 billion, 7.02% more

than in Q3 2013. The year

on year (YoY) growth rate

was lower than that of Q3

2013 (12.15%) and Q2 2014

(9.00%).

Profit growth for the Top 10

Listed Banks has dropped to

single digits since Q2 2014,

which indicates that the

turning point for profit

growth is approaching.

16

November 2014

In 3Q 2014, the Top 10 Listed Banks continued to improve their cost controls. All of the eight banks that disclosed their cost to income ratio saw a reduction, with the average level falling to below 27% and 1 percentage point lower on a YoY basis.

Graph 10 Change in Cost-to-income ratio

Note: SPDB and CITIC did not disclose cost-to-income ratios for the

first three quarters of 2014 and 2013

Graph 9 Net profit growth trend of The Top 10 Listed Banks

15.21%

12.15%

7.02%

4%

6%

8%

10%

12%

14%

16%

18%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2012Q3

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

Net Profits YoY Growth

Net profit (in 100 millions) Slowdown in profit growth

indicates the approaching

turning point

YoY growth

ICBC CCB

ABC

BOC

BOCOM

CMB

CIB

CMBC

20%

25%

30%

35%

2014 Q1-3Q 2013 Q1-3Q

Banking Newsletter

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普华永道

ROE dropped by 0.58 ppts QoQ; NIM narrowed slightly

In the first three quarters of

2014, the weighted-average

ROE declined by 0.58

percentage points to 20.71%

as compared with 21.29% in

the first half of 2014.

Graph 11 Change in ROE for the Top 10 Listed Banks

Graph 12 Change in NIM for 7 Listed Banks Net interest margin (NIM) was disclosed by seven of the listed banks for the first three quarters of 2014. Based on stable yields of inter-bank assets being sustained, the weighted-average NIM decreased by just 0.01 percentage point compared with that of the first half of 2014. It is increased by 0.04 percentage point compared to the first three quarters of 2013.

Note: ICBC, SPDB and CIB did not disclose NIM for the three quarters of 2014. The

data were all annualised.

November 2014 17

ICBC

CCB ABC

BOC

BOCOM

CMB

SPDB

CIB

CITIC

CMBC

14%

16%

18%

20%

22%

24%

26%

2014 Q1-Q3 2014 1H

Note: To ensure the consistency, the data of SPDB and CIB was

annualised

CCB

ABC

BOC

BOCOM

CMB

CITIC

CMBC

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

2014 Q1-Q3 2014 1H

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普华永道 18

November 2014

Negative growth for intermediary business

For 2014 3Q, the fees and commissions income of the Top 10 Listed Banks were RMB 134,487 billion, decreasing by 13.94% on a quarter on quarter (QoQ) basis, while it increased by 15.06% in Q3 2013 on a QoQ basis. In 3Q 2014, the fees and commissions income for most of the banks fell on a QoQ basis, partially due to the coming into force of Interim Measures for the Management of the Service Prices of Commercial Banks, jointly issued by PBoC and National Development and Reform Commission (NDRC).

Graph 13 Net Fees & Commissions Income Growth, QoQ

ICBC

CCB ABC

BOC

BOCOM

CMB

CIB CMBC

SPDB

CITIC

-50%

0%

50%

100%

150%

200%

2014 Q3 2013 Q3

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普华永道 19

Analysis of financial position and capital management

• QoQ decline in assets and liabilities

• Increases in both the NPL balance and NPL ratio

• PBOC provided liquidity support through MLF to the Large Commercial Banks

• QoQ increase of CARs driven by Tier-2 capital instruments


PwC

普华永道

QoQ decline in assets and liabilities

Total assets of the Top 10 Listed Banks amounted to RMB 94.98 trillion at the end of 3Q 2014, increasing by 9.17% from the end of 2013. Growth continued to decline.

It was their first decline QoQ since 2012, due to pressure on deposits, CBRC’s regulatory requirement (No.127) on inter-bank business and off-balance-sheet business.

The decline for the five largest joint-stock commercial banks was 1.46% QoQ, while growth for the five large commercial banks was 0.03% QoQ.

20

Graph 14 Change of Total Assets at Top 10 Listed Banks

November 2014

As at the end of 3Q 2014, total liabilities of the Top 10 Listed Banks amounted to RMB 88.60 trillion, with an increase of 9.07% from the end of 2013.

However, total liabilities decreased by 0.66% from the end of June 2014, which was also the first fall since 2012, mainly due to the decrease in deposits.

QoQ growth rate

Total assets (in trillion)

0.67% 1.27%

-0.29%

-2%

0%

2%

4%

6%

8%

10%

-20

0

20

40

60

80

100

Total assets QoQ growth rate

0.32% 1.01%

-0.66%

-1%

1%

3%

5%

7%

9%

-10

10

30

50

70

90

Total liabilities QoQ growth rate

Total assets (in trillion) QoQ growth

Graph 15 Change of Total Liabilities of the Top 10 Listed Banks

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普华永道

Slowdown in QoQ growth of loans on weak demand

As at the end of 3Q 2014, total loan balances for the Top 10 Listed Banks were RMB49.91 trillion, increasing by 9.81% as compared to the end of 2013. The growth declined compared to 3Q 2013 (10.56%).

Due to the slowdown of growth in deposits and weak demand in the market, total loan balances increased at a lower rate of 12.05% year-on-year, as compared to 13.13% in 3Q 2013 and 12.78% in 2Q 2014.

In 2014 3Q, the loan growth rate of the Top 10 Listed Banks declined compared to the first half of 2014 due to the impact of high pressure on maintaining customer deposits, CBRC’s regulatory requirement (No.127) on inter-bank business, development of off-balance-sheet business and seasonal fluctuation of credit supply.

21

Graph 16 YoY Growth of Loan Balances

Graph 17 QoQ Growth of Loan Balances

November 2014

13.90%

13.13% 12.05%

0%

5%

10%

15%

20%

-

5

10

15

20

25

30

35

40

45

50

Total loans YoY growth rate

Loan balances (in trillions) YoY growth

ICBC

CCB

ABC

BOC

BOCOM

CMB

SPDB

CIB

CITIC CMBC

0%

1%

2%

3%

4%

5%

2014 Q3 2014 Q2

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普华永道

Increases in both the NPL balance and NPL ratio

As at the end of 2014 Q3, the NPL ratio reached 1.13%, an increase of 0.07 percentage point compared to the end of 2014 Q2.

The NPL increase was due to slower economic growth, which leads to a decline in market demand and increase in credit risks for pro-cyclical industries and small and medium enterprises. These sectors were vulnerable to economic downturn. Credit risk of industries with excess capacity was also on the rise as a result of restructuring of sectors.

22

Graph 19 Changes of NPL Ratios

Graph 18 Changes of NPL Balance at the Top 10 Listed Banks As at the end of 3Q 2014, the Top 10 Listed Banks experienced increases in both the NPL ratio and balances, as the quality of credit assets deteriorated.

The total amount of NPLs amounted to RMB564.05 billion at the end of 3Q 2014 which represented an increase of RMB 44.04 billion or 8.47% from the end of 2Q 2014.

NPL growth for the five largest joint stock commercial banks (12.13%) was still higher than that of the five large commercial banks (7.63%).

November 2014

0%

10%

20%

30%

40%

50%

0

200

400

600

800

1,000

1,200

2014-09-30 2014-06-30 QoQ growth

NPL balances (in 100 million) QoQ growth

ICBC

CCB

ABC

BOC

BOCOM

CMB

SPDB CIB

CITIC

CMBC

0.90%

1.00%

1.10%

1.20%

1.30%

1.40%

2014-09-30 2014-06-30

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普华永道

The initial impact of new regulation on interbank business

23

Graph 20 Movement in composition investments

Five large commercial banks

Five large Joint-stock Commercial Banks

November 2014

The proportion of each investment remained stable for the five large commercial bank at the end of 3Q 2014 relative to the end of 2Q 2014. Held-to-maturity remained the most popular investment and accounted for more than 50% of investment portfolios.

There was some change in the investment mix for the five largest joint-stock commercial banks, as investment classified as receivables decreased slightly from 50.24% as at 30 June 2014 to 49.36% as at 30 September 2014.

CBRC’s regulations of No.27 which regulated inter-bank businesses, such as trust beneficiary right products and asset management schemes of financial institutions, had some impact on the banks’ investment structure. The proportion of investment in receivables of CMB and CITIC decreased while that of SPDB and CMBC increased relative to 30 June 2014.

58%

58%

64%

64%

47%

49%

53%

52%

58%

59%

26%

25%

23%

22%

25%

24%

30%

27%

21%

21%

8%

9%

8%

9%

11%

10%

4%

4%

7%

7%

8%

8%

5%

5%

17%

17%

13%

17%

14%

13%

2014.09.30

2014.06.30

2014.09.30

2014.06.30

2014.09.30

2014.06.30

2014.09.30

2014.06.30

2014.09.30

2014.06.30

Held to maturity Available for sale

Financial assets at fair value Receivables

BO

CO

M B

OC

A

BC

C

CB

I

CB

C

25%

24%

13%

15%

20%

19%

19%

17%

36%

36%

29%

26%

19%

18%

34%

36%

21%

20%

30%

33%

4%

4%

3%

4%

4%

3%

2%

2%

6%

7%

42%

46%

65%

63%

42%

42%

58%

61%

28%

24%

2014.09.30

2014.06.30

2014.09.30

2014.06.30

2014.09.30

2014.06.30

2014.09.30

2014.06.30

2014.09.30

2014.06.30

Held to maturity Available for saleFinancial assets at fair value Receivables

CM

BC

C

ITIC

C

IB S

PD

B C

MB

Banking Newsletter

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普华永道

Negative QoQ growth in deposits

As at the end of 3Q 2014, total deposits of the Top 10 Listed Banks amounted to RMB69.56 trillion. This is an increase of 6.89% from the end of 2013, but a decrease of 1.98% from the end of June 2014, which is the first negative QoQ growth since 2012.

In September 2014, the CBRC, MoF and PBOC jointly released [2014]No. 236 to monitor banks’ deposit stability and deviation, aiming at to constrain aggressive deposit taking activities. Negative growth in deposits was partly due to this rule.

24 November 2014

With the impact of the above regulation, most of the Top 10 Listed Banks showed negative growth in deposits in 3Q 2014, compared to 2Q.

Graph 22 Changes of deposits’ quarterly growth

Graph 21 Growth trend of total deposits, QoQ

1.60% 1.37%

-1.98%

-2%

0%

2%

4%

6%

8%

10%

-10

0

10

20

30

40

50

60

70

Total customer deposit QoQ growth

Total Deposits (in Trillions) QoQ growth rate

ICBC

CCB ABC

BOC

BOCOM

CMB

SPDB CIB CITIC

CMBC

-8%

-4%

0%

4%

8%

12%

16%

2014 Q3 2014 Q2

Banking Newsletter

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普华永道

Proportion of time deposits increased; QoQ loan-to-deposit ratio grew slightly

As at the end of 3Q 2014, six banks that disclosed the breakdown of deposits saw an increase in the proportion of time deposits compared to the end 2Q 2014.

25

Graph 23 Change of deposit portfolio

As at the end of 3Q 2014, five banks saw an increase in loan-to-deposit ratio as compared to the end of June 2014. This is probably due to the fall in deposits in 3Q 2014.

Graph 24 QoQ Change of Loan-to-deposit Ratio

Note: CMB,CIB,CITIC and CMBC did not disclose their loan-to-deposit ratios as at the

end of third quarter of 2014. ICBC,BOC,BOCOM,SPDB disclosed their loan-to-deposit

ratios according to CBRC [2014] 34.

November 2014

Note: The time deposits of CMB represent its bank level balance, while those of other

banks represented group level balances. In addition, BOC, CITIC and CMBC offered

no information on deposit structure in 2014 Q3 disclosures.

52% 50%

47% 46%

43% 42%

54% 57%

53% 50%

53% 52%

54% 51%

46% 48%

50% 51%

51% 52%

46% 43%

47% 50%

31%

33%

34% 37%

2% 2%

3% 3%

6% 6%

16% 15%

12% 12%

2014.09.30.2014.06.30.

2014.09.30.2014.06.30.

2014.09.30.2014.06.30.

2014.09.30.2014.06.30.

2014.09.30.2014.06.30.

2014.09.30.2014.06.30.

2014.09.30.2014.06.30.

ICBC

CCB

ABC

BOC

BOCOM

CMB

SPDB

CIB

CITIC

CMBC

60%

65%

70%

75%

2014-09-30 2014-06-30

Banking Newsletter

PwC

CIB

S

PD

B C

MB

BO

CO

M A

BC

C

CB

IC

BC

Time deposit Demand deposit Others

普华永道

PBoC provided liquidity support through MLF to the large commercial banks

26

As at the end of 3Q 2014, the five large commercial banks had relatively higher percentages of borrowings from the central bank. The borrowings were doubled as compared to the end 2Q 2014 with an increase of RMB368.64 billion.

The above change reflected the impact of liquidity provided by PBOC to the large commercial banks during September.

According to the China Monetary Policy Report ssued by the PBoC, the central bank introduced a new tool of what was called MLF in September. Through this new tool an aggregate of RMB 500 billion was provided to the large commercial banks and join-stock commercial banks in an attempt to bring down the overall borrowing costs (including banks lending rates) and in turn support the real economy.

Graph 25 Change of composition of inter-bank liabilities

November 2014

45%

52%

69%

55%

55%

48%

19%

21%

12%

24%

2014.06.30

2014.09.30

2014.06.30

2014.09.30

Fiv

e larg

eJS

CB

s

Fiv

e larg

ecom

me

rcia

lban

ks

Placements from banks and other financial institutions

Financial assets sold under repurchase agreements

Borrowings from the central bank

Banking Newsletter

PwC

普华永道

QoQ increase of CARs driven by Tier-2 capital instrument

27

At the end of 3Q 2014, the Core Tier-1 Capital Adequacy Ratios (CARs) of the Top 10 Listed Banks as calculated on the basis of the Administrative Rules for Capital Management of Commercial Banks (Provisional) generally increased from 2Q 2014. The increase was primarily due to the higher growth rate in accumulation of retained earnings than that of risk-weighted assets.

Graph 26 Comparison of Core Tier-1 CAR, QoQ

At the end of 3Q, the weighted-average CAR of the Top 10 Listed Banks was 13.20%, up by 0.61 percentage point from 2Q.

ICBC, CCB, ABC, BOC, BOCOM and CITIC issued Tier-2 capital bonds during 3Q which led to the increase in their CARs. In October 2014, BOC became the first Chinese bank to issue offshore USD preference shares (for a total amount equivalent to RMB39.94 billion). With more and more banks starting to issue preference shares, banks will further improve their CARs.

Graph 27 Comparison of CAR, QoQ

November 2014

ICBC CCB

ABC

BOC

BOCOM

CMB

SPDB

CIB CITIC CMBC

8%

9%

10%

11%

12%

13%

2014-09-30 2014-06-30

ICBC

CCB

ABC

BOC BOCOM

CMB

SPDB

CIB

CITIC

CMBC

10%

11%

12%

13%

14%

15%

2014-09-30 2014-06-30

Banking Newsletter

PwC

普华永道

Banking Newsletter

28



普华永道

Banking Newsletter 29

Appendix

• Financial highlights of the Top 10 Listed Banks

• Banking and Capital Markets Contacts

• PwC Offices in China

November 2014

PwC

普华永道

Financial highlights of the Top 10 Listed Banks

30

In RMB millions ICBC CCB ABC BOC BOCOM CMB SPDB CIB CITIC CMBC

1. Net Interest Income 362,934 323,237 317,793 238,775 102,380 82,267 71,508 69,954 70,048 67,405

2. Non-interest income 125,655 105,806 76,173 107,559 32,789 42,760 18,265 20,896 22,520 32,511

2.1. Net fee and commission

income 100,885 83,801 65,920 72,078 22,984 34,246 15,647 19,665 18,835 27,810

2.2. Other non-interest

income 24,770 22,005 10,253 35,481 9,805 8,514 2,618 1,231 3,685 4,701

3. Operating income 488,589 429,043 393,966 346,334 135,169 125,027 89,773 90,850 92,568 99,916

4. Operating expenses 201,084 185,235 197,728 168,369 68,650 65,153 44,039 41,384 49,552 50,754

5. Operating and

administrative

expenses 118,873 104,254 121,332 93,462 36,549 35,127 20,665 19,475 25,282 30,486

6. Business tax and

surcharges 30,750 25,983 21,718 19,699 9,731 7,783 6,060 6,592 6,496 6,647

7. Other operating cost 19,005 15,574 9,657 16,130 4,061 245 266 197 No data 442

8. Asset impairment losses 32,456 39,424 45,021 39,078 18,309 21,998 17,048 15,120 17,774 13,179

9. Operating profit 287,505 243,808 196,238 177,965 66,519 59,874 45,734 49,466 43,016 49,162

10. Profit before tax 288,231 245,233 197,271 178,335 67,015 60,372 45,859 49,780 43,093 49,349

11. Income tax expenses 67,376 54,548 44,766 41,537 15,321 14,453 10,692 11,212 10,240 11,919

12. Net profit 220,855 190,685 152,505 136,798 51,694 45,919 35,167 38,568 32,853 37,430

In RMB millions ICBC CCB ABC BOC BOCOM CMB SPDB CIB CITIC CMBC

Total Assets 20,150,956 16,735,863 15,959,249 15,427,957 6,212,718 4,722,648 3,956,642 3,995,577 4,045,887 3,769,341

Total loans and

advances to

customers 10,603,544 9,102,547 7,650,922 8,256,032 3,396,875 2,384,121 1,920,895 1,450,544 2,070,721 1,714,728

Net investment 4,441,560 3,567,684 3,557,179 2,533,324 1,102,653 994,893 1,063,259 875,259 885,337 461,698

Cash and deposits with

central bank 3,472,425 2,737,700 2,810,852 2,560,566 932,196 590,593 489,574 433,425 536,648 438,533

Deposits and

placements with

banks and other

financial institutions

582,741 600,335 950,130 1,050,306 340,462 275,626 173,492 190,676 180,145 271,437

Financial assets held

under resale

agreements 432,604 317,706 566,629 330,027 155,447 371,451 223,287 909,811 282,134 657,257

Interest receivable N/A 93,503 97,807 78,882 34,459 23,892 14,963 25,318 24,155 15,490

Others 21,825,170 316,388 325,730 618,820 250,626 82,072 71,172 110,544 66,747 210,198

Total Liabilities 18,718,581 15,527,684 15,000,556 14,381,700 5,754,838 4,420,250 3,722,143 3,758,661 3,788,202 3,528,538

Deposits from

customers 15,339,964 12,982,406 12,638,575 11,047,285 4,116,546 3,265,520 2,688,621 2,205,228 2,875,725 2,397,690

Deposits and

placements from

banks and other

financial institutions

1,429,869 1,260,899 1,118,068 2,081,343 1,118,686 866,642 727,765 1,215,196 649,442 782,112

Financial assets sold

under repurchase

agreements 310,136 1,129 35,644 32,714 176,736 48,179 39,556 136,283 52,725 50,037

Debt securities issued 268,726 434,863 331,208 282,002 116,757 101,047 105,410 123,378 126,959 129,829

Others 1,369,886 848,387 877,061 938,356 226,113 138,862 160,791 78,576 83,351 168,870

Table 1 Income Statements

Table 2 Balance Sheet


PwC

普华永道

Financial highlights of the Top 10 Listed Banks (cont’d)

Banking Newsletter 31

November 2014

ICBC CCB ABC BOC BOCOM CMB SPDB CIB CITIC CMBC

Profitability

Return on assets (ROA) 1.51% 1.58% 1.33% 1.24% 1.13% No data 0.92% No data 1.14% No data

Return on equity (ROE) 21.52% 22.14% 22.34% 18.03% 15.58% 21.33% 15.92% 17.54% 18.10% 22.71%

Net interest spread No data No data 2.75% No data 2.21% 2.30% No data No data No data No data

Net interest margin No data 2.80% 2.91% 2.26% 2.40% 2.50% No data No data 2.37% 2.61%

Cost-to-income ratio 24.33% 25.21% 30.80% 26.99% 27.39% 28.10% No data 21.65% No data 30.51%

Asset quality

NPL Ratio 1.06% 1.13% 1.29% 1.07% 1.17% 1.10% 0.96% 0.99% 1.39% 1.04%

NPL balances (in millions) 115,471 105,320 103,466 90,695 40,872 26,923 18,977 14,774 29,428 18,124

Provision Coverage ratio 216.60% 234.47% 335.07% 207.70% 201.29% 227.99% 267.90% No data 181.49% 199.96%

Capital adequacy

Core Tier 1 capital

adequacy ratio 11.79% 11.65% 8.90% 10.51% 11.10% 10.35% 8.63% 9.40% 9.29% 8.73%

Capital adequacy ratio 14.20% 14.53% 12.38% 13.07% 13.80% 12.28% 10.91% 12.18% 12.99% 10.95%

Loan-to-deposit ratio 68.10% 72.02% 63.28% 71.65% 73.92% No data 70.85% No data No data No data

Table 3 Key Financial Ratios of the Top 10 Listed Banks

PwC

普华永道

Banking and Capital Markets Contacts

Assurance Advisory Tax

Raymond Yung – Beijing James Chang – Beijing Danny Yiu – Beijing

Tel: +86 (10) 6533 2121 Tel: +86 (10) 6533 2755 Tel: +86 (10) 6533 2787

[email protected] [email protected] [email protected]

Margarita Ho – Beijing Addison Everett – Beijing Oliver Kang – Beijing

Tel: +86 (10) 6533 2368 Tel: +86 (10) 6533 2345 Tel: +86 (10) 6533 3012


Richard Zhu – Beijing William Gee – Beijing Matthew Wong – Shanghai

Tel: +86 (10) 6533 2236 Tel: +86 (10) 6533 2269 Tel: +86 (21) 2323 3052


Jimmy Leung – Shanghai William Yung – Shanghai Florence Yip – Hong Kong

Tel: +86 (21) 2323 3355 Tel: +86 (21) 2323 1984 Tel: +852 2289 1833


Michael Hu －Shanghai Matthew Phillips – Hong Kong Assurance – Risk & Quality

Tel: +86 (21) 2323 2718 Tel: +852 2289 2303

[email protected] [email protected] Tracy Chen – Shanghai

Tel: +86 (21) 2323 3070

Shirley Yeung – Guangzhou Chris Chan – Hong Kong [email protected]

Tel: +86 (20) 3819 2218 Tel: +852 2289 2824

[email protected] [email protected] Nigel Dealy – Hong Kong

Tel: +852 2289 1221

Charles Chow – Shenzhen Nelson Lou - Beijing [email protected]

Tel: +86 (755) 8261 8988 Tel：+86 (10) 6533 2003

[email protected] [email protected]

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PwC Offices in China

Beijing Shanghai Hong Kong 26/F, Office Tower A, Beijing Fortune Plaza 11/F, PricewaterhouseCoopers Center, 2 Corporate Avenue 22/F, Prince's Building

7 Dongsanhuan Zhong Road, Chaoyang District 202 Hu Bin Road, Huangpu District Central, Hong Kong

Beijing, P.R.C. Shanghai Tel: +852 2289 8888

Zip: 100020 Zip: 200021 Fax: +852 2810 9888

Tel: +86 (10) 6533 8888 Tel: +86 (21) 2323 8888

Fax: +86 (10) 6533 8800 Fax: +86 (21) 2323 8800

Shenzhen Guangzhou Tianjin 34/F, Tower A, Kingkey100 18/F, PricewaterhouseCoopers Center 36/F, The Exchange Tower Two,

5016 Shennan East Road, Luohu District 10 Zhujiang Xi Road, Pearl River New City, Tianhe District 189 Nanjing Road, Heping District

Shenzhen, P.R.C Guangzhou, P.R.C. Tianjin, P.R.C.

Zip: 518001 Zip: 510623 Zip: 300051

Tel: +86 (755) 8261 8888 Tel: +86 (20) 3819 2000 Tel: +86 (22) 2318 3333

Fax: +86 (755) 8261 8800 Fax: +86 (20) 3819 2100 Fax: +86 (22) 2318 3300

Dalian Qingdao Hangzhou 8F Senmao Building 37/F, Tower One, HNA IMC Center Unit 3205, Canhigh Center

147 Zhongshan Road, Xigang District 234 Yanan Third Road, Shinan District 208 North Huancheng Rd

Dalian, P.R.C. Qingdao, P.R.C. Hangzhou, P.R.C.

Zip: 116011 Zip: 266071 Zip: 310006

Tel: +86 (411) 8379 1888 Tel: +86 (532) 8089 1888 Tel: +86 (571) 2807 6388

Fax: +86 (411) 8379 1800 Fax: +86 (532) 8089 1800 Fax: +86 (571) 2807 6300

Chongqing Ningbo Xiamen Room 1905, 19/F Metropolitan Tower Room 1203, Tower E, Ningbo International Financial Center Unit B, 11/F, International Plaza

68 Zou Rong Road 268 Min An Road East, Jiangdong District 8 Lujiang Road, Siming District

Chongqing, P.R.C. Ningbo, P.R.C. Xiamen, P.R.C.

Zip: 400010 Zip: 315040 Zip: 361001

Tel: +86 (23) 6393 7888 Tel: +86 (574) 8187 1788 Tel: +86 (592) 210 7888

Fax: +86 (23) 6393 7200 Fax: +86 (574) 8187 1700 Fax: +86 (592) 210 8800

Suzhou Nanjing Xi'an

Room 1501, Genway Tower Unit 12A01, Nanjing International Center 7/F, D Block, Chang'an Metropolis Center

188 Wang Dun Road, Suzhou Industrial Park 201 Zhongyang Road, Gulou District 88 Nanguan Street

Suzhou, P.R.C. Nanjing, P.R.C. Xi'an, P.R.C.

Zip: 215028 Zip: 210009 Zip: 710068

Tel: +86 (512) 6273 1888 Tel: +86 (25) 6608 6288 Tel: +86 (29) 8469 2688

Fax: +86 (512) 6273 1800 Fax: +86 (25) 6608 6210 Fax: +86 (29) 8469 2600

Macau Wuhan 29/F, Bank of China Building Unit 04, 41/F Wuhan Wanda Center

323 Avenida Doutor Mario Soares, Macau 96 Linjiang Avenue, Jiyuqiao, Wuchang District,

Tel: +853 8799 5111 Wuhan, PRC

Fax: +853 8799 5222 Zip: 430060

Tel: +86 (27) 5974 5818

Fax: +86 (27) 5974 5800

Banking Newsletter


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