bank of shanghai (hong kong) limited...2017/12/31 · non-bank mainland exposures 39 currency...

BANK OF SHANGHAI (HONG KONG) LIMITED

REGuLATORy DIScLOSuRES STATEMENTSFOR THE yEAR ENDED 31 DEcEMBER 2017

BANK OF SHANGHAI (HONG KONG) LIMITEDREGuLATORy DIScLOSuRES STATEMENTSFOR THE yEAR ENDED 31 DEcEMBER 2017

cONTENTS

Pages

Introduction 1CapitalAdequacy 1Compositionof Capital 3LeverageRatio 15RiskManagementApproach 18Overviewof Risk-weightedAmount 21CreditRisk 21CounterpartyCreditRisk 31MarketRisk 34OperationalRisk 35InterestRateRiskInBankingBook 38

InternationalClaims 38

SegmentalInformation 39Non-bankMainlandExposures 39CurrencyConcentration 41LiquidityRatio 41

FurtherAnalysisof LoansandAdvancestoCustomers 42

OverdueandRescheduledAssets 43


1

1 INTRODucTION

TheinformationcontainedinthisdocumentisforBankof Shanghai(HongKong)Limited(“the company”)anditssubsidiaries(together“the Group”)andispreparedinaccordancewiththeBanking(Disclosure)RulesanddisclosuretemplatesissuedbytheHongKongMonetaryAuthority(“HKMA”).

Basis of preparation

For regulatory reportingpurpose, theCompany is required to report itscapitaladequacyratios, leverageratiosandliquiditymaintenanceratio(“LMR”)onanunconsolidatedbasis.Theotherfinancial informationcontainedinthisdocumentispreparedbasedonanunconsolidatedbaseunlessotherwisespecified.

In calculating the risk-weighted amount (“RWA”), the Company adopted the Standardised (Credit Risk)ApproachforcreditriskandtheStandardised(MarketRisk)Approachformarketrisk.Foroperationalrisk,thecapitalrequirementwasdeterminedbyusingtheBasicIndicatorApproach.

2 cAPITAL ADEQuAcy

(a) capital adequacy ratio

ThecapitaladequacyratioswerecalculatedinaccordancewiththeBanking(Capital)RulesissuedbytheHKMA.

31 December2017

31December2016

% %

capital adequacy ratiosCommonEquityTier1 21.5 30.0Tier1 21.5 30.0Total 22.3 30.9

31 December2017

31December2016

HK’000 HK’000

capitalCommonEquityTier1 3,934,044 4,121,288Tier1 3,934,044 4,121,288Total 4,087,329 4,249,435

Total RWA 18,298,193 13,733,301


2

2 cAPITAL ADEQuAcy (cONTINuED)

(b) capital buffers

ThefollowingcapitalbuffersratiosapplicablefortheCompanyonanunconsolidatedbasisareasfollows:

2017%

Capitalconservationbufferratio 1.25Higherlossabsorbencyratio –Countercyclicalcapitalbuffer(“CCyB”)ratio 0.53

Total 1.78

(c) Geographical Distribution of RWA related to credit Exposures used in the countercyclical capital Buffer Ratio

Thetablebelowsetsoutthegeographicalbreakdownof theRWAof privatesectorcreditexposuresrelevantforthecomputationof thecountercyclicalcapitalbuffer.

As at 31 December 2017

Jurisdiction (J)

ApplicableJccyB# ratio

effect%

Total RWA used in computation of

ccyB ratioHK$’000

ccyB ratio%

ccyB amountHK$’000

1 HongKong 1.25 5,031,678

2 MainlandChina – 6,306,915

3 ChineseTaipei – 222,538

4 Germany – 22,047

5 Switzerland – 23,864

6 UnitedKingdome – 49,358

7 UnitedStates – 122,087

Total 11,778,487 0.53 62,896

# JCCyBreferstotheCCyBapplicabletothatjurisdiction.


3

3 cOMPOSITION OF cAPITAL

(a) Financial Statements and Regulatory Scope of consolidation

CapitaladequacyratioswerecalculatedinaccordancewiththeCapitalRulesissuedbytheHKMA.Thebasisof consolidationforregulatoryreportingpurposesisdifferentfromthebasisof consolidationforaccountingpurposes.AsspecifiedinanoticefromtheHKMAinaccordancewithSection3Cof theCapitalRules,theCompanyisonlyrequiredtocalculatecapitaladequacyratioonanunconsolidatedbasis.Subsidiariesnotincludedinconsolidationforregulatoryreportingpurposesarecompaniesthatareauthorisedandsupervisedbyaregulatorandaresubjecttosupervisoryarrangementsregardingthemaintenanceof adequatecapitaltosupportbusinessactivitiescomparabletothoseprescribedforauthorizedinstitutionsundertheCapitalRulesandtheBankingOrdinance.Detailsof subsidiariesthatarenotincludedinconsolidationforregulatoryreportingpurposesareasfollows:

Name of companies Principal activities

Total assetsas at

31 December 2017

HK$’000

Total equityas at

31 December2017

HK$’000

BOSCInternationalCompanyLimited Corporatefinance 857,848 791,670

BOSCInternationalSecuritiesLimited Securitiesbrokerage 9,998 9,984

BOSCInternationalAssetManagementLimited Assetmanagement 5,000 4,984

BOSCInternationalCapitalLimited Corporatefinance 10,000 9,984

BOSCInternationalInvestmentLimited Investmenttrading 871,269 28,841

BOSCInternational(Shenzhen)CompanyLimited Corporateadvisory 133,397 124,180

BOSCInternationalAdvisory(Shenzhen) CompanyLimited

Corporateadvisory 35,998 11,993

BOSCInternationalEquityInvestmentFund Management(Shenzhen)CompanyLimited

Fundmanagement 11,904 11,439

BOSCInternationalInvestment(Shenzhen) CompanyLimited

Investmenttrading – (27)

BOSCInternational(BVI)Limited Specialpurposeentityforfinancing

– –

BOSCInternationalInvestment(BVI)Limited Specialpurposeentityforbusinessprojects

– –


4

3 cOMPOSITION OF cAPITAL (cONTINuED)

(b) capital Adequacy and Reconciliation of Regulatory capital to the Balance Sheet

Table 1: Reconciliation of Regulatory Scope consolidated Balance Sheet to capital components

Balance sheet as in published

disclosure statements

under regulatory scope of

consolidation

cross reference to capital

Disclosures

Asat31December

2017

Asat31December

2017

HK$’000 HK$’000

Assets

Cashandbalancesfrombanksandcentralbank 424,887 289,368

Placementswithandadvancestobanks 7,065,494 7,048,990

Tradingsecurities 51,230 –

Derivativefinancialassets 19,535 19,535

Loansandadvancestocustomers 15,062,895 15,062,895

of which: collective impairment allowances reflected in regulatory capital

– 44,892 (1)

Investmentsecurities 2,914,030 1,562,489

Investmentinassociate 1,199 –

Investmentinsubsidiaries – 780,000

Propertyandequipment 20,169 16,330

Intangibleassets 6,139 5,878 (2)

Currenttaxrecoverable 1,128 1,128

Deferredtaxassets 8,030 8,030 (3)

of which: deferred tax liabilities related to intangible assets – 912 (4)

Otherassets 202,324 155,267

Total assets 25,777,060 24,949,910


5

Balance sheet as in published

disclosure statements

under regulatory scope of

consolidation

cross reference to capital

Disclosures

Asat31December

2017

Asat31December

2017

HK$’000 HK$’000

Liabilities

Depositsfromcustomers 13,628,287 13,706,562

Depositsfrombanks 4,424,141 4,424,141

Derivativefinancialliabilities 19,294 19,294

Certificatesof depositissued 3,028,315 2,246,775

Currenttaxpayable 7,955 –

Deferredtaxliabilities 437 –

Otherliabilities 214,262 145,279

Total liabilities 21,322,691 20,542,051

Equity

Sharecapital 4,000,000 4,000,000 (5)

Retainedprofits 350,080 309,061 (6)

Otherreserves 104,289 98,798 (7)

of which:regulatoryreserves – 108,393 (8)

Total equity 4,544,369 4,407,859

Total equity and liabilities 25,777,060 24,949,910


(b) capital Adequacy and Reconciliation of Regulatory capital to the Balance Sheet (continued)

Table 1: Reconciliation of Regulatory Scope consolidated Balance Sheet to capital components (continued)


6



Table 2: capital Disclosures

AstheCompanydoesnothaveanycapitaldeductionqualifiedfortransitionarrangementundersection3of Schedule4Hof theBanking(Capital)Rules(“BcR”),theCompanyhasappliedfullcapitaldeductionsunderBCRandtheCompanyadoptedthisCapitalDisclosuresTemplateformakingdisclosuresspecifiedintherelevantsubsectionsof section24of Banking(Disclosures)Rules.

HK$’000

cross reference to

Balance Sheet Reconciliation

cET1 capital: Instruments and reserve1 DirectlyissuedqualifyingCET1capitalinstrumentsplusanyrelatedsharepremium 4,000,000 (5)2 Retainedearnings 309,061 (6)3 Disclosedreserves 98,798 (7)4 Directly issued capital subject to phase out from CET1 capital (only applicable lo non-joint stock companies) Notapplicable5 MinorityinterestsarisingfromCET1capitalinstrumentsissuedbyconsolidatedbanksubsidiariesandheld

bythirdparties(amountallowedinCET1capitalof theconsolidationgroup)–

6 cET1 capital before regulatory deductions 4,407,859cET1 capital: regulatory deductions

7 Valuationadjustments –8 Goodwill(netof associateddeferredtaxliability) –9 Otherintangibleassets(netof associateddeferredtaxliability) 4,966 (2)-(4)10 Deferredtaxassetsnetof deferredtaxliabilities 8,942 (3)+(4)11 Cashflowhedgereserve –12 Excessof totalELamountovertotaleligibleprovisionsundertheIRBapproach –13 Gain-on-salearisingfromsecuritizationtransactions –14 Gainsandlossesduetochangesinowncreditriskonfairvaluedliabilities –15 Definedbenefitpensionfundnetassets(netof associateddeferredtaxliabilities) –16 InvestmentsinownCET1capitalinstruments(if notalreadynettedoff paid-incapitalonreportedbalance

sheet)–

17 Reciprocalcross-holdingsinCET1capitalinstruments –18 InsignificantcapitalinvestmentsinCET1capitalinstrumentsissuedbyfinancialsectorentitiesthatare

outsidethescopeof regulatoryconsolidation(amountabove10%threshold)–

19 SignificantcapitalinvestmentsinCET1capitalinstrumentsissuedbyfinancialsectorentitiesthatareoutsidethescopeof regulatoryconsolidation(amountabove10%threshold)

351,514

20 Mortgageservicingrights(amountabove10%threshold) Notapplicable21 Deferredtaxassetsarisingfromtemporarydifferences(amountabove10%threshold,netof relatedtax

liability)Notapplicable

22 Amountexceedingthe15%threshold Notapplicable23 of which:significantinvestmentsinthecommonstockof financialsectorentities Notapplicable24 of which:mortgageservicingrights Notapplicable25 of which:deferredtaxassetsarisingfromtemporarydifferences Notapplicable


7



Table 2: capital Disclosures (continued)

HK$’000

cross reference to


26 NationalspecificregulatoryadjustmentsappliedtoCET1capital 108,39326a Cumulativefairvaluegainsarisingfromtherevaluationof landandbuildings(own-useandinvestment

properties)–

26b Regulatoryreserveforgeneralbankingrisks 108,393 (8)26c SecuritizationexposuresspecifiedinanoticegivenbytheMonetaryAuthority –26d Cumulativelossesbelowdepreciatedcostarisingfromtheinstitution’sholdingsof landandbuildings –26e Capitalshortfallof regulatednon-banksubsidiaries26f Capitalinvestmentinaconnectedcompanywhichisacommercialentity(amountabove15%of the

reportinginstitution’scapitalbase)–

27 RegulatorydeductionsappliedtoCET1capitalduetoinsufficientAT1capitalandTier2capitaltocoverdeductions

–

28 Total regulatory deductions to cET1 capital 473,81529 cET1 capital 3,934,044

AT1 capital: Instruments30 QualifyingAT1capitalinstrumentsplusanyrelatedsharepremium –31 of which:classifiedasequityunderapplicableaccountingstandards –32 of which:classifiedasliabilitiesunderapplicableaccountingstandards –33 Capital instruments subject to phase out arrangements from AT1 capital –34 AT1capitalinstrumentsissuedbyconsolidatedbanksubsidiariesandheldbythirdparties(amountallowed

inAT1capitalof theconsolidationgroup)–

35 of which: AT1 capital instruments issued by subsidiaries subject to phase out arrangements –36 AT1 capital before regulatory deductions –

AT1 capital: Regulatory deductions37 InvestmentsinownAT1capitalinstruments –38 Reciprocalcross-holdingsinAT1capitalinstruments –39 InsignificantcapitalinvestmentsinAT1capitalinstrumentsissuedbyfinancialsectorentitiesthatareoutside

thescopeof regulatoryconsolidation(amountabove10%threshold)–

40 SignificantcapitalinvestmentsinAT1capitalinstrumentsissuedbyfinancialsectorentitiesthatareoutsidethescopeof regulatoryconsolidation

–

41 NationalspecificregulatoryadjustmentsappliedtoAT1capital –42 RegulatorydeductionsappliedtoAT1capitalduetoinsufficientTier2capitaltocoverdeductions –43 Total regulatory deductions to AT1 capital –44 AT1 capital –45 Tier 1 capital (Tier 1 =cET1+AT1) 3,934,044


8




HK$’000

cross reference to


Tier 2 capital: Instruments and provisions46 QualifyingTier2capitalinstrumentsplusanyrelatedsharepremium –47 Capital instruments subject to phase out arrangements from Tier 2 capital –48 Tier 2 capital instruments issued by consolidated bank subsidiaries and held by third parties (amount

allowedinTier2capitalof theconsolidationgroup)–

49 of which: capital instruments issued by subsidiaries subject to phase out arrangements –50 Collective impairment allowances and regulatory reserve for general banking risks eligible for inclusion in

Tier2capital153,285 (1)+(8)

51 Tier 2 capital before regulatory deductions 153,285Tier 2 capital: regulatory deductions

52 InvestmentsinownTier2capitalinstruments –53 Reciprocalcross-holdingsinTier2capitalinstruments –54 Insignificant capital investments in Tier 2 capital instruments issued by financial sector entities that are

outsidethescopeof regulatoryconsolidation(amountabove10%threshold)–

55 SignificantcapitalinvestmentsinTier2capitalinstrumentsissuedbyfinancialsectorentitiesthatareoutsidethescopeof regulatoryconsolidation

–

56 NationalspecificregulatoryadjustmentsappliedtoTier2capital –56a Add back of cumulative fair value gains arising from the revaluation of land and buildings (own-use and

investmentproperties)eligibleforinclusioninTier2capital–

57 Total regulatory deductions to Tier 2 capital –58 Tier 2 capital 153,28559 Total capital (Total capital=Tier 1+Tier 2) 4,087,32960 Total risk weighted assets 18,298,193

capital ratios (as a percentage of risk weighted assets)61 CET1capitalratio 21.50%62 Tier1capitalratio 21.50%63 Totalcapitalratio 22.34%64 Institutionspecificbufferrequirement(minimumCET1capital requirementasspecified ins.3Bof theBCR

pluscapitalconservationbufferpluscountercyclicalbufferrequirementsplusG-SIBorD-SIBrequirements)6.28%

65 of which: capital conservation buffer requirement 1.25%66 of which: bank specific countercyclical buffer requirement 0.53%67 of which: G-SIB or D-SIB buffer requirement 0.00%68 CET1capitalsurplusover theminimumCET1 requirementandanyCET1capitalused tomeet theTier1

andTotalcapitalrequirementunders.38of theBCR14.34%


9




HK$’000

cross reference to


National minima (if different from Basel 3 minimum)69 NationalCET1minimumratio Notapplicable70 NationalTier1minimumratio Notapplicable71 NationalTotalcapitalminimumratio Notapplicable

Amounts below the thresholds for deduction (before risk weighting)72 Insignificant capital investments in CET1 capital instruments, AT1 capital instruments and Tier 2 capital

instrumentsissuedbyfinancialsectorentitiesthatareoutsidethescopeof regulatoryconsolidation–

73 SignificantcapitalinvestmentsinCET1capitalinstrumentsissuedbyfinancialsectorentitiesthatareoutsidethescopeof regulatoryconsolidation

428,556

74 Mortgageservicingrights(netof relatedtaxliability) Notapplicable75 Deferredtaxassetsarisingfromtemporarydifferences(netof relatedtaxliability) Notapplicable

Applicable caps on the tnclu1ton of provisions In Tier 2 capital76 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to the basic approach and the

standardized(creditrisk)approach(priortoapplicationof cap)153,285

77 Cap on inclusion of provisions in Tier 2 under the basic approach and the standardized (credit risk)approach

208,468

78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to the IRB approach (prior toapplicationof cap)

–

79 Capforinclusionof provisionsinTier2undertheIRBapproach –capital Instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022)

80 Current cap on CET1 capital Instruments subject to phase out arrangements Notapplicable81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) Notapplicable82 Current cap on AT1 capital instruments subject to phase out arrangements83 Amount excluded from AT1 capital due to cap (excess over cap after redemptions and maturities)84 Current cap on Tier 2 capital instruments subject to phase out arrangements85 Amount excluded from Tier 2 capital due to cap (excess over cap after redemptions and maturities)


10



Notes to the Table 2:

ElementswhereamoreconservativedefinitionhasbeenappliedintheBCRrelativetothatsetoutinBaselIllcapitalstandards:

Row No.

Description Hong Kong basis Basel III basis

9

Other intangible assets (net of associated deferred tax liability)

4,966 4,966

Explanation

Assetoutinparagraph87of theBaselIlltextissuedbytheBaselCommittee(December2010),mortgageservicingrights(MSRs)maybegivenlimitedrecognitioninCET1capital(andhencebeexcludedfromdeductionfromCET1capitaluptothespecifiedthreshold).InHongKong,anAlisrequiredtofollowtheaccountingtreatmentof includingMSRsaspartof intangibleassetsreportedintheAl’sfinancialstatementsandtodeductMSRsinfullfromCET1capital.Therefore,theamounttobedeductedasreportedinrow9maybegreaterthanthatrequiredunderBaselIll.Theamountreportedunderthecolumn“BaselIllbasis”inthisboxrepresentstheamountreportedinrow9(i.e.theamountreportedunderthe“HongKongbasis”)adjustedbyreducingtheamountof MSRstobedeductedtotheextentnotinexcessof the10%thresholdsetforMSRsandtheaggregate15%thresholdsetforMSRs,DTAsarisingfromtemporarydifferencesandsignificantinvestmentsinCET1capitalinstrumentsissuedbyfinancialsectorentities(excludingthosethatareloans,facilitiesorothercreditexposurestoconnectedcompanies)underBaselIll.

10

Deferred tax assets net of deferred tax liabilities 8,942 8,942

Explanation

Assetoutinparagraphs69and87of theBaselIlltextissuedbytheBaselCommittee(December2010),DTAsthatrelyonfutureprofitabilityof thebanktoberealizedaretobededucted,whereasDTAswhichrelatetotemporarydifferencesmaybegivenlimitedrecognitioninCET1capital(andhencebeexcludedfromdeductionfromCET1capitaluptothespecifiedthreshold).InHongKong,anAlisrequiredtodeductallDTAsinfull,irrespectiveof theirorigin,fromCET1capital.Therefore,theamounttobedeductedasreportedinrow10maybegreaterthanthatrequiredunderBaselIll.

Theamountreportedunderthecolumn“BaselIllbasis”inthisboxrepresentstheamountreportedinrow10(i.e.theamountreportedunderthe“HongKongbasis”)adjustedbyreducingtheamountof DTAstobedeductedwhichrelatetotemporarydifferencestotheextentnotinexcessof the10%thresholdsetforDTAsarisingfromtemporarydifferencesandtheaggregate15%thresholdsetforMSRs,DTAsarisingfromtemporarydifferencesandsignificantinvestmentsinCET1capitalinstrumentsissuedbyfinancialsectorentities(excludingthosethatareloans,facilitiesandothercreditexposurestoconnectedcompanies)underBaselIll.


11

Row No.

Description Hong Kong basis Basel III basis

19

Significant capital investments in cET1 capital instruments issued by financial sector entities that are outside the scope of regulatory consolidation (amount above 10% threshold)

351,514 351,444

Explanation

Forthepurposeof determiningthetotalamountof significantcapitalinvestmentsinCET1capitalinstrumentsissuedbyfinancialsectorentities,anAlisrequiredtoaggregateanyamountof loans,facilitiesorothercreditexposuresprovidedbyittoanyof itsconnectedcompanies,wheretheconnectedcompanyisafinancialsectorentity,asif suchloans,facilitiesorothercreditexposuresweredirectholdings,indirectholdingsorsyntheticholdingsof theAlinthecapitalinstrumentsof thefinancialsectorentity,exceptwheretheAldemonstratestothesatisfactionof theMonetaryAuthoritythatanysuchloanwasmade,anysuchfacilitywasgranted,oranysuchothercreditexposurewasincurred,intheordinarycourseof theAl’sbusiness.

Therefore,theamounttobedeductedasreportedinrow19maybegreaterthanthatrequiredunderBaselIll.Theamountreportedunderthecolumn“BaselIllbasis”inthisboxrepresentstheamountreportedinrow19(i.e.theamountreportedunderthe“HongKongbasis”)adjustedbyexcludingtheaggregateamountof loans,facilitiesorothercreditexposurestotheAl’sconnectedcompanieswhichweresubjecttodeductionundertheHongKongapproach.

Remarks:Theamountof the10%/15%thresholdsmentionedaboveiscalculatedbasedontheamountof CET1capitaldeterminedundertheBanking(Capital)Rules.



Notes to the Table 2: (continued)


12


(c) Differences between Accounting and Regulatory Scopes of consolidation and Mapping of Financial Statement categories with Regulatory Risk categories

(a) (b) (c) (d) (e) (f) (g)

carryingvalues as

reported in published financial

statements

carryingvalues under

scope of regulatory

consolidation

carrying values of items:

subject to credit risk framework

subject to counterparty

credit risk framework

subject to the securitization

framework

subject to market risk framework

not subject to capital

requirements or subject to

deductionfrom capital

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Assets

Cashandbalancesfrombanksandcentralbanks

424,887 289,368 289,368 – – – –

Placementswithandadvancestobanks

7,065,494 7,048,990 7,048,990 – – – –

Tradingsecurities 51,230 – – – – – –

Derivativesfinancialassets 19,535 19,535 – 19,535 – 11,715 –

Loansandadvancestocustomers

15,062,895 15,062,895 15,062,895 – – – –

Investmentsecurities 2,914,030 1,562,489 1,562,489 – – – –

Investmentinassociate 1,199 – – – – – –

Investmentinsubsidiaries – 780,000 428,486 – – – 351,514

Propertyandequipments 20,169 16,330 16,330 – – – –

Intangibleassets 6,139 5,878 – – – – 5,878

Currenttaxrecoverable 1,128 1,128 1,128 – – – –

Deferredtaxassets 8,030 8,030 – – – – 8,030

Otherassets 202,324 155,267 155,267 – – – –

Total assets 25,777,060 24,949,910 24,564,953 19,535 – 11,715 365,422

Liabilities

Depositsfromcustomers 13,628,287 13,706,562 – – – – 13,706,562

Depositsfrombanks 4,424,141 4,424,141 – – – – 4,424,141

Derivativefinancialliabilities 19,294 19,294 – 19,294 – – –

Certificateof depositsandotherdebtsecuritiesissued

3,028,315 2,246,775 – – – – 2,246,775

Currenttaxpayable 7,955 – – – – – –

Deferredtaxliabilities 437 – – – – – –

Otherliabilities 214,262 145,279 – – – – 145,279

Total liabilities 21,322,691 20,542,051 – 19,294 – – 20,522,757


13


(c) Differences between Accounting and Regulatory Scopes of consolidation and Mapping of Financial Statement categories with Regulatory Risk categories (continued)

Theabovetableillustratesthekeydifferencesbetweenregulatoryexposureamountsandaccountingcarryingvaluesundertheregulatoryscopeof consolidation.Theamountsshowninthecolumn“Carryingvaluesunderscopeof regulatoryconsolidation”donotequalthesumof theamountsshownintheremainingcolumnsof thetablefor“Derivativefinancialassets”and“Derivativefinancialliabilitiesastheyaresubjecttoregulatorycapitalchargesincreditrisk,counterpartycreditriskandmarketriskcategories.

(d) Differences between Regulatory Exposure Amounts and carrying Values in Financial Statements

(a) (b) (c) (d) (e)

Total

Items subject to:

credit risk framework

securitization framework

counterparty credit risk framework

market risk framework

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

1 Asset carrying value amount under scope of regulatory consolidation (as per template LI1)

24,584,488 24,564,953 – 19,535 11,715

2 Liabilitiescarryingvalueamountunderregulatoryscopeof consolidation(aspertemplateLI1)

19,294 – – 19,294 –

3 Totalnetamountunderregulatoryscopeof consolidation

24,565,194 24,564,953 – 241 11,715

4 Off-balancesheetamounts 2,234,640 160,144 – – –

5 Potential future exposures 18,048 – – 18,048 –

6 Differences due to consideration of provisions 44,892 44,892 – – –

7 Differences due to specific regulatory adjustments and other adjustments

(1,134,848) (1,154,142) – 19,294 –

8 Exposure amounts considered for regulatory purposes

25,727,926 23,615,847 – 37,583 11,715

Thekeydifferencesbetweenregulatoryexposureamountsandaccountingcarryingvaluesundertheregulatoryscopeof consolidationare:(i)off-balancesheetexposuresincludingcontingentliabilitiesandcommitmentsafter application of Credit Conversion Factor (“CCF”), (ii) potential future exposures for derivatives, (iii)differencesduetoconsiderationof provisionsand(iv)differencesduetospecificregulatoryadjustmentsandotherdifferences,includingrecognitionof effectof creditriskmitigations.


14


(e) Main Features of capital Instruments

1 IssuerBankof Shanghai(HongKong)Limited

Bankof Shanghai(HongKong)Limited

2Uniqueidentifier(egCUSIP.ISINorBloombergidentifierforprivate

placement)N/A N/A

3 Governinglaw(s)of theinstrument HongKong HongKong

Regulatory treatment

4 TransitionalBaselIllrules CommonEquityTier1 CommonEquityTier1

5 Post-transitionalBaselIllrules CommonEquityTier1 CommonEquityTier1

6 Eligibleatsolo/group/group&solo Solo Solo

7 Instrumenttype(typestobespecifiedbyeachjurisdiction) Ordinaryshares Ordinaryshares

8 Amountrecognisedinregulatorycapital(Currencyinmillion,asof mostrecentreportingdate)

HK$2,200million HK$1,800million

9 Parvalueof instrument HKS10each RMB10each

10 Accountingclassification Shareholders’equity Shareholders’equity

11 Originaldateof issuance 12/2/1974 3/1/2014

12 Perpetualordated Perpetual Perpetual

13 Originalmaturitydate Nomaturity Nomaturity

14 Issuercallsubjecttopriorsupervisoryapproval No No

15 Optionalcalldate,contingentcalldatesandredemptionamount Notapplicable Notapplicable

16 Subsequentcalldates,if applicable Notapplicable Notapplicable

Coupons/dividends

17 Fixedorfloatingdividend/coupon Floating Floating

18 Couponrateandanyrelatedindex Notapplicable Notapplicable

19 Existenceof adividendstopper No No

20 Fullydiscretionary,partiallydiscretionaryormandatory Fullydiscretionary Fullydiscretionary

21 Existenceof stepuporotherincentivetoredeem No No

22 Noncumulativeorcumulative Noncumulative Noncumulative

23 Convertibleornon-convertible Non-convertible Non-convertible

24 If convertible,conversiontrigger(s) Notapplicable Notapplicable

25 If convertible,fullyorpartially Notapplicable Notapplicable

26 If convertible,conversionrate Notapplicable Notapplicable

27 If convertible,mandatoryoroptionalconversion Notapplicable Notapplicable

28 If convertible,specifyinstrumenttypeconvertibleinto Notapplicable Notapplicable


15

29 If convertible,specifyissuerof instrumentitconvertsinto Notapplicable Notapplicable

30 Write-downfeature No No

31 If write-down,write-downtrigger(s) Notapplicable Notapplicable

32 If write-down,fullorpartial Notapplicable Notapplicable

33 If write-down,permanentortemporary Notapplicable Notapplicable

34 If temporarywrite-down,descriptionof write-upmechanism Notapplicable Notapplicable

35 Positioninsubordinationhierarchyinliquidation(specifyinstrumenttypeimmediatelyseniortoinstrument)

Notapplicable Notapplicable

36 Non-complianttransitionedfeatures No No

37 If yes,specifynon-compliantfeatures Notapplicable Notapplicable

4 LEVERAGE RATIO

(a) Leverage ratio

TheleverageratioswerecomputedinaccordancewiththeLeverageRatioFrameworkissuedbytheHKMA.

31 December2017

31December2016

HK$’000 HK$’000

Tier1capital 3,934,044 4,121,288Exposuremeasure 24,974,850 21,390,754

Leverage Ratio 15.8% 19.3%


(e) Main Features of capital Instruments (continued)


16

4 LEVERAGE RATIO (cONTINuED)

(b) components of Leverage ratio

Leverage Ratio Disclosure Template

Leverage ratioframework

As at 31 December 2017HK$’000

On-balance sheet exposures

1 On-balancesheetitems(excludingderivativesandSFTs,butincludingcollateral) 24,975,268

2 Less:AssetamountsdeductedindeterminingBaselIllTier1capital(reportedasnegativeamounts)

473,815

3 Totalon-balancesheetexposures(excludingderivativesandSFTs)(sumof lines1and2) 24,501,453

Derivative exposures

4 Replacementcostassociatedwithallderivativestransactions(i.e.netof eligiblecashvariationmargin)

19,535

5 Add-onamountsforPFEassociatedwithallderivativestransactions 18,048

6 Gross-up for derivatives collateral provided where deducted from the balance sheet assetspursuanttotheoperativeaccountingframework

–

7 Less: Deductions of receivables assets for cash variation margin provided in derivativestransactions(reportedasnegativeamounts)

–

8 Less:ExemptedCCPlegof client-clearedtradeexposures(reportedasnegativeamounts) –

9 Adjustedeffectivenotionalamountof writtencreditderivatives –

10 Less: Adjusted effective notional offsets and add-on deductions for written credit derivatives(reportedasnegativeamounts)

–

11 Totalderivativeexposures(sumof lines4to10) 37,583

Securities financing transaction exposures

12 Gross SFT assets (with no recognition of netting), after adjusting for sales accountingtransactions

–

13 Less:Nettedamountsof cashpayablesandcashreceivablesof grossSFTassets(reportedasnegativeamounts)

–

14 CCRexposureforSFTassets –

15 Agenttransactionexposures –

16 Totalsecuritiesfinancingtransactionexposures{sumof lines12lo15) –

Other off-balance sheet exposures

17 Off-balancesheetexposureatgrossnotionalamount 2,234,640

18 Less:Adjustmentsforconversiontocreditequivalentamounts(reportedasnegativeamounts) (1,798,826)

19 Off-balancesheetitems(sumof lines17and18) 435,814

capital and total exposures

20 Tier1capital 3,934,044

21 Totalexposures(sumof lines3,11,16and19) 24,974,850

Leverage ratio

22 Basel III leverage ratio 15.8%


17

4 LEVERAGE RATIO (cONTINuED)

(c) Reconciliation of published financial statements to leverage ratio exposure

Leverage ratio framework as at

31 December 2017HK$’000

1 Totalconsolidatedassetsasperpublishedfinancialstatements 25,777,060

2 Adjustmentforinvestmentsinbanking,financial,insuranceorcommercialentitiesthatareconsolidatedforaccountingpurposesbutoutsidethescopeof regulatoryconsolidation

(827,150)

3 Adjustmentforfiduciaryassetsrecognisedonthebalancesheetpursuanttotheoperative(accountingframeworkbutexcludedfromtheleverageratioexposuremeasure

–

4 Adjustmentforderivativefinancialinstruments 18,048

5 Adjustmentforsecuritiesfinancingtransaction(i.e.reposandsimilarsecuredlending) –

6 Adjustmentforoff-balancesheetitems(i.e.conversiontocreditequivalentamountsof off-balancesheetexposures)

435,814

7 Otheradjustment (428,922)

8 Leverage ratio exposures 24,974,850


18

5. RISK MANAGEMENT APPROAcH

Inexecutingourstrategicprioritiesandbusinessopportunities,theCompanyisfacedwitheconomic,financialandothertypesof risk.Theserisksareinterdependentandrequireaholisticapproachtoriskmanagement.Verybroadly,theseriskscanbealignedaroundthefollowingkeyriskcategories:

• Credit• Market• Liquidity• Operational• Reputational• BusinessandStrategic

Thesekeyrisksareexplainedinfurtherdetailsinsections7to11.

TheBoardoverseestheCompany’saffairsandprovidessoundleadershipfortheChief ExecutiveOfficerandmanagement.AuthorisedbytheBoard,variousBoardcommitteesoverseespecificresponsibilitiesbasedonclearlydefinedtermsof references.Underourriskmanagementapproaches,theBoard,throughtheRisk&ComplianceCommittee(“Rcc”),setsourRiskAppetite,overseestheestablishmentof riskmanagementpoliciesandprocesses,andsetsrisklimitstoguidetheCompany’srisk-taking.TheRCCalsooverseestheidentification,monitoring,managementandreportingof credit,market,liquidity,operationalandreputationalrisks.TofacilitatetheRCC’sriskoversight,thefollowingriskmanagementcommitteeshavebeenestablished:

• Asset&LiabilityCommittee• CreditCommittee• ExecutiveCommittee• OperationsandTechnologyCommittee

ThesecommitteesasawholeserveasanexecutiveforumtodiscussandimplementtheCompany’sriskmanagement.Keyresponsibilitiesinclude

• Assessandapproverisk-takingactivities• OverseetheCompany’sriskmanagementinfrastructure,whichincludesframeworks,decisioncriteria,

authorities,people,policies,standards,processes,informationandsystems• Approveriskpolicies,theevaluationandendorsementof riskmodels• Assessandmonitorspecificcreditconcentration• Recommendscenariosandtheresultingmacroeconomicvariableprojectionsusedforenterprise-wide

stresstests

ThemembersinthesecommitteescompriserepresentativesfromtheRiskManagementunit(“RMU”)aswellaskeybusinessandsupportunits.

OurRiskAppetitetakesintoaccountaspectrumof risktypes,anditisimplementedusingthresholds,policies,processesandcontrols.


19

5. RISK MANAGEMENT APPROAcH (cONTINuED)

ThresholdstructuresareessentialinmakingtheCompany’sRiskAppetiteanintrinsicpartof ourbusinesses,becausetheyhelptokeepallourriskswithinacceptablelevels.Portfoliorisklimitsforthequantifiablerisktypesreachallpartsof theCompanyfromthetopdown,andtheseareimplementedusingformalframeworks.Asforthenon-quantifiablerisktypes,thesearecontrolledunderqualitativeprinciplesthroughestablishedpolicies.

Wemanagetheserisksbydiversifyingourriskacrossindustriesandindividualexposures.TheCompanyhasthreelinesof defensewhenitcomestorisktakingwhereeachlineof defensehasaclearresponsibility.Workingcloselywiththesupportunits,ourbusinessunitsareourfirstlineof defenseforriskmanagement.Theirresponsibilitiesincludeidentificationandmanagementof risksinherentintheirbusinessesandensuringthatourbusinessoperationsremainwithinapprovedboundariesof ourriskappetiteandpolicies.

CorporateoversightandcontrolfunctionssuchasComplianceandpartsof TechnologyandFinanceformthesecondlineof defense.Theyareresponsiblefordesignandmaintenanceof theinternalcontrolframeworkscoveringfinancial,operational,complianceandinformationtechnologycontrolsaswellasriskmanagementpoliciesandsystems.Inaddition,RMUisresponsibleforidentifyingindividualandportfoliorisk,approvingtransactionsandtradesandensuringthattheyarewithinapprovedlimits,andmonitoringandreportingontheportfolio.Thesearecarriedoutwithaviewof currentandfuturepotentialdevelopments,andevaluatedthroughstresstesting.

BankAuditformsthethirdlineof defense.Itprovidesanindependentassessmentandassuranceonthereliability, adequacy and effectiveness of our system of internal controls, risk management procedures,governanceframeworkandprocesses.

TheBankbelievesthateffectivesafeguardsagainstundesiredbusinessconducthavetogobeyonda“tick-the-box”mentality.Otherthanrelyingonpublishedcodesof conduct,theBankalsoadvocatesthefollowingorganizationalsafeguardstomaintainastrongriskandgovernanceculture:

• Tonefromthetop• Aligningstrategiesandincentivesviakeyperformanceindex.Performanceisassessedagainstthekey

performanceindextodetermineremuneration,providingaclearlineof sightbetweenemployeegoalsandorganizationalimperatives

• Respectingvoiceof controlfunctions• Riskownership• Havingestablishedescalationprotocols• Encouragingconstructivechallengesatalllevel• Reinforcingculturalalignment

Inadditiontocultivatingastrongriskandgovernanceculture,robustinternalcontrolprocessesandsystemshavebeendesignedandimplementedtosupporttherespectiveriskmanagementapproaches.Thesearereviewedregularlybytherespectiveriskunitstoassessandensuretheireffectiveness.


20

5. RISK MANAGEMENT APPROAcH (cONTINuED)

Riskmanagementreportsincludingexposureandpositioninformationforallsignificantriskareasareprovidedtotheriskmanagementcommitteesandseniormanagementonaregularbasis,asdeemedappropriate.TheCompany, throughvarious riskmanagementcommittees,determines the risk reporting requirements thatbestsuitthebusiness.Thisincludesthefollowing:

• riskexposuresandprofileagainstrisklimitsandriskstrategy• largeriskeventsandsubsequentremedialactionplans• marketdevelopmentssuchasmacro-economic,credit,industry,countryrisks,emergingriskconcentrations

andstresstestsrelatedtothesedevelopments

Stresstestingisanintegralpartof ourriskmanagementprocess,andincludesbothsensitivityanalysisandscenarioanalysis.Thisrelatedtoregulatoryandinternalstresstestoverthewholeportfolioandgamutof risk types. Every stress test is documented and results are discussed at the relevant risk managementcommittees.

Thiselementalertsseniormanagementof ourpotentialvulnerability toexceptionalbutplausibleadverseevents.Assuch,stresstestingenablesustoassesscapitaladequacyandidentifypotentiallyriskyportfoliosegmentsaswellasinherentsystematicrisks.Thisthenallowsustodeveloptherightcontingencyplans,exitstrategiesandmitigatingactionsbeforehand.

ThecapitalplanningprocessaccordingtoourInternalCapitalAdequacyAssessmentProcessseekstoalignourexpectedbusinesstrajectorytoourRiskAppetite.Thisisdonebycomparingtheprojecteddemandforcapitaltotheprojectedsupplyof capitalinstressscenarios.


21

6 OVERVIEW OF RISK-WEIGHTED AMOuNT

ThetablebelowsetsouttheRWAbyrisktypesandtheircorrespondingcapitalrequirements(i.e.8%of theRWA).

RWAMinimum capital

requirements

31 December2017

30 September2017

31 December2017

HK$’000 HK$’000 HK$’000

1 Creditriskfornon-securitizationexposures 15,585,580 13,271,631 1,246,846

2 Of whichSTCapproach 15,585,580 13,271,631 1,246,846

4 Counterpartycreditrisk 42,510 42,020 3,401

5a Of whichCEM 20,447 18,682 1,636

16 Marketrisk 959,850 961,338 76,788

17 Of whichSTMapproach 959,850 961,338 76,788

19 Operationalrisk 638,863 585,188 51,109

20 Of whichBIAapproach 638,863 585,188 51,109

23 Amountsbelowthethresholdsfordeduction(subjectto250%RW)

1,071,390 1,063,754 85,711

25 Total 18,298,193 15,923,931 1,463,855

TotalRWAincreasedmainlyattributabletoincreaseinRWAforcreditrisk,whichwasdrivenbytheincreaseinbusinessvolumeandtheshiftof assetsmixfrombankexposurestocorporateexposuresduringthequarter.

7 cREDIT RISK

(a) Qualitative Disclosures

(i) General Qualitative Disclosures

Credit riskarises fromborrowersorcounterparties failing tomeet theirdebtorcontractualobligations. Itincludes both the risk of lending as well as the pre-settlement and settlement risk of foreign exchange,derivativesanddebtsecurities.

TheCompany’sCreditRiskPolicysetsforththeprinciplesbywhichtheCompanyconducts itscreditriskmanagementandcontrolactivities.

Thesepolicies, supplementedbyanumberof operationalpoliciesandstandards,ensureconsistency inidentifying,assessing,underwriting,measuring,reportingandcontrollingcreditriskacrosstheCompany,andprovideguidanceintheformulationof business-specificcreditriskpoliciesandstandards.


22

7 cREDIT RISK (cONTINuED)

(a) Qualitative Disclosures (continued)

(i) General Qualitative Disclosures (continued)

Inmanagingitsriskprofile,theCompanyhassomecriteria inplacethatservetosupporttheCompany’sportfoliostrategyplanningandensuresound,well-definedandconsistentcreditunderwritingstandardsacrossbusinessunitsof theCompany.TheCompanysetsRiskAppetitetospecifytheguidelinesfortheacceptanceof risksassociatedwiththeextensionof creditfacilities.Thedelegationof authoritysetsoutthelevelof creditauthorityrequiredforapprovalof creditextensiontoacounterpartygroup.

RMUisthesecondlineof defenseresponsibleforthedevelopmentandmaintenanceof creditriskmanagementandinternalcontrolframeworks.Itprovidesindependentreviewandchallengetothefirstlineof defense(e.g.BusinessUnits)whoareultimatelyresponsiblefortheidentification,assessmentandmanagementof riskonanend-to-endbasisandinconformitywithapprovedriskappetiteandpolicies.

VariousfunctionsunderRMUreportstotheChief RiskOfficer:

• Creditriskmanagersapproveandcontrolcreditriskandportfolioqualityandensurecompliancewithallapplicablecreditpolicies,andprocedures.

• Creditcontrolunitsactasamonitoringfunctiontoperformindependentchecksoncompletenessof documentationtobeexecuted,andcomplianceof conditionsprecedent/creditconditionspriortotheactivationof creditfacilities/disbursement/accommodationof creditexcessandad-hocfacilities.

TheCompany’sultimatecreditauthorityisvestedwiththeCompany’sBoardof Directors.

PleaserefertoSection5ontheriskmanagementcommitteesestablishedtodiscussthevariousrisktypes.

RMUalsopartners theComplianceunit toensureall risk-takingactivitiesabidebyall regulations,whileInternalAuditunitservesasathirdlineof defensetoprovideanindependentassessmentandassuranceonthereliability,adequacyandeffectivenessof oursystemof internalcontrols,riskmanagementprocedures,governanceframeworkandprocesses.

TheCompanyconstantlyinvestsinsystemstosupportriskmonitoringandreportingforourbusinesses.Theend-to-end credit process is continually reviewed and improved through various front-to-back initiativesinvolvingthebusinessunits,operations,RMUandotherkeystakeholders.


23



(ii) Qualitative Disclosures related to credit Risk Mitigation techniques

TheCompany’sCreditRiskPolicyprovidespolicyrequirementsandreferenceson:

• Eligiblecollaterals• Collateralvaluationandvaluationmethod• Appointmentof valuers/appraisers• Loan-to-valuation/margincalls

Coreprocessesforcollateralevaluationincludefrequencyof valuationforthevariousassetclasses.

Wherepossible,theCompanytakescollateralasasecondaryrecoursetotheborrower.Thisincludes,butnotlimitedto,cash,marketablesecurities,realestate,tradereceivables,inventoryandequipment,andotherphysicaland/orfinancialcollateral.TheCompanymayalsotakefixedandfloatingchargesontheassetsof borrowers.Policiesareinplacetodeterminetheeligibilityof collateralforcreditriskmitigation.Theseincluderequiringspecificcollateraltomeetminimumoperationalrequirementsinordertobeconsideredaseffectiverisk mitigants. The Company’s collateral is generally diversified and periodic valuations of collateral arerequired.Forderivatives,collateralarrangementsaretypicallycoveredundermarket-standarddocumentation,suchasInternationalSwaps&DerivativesAssociation(ISDA)AgreementsandMasterRepurchaseAgreements.Thecollateralreceivedismarked-to-marketonafrequencytheCompanyandthecounterpartiesmutuallyagreedupon,governedbyinternalguidelineswithrespecttothecollateraleligibility.Intheeventof adefault,thecreditriskexposureisreducedbymaster-nettingarrangementswheretheCompanyisallowedtooffsetwhat the Company owes a counterparty against what is due from that counterparty in a netting-eligiblejurisdiction.

Intimesof difficulty,theCompanywillreviewthecustomer’sspecificsituationandcircumstancestoassisttheminrestructuringtheirrepaymentliabilities.


24



(iii) Additional Disclosures related to the credit Quality of Assets

HKMA’sLoanClassificationSystemrequirescreditportfoliostobecategorisedintooneof thefollowingfivecategories,accordingtotheCompany’sassessmentof aborrower’sabilitytorepayacreditfacilityfromitsnormalsourcesof income.

Pass: Thisreferstoloanswhereborrowersarecurrentinmeetingcommitmentsandfullrepaymentof interestandprincipalisnotindoubt.

SpecialMention: This refers to loans where borrowers are experiencing difficulties which maythreatenthelender’sposition.Ultimatelossisnotexpectedatthisstagebutcouldoccurif adverseconditionspersist.

Substandard: Thisreferstoloanswhereborrowersaredisplayingadefinableweaknessthatislikelytojeopardizerepayment.TheCompanyisrelyingheavilyonavailablesecurity.Thiswouldincludeloanswheresomelossof principalorinterestispossibleaftertakingaccountof thenetrealizablevalueof thesecurity,andrescheduledloanswhereconcessionshavebeenmadetoaborroweroninterestorprincipalsuchastorendertheloan“non-commercial”totheCompany.

Doubtful: ThisreferstoloanswherecollectioninfullisimprobableandtheCompanyexpectstosustainalossof principaland/orinterestaftertakingaccountof thenetrealizablevalueof thesecurity.

Loss: Thisreferstoloanswhichareconsidereduncollectibleafterexhaustingallcollectioneffortssuchasrealizationof collateral,institutionof legalproceedings,etc.

CreditfacilitiesareclassifiedasrestructuredassetswhentheCompanygrantsnon-commercialconcessionstoaborrowerbecauseitisinaworsefinancialpositionorisunabletomeettheoriginalrepaymentschedule.Arestructuredcreditfacilityisclassifiedintotheappropriatenon-performinggradebasedontheassessmentof theborrower’sfinancialconditionanditsabilitytorepayaccordingtotherestructuredterms.

Suchcreditfacilitiesarenotreturnedtotheperformingstatusuntiltherearereasonablegroundstoconcludethat theborrowerwillbeable toserviceall futureprincipaland interestpaymentson thecredit facility inaccordancewiththerestructuredterms.


25



(iii) Additional Disclosures related to the credit Quality of Assets (continued)

Currently,different terminologyandcriteriaexists for thecategorizationof qualityof creditexposures forvariouspurpose:

1. Prudential/Regulatorydefinitionforcapitaladequacypurpose–“Default”

UnderBasel,adefaultisconsideredtohaveoccurredwhenanobligorisconsideredUnlikelytoPay(UTP)(with listof such indicatorsspecified in theBaselAccord) itscreditobligations in fullwithoutrecoursetoactionssuchasrealizingcollateral(if held),ortheobligorismorethan90DaysPastDue(90DPD)onanymaterialobligation. It shouldbenoted that theBaselUTPand90DPDcriteriaarealignedtotheCompany’sdefinitionof SubjectiveandTechnicalDefaultrespectively.

2. Accountingdefinitionforvaluation/provisioningpurpose–“Credit-Impaired”

UnderHKFRS9,afinancialassetisconsideredcredit-impairedwhenoneormoreevents(withlistof sucheventsspecifiedintheHKFRS9)thathaveadetrimental impactontheestimatedfuturecashflowsof thatfinancialassethaveoccurred.AllsuchfinancialinstrumentsareclassifiedasStage3andrequires individualassessmentof provisionsunder theprincipleof HKFRS9.This isalignedto theCompany’sdefinition.InotherwordsexposureswhichareclassifiedasDefaultunderBaselpurposeareconsideredtobeCredit-ImpairedforHKFRS9purpose.

(iv) EcAI rating under the STc approach

TheCompanyadoptedtheStandard(CreditRisk)Approachforcreditrisk.TheCompanyusedthecreditratingsfromthefollowingexternalcreditassessmentinstitutions(“ECAIs”)forallclassesof creditexposuresmentionedbelow:

• Moody’sInvestorsServices• StandardandPoor’sRatingServices• FitchRatings

TheprocessusedtomapECAIsissuespecificratingtotheexposuresrecordedintheCompany’sbankingbookisconsistentwiththoseprescribedintheBanking(Capital)Rules.


26


(b) credit quality of assets

Gross carrying amounts of

Allowances/impairments Net valuesAs at 31 December 2017

Defaulted exposures

Non-defaulted exposures

HK$’000 HK$’000 HK$’000 HK$’000

1 Loans 274,365 22,492,912 265,819 22,501,458

2 Debtsecurities – 1,575,038 – 1,575,038

3 Off-balancesheetexposures – 683,315 – 683,315

4 Total 274,365 24,751,265 265,819 24,759,811

Adefault isconsidered tohaveoccurredwith regard toaparticularborrowerwheneitherorbothof thefollowingeventshavetakenplace:

a) Subjectivedefault:Borrowerisconsideredtobeunlikelytopayitscreditobligationsinfull,withouttakingactionsuchasrealisingsecurity(if held).

b) Technicaldefault:Borrowerismorethan90dayspastdueonanycreditobligation.

Loansincludedbalanceswithbanksandcentralbank,placementswithandadvancestobanks,loansandadvancestocustomersandrelatedinterestreceivables.

Debtsecuritiesincludednon-tradinginvestmentsecuritiesandrelatedinterestreceivables.

Off-balancesheetexposuresincludeddirectcreditsubstitutes,transaction-relatedcontingencies,trade-relatedcontingenciesandirrecoverableloanscommitment.

(c) changes in Stock of Defaulted Loans and Debt Securities

HK$’000

1 Defaulted loans and debt securities as at 30 June 2017 –

2 Loansanddebtsecuritiesthathavedefaultedsincethelastreporting 274,365

3 Returnedtonon-defaultedstatus –

4 Amountswrittenoff –

5 Otherchanges –

Defaulted loans and debt securities as at 31 December 2017 274,365


27


(d) Additional Quantitative Disclosures related to credit Quality of Assets

(i) credit risk exposure by geographical areas, industry and residual maturity

Geographical areaHK$’000

As at31 December 2017

–HongKong 5,349,807

–China 18,205,250

–Others 1,470,573

Total 25,025,630

IndustryHK$’000


–Banks 12,363,239

–Officialsector 460,031

–Non-bankprivatesector

oPropertydevelopment 2,053,805

oPropertyinvestment 876,634

oFinancialconcerns 4,125,554

oWholesaleandretailtrade 746,118

oManufacturing 1,163,414

oTransport&transportequipment 1,018,123

oIndividuals 194,160

oOthers 2,024,552

Total 25,025,630

Residual maturityHK$’000


–Uptoandincludingoneyear 18,652,980

–Overoneyearanduptoincludingtwoyears 2,121,945

–Overtwoyears 4,250,705

Total 25,025,630


28


(d) Additional Quantitative Disclosures related to credit Quality of Assets (continued)

(ii) Impaired exposures and related allowances and write-offs by geographical area and industries

Geographical areaHK$’000

31 December 2017

Hong Kong china Total Grossoutstanding 7,174 267,192 274,366

Of which:Exposures subject to individual impairment allowance 7,174 267,192 274,366

Less:Impairment (7,174) (213,754) (220,928)

– 53,438 53,438

Impairedexposuressubjecttoindividualimpairmentallowancearemainlyrelatedtoothersandwholesaleandretailtrade.

(iii) Aging analysis of accounting past due exposures

Pleaserefertosection18overdueandrescheduledassetsfordetails.

(iv) Breakdown of restructured exposures

Therewerenorestructuredexposuresasat31December2017and31December2016.

(e) Overview of Recognized credit Risk Mitigation

Exposures unsecured:

carrying amountExposures

to be secured

Exposures secured by recognized collateral

Exposures secured by recognized guarantees

Exposures secured by recognized

credit derivative contracts

As at 31 December 2017 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

1 Loans 17,429,302 5,072,156 694,485 4,377,671 –

2 Debtsecurities 1,575,038 – – – –

3 Total 19,004,340 5,072,156 694,485 4,377,671 –

4 Of whichdefaulted 53,438 – – – –


29


(f) credit Risk Exposures and Effects of Recognized credit Risk Mitigation – STc approach


Exposures pre-ccFand pre-cRM

Exposures post-ccFand post-cRM RWA and RWA density

Exposure classesOn-balance

sheet amountOff-balance

sheet amountOn-balance

sheet amountOff-balance

sheet amount RWA RWA density

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 %

1 Sovereignexposures 336,868 – 336,868 – – –

2 PSEexposures 123,419 – 123,419 – 31,701 26

2a Of which:domesticPSEs 100,029 – 100,029 – 20,006 20

2c Of which:foreignPSEs 23,390 – 23,390 – 11,695 50

3 Multilateraldevelopmentbankexposures – – – – – –

4 Bankexposures 7,559,629 1,838,763 11,938,511 33,496 4,719,563 38

5 Securitiesfirmexposures 200,091 53,307 200,091 26,654 126,699 50

6 Corporateexposures 15,419,923 2,727,935 9,886,899 137,578 10,166,330 102

7 CISexposures – – – – – –

8 Cashitems – – – – – –

9 Exposuresinrespectof faileddeliveryontransactionsenteredintoonabasisotherthanadelivery-versus-paymentbasis – – – – – –

10 Regulatoryretailexposures 25,375 – 25,375 – 19,031 75

11 Residentialmortgageloans – – – – – –

12 Otherexposureswhicharenotpastdueexposures 891,101 – 891,101 – 1,533,935 172

13 Pastdueexposures 53,438 – 53,438 – 80,157 150

14 Significantexposurestocommercialentities – – – – – –

15 Total 24,609,844 4,620,005 24,455,702 197,728 16,677,416 70


30


(g) credit Risk Exposures by Asset classes and by Risk Weights - STc approach


0%HK$’000

10%HK$’000

20%HK$’000

35%HK$’000

50%HK$’000

75%HK$’000

100%HK$’000

150%HK$’000

250%HK$’000

OthersHK$’000

Total creditrisk exposures

amount (post ccF and post cRM)

HK$’000

1 Sovereignexposures 336,868 – – – – – – – – – 336,868

2 PSEexposures – – 100,029 – 23,390 – – – – – 123,419

2a Of which:domesticPSEs – – 100,029 – – – – – – – 100,029

2b Of whichforeignPSEs – – – – 23,390 – – – – – 23,390

3 Multilateraldevelopmentbankexposures – – – – – – – – – – –

4 Bankexposures – – 4,221,467 – 7,750,540 – – – – – 11,972,007

5 Securitiesfirmexposures – – – – 200,091 – 26,654 – – – 226,745

6 Corporateexposures – – – – 612,554 – 8,515,663 896,260 – – 10,024,477

7 CISexposures – – – – – – – – – – –

8 Cashitems – – – – – – – – – – –

9 Exposuresinrespectof faileddeliveryontransactionsenteredintoonabasisotherthanadelivery-versus-paymentbasis – – – – – – – – – – –

10 Regulatoryretailexposures – – – – – 25,375 – – – – 25,375

11 Residentialmortgageloans – – – – – – – – – – –

12 Otherexposureswhicharenotpastdueexposures – – – – – – 462,545 – 428,556 – 891,101

13 Pastdueexposures – – – – – – – 53,438 – – 53,438

14 Significantexposurestocommercialentities – – – – – – – – – – –

15 Total 336,868 – 4,321,496 – 8,586,575 25,375 9,004,862 949,698 428,556 – 23,653,430


31

8 cOuNTERPARTy cREDIT RISK (“ccR”)

(a) Qualitative Disclosures related to counterparty credit Risk

CounterpartyCreditRiskisdefinedastheriskthatacounterpartycoulddefaultbeforethefinalsettlementof thecashflowsof derivativesorsecuritiesfinancingtransactions.

Pre-settlementcreditriskfortradedproductsarisingfromacounterpartypotentiallydefaultingonitsobligationsisquantifiedbyevaluationof themarketprice,pluspotentialfutureexposure.

Issuerdefaultriskthatmayalsoarisefromderivatives,notesandsecuritiesaregenerallymeasuredbasedonjump-to-defaultcomputations.

TheCompany’sCreditRiskPolicyandrelatedstandardssetouttheCompany’soverarchingrequirementsforguaranteesandTradedProducts.

CreditlimitsandexposurestocounterpartiesaresubjecttotheCompany’soverarchingcreditriskmanagementframework.Counterpartiesareassessedindividuallyusinganinternalratingmodelandassignedcreditriskratings.After thecreditexposuresareassessed,credit limitsareproposedby thebusinessunit,andareapprovedbythecreditriskfunctionafteranindependentcreditassessment.

TheCompanyactivelymonitorsandmanagesourexposure tocounterparties inOTCderivative tradestoprotectourbalancesheetintheeventof acounterpartydefault.Counterpartyriskexposuresthatmaybeadversely affected by market risk events are identified, reviewed and acted upon by management, andhighlightedtotheappropriateriskmanagementcommittees.

Furthermore,theCompanyentersintomasternetting/collateralarrangementswithcounterpartieswhereitisappropriateandfeasibletomitigatecounterpartyrisk.

TheCompany’sCreditRiskPolicyprovidethedefinitionandmanagementof specificwrong-wayrisk(SWWR).SWWR arises when the credit exposure of a counterparty (from the traded product transaction) directlycorrelateswiththeprobabilityof defaultof thecounterparty.Anexampleof SWWRiswhenacounterpartybuysorsellsitsownequityshare.

TheCompanydoesnothaveexternalcreditratings,whichthushavenoimpactontheCompany’scollateralobligationsunderderivativecontracts.


32

8 cOuNTERPARTy cREDIT RISK (“ccR”) (cONTINuED)

(b) Analysis of counterparty Default Risk Exposures (Other than those to ccPs) by Approaches


Replacement cost (Rc)HK$’000

PEEHK$’000

EffectEPE

HK$’000

Alpha (α) used for

computing default risk exposureHK$’000

Default risk exposureafter cRMHK$’000

RWAHK$’000

1 CEM 19,535 18,048 – N/A 37,583 20,447

2 IMM(CCR)approach – – – – – –

3 SimpleApproach(forSFTs) – – – – – –

4 ComprehensiveApproach(forSFTs) – – – – – –

5 VaR(forSFTs) – – – – – –

6 Total 19,535 18,048 – – 37,583 20,447

(c) cVA capital charge


EAD post cRMHK$’000

RWAHK$’000

NettingsetsforwhichCVAcapitalchargeiscalculatedbytheadvancedCVAmethod

1 (i)VaR(afterapplicationof multiplicationfactorif applicable) – –

2 (ii)StressedVaR(afterapplicationof multiplicationfactorif applicable) – –

3 NettingsetsforwhichCVAcapitalchargeiscalculatedbythestandardizedCVAmethod 37,583 22,063

4 Total 37,583 22,063


33

8 cOuNTERPARTy cREDIT RISK (“ccR”) (cONTINuED)

(d) counterparty Default Risk Exposures (Other than those to ccPs) by Asset classes and by Risk Weights – for STc approach


Risk Weight

Exposure class0%

HK$’00010%

HK$’00020%

HK$’00035%

HK$’00050%

HK$’00075%

HK$’000100%

HK$’000150%

HK$’000250%

HK$’000Others

HK$’000

Total defaultrisk exposure

after cRMHK$’000

1 Sovereignexposures – – – – – – – – – – –

2 PSEexposures – – – – – – – – – – –

2a Of which:domesticPSEs – – – – – – – – – – –

2b Of which:foreignPSEs – – – – – – – – – – –

3 Multilateraldevelopmentbankexposures – – – – – – – – – – –

4 Bankexposures – – 225 – 33,271 – – – – – 33,496

5 Securitiesfirmexposures – – – – – – – – – – –

6 Corporateexposures – – – – – – 4,087 – – – 4,087

7 CISexposures – – – – – – – – – – –

8 Regulatoryretailexposures – – – – – – – – – – –

9 Residentialmortgageloans – – – – – – – – – – –

10 Otherexposureswhicharenotpastdueexposures – – – – – – – – – – –

11 Significantexposurestocommercialentities – – – – – – – – – – –

12 Total – – 225 – 33,271 – 4,087 – – – 37,583

(e) composition of collateral for counterparty Default Risk Exposures (including those for contracts or Transactions cleared through ccPs)


Derivative contracts SFTs

Fair value of recognized collateral received

Fair value of posted collateral

Fair value of recognized collateral receivedHK$’000

Fair value of posted

collateralHK$’000

SegregatedHK$’000

unsegregatedHK$’000

SegregatedHK$’000

unsegregatedHK$’000

Cash–domesticcurrency – – – – – –

Cash–othercurrencies – 3,676 – – – –

Total – 3,676 – – – –


34

9 MARKET RISK

(a) Qualitative Disclosures

Marketriskistheriskof lossonassets,liabilitiesandcommitmentsarisingfromtheneteffectof changesinmarketrates,suchasforeignexchangeratesandinterestrates.

MarketriskexposuresarecomingfromeitherTradingbookorBankingbook.

Tradingbookconsistsof:

• proprietarypositionsinfinancialinstrumentstakenforshort-termresaleortobenefitintheshorttermfromactualorexpecteddifferencesbetweenthebuyingandsellingpricesorfromotherpriceorinterestratevariations;

• positionsarisingfromtheexecutionof tradeordersfromcustomersandmarketmaking;• positionstakentohedgeotherelementsof thetradingbook.

Bankingbookconsistsof:

• positionsotherthanthosecategorisedunderthetradingbook.

TheCompany’sapproachtomarketriskmanagementisformulatedonthefollowingbuildingblocks:

• MarketRiskPolicies• MarketRiskSystems• MarketRiskMeasurement,MonitoringandReporting

TheCompany’smarket riskpoliciesaredesigned to identifyandanalyse thesemarket riskssoas tosetappropriaterisklimitsandcontrols,andtomonitortherisksandadheretolimitsbymeansof reliableandup-to-dateinformationsystems.Suchpolicyisacompilationof setsof marketriskrelatedpoliciestogovernthemarketriskprofileof theCompanyandtoensurethatmarketriskmanagementstrategiesareeffectivelyimplementedfor theCompany.TheCompanyhasmarketriskmanagementpoliciesonforeignexchange,interestrate,debtsecuritiesandliquidity.

Thelevelof sophisticationof theCompany’sriskmanagementinformationsystemsiscommensuratewiththenature,scaleandcomplexityof theCompany’sbusinessactivities.

Market risk limitsareput inplace tocontrol theCompany’sexposure tovariousquantifiablemarket risksassociatedwithitsbusinessactivities.Risklimitsareset in linewiththeCompany’sriskappetiteandaresuitableforthesizeandcomplexityof theCompany’sbusinessactivitiesandcompatiblewiththesophisticationof itsproductsandservices.Marketrisk limitsarereviewedat leastannuallytoensureitsadequacyandappropriatenessundertheprevailingbusinessenvironment.Asandwhentheportfolioormarketconditionschangesignificantly,underlyingassumptionsforestablishingthelimitswillthenbereviewedinthecontextof changesinstrategy,oraccordingtotherisktoleranceof theCompany,marketconditions,andregulatoryrequirementetc.Marketriskexposuresaremonitoredonafrequentbasis.

StresstestingisanessentialtoolfortheCompanytomanagemarketriskandisrunoninterestrate,foreignexchangeandliquidityonaregularbasis.IthelpsalerttheCompany’smanagementtoadverseunexpectedoutcomesrelatedtoavarietyof riskstowhichtheCompanyisexposed,andprovidesanindicationof theamountof financialresources(includingcapitalandliquidity)thatmightbenecessarytoabsorblossescausedby,ortowithstand,severestressedconditions.


35

9 MARKET RISK (cONTINuED)

(b) Market Risk under Standardized Approach

31 December 2017

RWAHK$’000

Outright product exposures

1 Interestrateexposures(generalandspecificrisk) 9,675

2 Equityexposures(generalandspecificrisk) –

3 Foreignexchange(includinggold)exposures 950,175

4 Commodityexposures –

Option exposures

5 Simplifiedapproach –

6 Delta-plusapproach –

7 Otherapproach –

8 Securitizationexposures –

9 Total 959,850

10. OPERATIONAL RISK

Operational risk is inherent in our business activities and it may arise from inadequate or failed internalprocesses,people,orsystems,orfromexternalevents.

TheCompany’sobjectiveistokeepoperationalriskatappropriatelevels,takingintoaccountthemarketstheCompanyoperatesin,thecharacteristicsof thebusinessesaswellasoureconomicandregulatoryenvironment.

TheCompany’sapproachtooperationalriskmanagementcomprisesthefollowingbuildingblocks:

• Policies

TheCompanyOperationalRiskManagement(“ORM”)Policysetsouroverallapproachformanagingoperationalriskinastructured,systematicandconsistentmanner.

TherearepoliciesinplacetogovernORMpracticesacrosstheCompany.Theseincludecorporateoperationalriskpolicies thatareownedby the respectivecorporateoversightandcontrol functions.Thekeypoliciesaddressriskareasrelatingtotechnology,compliance,fraud,moneylaundering,financingof terrorismsandsanctions,newproductandoutsourcing.

• RiskMethodologies

TheCompanyadoptstheBasicIndicatorApproachtocomputeoperationalriskregulatorycapital.


36

10. OPERATIONAL RISK (cONTINuED)

Tomanageandcontroloperational risk,weusevarious tools including riskandcontrolself-assessment,operationalriskeventmanagementandkeyriskindicatormonitoring.

Riskandcontrolself-assessmentisconductedbyeachbusinessorsupportunittoidentifykeyoperationalriskandassesstheeffectivenessof internalcontrols.Whencontrolissuesareidentified,theunitsdevelopactionplansandtracktheresolutionof theissues.

Operationalriskevents,includinganysignificantincidentsthatmayimpacttheCompany’sreputation,mustbereported.Keyriskindicatorswithpre-definedescalationtriggersareemployedtofacilitateriskmonitoringinaforwardlookingmanner.

Additional methodologies are in place to address subject-specific risks, including, but not limited to, thefollowing:

Technology riskInformation technologyrisk ismanaged throughanenterprise technologyriskapproach.Thiscovers riskgovernance,communication,monitoring,assessment,mitigationandacceptance,andissupportedbyasetof informationsecuritypoliciesandstandards,controlprocessesandriskmitigationprograms.

Wehavealsoestablishedpoliciesandstandardstomanageandaddresscybersecurityrisk.Toenhancethemanagementof thisrisk,theCompanyhasappointedaTechnologyRiskManagementOfficerwhoisresponsibleforourcybersecurityriskmanagementstrategyandprogram.

Compliance riskComplianceriskreferstotheriskof theCompanynotbeingabletosuccessfullyconductourbusinessbecauseof anyfailuretocomplywith laws,regulatoryrequirements, industrycodesorstandardsof businessandprofessionalconductapplicabletothefinancialsector.

This includes, inparticular, lawsandregulationsapplicabletothelicensingandconductingof bankingorotherfinancialbusinesses,financialcrimesuchasanti-moneylaunderingandcounteringthefinancingof terrorism, fraudandbribery/corruption.Wemaintaina complianceprogramdesigned to identify, assess,measure,mitigateandreportonsuchrisksthroughacombinationof policyandrelevantsystemsandcontrols.

TheCompanyalsoprovidesrelevanttrainingandimplementsassuranceprocesses.Westronglybelieveintheneedtopromoteastrongcompliancecultureaswell,andthisisdevelopedthroughtheleadershipof ourBoardandseniormanagement.

Fraud riskTheCompanyhasestablishedminimumstandards forourbusinessandsupportunits toprevent,detect,investigateandremediatefraudandrelatedevents.Thesestandardsareimplementedattheunitlevelsandaimtoprovideend-to-endmanagementforfraudandrelatedissueswithintheCompany.


37

10. OPERATIONAL RISK (cONTINuED)

Money laundering, financing of terrorism and sanctions risksThereareminimumstandardsforourbusinessandsupportunitstomitigateandmanageouractualand/orpotential exposure to money laundering, terrorist financing, sanctions, corruption, or other illicit financialactivities.Accountabilitieshavealsobeenestablishedfortheprotectionof theCompany’sassetsandreputation,aswellastheinterestsof ourcustomersandshareholders.

New product and outsourcing risksEachnewproduct,serviceoroutsourcinginitiativeissubjecttoariskreviewandsign-off process,whererelevantrisksareidentifiedandassessedbydepartmentsindependentof therisk-takingunitproposingtheproductorservice.

Other mitigation programsTomanagebusinessdisruptionseffectively,businesscontinuitymanagementisvitalaspartof theCompany’sriskmitigationprogram.

Arobustcrisismanagementandbusinesscontinuitymanagementprogramisinplacewithinessentialbusinessservicesforunforeseenevents.Planningforbusinessresilienceincludestheidentificationof keybusinessprocessesviaBusiness ImpactAnalysisaswellas thedocumentationandmaintenanceof ourBusinessContinuityPlan(“BCP”).

TheCompany’sBCPaimstominimizetheimpactof businessinterruptionstemmingfromseverelossscenarios,andprovideareasonablelevelof serviceuntilnormalbusinessoperationsareresumed.Withinthecrisismanagementstructure,wehaveinplaceanincidentmanagementprocess.Thiscoversthesituationfromthepointitbeginsandthecrisisisdeclaredtowhentherelevantcommitteesorteamsareactivatedtomanagethecrisis.

Exercisesareconductedatleastannually,simulatingdifferentscenariostotestourBCPsandcrisismanagementprotocol.ThesescenariosincludetechnologyissuesaffectingessentialbankingservicesacrosstheCompany,naturaldisasterswithwidegeographical impact, safety-at-risk incidents (e.g. terrorism)andothereventsleadingtosignificantbusinessdisruption.Theeffectivenessof theseexercises,aswellastheCompany’sbusinesscontinuityreadiness,ouralignmenttoregulatoryguidelinesandourdisclosureof residualrisks,arecommunicatedwiththeOperationsandTechnologyCommittee.

Tomitigatelossesfromspecificunexpectedandsignificanteventrisks,theCompanypurchasesinsurancepolicies from third-party insurers. The Company has acquired insurance policies relating to crime andprofessionalindemnity;directorandofficerliability;propertydamageandbusinessinterruption;andgeneralliability.

Processes, systems and reportsRobustinternalcontrolprocessesandsystemsareintegraltoidentifying,monitoring,managingandreportingoperationalrisk.Allunitsareresponsiblefortheday-to-daymanagementof operationalriskintheirproducts,processes,systemsandactivities,inaccordancewiththevariousframeworksandpolicies.TheOperationsandTechnologyCommitteeandothercorporateoversightandcontrol functionsoverseeandmonitor theeffectivenessof operationalriskmanagement,assesskeyoperationalriskissueswiththeunitstodeterminetheimpactacrosstheCompany,andreportand/orescalatekeyoperationalriskstorelevantseniormanagementandBoard-levelcommitteeswithrecommendationsonappropriateriskmitigationstrategies.


38

11 INTEREST RATE RISK IN BANKING BOOK

Inaccordancewiththeprudentialreturn“InterestRateRiskExposures”issuedbytheHKMA,theCompanycalculated,onaquarterlybasis,theimpactonearningsoverthenext12monthsunderascenariothatinterestratewouldrise200basispoints.

2017$’000

2016$’000

HKD 33,000 44,000USD 44,000 38,000RMB 13,000 9,000

12 INTERNATIONAL cLAIMS

Internationalclaimsareexposuresof counterpartiesbasedonthelocationof thecounterpartiesaftertakingintoaccountthetransferof risk.Foraclaimguaranteedbyapartysituatedinacountrydifferentfromthecounterparty,riskwillbetransferredtothecountryof theguarantor.Foraclaimonthebranchof abank,theriskwillbetransferredtothecountrywhereitsheadofficeissituated.Claimsonindividualcountriesorareas,afterrisktransfer,amountingto10%ormoreof theaggregateinternationalclaimsareshownasfollows:

Non-bank private sector

Banks Official sector

Non-bankfinancial

institutionNon-financialprivate sector Total

Asat31December2017: Developedcountries 906,828 – 188,284 73,071 1,168,183Offshorecenters 412,052 298,379 2,555,833 2,879,513 6,145,777

of whichHongKongSAR 296,153 298,379 2,555,833 2,879,513 6,029,877DevelopingAsiaandPacific 6,406,037 – 736,718 10,742,684 17,885,439

of whichChina 6,406,037 – 736,718 10,516,277 17,659,032

7,724,917 298,379 3,480,835 13,695,268 25,199,399

Non-bank private sector

Banks Official sector

Non-bankfinancial

institutionNon-financialprivate sector Total

Asat31December2016: Developedcountries 1,508,705 – 67,001 32 1,575,738Offshorecenters 1,400,160 129,739 1,780,193 3,605,495 6,915,587

of whichHongKongSAR 1,270,736 129,739 1,780,193 3,485,153 6,665,821DevelopingAsiaandPacific 4,353,152 – 660,143 7,595,038 12,608,333

of whichChina 4,352,736 – 660,143 7,370,624 12,383,503

7,262,017 129,739 2,507,337 11,200,565 21,099,658

Thegeographicalanalysishastakenintoaccountof transferof risk.


39

13 SEGMENTAL INFORMATION

Theoperatingresults,assetsandliabilitiesof theCompanywereattributabletoitsbusinessinHongKong.

Seniormanagementallocatedresourcesandassessedtheperformanceof thebusinessasawholeandthusthere was only one reportable segment. Therefore, no additional reportable segment and geographicalinformationwerepresented.

14 NON-BANK MAINLAND EXPOSuRES

Theanalysisof non-bankMainlandChinaexposuresisbasedonthecategoriesof non-bankcounterpartiesandthetypesof directexposuresdefinedbytheHKMAundertheDisclosureRuleswithreferencetotheHKMAreturninrespectof non-bankMainlandChinaexposures.

At 31 December 2017

On-balancesheet

exposureHK$’000

Off-balancesheet

exposureHK$’000

Totalexposures

HK$’000

1. Centralgovernment,centralgovernment-ownedentitiesandtheirsubsidiariesandjointventures(JVs) 2,192,135 117,231 2,309,366

2. Localgovernments,localgovernment-ownedentitiesandtheirsubsidiariesandJVs 562,229 – 562,229

3. PRCnationalsresidinginMainlandChinaorotherentitiesincorporatedinMainlandChinaandtheirsubsidiariesandJVs 5,168,755 92,384 5,261,139

4. Otherentitiesof centralgovernmentnotreportedinitem1above 921,982 203,200 1,125,182

5. Otherentitiesof localgovernmentsnotreportedinitem2above 443,400 – 443,400

6. PRCnationalsresidingoutsideMainlandChinaorentitiesincorporatedoutsideMainlandChinawherethecreditisgrantedforuseinMainlandChina 3,299,984 266,600 3,566,584

7. Othercounterpartieswheretheexposuresareconsideredbythereportinginstitutiontobenon-bankMainlandChinaexposures 2,109,161 1,361 2,110,522

14,697,646 680,776 15,378,422

Totalassetsafterprovision 24,969,602

On-balancesheetexposuresaspercentageof totalassets 58.86%


40

14 NON-BANK MAINLAND EXPOSuRES (cONTINuED)

At 31 December 2016

On-balancesheet

exposureHK$’000

Off-balancesheet

exposureHK$’000

Totalexposures

HK$’000

1. Centralgovernment,centralgovernment-ownedentitiesandtheirsubsidiariesandjointventures(JVs) 1,933,186 – 1,933,186

2. Localgovernments,localgovernment-ownedentitiesandtheirsubsidiariesandJVs 401,532 – 401,532

3. PRCnationalsresidinginMainlandChinaorotherentitiesincorporatedinMainlandChinaandtheirsubsidiariesandJVs 3,140,738 21,713 3,162,451

4. Otherentitiesof centralgovernmentnotreportedinitem1above 278,358 310,188 588,546

5. Otherentitiesof localgovernmentsnotreportedinitem2above 201,937 – 201,937

6. PRCnationalsresidingoutsideMainlandChinaorentitiesincorporatedoutsideMainlandChinawherethecreditisgrantedforuseinMainlandChina 3,525,556 279,932 3,805,488

7. Othercounterpartieswheretheexposuresareconsideredbythereportinginstitutiontobenon-bankMainlandChinaexposures 2,876,483 – 2,876,483

12,357,790 611,833 12,969,623

Totalassetsafterprovision 21,079,131

On-balancesheetexposuresaspercentageof totalassets 58.63%


41

15 cuRRENcy cONcENTRATIONS

TheCompanyanditssubsidiarieshadthefollowingnetforeigncurrencyexposureswhichexceeded10%of thenetforeigncurrencyexposureinallcurrencies:

uSD RMB

Otherforeign

currencies

Totalforeign

currencies $’000 $’000 $’000 $’000 HK$ HK$ HK$ HK$ equivalent equivalent equivalent equivalent

At 31 December 2017

Spot assets 19,119,477 1,500,492 1,386,128 22,006,097Spot liabilities (18,129,828) (2,729,335) (543,509) (21,402,672)Forward purchases 836,130 407,575 – 1,243,705Forward sales (399,632) – (850,159) (1,249,791)

Net long/(short) non-structural position 1,426,147 (821,268) (7,540) 597,339

At31December2016

Spotassets 12,359,877 1,412,929 533,707 14,306,513Spotliabilities (10,795,118) (3,503,265) (442,309 (14,740,692)Forwardpurchases 357,129 1,090,131 – 1,447,260Forwardsales (1,114,806) – (87,992) (1,202,798)

Netlong/(short)non-structuralposition 807,082 (1,000,205) 3,406 (189,717)

Asat31December2017and2016,therewasnonetstructuralposition.

16 LIQuIDITy RATIO

TheCompanyhascompliedwiththeLMRrequirementinaccordancewithBanking(Liquidity)Ruleswhichsetaminimumrequirementof 25%.Theaverageliquidityratioforthetwelve-monthperiodrepresentedthesimpleaverageof eachcalendarmonth’saverageLMR,whichwascomputedona“singlecompany”basisasrequiredbytheHKMAforregulatoryreportingpurposes.

2017%

2016%

Averageliquidityratiofortheyear 51 54

Approach to Liquidity Risk Management

Objectives, frameworkandprocessare inplaceforriskgovernance,measurementandmonitoringof theGroup’sliquidityrisk.Detailsof theGroup’sliquidityriskmanagementapproacharedelineatedinthe2017annualfinancialstatements.


42

17 FuRTHER ANALySIS OF LOANS AND ADVANcES TO cuSTOMERS

Individuallyimpairedloansandadvances,overdueloansandadvances,individuallyassessedandcollectivelyassessedloanimpairmentallowances,inrespectof industrysectorsrepresentingnotlessthan10%of grossloansandadvancestocustomersareanalysedasfollows:

31 December 2017

Individuallyimpaired

loans andadvances

Overdueloans andadvances

Individuallyassessed

loanimpairmentallowances

collectivelyassessed


HK$’000 HK$’000 HK$’000 HK$’000

Financial concerns – – – (13,175)Property development – – – (8,366)Property investment – – – (3,520)Manufacturing – – – (3,637)Wholesale and retail trade (6,990) (6,990) (6,990) (2,788)

31December2016

Individuallyimpaired

loansandadvances

Overdueloansandadvances

Individuallyassessed


Collectivelyassessed


HK$’000 HK$’000 HK$’000 HK$’000

Financialconcerns – – – (8,787)Wholesaleandretailtrade – – – (4,186)Propertydevelopment – – – (5,771)Manufacturing – – – (7,400)


43

18 OVERDuE AND REScHEDuLED ASSETS

(a) Overdue loans and advances to customers

Theoverdueloansandadvancesof theCompanyareanalysedasfollows:

As at 31 December 2017 Asat31December2016

HK$’000

% of gross loans and

advances to customers HK$’000

%of grossloansand

advancestocustomers

Sixmonthsorlessbutoverthreemonths 85,144 0.56 – –Oneyearorlessbutoversixmonths 189,038 1.23 – –

274,182 1.79 – –

Individualimpairmentallowancesmadeinrespectof theaboveoverdueloansandadvances 220,743 –

Currentmarketvalueof collateralheldagainstthecoveredportionof theaboveoverdueloansandadvances – –

Coveredportionof theaboveoverdueloansandadvances – –

Uncoveredportionof theaboveoverdueloansandadvances 274,182 –

(b) Rescheduled loans and advances

Therewerenorescheduledloansandadvancesasat31December2017and31December2016.

(c) Repossessed assets

Therewerenorepossessedassetsasat31December2017and31December2016.

(d) Overdue other assets

Theoverdueotherassetsof theCompanyareanalysedasfollows:

In HK$’000

As at31 December

2017

Asat31December

2016

Sixmonthsorlessbutoverthreemonths 183 –

183 –

bank of shanghai (hong kong) limited...2017/12/31 · non-bank mainland exposures 39 currency...

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