Bank of China Limited

Transcription

1 Bank of China Limited Stock Code : 3988 (Ordinary H-Share) 4601 (Offshore Preference Share) 2017 Annual Report The print version of the Bank s 2017 Annual Report, to be published in April 2018, will supersede this version.

2 Introduction Bank of China is the Bank with the longest continuous operation among Chinese banks. The Bank was formally established in February 1912 following the approval of Dr. Sun Yat-sen. From 1912 to 1949, the Bank served consecutively as the country s central bank, international exchange bank and specialised international trade bank. Fulfilling its commitment to serving the public and developing China s financial services sector, the Bank rose to a leading position in the Chinese financial industry and developed a good standing in the international financial community, despite many hardships and setbacks. After 1949, drawing on its long history as the state-designated specialised foreign exchange and trade bank, the Bank became responsible for managing China s foreign exchange operations and provided vital support to the nation s foreign trade development and economic infrastructure by its offering of international trade settlement, overseas fund transfer and other non-trade foreign exchange services. During China s reform and opening up period, the Bank seized the historic opportunity presented by the government s strategy of capitalising on foreign funds and advanced technologies to boost economic development, and became the country s key foreign financing channel by building up its competitive advantages in foreign exchange business. In 1994, the Bank was transformed into a wholly state-owned commercial bank. In August 2004, Bank of China Limited was incorporated. The Bank was listed on the Hong Kong Stock Exchange and the Shanghai Stock Exchange in June and July 2006 respectively, becoming the first Chinese commercial bank to launch an A-Share and H-Share initial public offering and achieve a dual listing in both markets. In 2017, Bank of China was again designated as a Global Systemically Important Bank, thus becoming the sole financial institution from an emerging economy to be designated as a Global Systemically Important Bank for seven consecutive years. Having served the Beijing 2008 Olympic Games, the Bank became the official banking partner of the Beijing 2022 Olympic and Paralympic Winter Games in 2017, thus making it the only bank in China serving two Olympic Games. As China s most globalised and integrated bank, Bank of China has a well-established global service network with institutions set up in the Chinese mainland as well as 54 countries and regions. It has established an integrated service platform based on the pillars of its corporate banking, personal banking, financial markets and other commercial banking business, which covers investment banking, direct investment, securities, insurance, funds, aircraft leasing and other areas, thus providing its customers with a comprehensive range of financial services. BOCHK and the Macau Branch serve as local note-issuing banks in their respective markets. Bank of China has upheld the spirit of pursuing excellence throughout its history of over one century. With adoration of the nation in its soul, integrity as its backbone, reform and innovation as its path forward and people first as its guiding principle, the Bank has built up an excellent brand image that is widely recognised within the industry and by its customers. In face of the period of historic opportunities for great achievements, as a large state-owned commercial bank, the Bank will follow Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, fully implement the spirit of the 19th National Congress of the Communist Party of China, persistently enable advancement through technology, drive development through innovation, deliver performance through transformation and enhance strength through reform, in an effort to build BOC into a world-class bank in the new era. It will make a greater contribution in developing a modernised economy and to the efforts to realise the Chinese Dream of national rejuvenation and the aspirations of the people to live a better life.

3 Development Strategy Strategic goal Guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, our strategic goal is to build BOC into a world-class bank in the new era by persistently enabling advancement through technology, driving development through innovation, delivering performance through transformation and enhancing strength through reform. The realisation of our strategic goal requires a three-step approach. By 2020, when China completes the building of a moderately prosperous society in all respects, the Bank will have further consolidated its development foundation, cemented its unique advantages, improved its systems and mechanisms, and enhanced its overall strength. By 2035, when China basically realises modernisation, the Bank will have transformed from a large, high-ranking bank to a strong, top-tier bank, thus becoming a world-class bank in the new era on all fronts. By 2050, the Bank will have become a financial treasure of a great modern socialist country, and will serve as a paragon of the global financial industry. Strategic implications Enable advancement through technology. We will quicken steps to build a digitalised bank that offers an excellent user experience, rich scenarios, smooth online-offline coordination and innovative and flexible products, backed by efficient operations and management and intelligent risk control. Leveraging our mobile banking channel, we will create an integrated mobile financial portal through which customers can access whatever they need, wherever they go, with a simple tap on their phone. Drive development through innovation. Keeping a close eye on the market trends and customer needs, we will accelerate innovation in technology, products and business. By adopting innovative and groundbreaking initiatives, we will strive to become a provider of high-quality financial services, a builder of connected platforms, a creator of data-driven value and a pioneer of intelligent services across the globe. Deliver performance through transformation. Centred on the demands of the real economy and the requirement for high-quality development, we will rapidly advance digital technologies, globalised businesses, integrated services, asset-light operations, and streamlined organisation. We will optimise the supply of financial resources, actively serve the three critical battles, serve the development of the real economy, and foster a high-quality development model with great capacity for value creation and market competitiveness. Enhance strength through reform. We will raise awareness of current and potential challenges we face, maintain our strategic focus, and be more courageous in implementing the reform. We will promote the reform of mind-set, of the mechanism and of the organisation across the Bank, and thus gather the invincible force for our reform and development. Strengthen Party leadership and Party building at the Bank, and ensure full and strict governance over the Party organisations at the Bank so as to drive full and strict governance over the Bank. We will continuously improve our governance system and enhance our governance capabilities, thus providing strong impetus and strategic support to our objective of building a world-class bank in the new era.

4 Core values Responsibility, Integrity, Professionalism, Innovation, Prudence, Performance Responsibility: We are always responsible to the state, the society, our customers, our employees, our shareholders, and the Bank. We will step forward to perform our responsibilities, boldly take on challenges, and carry our missions through. Integrity: We abide by every commitment we have made, keep our words consistent with our actions, have an open mind, and adhere to the principles of honesty and trustworthiness. Professionalism: We always aim to endow ourselves with greater capability and competence, carry on our work in the spirit of craftsmanship and constantly pursue perfection. Innovation: We always move ahead, and never stand still. We will make daring explorations, learn from others, and proactively develop innovative ideas. Prudence: We firmly hold the bottom line for risk management, ensure compliance in our operations, and abide by the laws governing the development, in a bid to achieve sound growth over the long term. Performance: We evaluate performance by results and profitability, thus promoting sustainable growth.

5 Honours and Awards The Banker Ranked 4th in Top 1,000 World Banks Ranked 5th in Top 500 Global Banking Brands FORTUNE Ranked 42nd in Global 500 (2017) Forbes Ranked 8th in Global 2000 Global Finance Euromoney Asia Money The Asian Banker Asia Pacific Loan Market Association (APLMA) People s Bank of China 21st Century Business Herald China Report Financial Times Shanghai Securities News Securities Times WPP Group World Brand Lab Hurun Research Institute China Banking Association Finance.sina.com ChinaHR Best International Bank Best M&A Bank Best Regional Cash Manager in Asia Best Overall Chinese Bank for BRI Best Transaction Bank for International Cash Management Best Bank for SMEs Best Transaction Bank for Trade Finance Best RMB Clearing Bank in Asia Pacific Asia Pacific Syndicated Loan House of the Year Asia Pacific Syndicated Leveraged & Acquisition Finance Loan House of the Year Asia Pacific Syndicated Project Finance Loan House of the Year Syndicated Loan House of the Year China First Prize for Banking Technology Development 2017 Excellent Commercial Bank in Asia 2017 Best Financial Transaction APP (Mobile Banking) Financial Enterprise with Best Overseas Image Best Listed Bank 2017 TOP Wealth Management Brand Award 2017 Excellent Private Banking Award 2017 Excellent Bond Underwriting Banks in China 2017 Excellent Banking Investment Banks in China Ranked 13th in BrandZ Top 100 Most Valuable Chinese Brands Ranked 12th in China s 500 Most Valuable Brands Ranked 12th in 2017 Hurun Brand List Most Socially Responsible Financial Institution Excellent Charity Project Award of the Year Poverty Alleviation Innovation Award for Financial Institutions Best Employer in Financial Industry in the Opinion of Chinese University Students

6 Contents Definitions 2 Important Notice 4 Financial Highlights 5 Corporate Information 8 Message from the Chairman 10 Message from the Chairman of the Board of Supervisors 14 Management Discussion and Analysis 16 Financial Review 16 Business Review 32 Risk Management 64 Organisational Management and Human Resources Development and Management 77 Outlook 80 Corporate Social Responsibilities 82 Changes in Share Capital and Shareholdings of Shareholders 85 Directors, Supervisors and Senior Management Members 93 Corporate Governance 111 Report of the Board of Directors 132 Report of the Board of Supervisors 143 Significant Events 148 Independent Auditor s Report 151 Consolidated Financial Statements 158 Reference for Shareholders 382 Organisational Chart 386 List of Major Branches and Subsidiaries 387 1

7 Definitions In this report, unless the context otherwise requires, the following terms shall have the meaning set out below: The Bank / the Group Articles of Association A Share Basis Point (Bp, Bps) BOC Asset Investment BOC Aviation BOC Insurance BOC Life BOCG Insurance BOCG Investment BOCHK BOCHK (Holdings) BOCI BOCIM BOCI China BOC-Samsung Life CBRC Central and Southern China Company Law CSRC Bank of China Limited or its predecessors and, except where the context otherwise requires, all of the subsidiaries of Bank of China Limited The performing Articles of Association of the Bank Domestic investment share(s) in the ordinary share capital of the Bank, with a nominal value of RMB1.00 each, which are listed on SSE (Stock Code: ) Measurement unit of changes in interest rate or exchange rate. 1 basis point is equivalent to 0.01 percentage point BOC Financial Asset Investment Co., Ltd. BOC Aviation Limited, a public company limited by shares incorporated in Singapore under the Singapore Companies Act, the shares of which are listed on the Hong Kong Stock Exchange Bank of China Insurance Company Limited BOC Group Life Assurance Co., Ltd. Bank of China Group Insurance Company Limited Bank of China Group Investment Limited Bank of China (Hong Kong) Limited, an authorised financial institution incorporated under the laws of Hong Kong and a wholly-owned subsidiary of BOCHK (Holdings) BOC Hong Kong (Holdings) Limited, a company incorporated under the laws of Hong Kong, the ordinary shares of which are listed on the Hong Kong Stock Exchange BOC International Holdings Limited Bank of China Investment Management Co., Ltd. BOC International (China) Limited BOC-Samsung Life Ins. Co., Ltd. China Banking Regulatory Commission The area including, for the purpose of this report, the branches of Henan, Hubei, Hunan, Guangdong, Shenzhen, Guangxi and Hainan The Company Law of PRC China Securities Regulatory Commission 2

8 Domestic Preference Share Eastern China HKEX Hong Kong Listing Rules Hong Kong Stock Exchange H Share Huijin Independent Director MOF Northeastern China Northern China Offshore Preference Share PBOC PRC RMB SAFE SFO SSE Western China Domestic preference share(s) in the preference share capital of the Bank, with a nominal value of RMB100 each, which are traded on SSE (Stock Code: , ) The area including, for the purpose of this report, the branches of Shanghai, Jiangsu, Suzhou, Zhejiang, Ningbo, Anhui, Fujian, Jiangxi, Shandong and Qingdao Hong Kong Exchanges and Clearing Limited The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited The Stock Exchange of Hong Kong Limited Overseas-listed foreign investment share(s) in the ordinary share capital of the Bank, with a nominal value of RMB1.00 each, which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars (Stock Code: 3988) Central Huijin Investment Ltd. Independent director under the listing rules of SSE and the Articles of Association, and independent non-executive director under the Hong Kong Listing Rules Ministry of Finance, PRC The area including, for the purpose of this report, the branches of Heilongjiang, Jilin, Liaoning and Dalian The area including, for the purpose of this report, the branches of Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia and the Head Office Offshore preference share(s) in the preference share capital of the Bank, with a nominal value of RMB100 each, which are listed on the Hong Kong Stock Exchange and traded in US dollars (Stock Code: 4601) The People s Bank of China, PRC The People s Republic of China Renminbi, the lawful currency of PRC State Administration of Foreign Exchange, PRC Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) The Shanghai Stock Exchange The area including, for the purpose of this report, the branches of Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Ningxia, Qinghai, Tibet and Xinjiang 3

9 Important Notice The Board of Directors, the Board of Supervisors, directors, supervisors and senior management members of the Bank warrant that the information in this report is authentic, accurate and complete, contains no false record, misleading statement or material omission, and jointly and severally accept full responsibility for the information in this report. The 2017 Annual Report and Annual Results Announcement of the Bank have been reviewed and approved at the meeting of the Board of Directors of the Bank held on 29 March The number of directors who should attend the meeting is 12, with 12 directors attending the meeting in person. All of the 12 directors of the Bank exercised their voting rights at the meeting. Some supervisors and senior management members of the Bank attended the meeting as non-voting attendees. The 2017 financial statements prepared by the Bank in accordance with Chinese Accounting Standards ( CAS ) and International Financial Reporting Standards ( IFRS ) have been audited by Ernst & Young Hua Ming LLP and Ernst & Young in accordance with Chinese and international auditing standards, respectively. Both auditors issued an unqualified opinion. Chairman of the Board of Directors CHEN Siqing, Executive Vice President responsible for the Bank s finance and accounting ZHANG Qingsong and General Manager of the Accounting and Information Department ZHANG Jianyou warrant the authenticity, accuracy and completeness of the financial statements in this report. The Board of Directors has recommended a final dividend on ordinary shares for 2017 of RMB0.176 per share (before tax), subject to the approval of the forthcoming Annual General Meeting scheduled on 28 June No capitalisation of the capital reserve to share capital is proposed in this profit distribution. During the reporting period, there was no misappropriation of the Bank s funds by its controlling shareholder or other related parties for non-operating purposes and no material guarantee business that violated the applicable regulations and procedures. This report may contain forward-looking statements that involve risks and future plans. These forward-looking statements are based on the Bank s own information and information from other sources that the Bank believes to be reliable. They relate to future events or the Bank s future financial, business or other performance and are subject to a number of factors and uncertainties that may cause the actual results to differ materially. Any future plans mentioned do not constitute a substantive commitment by the Bank to its investors. Investors and people concerned should be fully aware of the risks and understand the differences between plans, forecast and commitment. The Bank is faced with risks arising from changes in the macroeconomic environment and from political and economic conditions in different countries and regions as well as risks arising from its day-to-day operations, including the risk arising from changes in the credit status of borrowers, adverse changes in market prices and operational risk. It shall at the same time meet regulatory and compliance requirements. The Bank actively adopts adequate measures to effectively manage all types of risks. Please refer to the section Management Discussion and Analysis Risk Management for details. 4

10 Financial Highlights Operating income RMB Million Operating profit RMB Million Profit for the year RMB Million 407, , , , , , , , , , , , , , ,761 EPS (basic) RMB ROA % ROE % Net interest margin % Cost to income ratio (calculated under domestic regulations) % Non-interest income to operating income % Credit cost % Non-performing loans to total loans % Allowance for loan impairment losses to non-performing loans %

11 Note: The financial information in this report has been prepared in accordance with IFRS. The data are presented in RMB and reflect amounts related to the Group, unless otherwise noted. Unit: RMB million Note Results of operations Net interest income 338, , , , ,585 Non-interest income 1 145, , , , ,924 Operating income 483, , , , ,509 Operating expenses (173,859) (175,069) (185,401) (177,788) (172,314) Impairment losses on assets (88,161) (89,072) (59,274) (48,381) (23,510) Operating profit 221, , , , ,685 Profit before income tax 222, , , , ,777 Profit for the year 184, , , , ,741 Profit attributable to equity holders of the Bank 172, , , , ,911 Total dividend of ordinary shares N.A. 49,457 51,518 55,934 54,755 Financial position Total assets 19,467,424 18,148,889 16,815,597 15,251,382 13,874,299 Loans, gross 10,896,558 9,973,362 9,135,860 8,483,275 7,607,791 Allowance for loan impairment losses (252,254) (237,716) (200,665) (188,531) (168,049) Investments 2 4,554,722 3,972,884 3,595,095 2,710,375 2,403,631 Total liabilities 17,890,745 16,661,797 15,457,992 14,067,954 12,912,822 Due to customers 13,657,924 12,939,748 11,729,171 10,885,223 10,097,786 Capital and reserves attributable to equity holders of the Bank 1,496,016 1,411,682 1,304,946 1,140, ,916 Share capital 294, , , , ,365 Per share Basic earnings per share (RMB) Dividend per share (before tax, RMB) Net assets per share (RMB) Key financial ratios Return on average total assets (%) Return on average equity (%) Net interest margin (%) Non-interest income to operating income (%) Cost to income ratio (calculated under domestic regulations, %) Capital ratios 10 Common equity tier 1 capital 1,377,408 1,297,421 1,197,868 1,068, ,037 Additional tier 1 capital 105, , ,159 72, Tier 2 capital 264, , , , ,768 Common equity tier 1 capital adequacy ratio (%) Tier 1 capital adequacy ratio (%) Capital adequacy ratio (%) Asset quality Identified impaired loans to total loans (%) Non-performing loans to total loans (%) Allowance for loan impairment losses to non-performing loans (%) Credit cost (%) Allowance for loan impairment losses to total loans (%) Exchange rate USD/RMB year-end middle rate EUR/RMB year-end middle rate HKD/RMB year-end middle rate

12 Notes: 1 Non-interest income = net fee and commission income + net trading gains/(losses) + net gains/(losses) on financial investments + other operating income. 2 Investments include financial investments available for sale, debt securities held to maturity, financial investments classified as loans and receivables, and financial assets at fair value through profit or loss. 3 Dividend per share is the dividend per ordinary share distributed to ordinary shareholders. 4 Net assets per share = (capital and reserves attributable to equity holders of the Bank at year-end other equity instruments) number of ordinary shares in issue at year-end. 5 Return on average total assets = profit for the year average total assets 100%. Average total assets = (total assets at the beginning of the year + total assets at year-end) 2. 6 Return on average equity = profit attributable to ordinary shareholders of the Bank weighted average capital and reserves attributable to ordinary shareholders of the Bank 100%. Calculation is based on No. 9 Preparation and Reporting Rules of Information Disclosure of Public Offering Companies Calculation and Disclosure of Return on Average Equity and Earnings per Share (Revised in 2010) (CSRC Announcement [2010] No. 2) issued by the CSRC. 7 Net interest margin = net interest income average balance of interest-earning assets 100%. Average balance is average daily balance derived from the Bank s management accounts (unaudited). 8 Non-interest income to operating income = non-interest income operating income 100%. 9 Cost to income ratio is calculated in accordance with the Measures of the Performance Evaluation of Financial Enterprises (Cai Jin [2016] No. 35) formulated by the MOF. 10 In accordance with Capital Rules for Commercial Banks (Provisional) (Y.J.H.L. [2012] No. 1) and related regulations, the capital ratios of 2017, 2016, 2015 and 2014 are calculated under the advanced approaches, and the capital ratios of 2013 are calculated under the non-advanced approaches. The capital ratios of 2017, 2016, 2015 and 2014 should not be compared directly with those of Identified impaired loans to total loans = identified impaired loans at year-end total loans at year-end 100%. 12 Non-performing loans to total loans = non-performing loans at year-end total loans at year-end 100%. 13 Allowance for loan impairment losses to non-performing loans = allowance for loan impairment losses at year-end non-performing loans at year-end 100%. 14 Credit cost = impairment losses on loans average balance of loans 100%. Average balance of loans = (balance of loans at the beginning of the year + balance of loans at year-end) Allowance for loan impairment losses to total loans = allowance for loan impairment losses at year-end total loans at year-end 100%. Calculation is based on the data of the Bank s domestic institutions. 7

13 Corporate Information Registered Name in Chinese ( ) Registered Name in English BANK OF CHINA LIMITED ( Bank of China ) Legal Representative and Chairman CHEN Siqing Proposed Secretary to the Board of Directors and Company Secretary MEI Feiqi Office Address: No. 1 Fuxingmen Nei Dajie, Beijing, China Telephone: (86) Facsimile: (86) ir@bankofchina.com Listing Affairs Representative YU Ke Office Address: No. 1 Fuxingmen Nei Dajie, Beijing, China Telephone: (86) Facsimile: (86) ir@bankofchina.com Registered Address No. 1 Fuxingmen Nei Dajie, Beijing, China Office Address No. 1 Fuxingmen Nei Dajie, Beijing, China, Telephone: (86) Facsimile: (86) Website: ir@bankofchina.com Customer Service and Complaint Hotline: (86) Area Code Place of Business in Hong Kong Bank of China Tower, 1 Garden Road, Central, Hong Kong Selected Newspapers for Information Disclosure (A Share) China Securities Journal, Shanghai Securities News, Securities Times, Securities Daily Website Designated by CSRC for Publication of the Annual Report Website of HKEX for Publication of the Annual Report Place where Annual Report can be Obtained Head Office of Bank of China Limited Shanghai Stock Exchange Legal Advisor King & Wood Mallesons Allen & Overy Auditors Ernst & Young Hua Ming LLP Office Address: Level 16, Ernst & Young Tower, Oriental Plaza, No. 1 East Chang An Avenue, Dongcheng District, Beijing, China Certified Public Accountants who signed the auditor s report: ZHANG Xiaodong, YANG Bo Ernst & Young Office Address: 22/F, CITIC Tower, 1 Tim Mei Avenue Central, Hong Kong 8

14 Unified Social Credit Code Financial Institution Licence Serial Number B0003H Registered Capital RMB294,387,791,241 Securities Information A Share Shanghai Stock Exchange Stock Name: Stock Code: Domestic Preference Share Shanghai Stock Exchange First Tranche Stock Name: 1 Stock Code: Second Tranche Stock Name: 2 Stock Code: Offshore Preference Share The Stock Exchange of Hong Kong Limited Stock Name: BOC 2014 PREF Stock Code: 4601 H Share The Stock Exchange of Hong Kong Limited Stock Name: Bank of China Stock Code:

15 Message from the Chairman In this beautiful and vigorous spring season, I am pleased to present our 2017 annual results to the shareholders of the Bank and the public. According to International Financial Reporting Standards, the Group achieved a profit for the year of RMB185.0 billion, a year-on-year increase of 0.51%, and a profit attributable to equity holders of the Bank of RMB172.4 billion, a year-onyear increase of 4.76%. At the end of 2017, the Group s total assets, total liabilities and equity attributable to shareholders reached RMB19.47 trillion, RMB17.89 trillion and RMB1.58 trillion respectively, representing an increase of 7.27%, 7.38% and 6.02% from the prior year-end. The ratio of non-performing loans was 1.45%, down 0.01 percentage point from the prior year-end. The Board of Directors has proposed a dividend of RMB0.176 per ordinary share for 2017, pending approval by the Annual General Meeting to be held in June was a truly extraordinary year. In this year, the 19th CPC National Congress made the significant political conclusion that socialism with Chinese characteristics has entered a new era. It set out a new blueprint for China s development, and embarked on a new journey of our way forward. Closely united around the CPC Central Committee with Comrade Xi Jinping as the core, the Bank earnestly implemented the important decisions and plans made by the CPC Central Committee and pushed ahead with key works related to the tasks of serving the real economy, preventing and controlling financial risks, and deepening reform and innovation. By adhering to the general principle of pursuing progress while ensuring stability, it maintained sound development momentum. We persisted in serving the real economy by providing high-quality and efficient financial services for society, so as to achieve common prosperity with the real economy. First, we actively addressed the difficulties in accessing financing and reduced financing costs. The Bank earnestly acted on the requirements of deleveraging and risk prevention. In 2017, our domestic RMB loans increased by RMB762.7 billion, with a focus on supporting key areas and major fields in the national economy and promoting a shift in economic growth drivers. We diligently implemented the Made in China 2025 Strategy and proactively boosted the industrial transformation and upgrading. Loans to the manufacturing industry increased by RMB20.0 billion and loans to strategic emerging industries increased by RMB48.7 billion. We also leveraged our advantages in globalisation to provide financing to enterprises with foreign currencies and through low-cost overseas funding sources. At the end of 2017, the balance of our domestic foreign currency loans and overseas loans stood at USD406.0 billion. Second, we actively built the Belt and Road financial artery. The Bank has set up institutions in 23 countries along the Belt and Road, the largest coverage among Chinese banks. As at the end of 2017, we followed up on over 500 major projects along the Belt and Road, and from 2015 to 2017, we established credit lines totalling approximately USD100 billion for countries along the Belt and Road. Third, we resolutely served the implementation of key national strategies. We strongly supported the coordinated development of the Beijing-Tianjin-Hebei region, the development of the Yangtze Economic Belt, the development of the Guangdong-Hong Kong-Macao Greater Bay Area, and the infrastructure construction for the 2022 Winter Olympics. To date, the loans in RMB and foreign currencies extended by the Bank s institutions in Beijing, Tianjin, Hebei, the Yangtze Economic Belt and the Pearl River Delta totalled RMB6.20 trillion, accounting for 72.19% of the Bank s domestic loans in RMB and foreign currencies, up 0.31 percentage point from the prior year-end. Fourth, we gave strong support to micro and small-sized enterprises. As at the end of 2017, outstanding loans granted to domestic micro and small-sized enterprises stood at RMB1.5 trillion, an increase of 13.5%, 4 percentage points higher than the overall loan growth across the Bank. 10

16 We provided the cross-border matchmaking service for SMEs, hosting a total of 41 matchmaking conferences and attracting more than 20,000 domestic and overseas SMEs customers as of the end of Fifth, we firmly pushed forward inclusive finance. We set up an Inclusive Finance Department and formed the largest group of village banks in the country. Sixth, we played an active role in poverty alleviation. In implementing the central government s requirements regarding poverty alleviation, we made overall arrangements for targeted poverty alleviation as well as financial solutions to poverty alleviation. We also developed our own platform for targeted poverty alleviation, BOC for Public Welfare, which has benefited more than 100,000 impoverished people. Taking account of the overall economic and social development situation, we attached great importance to the prevention and mitigation of financial risks. We continued to improve our comprehensive risk management system in order to safeguard our business development and contribute to financial stability. First, we took solid steps towards economic deleveraging. Focusing on the deleveraging of state-owned enterprises, we steadily expedited the disposal of zombie enterprises, and helped high-potential enterprises facing temporary financial challenges to survive their difficulties through debt restructuring and market-based debt-for-equity swaps. Second, we effectively guarded against credit risks. We stepped up the risk control and prevention in key areas such as local government debt, industries with overcapacity, real estate bubbles, shadow banking, and cross-border merger and acquisition. We made further moves to mitigate the potential risks and deal with existing non-performing assets, so as to maintain the stable asset quality of the Group. Third, we made consistent efforts in compliance and internal control. We strictly followed the regulations and carried out all our businesses, especially innovative businesses, in accordance with the law, taking care to forestall compliance risks. We also conducted special campaigns for internal control and case prevention so as to detect and mitigate potential risks, intensify internal control, and resolutely curb the recurrence of noncompliance cases. In 2017, Mr. TIAN Guoli ceased to serve as Chairman and Executive Director of the Bank, as well as Chairman and member of the Strategic Development Committee of the Board of Directors of the Bank, due to a change of job. During his tenure as Chairman of the Board of Directors of the Bank, Mr. TIAN Guoli endeavoured to perform his duties effectively and fulfill his responsibilities diligently. Under his leadership, the Bank strictly implemented the decisions and plans made by the CPC Central Committee, strongly supported the implementation of the nation s important strategic initiatives and well served the demands of the real economy. Committed to Serving Society, Delivering Excellence, the Bank persistently improved its corporate governance, scientifically composed its strategic development plans, ceaselessly deepened its reform and innovation and strengthened its comprehensive risk management, thus writing a brand new chapter in the history of the Bank s reform and development. On behalf of the Board of Directors, I would like to express our sincere gratitude to Mr. TIAN Guoli for his outstanding contribution. Also, I would like to extend our warm welcome to new directors Ms. XIAO Lihong, Ms. WANG Xiaoya, Mr. ZHAO Jie and Ms. Angela CHAO, and our sincere thanks to former directors Mr. GAO Yingxin, Mr. WANG Wei, Mr. ZHANG Qi and Mr. LIU Xianghui for their contributions to the Bank s reform and development. 11

17 Socialism with Chinese characteristics has now entered a new era. Standing at this new historic point, we will follow Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, and persistently enable advancement through technology, drive development through innovation, deliver performance through transformation and enhance strength through reform, in an effort to build BOC into a world-class bank in the new era. The 19th CPC National Congress set the goals for different stages by the middle of this century. In response, the Bank put forth a three-step approach to realise the strategic goal of Build a World-class Bank in the New Era. By 2020, when China completes the building of a moderately prosperous society in all respects, the Bank will have further consolidated its development foundation, cemented its unique advantages, improved its systems and mechanisms, and enhanced its overall strength. By 2035, when China basically realises modernisation, the Bank will have transformed from a large high-ranking bank to a strong top-tier bank, thus becoming a worldclass bank in the new era on all fronts. From that foundation, with a further 15 years of hard work and by 2050, the Bank will have become a financial treasure of a great modern socialist country, and will serve as a paragon of the global financial industry. To build a world-class bank in the new era, we shall persistently enable advancement through technology. We will quicken steps to build a digitalised bank that offers an excellent user experience, rich scenarios, smooth online-offline coordination and innovative and flexible products, backed by efficient operations and management and intelligent risk control. Leveraging our mobile banking channel, we will create an integrated mobile financial portal through which customers can access whatever they need, wherever they go, with a simple tap on their phone. To build a world-class bank in the new era, we shall persistently drive development through innovation. Keeping a close eye on the market trends and customer needs, we will accelerate innovation in technology, products and business. By adopting innovative and groundbreaking initiatives, we will strive to become a provider of high-quality financial services, a builder of connected platforms, a creator of data-driven value and a pioneer of intelligent services across the globe. To build a world-class bank in the new era, we shall persistently deliver performance through transformation. Centred on the demands of the real economy and the requirement for high-quality development, we will rapidly advance digital technologies, globalised businesses, integrated services, asset-light operations, and streamlined organisation. We will optimise the supply of financial resources, actively serve the three critical battles, serve the development of the real economy, and foster a high-quality development model with great capacity for value creation and market competitiveness. To build a world-class bank in the new era, we shall persistently enhance strength through reform. We will raise awareness of the current and potential challenges we face, maintain our strategic focus, and be more courageous in implementing the reform. We will promote the reform of mindset, of the mechanism and of the organisations across the Bank, and thus gather the invincible force for our reform and development. 12

18 To build a world-class bank in the new era, we shall strengthen Party leadership and Party building at the Bank, and ensure full and strict governance over the Party organisations at the Bank so as to drive full and strict governance over the Bank. We will continuously improve our governance system and enhance our governance capabilities, thus providing strong impetus and strategic support to our objective of building a world-class bank in the new era. Culture, as the soul of an enterprise, is the most profound force pushing forward development. On our journey of building a world-class bank in the new era, we shall advocate the values of Responsibility, Integrity, Professionalism, Innovation, Prudence, Performance, carry forward our centenary culture, and forge the values and code of conduct for our employees in the new era. The tides of the times are vast and mighty, only those with brave courage can ride the waves. The wheels of history roll on, only those with fighting spirit can harness their momentum. Looking towards the unprecedentedly bright new era and guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, we will strive to write a new chapter in our endeavour to build a world-class bank in the new era, to create a better life for the people, and to serve the great rejuvenation of the Chinese nation! CHEN Siqing Chairman 29 March

19 Message from the Chairman of the Board of Supervisors In 2017, the Board of Supervisors studied the approaches to play its role in response to new conditions, in compliance with relevant laws and regulations, regulatory requirements and the Articles of Association of the Bank. It made plans and pressed ahead with efforts to serve the Bank s overall target of deepening reform and pursuing sound development, while fulfilling its supervisory responsibilities with special focus on prominent issues. Based on self-improvement and through special surveys, it focused its supervision efforts on duty performance, financial management, internal control and risk management. It broadened its supervisory scope and enhanced its supervisory achievements, thus playing a constructive role in supervision and contributing to the fulfillment of the Bank s development objectives. During the past year, the Board of Supervisors strengthened the supervision and assessment of the duty performance of directors and senior management members in strict accordance with regulatory requirements and urged them to enhance the sense of responsibility and improve duty performance. It supported further improvement to the Bank s corporate governance mechanism, so that each organ performs its respective duties and operates in a coordinated fashion with effective checks and balances. In addition, the Board of Supervisors conscientiously implemented the new supervisory duties granted to it by the Articles of Association of the Bank, and exercised solid supervision over strategies and finance. It strengthened the tracking and supervision of the establishment, execution and evaluation of the Bank s development strategy, and intensified the review and supervision of the preparation, audit and disclosure of regular reports, so as to present its supervisory comments and suggestions in a timely manner to the Board of Directors, the Senior Management and functional departments on the issues requiring close attention. Moreover, the Board of Supervisors diligently performed its supervisory duties of risk prevention and internal control. It followed up and studied the regional risks, industry-specific risks and policy risks confronting the Bank, and deepened the supervision and assessment of internal control. By addressing emerging and tendentious problems as well as weak links in management, the Board of Supervisors intensified supervision and guidance and promoted early identification, warning and detection of risks in key fields as well as early action to address such risks. In 2017, the Board of Supervisors actively played its role as supervisor and advisor. Concentrating on the overarching issues and weak links affecting bank-wide operations and management, business development, risk management and internal control, the Board of Supervisors arranged special surveys of key topics and put forward supervisory opinions. It thus played a positive role in preventing and mitigating potential risks, ensuring the Bank s sound operation and promoting healthy business development. Over the past year, the Board of Supervisors diligently fulfilled the requirement of strict Party governance, pushed forward with self-construction and brought in new members to its two special committees so as to optimise their fundamental functions. Through seminars, workshops and increased communication with its peers, the supervisors enhanced their duty performance capability and professional competence. Moreover, members of the Board of Supervisors were faithful and diligent in their work, giving full play to their own expertise. They actively attended meetings, reviewed proposals, carried out surveys and presented supervisory opinions independently and objectively, thus fulfilling their supervisory duties. The Board of Directors and the Senior Management fully understood, supported and valued the work of the Board of Supervisors, paying great attention to its supervisory reminders and continually improving related work, operations and management matters. 14

20 In 2018, guided by the Bank s strategic goal of Build a World-class Bank in the New Era, the Board of Supervisors will concentrate on the reform and development and the strategy implementation. It will spare no efforts to fully perform its supervisory duties and strengthen communication and interaction with the Board of Directors and the Senior Management, so as to play a constructive role in the efforts of building a world-class bank in the new era. WANG Xiquan Chairman of the Board of Supervisors 29 March

21 Management Discussion and Analysis FINANCIAL REVIEW Economic and Financial Environment In 2017, the global economy experienced a mild recovery and price levels remained stable. The US economy experienced an accelerated growth, the European Union economy broadly recovered and the Japanese economy performed well. Emerging economies in the Asia-Pacific region maintained a high growth rate. The real economies of Eastern Europe and Latin America rose out of recession, driven by increased external demand and a rebound in commodity prices. International trade in goods grew faster than the global economy for the first time in six years. The international financial development was generally stable and market volatility remained low. The US Federal Reserve raised its benchmark interest rates three times and kicked off its balance sheet reduction programme, while the central banks of Canada and the United Kingdom also raised benchmark interest rates. As a result, the global liquidity tightened and bond market rates started to rise. AS the US President Donald Trump s new policies failed to meet expectations and political and economic conditions in Europe showed positive momentum, the US Dollar Index retreated and cross-border capital flows and exchange rate movements in emerging economies improved. Encouraged by a stronger economic recovery and promising prospects, global stock indexes broadly rallied and the profitability of the international banking sector improved. The Chinese economy exhibited positive signs amidst stabilisation. Overall production and demand remained stable, the price inflation also remained stable, and China s economic structure was continuously improved. High-tech industries grew rapidly, the proportion of tertiary industries within the economy grew further, online consumption continuously and rapidly increased. Regional development became more balanced and corporate efficiency improved remarkably. As such, China s economy has been transitioning to a stage of highquality development. In 2017, China s gross domestic product (GDP) increased by 6.9%, with the consumer price index (CPI) rising by 1.6%. Total retail sales of consumer goods (TRSCG) increased by 10.2%. Total fixed asset investments (TFAI) grew by 7.2%. Energy consumption per RMB10,000 of GDP decreased by 3.7%. The Chinese government continued to implement a sound and neutral monetary policy, endeavouring to create a favourable environment for promoting reform, reducing the leverage ratio and preventing risks. The State of Council of the PRC set up the Financial Stability and Development Committee under the State Council. The People s Bank of China (PBOC) continued to improve its macro-prudential assessment system (MPA), integrating off-balance-sheet wealth management into its broad credit indicators. China s financial markets opened up at an accelerated pace, as demonstrated by the inclusion of A Shares in the MSCI Emerging Markets Index and the successful launch of Bond Connect. Money and credit grew steadily and financial markets operated smoothly. The broad money supply (M2) grew by 8.2%, 3.1 percentage points lower than the growth rate of the prior year. The outstanding of RMB loans increased by RMB13.5 trillion, RMB878.2 billion more than that of the prior year. The outstanding of all-system financing aggregates was RMB trillion, an increase of 12.0% compared with the prior year. Bond issuance expanded to a total of RMB39.8 trillion, an increase of 12.0% compared with the prior year. The SSE composite index rose by 6.6%, and the combined market capitalisation of the Shanghai and Shenzhen Exchanges increased by 14.2% compared with the prior year. 16

22 China s banking sector experienced sound operations. Banking institutions earnestly implemented the spirit of the 19th National Congress of the Communist Party of China and the requirements of the Central Economic Working Conference and the National Financial Work Conference, and made strides in serving the real economy, preventing and controlling financial risks and furthering financial reform. The banking sector strongly supported supply-side structural reform, continued to improve credit structure and allocated more credit resources to key areas and weak links of social and economic development. The banking sector promoted financial inclusion to improve financial services to support micro and small-sized enterprises, agriculture, rural areas, farmers and remote areas, and actively explored the proper development of green financing. Banking institutions reduced leverage in the financial industry in an orderly manner, strictly prevented risks arising from shadow banking and real estate bubbles, rigorously investigated and corrected financial disorders to hold the bottom line of no systematic financial risks. Efforts were also made to promote the increasing two-way opening-up of the financial industry, to steadily advance financial technology innovation and to enhance the service quality and efficiency of commercial banks. As at the end of 2017, the total assets of China s banking industry grew by 8.7% from the prior year-end to RMB252.4 trillion, while total liabilities increased by 8.4% to RMB232.9 trillion. Commercial banks recorded a profit after tax of RMB1.75 trillion, an increase of 5.99% compared with the prior year. Outstanding non-performing loans (NPLs) stood at RMB1.71 trillion, with an NPL ratio of 1.74%. Growth of Global and Chinese Economy (2013 to 2017) Benchmark Interest Rates of Major Countries and Regions (2013 to 2017) % % Growth rate of global economy Growth rate of Chinese economy Source: International Monetary Fund (IMF), National Bureau of Statistics of China HKD discount rate ECB MRO rate RMB 1-year deposit rate U.S. federal fund rate Source: Thomson Reuters EcoWin Movement of RMB Exchange Rate (2013 to 2017) Growth of Chinese Money Supply and Loans (2013 to 2017) USD/RMB middle rate (right axis) RMB real effective rate index (left axis) RMB nominal effective rate index (left axis) Source: Thomson Reuters EcoWin New RMB loans (left axis, RMB trillion) M2 growth rate (right axis,%) RMB loans growth rate (right axis,%) RMB deposits growth rate (right axis,%) Source: Thomson Reuters EcoWin 17